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June 2017 | Issue 86 Background Constellis Group,  Inc. is a private security firm.  In December 2013, the Company formed an Employee Stock Ownership Plan (“ESOP”), which purchased 100% of Constellis’s voting stock.  Wilmington Trust NA was named Trustee of the ESOP.  Less than a year after the ESOP was created, the ESOP sold all […] More...


March 2017 | Issue 85 Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

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Valuation Discounts Still in IRS Cross Hairs

June 2015 | Issue 80

A very popular and efficient estate and gift planning strategy is to reduce the value of estate assets by transferring such assets into a private, family-controlled entity such as a limited partnership or limited liability company. This type of entity is often referred to as a “family limited partnership” (FLP).

These FLP entities are often equipped with transfer restrictions that make it more difficult to sell or liquidate the entity in whole or in part. This reduces the marketability and liquidity of the interests. This loss of marketability in turn reduces the value of ownership interests in the assets and justifies the application of a valuation discount in determining their value.

The IRS Has a Plan
An IRS official, Catherine Hughes, Attorney-Advisor on Estate and Gift Tax for the IRS Office of Tax Policy, spoke at a recent ABA Symposium on trust and estate topics. She indicated that the IRS is working on regulations for Section 2704 that will require that certain transfer restrictions be disregarded in determining the value of assets transferred. These disregarded restrictions are most likely to impact entities such as corporations or partnerships used to benefit the transferor’s family, where the transfer restrictions can lapse or be removed by the family. This will have the effect of reducing or eliminating valuation discounts that are based on reduced marketability caused by such transfer restrictions. Some commentators believe that operating companies will be exempted from the forthcoming regulations, while asset holding companies will be covered.

A Call to Action
Although the effective date of these regulations is uncertain, it’s likely that only transfers that are completed prior to the effective date will be grandfathered. A word to the wise – it is probably a good idea to take a look at your clients’ estate plans in the light of these possible changes.