On October 2, 2017, Treasury Secretary Steven Mnuchin issued a report recommending, among other changes, the complete withdrawal of proposed regulations under Section 2704 of the Internal Revenue Code. The proposed regulations had caused significant concern amongst owners of closely held businesses and their advisors since being released in August of 2016. Business owners, advisors and members of the business valuation community flooded the IRS with comments and appeared at a public hearing to indicate that the proposed regulations were overreaching, created far too many hypothetical and unrealistic circumstances, and would lead to unintended consequences, including overvaluation in cases where discounts for lack of control and lack of marketability were warranted.
There are many famous lines in the movie Caddyshack, the 1980 sports comedy film starring Chevy Chase, Rodney Dangerfield, Ted Knight and Bill Murray. Among them is the exchange between Angie and Carl (Bill Murray), where Carl is relaying a story about caddying in Tibet for the Dalai Lama. After the round, the Dalai Lama refuses to pay Carl for his work, saying, “There won’t be any money, but when you die, on your deathbed, you will receive total consciousness,” to which Carl replies, “So I got that goin’ for me, which is nice.”
After more than a year of speculation and rumors, on August 4, the Internal Revenue Service (“IRS”) issued proposed regulations under Internal Revenue Code §2704 (the “Proposed Regs”). Clearly, the goal of the Proposed Regs is to limit (or eliminate outright) the application of discounts for lack of control and lack of marketability when valuing interests in family controlled entities for gift, estate and generation-skipping tax purposes.