Proposed Changes to IRC 2704

The recently proposed changes to Internal Revenue Code § 2704 would affect anyone planning to transfer an interest in a family-owned corporation or partnership to a family member. These changes would effectively eliminate valuation discounts for transfer of equity interests. Knowledge of these changes and their implications is essential for anyone planning to be involved with wealth transfers.

MarketWatch recently published an article outlining a report written by the global wealth consultancy, Wealth-X, and the insurance brokerage and consulting firm, NFP, which predicts that ultra high-net-worth individuals will transfer $3.9 trillion to the next generation by 2026.The article writes that this massive global transfer, which it describes as the largest wealth transfer in history, has already begun. It states that, as of last year, ultrahigh-net-worth individuals 80 years of age or older are, on average, seven times wealthier than those 30 years of age or younger. These older, extremely deep-pocketed individuals are now in a position to transfer wealth to their family members. As the article writes, a recent survey conducted by Knight Frank found that the biggest concerns for these individuals are “succession and inheritance issues” (67%), which likely derive from the complicated regulations imposed by the Internal Revenue Service, among other authorities. These concerns were likely amplified in the beginning of August 2016 by the official IRS release of the proposed changes to Internal Revenue Code § 2704, which handles rules for valuation discounts that affect transfers of family-owned equity interests or partnerships.

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