Treasury Department Withdraws Regs That Made Gift Taxes More Expensive

(November 20, 2017) — In what the National Federation of Independent Business (NFIB) is calling a victory for America’s family-owned small businesses, the U.S. Department of the Treasury has withdrawn regulations to Section 2704 that made estate or gift taxes more costly to family-owned businesses.

NFIB comments that Obama administration-era changes to Section 2704 of the Internal Revenue Code would have limited valuation discounts and therefore increased costs for family members wishing to transfer their business to another relative. Under Treasury Secretary Steven Mnuchin’s leadership, the rule that withdrew the “valuation discount” for family-owned businesses’ estate or gift taxes has been eliminated.

The Internal Revenue Service currently determines that a minority share isn’t valued equally to a majority share because of a lack of controlling interest, and so a valuation discount is given to family-owned businesses for these tax objectives. The proposed change by the Obama administration would have eliminated the discount and taxed family businesses at higher rates. Many within the small business community fought back against the new regulation, calling it unrealistic and burdensome.

NFIB notes that family-owned businesses are primarily small businesses. The federation quotes a recent Credit Suisse report that found family-owned companies make more money and outperform non-family-owned businesses, and indicated that family involvement in daily operations or board membership are key factors in a firm’s strong performance, even more so than the amount of stock family members hold. The success of family-owned businesses seems to be tied to the idea that family members “are in it for the long term and aren’t afraid to forego quarterly earnings targets to fund research and development for the future.”

Since family-owned businesses are outperforming other businesses, it’s important to ensure that no regulations cripple their growth in order to stimulate the national economy, NFIB asserts.

(SOURCE: The Weekly Propane Newsletter, November 20, 2017)