At the American Bar Association Tax Section meeting in May, Cathy Hughes of Treasury/IRS announced that Treasury and the IRS are on the verge of issuing regulations under Section 2704(b) that will restrict substantially the ability of holders of family limited partnership interests to get the discounts in valuation those interests have so long held through numerous court battles with the IRS.
That will make a radical difference in how those partnerships can be used in making gifts and in reducing estate taxes in larger estates. And, even though the IRS has lost court battle after battle on this issue, the IRS most likely will attempt to issue regulations that will ignore all of those court decisions, seeking to come under the so-called “Chevron deference” rule enunciated by the US Supreme Court which gives regulations issued by a federal agency presumed validity.
The bottom line is this – if planning involves, or could involve, the use of a family limited partnership, or a family LLC, strong and immediate attention should be given to that planning (or potential planning) as soon as possible. Hughes said she expected the regulations to be out before the next ABA meeting which would be the Fall Joint CLE which starts on September 18. And my guess is they plan to issue those far enough in advance to make sure they create a big stir at that meeting. So don’t plan on waiting that long to act.