Republicans Oppose Treasury’s Estate Tax Proposals

A group of 41 Senate Republicans is urging the Treasury Department to drop proposed regulations that would eliminate a popular tax strategy for minimizing estate and gift taxes.

The Treasury Department unveiled the proposed regulations last month (see Treasury Proposes to End Strategy for Estate and Gift Taxes). They concern the valuation of interests in corporations and partnerships for estate, gift, and generation-skipping transfer tax purposes. The proposed rules involve the treatment of certain lapsing rights and restrictions on liquidation in determining the value of the transferred interests. They would affect certain transferors of interests in corporations and partnerships with the goal of preventing the undervaluation of the transferred interests.

Senators John Thune, R-S.D., a member of the Senate Finance Committee, and Orrin Hatch, R-Utah, who chairs the committee, led the group of 41 Republican senators in sending a letter Thursday to Treasury Secretary Jacob Lew asking him to abandon the proposed rules. They claimed the proposals would significantly increase the estate tax burden on family-run businesses and farms. If the rules were finalized, the senators argued, they would contradict long-standing legal precedent and discourage families from growing their farms and businesses to eventually transfer them to future generations.

“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 senators wrote. “We ask that the proposed regulations not be finalized in their current form as they directly contradict long-standing legal precedent, create new uncertainty for taxpayers, and put family-owned businesses at a disadvantage relative to other types of businesses.”

They added that the proposed regulations represent a step back from the recently enacted permanent estate tax relief.

“Treasury should pursue policies that encourage the creation and growth of family businesses and not propose regulatory changes that make it more difficult and costly for families to transfer ownership to future generations,” the letter continued. “We thus request that Treasury withdraw the proposed regulations and ask that any regulations that Treasury may issue in the future more directly target perceived abuses in the valuation of transferred interests in family businesses.”