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

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