WASHINGTON, D.C. – (RealEstateRama) — Congressman Jim Sensenbrenner introduced H.R. 6042, legislation that would stop the Internal Revenue Service (IRS) from placing unnecessary and burdensome estate tax regulations on family-owned businesses.
The IRS is proposing new and harmful regulations that would hurt family-owned businesses. Currently, valuation discounts exist for family business owners to make the transition from the owner to an heir after death more manageable. The IRS-proposed regulations would eliminate these valuation discounts, forcing many family-owned businesses to sell.
These burdensome regulations would be particularly damaging to family-owned farms, many of which often have large assets due to land holdings, but maintain relatively modest incomes.
Congressman Sensenbrenner: “The IRS should not be in the business of making it difficult for family-owned businesses to keep their doors open, especially during a difficult time such as the loss of a loved one. At a time when the economic outlook is precarious and full of uncertainty, it’s critical we do everything we can to keep our nation’s small and family-owned businesses well and flourishing.”
• Currently, there are valuation discounts available for family business owners for purposes of estate and gift taxes, due to the lack of an identifiable market for the business.
• When a family tries to pass a family-held business on to the next generation, there are valuation discounts available to protect a business’s assets from undue taxation, including:
o Lack of Control Discount:
Heirs often receive portions of family-held businesses that are minority ownership stakes. These minority owners do not have control over management decisions, making the minority interest less valuable to a potential buyer.
o Lack of Marketability Discount:
Most family-held businesses are not easily convertible to cash. This is a barrier to easy liquidation that, in the case of a family-held business, makes it less valuable to a potential buyer.
• Currently, the fair market value of an interest in a family-held business is based on what a willing seller would be able to receive from a willing buyer. These discounts reflect reality by properly determining the realistic value of a family business in the open market.