Section 2704 Proposed Regulations Bites the Dust

Published on: 23:05PM Oct 04, 2017

President Trump had directed the Treasury Department earlier this year to review certain Regulations to see if they should be changed or eliminated.  One of the Proposed Regulations on that list dealt with Section 2704 which concerns a proposed reduction in the amount of discount that farmers and other taxpayers could take on closely held businesses.

On Tuesday of this week, the Treasury Department issued the Second Report regarding this Regulations.  In that report, farmers received good news.  The Treasury Department will withdraw entirely the Proposed Section 2704 Regulations.  This means that current rules in effect for determining the amount of proper discounts on these businesses will remain in effect.  This is very good news for all farm families with farm entities.

Quoting the report : "Treasury and the IRS now believe that the proposed regulation's approach to the problem of artificial valuation discounts is unworkable.  In particular, Treasury and the IRS currently agree with commenters that taxpayers, their advisors, the IRS, and the courts would not, as a practical matter, be able to determine the value of an entity interest based on the fanciful assumption of a world where no legal authority exists. Given that uncertainty, it is unclear whether the valuation rules of the proposed regulations would have even succeeded in curtailing artificial valuation discounts. Moreover, merely to reach the conclusion that an entity interest should be valued as if restrictions did not exist, the proposed regulations would have compelled taxpayers to master lengthy and difficult rules on family control and the rights of interest holders. The burden of compliance with the proposed regulations would have been excessive, given the uncertainty of any policy gains. Finally, the proposed regulations could have affected valuation discounts even where discount factors, such as lack of control or lack of a market, were not created artificially as a value-depressing device."