By Jessica Domel
Multimedia Reporter
The federal government is dropping a proposal that could have increased estate taxes on family-owned and operated businesses.
Wednesday, the Treasury Department unveiled a report on its plan to evaluate and, if needed, revise or repeal tax regulations.
“This is only the beginning of our efforts to reduce the burden of tax regulations,” Steven T. Mnuchin, Treasury secretary, said. “Our tax code has been broken for too long, and this retrospective review, along with our efforts on tax reform, will ensure that we have a tax system that fosters economic growth.”
The estate tax proposal was among those identified for repeal. If allowed, it would have hurt family-owned and operated businesses by limiting valuation discounts, the Treasury Department reports.
The regulations would have also made it difficult and costly for a family to transfer businesses to the next generation.
A Treasury Department press release also indicates that commenters on the proposal warned that the valuation requirements were unclear and could not meaningfully be applied.
The proposed regulation was submitted by the Internal Revenue Service (IRS) last August.
Under current rules, the value of inherited family business assets can be reduced because of a lack of marketability and a minority discount.
According to the American Farm Bureau Federation, the lack of marketability means values can be reduced because heirs cannot easily sell their share of the family business.
For example, if one person inherits a part of a farm, it could be difficult to find someone willing to purchase only part and continue participation in the existing business.
The minority discount is available when heirs don’t have control over their share of a farm or other business.
For example, if someone inherits less than half a farm, he/she cannot unilaterally make business decisions.
If the IRS’ proposal were allowed, the Treasury Department said it would have limited the use of discounts for both of these circumstances.
Farm and ranch families across the nation use these discounts, when applicable, to reduce their tax burden for continuing on a family farm or ranch.
Farm Bureau petitioned the Treasury Department to withdraw the proposed regulation earlier this year.
A full list of the regulations the department plans to revoke or revise can be found here.
The department will reportedly continue its comprehensive review of tax regulations over the next few months.