There are newly proposed IRS regulations that could impact farmers. The new regulations would drastically reduce or eliminate certain tax advantages used in estate planning, according to AgWeb.
The estate tax, also known as the “death tax,” is a tax on your right to transfer property at your death, according to the IRS. Under the current IRS rules, estate planners are able to help the smooth transition of family farms to the next generation by creating lower tax liabilities while allowing the operations to remain intact.
The current estate tax exemption is $5.45 million. When the tax due exceeds cash on hand, farmers and ranchers can be forced to sell land, buildings, equipment or livestock. This can cripple a farm or ranch operation and also hurt the rural communities and businesses that agriculture supports.
Large family farms are worth more than most realize due to the land value. But as equipment prices continue to rise and the number of farm acres goes up, the estate tax can still be a concern for large farms. Even if the family is barely making it, they are land-rich and dollar-poor at times. The proposed regulations would mean increased estate taxes on the death of owners of family businesses.
Ninety percent of farm and ranch assets are liquid assets. Farmers and ranchers have few options when it comes to generating cash to pay the estate tax, according to the American Farm Bureau Federation (AFBF).
A rise in cropland values from 2013 to 2014 has greatly increased the number of farms and ranches that now top the estate tax exemption.
The IRS currently has plans to reduce the use of minority interest discounts. CPAs use minority interest discounts to reduce the value of a partner’s interest in the transfer of an estate.
The National Association of Manufacturers (NAM) sent a joint letter to Department of Treasury Secretary Jacob Lew urging the withdrawal of new estate tax regulations recently released by the Treasury.
“The proposed guidance is one of the most sweeping changes to estate tax policies in the last 25 years and would be detrimental to active enterprises and family-owned businesses that employ millions of workers throughout the nation,” NAM wrote in the letter.
“The IRS has challenged discounts for gifts of family-owned businesses under other theories as well, so any planning implemented in the next several months will need to take other risks into account, not just these new regulations,” Estate Administrator of K•Coe Doug Mitchell wrote in an editorial. “So it is important to contact your advisor to do planning well before the end of the year.”
There is a 90-day comment period that ends Nov. 2. The hearings are scheduled for Dec.1.
If approved, final regulations will likely go into effect in early 2017.