For the past 15 years, Family Limited Partnerships or Family LLCs have been a staple of high-net-worth estate planning, particularly to obtain favorable valuation discounts on gifts or bequests. This has happened in spite of the IRS and Treasury’s efforts to curb the aggressive use of valuation discounts — an effort undermined repeatedly in various tax court cases. That is all set to change, and quickly.
After years of failed attempts to get Congress to update the rules, the Treasury department has decided to pursue its own crackdown, in the form of newly proposed 25.2704 Treasury Regulations. The proposed regulations under Section 2704 are so expansive that they would severely limit the use of valuation discounts for any type of FLP or other family business transfer, where the family will retain control before and after the gift or bequest occurs.
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