Unresolved tax issues influence BV firm business cycles, notes Shostag


Everyone knows about Congress’ failure to reinstate the estate tax, and now it looks like nothing’s going to happen until after the November elections. The later in the year it gets, the less likely there will be a retroactive estate tax. And the more talk there is of deficits, the less likely that the estate and gift tax will be repealed or even reset to 2009 levels.

Another potential tax change affecting FLPs is the proposal directed against hedge funds, which are typically structured as limited partnerships.  The upshot is that certain income taxed as capital gains benefiting both hedge funds and FLPs would be converted to ordinary income tax rates as high as 40%. The current version of the proposed legislation doesn’t distinguish FLPs from hedge funds – and would not only apply to investment gains but from the sale of the FLP itself.

Randall Schostag (Minnesota Business Valuation Group) shared the impact of all this uncertainty on his practice with BVWire:

“Our business was slow at the beginning of the year because there was some hope that the tax rates for gifting and estate purposes were going to be at least as favorable, or even more favorable than they were in 2009. The realization has now occurred that in fact we’re not likely to see things any more favorable and the chances are much greater that things will be worse come 2011. Therefore, there is some pick-up in BV assignments for gift tax purposes right now. The government has a huge deficit and they have to get cash from somewhere. Our read is that there will be an unwillingness on the part of our legislators in Washington to fight for low tax rates because they may believe that they have more important things to fight right now.”

How are the tax issues affecting your practice? Send your comments to editor@bvwire.com.


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