CCH Tax Day Report
A group of Senate lawmakers have asked Treasury Secretary Jack Lew not to move forward with Code Sec. 2704 proposed regulations released in August (NPRM REG-163113-02, I.R.B. 2016-36, 329; TAXDAY, 2016/08/03, I.1). In a September 29 letter, Senate Finance Committee (SFC) Chairman Orrin G. Hatch, R-Utah, SFC member John Thune, R-S.D., and a number of other Senate Republicans expressed their concerns to Lew.
“The proposed regulations eliminate or greatly reduce the discounts for lack of control and lack of marketability for family farms and businesses and will thus discourage families from continuing to operate and build their businesses,” the GOP lawmakers wrote. “If finalized in their current form, it will significantly increase the estate tax burden on family businesses.” Lawmakers added that, under the proposed regulations, family-owned businesses would be at a greater disadvantage relative to other types of businesses.
The Obama administration, however, views the proposed regulations differently.” It is common for wealthy taxpayers and their advisors to use certain aggressive tax planning tactics to artificially lower the taxable value of their transferred assets. By taking advantage of these tactics, certain taxpayers or their estates owning closely held businesses or other entities can end up paying less than they should in estate or gift taxes,” Treasury Assistant Secretary for Tax Policy Mark Mazur said in August. “Treasury’s action will significantly reduce the ability of these taxpayers and their estates to use such techniques solely for the purpose of lowering their estate and gift taxes,” Mazur added.
House Republicans are also expected to send a letter to Lew voicing their concerns regarding the Code Sec. 2704 proposed regulations. Meanwhile, GOP House taxwriters have recently introduced legislation that would nullify the Treasury’s proposal.
The Protect Family Farms and Business Bill (HR 6100), introduced by Rep. Warren Davidson, R-Ohio, and HR 6042, introduced by Rep. Jim Sensenbrenner, R-Wis., would both quash the proposed regulations (TAXDAY, 2016/09/23, C.1). The proposed regulations” would significantly increase the burden of the death tax,” Davidson said in a statement.
According to Keith Schiller, Esq., Schiller Law Group, because Congress has passed legislation less frequently, “the power” has now shifted to regulations. “We empathize with what the Service is trying to achieve; they have a legitimate grievance,” Schiller told Wolters Kluwer on September 29. But the proposed regulations “will create a collision between valuation under common business practice and artificial estate and gift tax assumptions,” Schiller cautioned.
Schiller, along with 21 co-authors that include tax practitioners and law professors, recently put forth an editorial outlining the potential harmful effects of the proposed regulations. “The fundamental premise of the proposals creates these conflicts for family business owners while giving safe passage to ownership of non-family business,” Schiller said.
By Jessica Jeane, Wolters Kluwer News Staff
Senate Press Release: Thune, Hatch Lead Colleagues in Encouraging Administration to Abandon Proposed Estate Tax Regulations
Protect Family Farms and Businesses Act, HR 6100