Bad News From the IRS

Brody, Lawrence
January 1995
Journal of Financial Planning;Jan1995, Vol. 8 Issue 1, p10
Academic Journal
This article presents information on some recent steps that are being taken by the U.S. Internal Revenue Service (IRS) which may restrict or even offset the use of discounts for lack of marketability and minority interests in valuing shares in a closely held business gifted to children or grandchildren. It is informed that since 1981, IRS has taken the position that in intra-family transfers of controlled entities, minority discounts will not be available because the family owned the business after the transfers. After a series of court cases, IRS concluded that a minority discount would not be disallowed in this type of situation solely on the basis of family attribution. What the IRS is mainly concerned with the transfers of minority interests in closely held businesses to family members is the disappearance of value as the stock moves from a parent who owns 100 percent of the entity to a group of children, none of whom individually own control. Until PLR 9436005, there did not appear to be any rationale for the IRS to require taxpayers to account for that disappearance of value.


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