IRS Hearing Day on Family-Owned Business Estate Tax Regs

Family-owned businesses and their advocates are watching closely the hearing happening today at the IRS on the so-called “minority valuation proposed regulations.” These proposed regulations, released in August, would alter how families are able to value minority interests in a family-owned company, in some cases resulting in a tax increase of more than 30 percent.

In comments submitted by the NAM and the Family Business Estate Tax Coalition of which the NAM is a co-director and co-founder, we highlighted the numerous concerns manufacturers and family-owned businesses across the economy have about this proposal. Shortly after the release of the proposal, when the potential impact begun to be understood by the business community and as concerns were beginning to be raised, Treasury’s policy team began to assert that the proposal is not meant to reduce the use of minority valuation discounts for lack of marketability and lack of control that are used in determining the value of shares sold to family members in a closely held business. Instead, they were just seeking to target abuses in the valuation discounts utilized by some simply to avoid taxes. However, as the IRS and Treasury teams will hear from the grand majority of the 30 people testifying at today’s hearing, the impact as understood by the tax- and estate-planning community is very different.

Manufacturers appreciate that Treasury is listening and that today’s hearing affords the public another opportunity to weigh in on this rule. However, the negative impact of these proposed regulations on NAM family-owned businesses cannot be overstated. In a recent letter, the third-generation owner of an active manufacturing enterprise explained the potential impact of the regulations:

“Our board has been working an ownership succession plan for years. Stock valuation and financing stock transfer are an ongoing challenge. Stock is transferred through the sales, gifts and redemptions of shares, and the value of the stock is the fair market value at time of transfer. We are within a couple of years of completing the transfer of ownership from the third to the fourth and fifth generations. Our advisers have informed us the proposed regulations will eliminate discounts that have traditionally been applied. If this happens, the cost of transferring the stock will increase by 43 percent. This will put an additional strain on our capital and would lead us to underinvest the capital required to grow or even sustain our company. It means diminished ability to invest in job creating, value creating and value-retaining projects.”

The last line of our member’s letter says it all, and today’s hearing should reinforce what they’ve already heard in the voluminous comments to Treasury, that they should withdraw these proposed regulations and not harm family-owned businesses.

Carolyn Lee

Carolyn Lee

Executive Director of The Manufacturing Institute at The Manufacturing Institute
Carolyn Lee is Executive Director of The Manufacturing Institute, the non-profit affiliate of the National Association of Manufacturers (NAM), the nation’s largest industrial trade association. Carolyn drives an agenda focused on improving the manufacturing industry through its three centers: the Center for the American Workforce, the Center for Manufacturing Research, and the Center for Best Practices.

In her role, Carolyn leads the Institute’s workforce efforts to close the skills gap and inspire all Americans to enter the U.S. manufacturing workforce, focusing on women, youth, and veterans. Carolyn steers the Institute’s initiatives and programs to educate the public on manufacturing careers, improve the quality of manufacturing education, engage, develop and retain key members of the workforce, and identify and document best practices. In addition, Carolyn drives the agenda for the Center for Manufacturing Research, which partners with leading consulting firms in the country. The Institute studies the critical issues facing manufacturing and then applies that research to develop and identify solutions that are implemented by companies, schools, governments, and organizations across the country.

Prior to joining the Institute, Carolyn was Senior Director of Tax Policy at the NAM beginning in 2011, where she was responsible for key portions of the NAM’s tax portfolio representing the manufacturing community on Capitol Hill and in the business community and working closely with the NAM membership. She served as the Director of Legislative and Government Affairs at the Telecommunications Industry Association, Manager of State and Federal Government Affairs for 3M Company, and in various positions on Capitol Hill including as Legislative Director for former U.S. Senator Olympia Snowe (R-ME), and as a senior legislative staff member for former U.S. Rep. Sue Kelly (R-NY).

Carolyn is a graduate of Gettysburg College in Gettysburg, Pennsylvania graduating with a B.A. in Political Science. She resides in Northern Virginia with her husband and three children.
Carolyn Lee

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