Act now to avert tough IRS crackdown on estate valuations

Well-crafted comments can change the course of the controversial proposed IRC Section 2704 regs designed to curb estate valuation discounts (prior coverage in BVWire here). Newswires and social media have been buzzing over the proposed crackdown, and one thing is clear: It’s important for the valuation profession to submit comments by the November 2 due date. Also, there’s a public hearing in Washington on December 1. 

Choose your words: The AICPA, ASA, and NACVA have formed task forces to study the regs and submit comments, and many other interested parties will do the same. However, the comments need to include a certain point, says Robert Kovacev, a partner at Steptoe & Johnson LLP. In an article in Trusts & Estates, he says that, if practitioners can successfully argue that changes the IRS has made in its rules don't make sense in real-life scenarios, a court could strike them down. Kovacek pointed to the Tax Court case Altera Corp. v. Commissioner, in which the court struck down 2003 IRS regulations because the Treasury ignored comments from practitioners who said the scenarios simply did not happen in real life. The court concluded that the rules were invalid because the government couldn't explain why it didn't consider the comments, which is in violation of the Administrative Procedure Act (APA).

Of course, valuation discounts are part of the real world when you have a closely held business with restrictions on transfers that make it harder to sell, so for the regs to ignore these restrictions is a problem. If the valuation community submits comments to the IRS expressing these concerns, the agency will be pressured to respond or risk being out of compliance with the APA, Kovacev said.

Details on how to submit comments are in the proposed regulations (REG-163113-02), which you can download here. The public hearing will be held in the IRS Auditorium at 10 a.m. ET on December 1. For more information, contact Regina Johnson at the IRS at 202-317-6901.

BVR will present a webinar on September 29, The IRS’ Proposed Section 2704 Regulations: The Impact on and the Future of Estate and Gift Valuation. The presenter will be Curtis Kimball, a managing director at Willamette Management Associates.