On August 4, 2016, the Treasury Department and IRS issued long-awaited proposed regulations under Code Section 2704. Section 2704 describes how the Code values certain interfamily transfers of corporate, LLC, and partnership interests. Specifically, Section 2704 addresses the effect of certain lapsing rights and restrictions in the agreements governing transfers of those interests on the transfer tax value of those interests.  Under current law, lapsing rights and restrictions can significantly affect the transfer tax value of an individual’s estate, which include business interests. The proposed regulations are far-reaching and would largely eliminate estate tax discounts for lack of control or discounts taken because the interests transferred represent minority interests in the entity.  The bottom line is that the proposed regulations will eliminate many valuation discounts which planners (and their clients) have come to expect and rely on when planning with interests in business entities. The effective result will be to increase the estate tax rate for many clients.  

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