Treasury Withdraws Section 2704 Regulations
The dramatic saga of IRC Section 2704 seems to have come to an end. The U.S. Department of the Treasury officially withdrew its controversial Section 2704 regulations affecting valuation discounts for family-owned and operated business.
As a reminder, Section 2704 is one of several sections of IRC Chapter 14. Passed by Congress in 1990, the idea was to limit valuation discounts for gift and estate tax purposes in cases of family-to-family transfers of interests in family-owned or closely held businesses.
In the summer of 2015, the IRS took further action. In order to prevent families from engaging in rule-bending practices to preserve their wealth, the IRS proposed a number of additional regulations to curtail valuation discounts for family businesses.
Since then, a number of valuation-related organizations — including the American Society of Appraisers, the National Association of Valuation Analysts, and American Institute of Certified Public Accountants — have banded together to fight the regulations. For the past two years, these organizations and their members have been vociferous in their opposition to the controversial regulations, speaking out against the negative effects they would have on estate, gift and tax planning.
In October, the Treasury withdrew the proposed regulations for good, citing them as “burdensome” under President Trump’s Executive Order 13789, intended to identify and reduce regulatory burdens. At the same time, the Treasury also announced that it was initiating a comprehensive review of all regulations. It has already identified more than 200 regulations that the department believes should be repealed.
“This is only the beginning of our efforts to reduce the burden of tax regulations,” said Treasury Secretary Steven T. Mnuchin in the announcement of the withdrawal of the proposed regulations. “Our tax code has been broken for too long, and this retrospective review, along with our efforts on tax reform, will ensure that we have a tax system that fosters economic growth.”