Wipfli Alerts & Updates: URGENT - IRS releases proposed rules that severely limit popular wealth transfer techniques

Last week, the IRS released long-awaited proposed regulations related to the valuation of interests in family-controlled entities such as family limited partnerships, corporations, limited liability companies, and others. The proposed regulations are broad and comprehensive. If the rules become final, the tax cost of transferring interests in family-controlled entities will increase sharply.

Note, the rules are only proposed and not final at this time. A public hearing scheduled for December 1, 2016, will likely include significant commentary and debate from the legal and tax planning community.  The rules cannot take effect as final regulations until 30 days after publication.  As a result, the rules likely will not become final until sometime in 2017.

The remainder of 2016 provides a tremendous opportunity to plan before the regulations become final. Urgent attention should be given to pending or anticipated transfers of interests in family-controlled entities. Estate plans should be reviewed to consider the impact of the rules on future estate tax liabilities. In addition, we highly recommend reviewing any existing or proposed business agreements (e.g., buy-sell agreements, partnership or LLC documents, etc.) in light of the new rules.

Under the proposed rules, though, it is possible for a client who passes away within three years of a transfer of such an entity and after the regulations become final to still be subject to the final rules even if the transfer occurred before the rules become final. Thus, the proposed rules contain a built-in retroactive element for transfers within three years of death. 

We will continue to provide you with detailed analysis of the newly proposed rules in the coming weeks and with updates as the rules progress through the notice and comment period.

Please contact Rick Taylor, Ryan Laughlin, or your Wipfli relationship executive for more information.