New 2704(b) Regulations Open Door to Opportunities
August 2016
The U.S. Treasury Department's proposed regulations under IRC §§ 2703 and 2704 target the predominant estate-tax planning technique of using family limited partnerships and family LLCs to reduce transfer-tax cost. The regulations also open a door.
At long last, the U.S. Treasury Department published the proposed regulations under IRC §§ 2703 and 2704. These regulations target the predominant estate-tax planning technique of using family limited partnerships (FLPs) and family limited liability companies (FLLCs), among other types of family-owned enterprises, to reduce transfer-tax cost. A senior family member may transfer valuable assets into a family-owned enterprise to reduce the value of the taxable estate at death, or make gifts of interests in the enterprise to younger generations at reduced transfer-tax cost.
Loophole in the proposed regulations.
The Treasury Department applies a narrow understanding of business enterprises and their use in discount-valuation planning. While the proposed regulations attempt to adapt to the evolution of modern LLC law, much of what they counteract are planning techniques that were novel twenty years ago and have since faded out of contemporary use.
In particular, the proposed regulations create a loophole in 2704 planning that arguably would not exist had Treasury not drawn the line. The planning opportunities now available should, with time, foster a cottage industry of service providers focused on the next generation of valuation-discount planning.
Planning in the new 2704(b) environment.
The firm positioned itself to assist clients and their advisors in this regulatory climate well in advance of the proposal. The OneTrust planning technique was developed, in part, to withstand application of the new 2704(b) regulations; the firm’s family-enterprise management services support the estate and business-succession objectives of multi-generational families in both domestic and international settings.