Sep 28, 2016 - 2:00pm

A Sly Death Tax Hike: Family-Owned Businesses in the Cross Hairs

Former Vice President, Tax Policy & Economic Development
Former Chief Tax Policy Counsel

It’s been a busy, busy summer for the Treasury Department. In early April, Treasury issued proposed and temporary regulations hampering the ability of American companies to compete globally by limiting their ability to restructure. The Chamber responded with a lawsuit challenging the Treasury’s unilateral rewriting of the Internal Revenue Code and decision to steamroll over the Administrative Procedure Act.

On the same exact day, changes from proposed debt-equity rules rocked the business community prompting both Chamber written comments and testimony warning of the detrimental impacts of these rules and urging revision to prevent unnecessary harm to the business community.

And, on August 2, 2016, continuing what one might call the “Regulatory Tax Summer of Love” tour, Treasury issued proposed rules instituting one of the most sweeping changes to estate tax regulations in the last 25 years. These proposed rules change how minority valuation discounts work in the context of closely-held, family-owned businesses.

What do you need to know about these rules?

  1. Minority discounts are important because they promote the continuation of family businesses by making it advantageous to transfer interests during life to the children, which makes them more inclined to stay with the business, as compared to the parents holding on to assets during their lives and giving them up only at death which often results in the business closing. Staying in business = good.
  2. These discounts promote the flow of wealth to younger generations, which is good for the economy and the continuation of family businesses. Again, staying in business = good.
  3. Unfortunately, the IRS issued rules complicating how families can pass businesses on to the next generation. Preventing family companies from staying in business = bad.

So, what is the Chamber doing about this? Today, the U.S. Chamber, joined by more than 3,800 trade associations, state and local chambers, and businesses, spoke out, sending a letter to the IRS, Capitol Hill leadership, and congressional tax-writing committees highlighting the detrimental impacts on family-owned businesses that employ millions of workers throughout the country.

As the letter notes, “these rules would impose significant new tax costs on family-owned businesses, diverting capital from business investment, costing jobs and threatening the ability of families to pass businesses on to the next generation of owners.”

As a result, the Chamber and all other signatories are calling for complete withdraw of these rules, noting the negative impact of the proposal on jobs, investment, and economic growth. This letter is only the first salvo in our fight to protect closely-held, family owned businesses, the backbone of our economy and our job creators.

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About the Author

About the Author

Former Vice President, Tax Policy & Economic Development
Former Chief Tax Policy Counsel

Caroline Harris is former vice president, tax policy and economic development, and chief tax policy counsel at the U.S. Chamber of Commerce.