Republicans on the tax-writing House Ways and Means Committee sent a a letter Thursday to Treasury Secretary Jacob Lew asking him to withdraw the Treasury’s recently proposed regulations on estate and gift taxes.
The Treasury unveiled the proposed regulations in August (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.
Treasury’s proposed regulations pertain to Section 2704 of the Tax Code relating to the valuation of business interests for estate and gift tax purposes. These regulations would limit or eliminate the valuation discounts that are usually associated with ownership of a non-controlling interest in a business. The lawmakers believe the proposed regulations would lead to higher valuations and higher estate and gift tax liabilities when family businesses are transferred between family members.
The letter from the House Republicans follows on the heels of a letter last month from Senate Republicans (see Republicans Oppose Treasury's Estate Tax Proposals).
Lawmakers argue the proposed regulations would increase the burden of the estate tax on family-owned businesses and make it more difficult for families to pass their businesses on from one generation to the next.
“In order to avoid immediate and substantial economic harm to family-owned businesses and the jobs they create, these regulations should be withdrawn,” said the letter. “Any new proposal in this area should be clearly defined and narrowly targeted within the reach of the applicable statutory rules.”
The letter contends that the Treasury’s proposed rules are inconsistent with the congressional intent underlying Section 2704 of the Tax Code. “Treasury’s recently proposed regulations, as drafted, would eliminate, or severely limit, minority discounts for transfers among family members of business interests in family-owned businesses,” said the lawmakers. “This new approach does not reflect congressional intent.”