Transfer of Ownership in Closely Held Companies Now v.s. Later to Utilize the Valuation Discounts

The IRS has indicated they are drafting proposed regulations to restrict the usage of minority discounts and marketability discounts on transfers of closely held company stock or family partnership interests to family members. There has not been a timetable given on when these proposed regulations are to be issued, but sources indicate that it could be as early as late summer or early fall.
What the limitations will include is unknown at this point, but by looking back at President Obama’s budget proposals in prior years, it could give us a clue as to what the IRS might be thinking. In his prior proposals, there were discussions about eliminating the ability to utilize the lack of marketability and minority interest discounts when it involves transfers between family members.
With most valuations of closely held companies, there is a discount used for what a willing buyer would pay for a minority interest in the company when they can’t influence control over the entity. There is also a discount used for the lack of marketability because in most closely held companies the recipient isn’t able to take their new ownership and sell it in the open market. The combination of these two discounts can range anywhere from 20-40 percent depending on the circumstances.
If you are thinking about transferring some of your interest in a closely held company, you may want to act now. Contact your professional at UHY LLP in Detroit 313 964 1040, Farmington Hills 248 354 1040 or Sterling Heights 586 254 1040, or visit us on the web at