NATSO Opposes Changes to Estate Tax

NATSO has been working with the Family Business Coalition to oppose the Department of Treasury's proposed changes to estate and gift tax valuation discounts.  As a practical matter, the proposed changes -- which are still being evaluated and have not been finalized -- will significantly change family businesses' succession plans and make it harder for family owned businesses to transition to the next generation.  
More specifically, they would remove legitimate valuation discounts for estate, gift, and generation skipping taxes, which businesses have used for the past two decades to prevent the IRS from overvaluing their businesses at death.
On Nov. 2, the Family Business Coalition, of which NATSO is an active member, filed comments with the Department of Treasury opposing the proposed shift. 
"The proposal is clearly designed to eliminate minority interest discounts, since the holder of any interest would be deemed to be able to liquidate his or her interest in an entity without restrictions," said David Fialkov, NATSO's Vice President of Government Affairs and regulatory counsel.  "This doesn't make a lot of sense to me, since if an individual creates an LLC to purchase and manage a commercial property, and the individual transfers an interest in the LLC to his or her child, the interest is, as a practical matter, subject to standard restrictions on its sale."  This is generally because the asset owned by the LLC is illiquid (cannot be sold) and often times leveraged.  
"The current policy is that the value of this interest is reduced to reflect these restrictions," Fialkov continued. "This is sound to me.  What the Department of Treasury is looking to do is change the current policy so that the value of the LLC interest transferred would not reflect these de facto restrictions and thus would be artificially inflated for gift tax purposes.  If these proposals are finalized, the result would be that families that transfer their businesses to the next generation would see a large increase in their state and gift taxes.
The issue has gotten the attention from lawmakers on Capitol Hill as well.  On Nov. 3, Republican members of the House Ways and Means Committee sent a letter to Treasury Secretary Jack Lew calling for the withdrawl of the proposed regulations.  The letter states that the proposed regulations "represent a dramatic change from past practice and history and are not consistent with congressional intent."
Many members of Congress during the upcoming Lame Duck session will actively seek to prevent the Treasury Department from finalizing the proposed changes.
The regulations are unlikely to become effective until they are formally finalized.  However, Treasury is authorized to apply a three-year look-back period under certain circumstances.
David Fialkov's photo

David Fialkov

David Fialkov is the Vice President of Government Relations, as well as the Legislative and Regulatory Counsel, at NATSO. In this capacity, Mr. Fialkov directs NATSO's legislative, regulatory, and legal strategy on a range of issues, including transportation, energy and fuels, labor, data security, and taxes. Mr. Fialkov also oversees NATSO's political engagement program, including individualized legal and political counsel to member companies. Prior to joining NATSO, Mr. Fialkov was the senior associate in the Government Affairs and Public Policy practice at the law firm of Steptoe and Johnson in Washington, D.C. At Steptoe, Mr. Fialkov advised clients on legislative, regulatory, and political issues, as well as legal concerns. His primary clients included trade associations representing the motor fuel wholesale and retail industries, including the National Association of Convenience Stores and the Society of Independent Gasoline Marketers of America. Mr. Fialkov's focus was not only on the motor fuels business, but also the litany of other issues that retailers confront, including labor matters, foodservice issues, healthcare and employment issues, tax matters and data security. Prior to joining Steptoe, Mr. Fialkov graduated with honors from George Washington University Law School. He received his B.S. Summa cum laude with highest honors from Clark University in Worcester, MA. He lives in Washington, D.C. with his wife Allison and daughter Lilah. More
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