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    Proposed 2704 Regulations: “Commercially Reasonable Restriction Exclusion”

    WealthManagement.com
    Aug 29, 2016

    Martin M. Shenkman 

    The proposed Internal Revenue Code Section 2704 regulations (the “regs”) prevent
    taxpayers from considering a range of restrictions that could otherwise reduce the
    value of an interest in an entity for transfer tax purposes. These restrictions include
    those denominated “applicable restrictions” that had been in prior law. The regs
    make these applicable restrictions much tougher and add a new category of
    restrictions referred to as “disregarded restrictions.” The regs throw taxpayers a
    bone, a rather small one, in terms of permitting at least one type of restriction on
    value to be respected. This leniency permits consideration of restrictions a lender or
    other financial partner may place on the entity or transaction. If the restriction
    applies, then the valuation of an interest in a family entity might qualify for a
    valuation discount, for example, for lack of control.

    Read his commentary here.

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