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Treasury Signal Estate Tax Regulations Could be Rescinded or Modified

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Earlier this month, the Treasury Department identified controversial estate tax regulations proposed in 2016 as burdensome and eligible to be substantially modified or repealed. The proposed estate tax regulations target intra-family transfers and valuation discounts that result from lapsing rights and restrictions on liquidations. The regulations would limit valuation discounts – resulting in greater estate tax liability for closely held family businesses, as well as imposing new risks on the continuity of family-owned real estate businesses. In addition to threatening the transfer of family-owned businesses from one generation to the next, the regulations would impair the job creation and economic growth driven by these businesses.

Treasury’s notice came in response to an executive order issued in April 2017 asking the Department to identify burdensome regulations. Following a comment period, the Treasury Department is required to recommend “specific actions to mitigate the burden imposed by regulations identified in the interim report” by September 18

NMHC/NAA strongly support Treasury putting the proposed estate tax regulations under review and we will continue to advocate that Treasury withdraw these regulations. Notably, the industry weighed in on the regulations when they were first proposed and also identified them in a letter to President Trump covering regulations that should be rescinded.

Treasury’s goal in proposing to the estate tax regulations was ostensibly to limit valuation discounts of interests in family owned businesses so that they may become subject to the estate tax. Under current law, estate tax exclusion is $5.49 million or $10.98 million per couple. Valuation discounts may enable ownership interests to fall short of these thresholds, enabling estates to be shielded from liability. A limitation on valuation discounts could cause estates to become subject to tax liability or further increases taxes owed. The regulations were proposed to apply to lapses of rights or transfers of property subject to restrictions created after October 8, 1990, occurring on or after the date these regulations are finalized.