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Carolyn Lee

IRS Hearing Day on Family-Owned Business Estate Tax Regs

By | Regulations, Shopfloor Main, Shopfloor Policy, Taxation | No Comments

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 of minority interests in a family-owned company, in some cases resulting in a tax increase of over 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 that 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 today 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 3rd to the 4th and 5th generations. Our advisors 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%. 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.

#SmallBizSaturday: Help Family Owned Manufacturers Succeed

By | Shopfloor Main, Shopfloor Policy, Taxation | No Comments

Coming on the heels of Thanksgiving and “Black Friday”, Small Business Saturday is a perfect opportunity for Americans to pause and contemplate the critical role small businesses play in our nation’s economy. Many small businesses are family-owned and are responsible for 62 percent of the country’s employment and $5.9 trillion of the nation’s GDP. Often with deep roots, these family-owned businesses play critical roles in the philanthropic and the economic heart of local communities. Read More

NAM Calls for Withdrawal of Treasury’s Family-Owned Business Proposed Regs

By | Shopfloor Main, Shopfloor Policy | No Comments

Over the summer, the Treasury Department released a fairly aggressive set of proposed regulations dealing with “Estate, Gift and Generation-Skipping Transfer Taxes: Restrictions on Liquidation of an Interest.” In comments by the National Association of Manufacturers (NAM) filed today, we told Treasury that, “Manufacturers believe that the proposed regulationswhich incorporate some of the most sweeping changes to estate tax policies in the past 25 yearswould unnecessarily increase estate and gift taxes on family-owned manufacturing companies by an estimated 30 percent or more, severely impacting the ability of owners of these family businesses to transfer their companies to the next generations.”

In particular, manufacturers are concerned that the proposed regulations would severely restrict the availability of well-established minority valuation discounts in intra-family transfers of family-owned enterprises. The concept of a valuation discount for a minority interest in an enterprise that lacks control or marketability is widely accepted throughout the free market. In the case of a family-owned entity, when there is a transfer of an interest that lacks control and that cannot be offered on the open marketplace, the value of the interest is appropriately discounted. This is not a contrivance but a reflection of the economic reality of the interest. Read More

NAM Applauds Introduction of Bills Protecting Family-Owned Businesses

By | Shopfloor Policy, Taxation | No Comments

The National Association of Manufacturers (NAM) applauds the leadership of Rep. Warren Davidson (R-OH) and Sen. Marco Rubio (R-FL) in introducing legislation to prevent the finalization of proposed regulations affecting the transfer of minority interests in a family-owned business. Since these proposed regulations were released in August, there has been a growing concern among small manufacturers about the potential harmful impact of these proposals on the continuity and succession planning of family-owned enterprises. Thousands of manufacturers across the United States are family-owned businesses. These businesses, often in their second and third generation, are at the heart of the manufacturing supply chain and are a critical piece of the economy.”

The proposed regulations purport to address what Treasury believes to be abusive tax planning. In reality however, as more than 3,800 family-owned businesses and trade associations representing these businesses expressed in an NAM-led letter sent to Treasury last week, “the proposed guidance is one of the most sweeping changes to estate tax policies in the last 25 years and would be detrimental to active enterprises and family-owned businesses that employ millions of workers throughout the nation.” While most taxpayers applaud efforts to target abuses in the tax system, if the proposed regulations are not corrected, they have the potential to threaten “the ability of families to pass businesses on to the next generation of owners.” Manufacturers applaud the leadership of these members in introducing this legislation and will continue to work to protect family-owned manufacturers so that they can continue to compete and succeed.

Tax and Regulatory Burdens Still Top of Manufacturers’ Minds

By | Shopfloor Main, Shopfloor Policy, Taxation | No Comments

Earlier today, the National Association of Manufacturers (NAM) released the results of its second quarter 2016 Manufacturers’ Outlook Survey, showing an uptick in overall sentiment. In this survey, 61.7 percent of manufacturers expressed positivity about their own company’s outlook, up from 56.6 percent in March. This marks the most optimistic manufacturers have been since December 2015.

However, NAM Chief Economist Chad Moutray said, “While this survey offers a bit of optimism for manufacturers, there is still a dramatic need for improvement before our sector can regain its footing. This survey, coupled with the latest jobs report, should serve as a stark reminder to Congress that policy priorities, including market-opening trade agreements and comprehensive tax reform as well as addressing regulatory barriers, are top of manufacturers’ minds. If lawmakers in Washington take action on these and other items, they could help reverse the pain manufacturers are experiencing, expanding job opportunities and strengthening the broader economy as a result.” Read More

NAM Applauds Sen. Portman’s Leadership on IRS Overreach

By | Shopfloor Policy, Taxation | No Comments

Manufacturers applaud Sen. Rob Portman’s (R-OH) leadership in introducing legislation to roll back recent aggressive IRS audit practices. The bill, S. 2809, would prevent the IRS from denying cooperative taxpayers access to the IRS Appeals Office in order to seek an independent review of the examination. In addition, the bill would limit the use of designated summonses to cases where a taxpayer is not cooperating with the IRS. The bill also would prevent the IRS from unilaterally extending the statute of limitations on an audit. Finally, manufacturers are pleased that the legislation would prevent the IRS from hiring outside law firms to assist in an audit and investigation of a corporate taxpayer. This practice has already been questioned by at least one court. Beyond the concerns about potential conflicts of interest that this practice raises, the fact that the IRS would outsource this inherently governmental function and expose confidential tax information to an outside entity is a real concern to manufacturers. The NAM urges Congress to take up this bill and put an end to these abuses once and for all.

New Year’s Resolutions and the President’s State of the Union

By | Shopfloor Policy, Taxation | No Comments

Manufacturers continue to hope this year’s State of the Union speech, to be delivered by President Obama tomorrow night, will include a 2016 resolution to what would finally be a demonstrated commitment on the kind of comprehensive tax reform that will result in a pro-growth, competitive tax code.

We’re told that the president plans to deliver an optimistic outlook on the improvements over the past seven years of his administration, highlighting “the road traveled the past seven years…to recover from crisis.” It’s hard for many to be optimistic about the economy even now, over six years after the official end of the “great recession.” In fact, while there are certainly success stories, global headwinds continue to buffet our economy and manufacturing in particular.

The president’s preview video says that he will also talk about the things that need to be done in the future. So, what can Washington do to help turn around this trend? High on manufacturers’ list has long been enactment of comprehensive tax reform, one that would return the United States to a competitive position versus our international peers.

Last January, the NAM released a study, titled A Missed Opportunity, which laid out the economic cost of delayed tax reform. This study detailed the benefits to be had from enactment of pro-growth comprehensive tax reform that reduces the corporate tax rate to 25 percent or less, shifts to a competitive international tax system, a permanent R&D incentive, robust cost-recovery provisions and lower rates for pass-through businesses.

In sum, we found that implementation of tax reform with these provisions would, over 10 years, contribute more than $12 trillion in GDP, increase investment by $3.3 trillion and add more than 6.5 million jobs to the U.S. economy. That these provisions are elemental for a pro-growth tax reform is not revolutionary. Even still, comprehensive tax reform continues to be a future goal.

However, since the theme is optimism, we will remain optimistic that progress will be made and that the need for comprehensive tax reform will move from a resolution for “the future” and become a resolution for now.

Learn more about the NAM’s tax reform priorities by clicking here.

Mixed News on the Jobs Front Highlights the Need for Stable Pro-Growth Tax Policy ASAP

By | Economy, Shopfloor Main, Shopfloor Policy, Taxation | No Comments

Screen Shot 2015-11-12 at 2.10.35 PMAs the saying goes, there’s good news and bad news. Last week’s overall jobs numbers were generally viewed as good news for the overall economy and the labor market. However, as the NAM’s Chief Economist, Chad Moutray, describes it, “One of the larger exceptions to that is manufacturing, which continues to struggle. The sector lost 1,000 employees in November, with zero growth on net since January. Manufacturers remain mired by global headwinds and lower commodity prices. These challenges have dampened demand and production for manufacturers, and as a result, hiring has slowed to a standstill.” Read More

Business Community Calls on the IRS to Reconsider 7602 Proposed Rule

By | Shopfloor Policy, Taxation | No Comments

This week, the NAM joined a number of other business associations representing a wide swath of the economy in a letter calling on the IRS to reconsider regulations under Section 7602 of the IRC code that allows the IRS to hire outside attorneys to carry out taxpayer examinations, including taking testimony and reviewing books, papers and testimony produced in compliance with subpoenas. In sum, these associations are urging the IRS to stop allowing outside firms to carry out the governmental functions that should properly … all of which are functions that are inherently governmental. Read More