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Practitioners Have Mixed Reaction to Valuation Discount Bill

Allyson Versprille
09.19.2016 | Bloomberg BNA
A new bill to nullify proposed regulations aimed at curbing valuation discounts is getting mixed reviews, but practitioners in the estate planning industry said it could set the tone for a debate on the rules’ legitimacy.

Scott Ditman, a certified public accountant and tax partner at Berdon LLP, said while he agrees the regulations should “play out in the normal setting,” he’s very pleased with the bill because “it will draw attention to the real negatives in the proposed regulations.”

When the valuation discount rules first came out, Mark Mazur, assistant secretary for tax policy at the Treasury Department, said the guidance would “close a tax loophole that certain taxpayers have long used to understate the fair market value of their assets for estate and gift tax purposes.”

Ditman said he understands the IRS’s desire to crack down on abusive transactions where wealthy families have applied valuation discounts to partnerships containing marketable securities such as stocks and bonds that could be easily valued and sold. However, the rules were written so broadly that they “attacked pretty much every transfer of any kind of a business inside of an entity,” he said. That means that not only would a cash or marketable security partnership be affected, but also a legitimate operating business, he said.

Those businesses were taking valid discounts and now “I could die and all of a sudden my estate taxes could be so much more than they would have been,” he said. “And if I didn’t plan for it or I have no exit strategy, my family could be forced to sell a real business, whether it’s real estate, a farm or an auto dealership,” he said.

Ditman said the bill could assist in efforts to get the regulations withdrawn or revised “because if people really see what’s going on, maybe the hearings will be more heightened and maybe the IRS will pay more attention to it, because they’ll see that the negative reaction is broad-based.”

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