Adequate Disclosure of Position on IRC Section 2704 Proposed Regulations

On August 2, 2016, the IRS released proposed regulations under IRC Section 2704.  The proposed regulations are intended to limit the use of certain types of discounts in the valuation of interests in family-owned businesses for transfer tax purposes.  See prior posts on this news feed for more information on the details of these proposed regulations.  At present, there are strong indications that these proposed regulations will be either amended prior to final issuance or scrapped altogether.  Treasury is currently in the process of review of the Section 2704 regulations in response to Executive Order 13789.

If a taxpayer is taking a position that is contrary to proposed regulations, the position must be disclosed on the return.  IRS Form 709 – U.S. Gift (and Generation-Skipping Transfer) Tax Return requires the filer to provide adequate disclosure of the gift.  The AICPA has released a recommended statement to be included with IRS Form 709, disclosing the transfer of an interest in a family partnership or family controlled entity made on the same date or after the issuance of the IRC Section 2704 proposed regulations.  The suggested disclosure statement may be found here:

https://www.aicpa.org/interestareas/personalfinancialplanning/resources/taxplanning/downloadabledocuments/suggested_disclosure.pdf

Basis Consistency Rules

Valuation professionals are frequently retained to perform appraisals of property for estate tax purposes.  IRC Section 1014 contains rules for property that is acquired from a decedent. The Highway Bill of 2015 amended section 1014 to provide that anyone who inherits property may not treat the property as having a basis higher than that reported for estate tax purposes.

In addition, it creates a new IRC section 6035 stating that executors that are required to file an estate tax return must furnish payee statements to any person acquiring an interest in property from the estate and must also provide information returns to the IRS. These statements identify the value of each interest in property acquired from the estate as reported on the estate tax return. The basis reporting provisions apply to property with respect to which an estate tax return is filed after the date of enactment, July 31, 2015.