August 18, 2016

Tax Increase Likely For Farmers Under New IRS Rules

 |  By: Nate Birt

Newly proposed IRS regulations aiming to eliminate discounts used in popular types of estate planning could result in higher taxes for farmers who transfer ownership of their business to the next generation. That’s according to an analysis by Doug Mitchell of K∙Coe Isom.

In a blog post today for K∙Coe Isom, Mitchell advises producers to begin visiting with their succession-planning advisers as soon as possible to limit financial penalties under the rules, which likely will go into effect in early 2017. 

Quoting from Mitchell’s blog post:

“For decades, legal documents for nearly all family businesses and farming entities incorporated restrictions on withdrawing capital or forcing liquidation of the entity, so that one family member cannot force the rest of the family into a fire-sale situation. It is these restrictions that make minority interests in a corporation, partnership, or LLC worth only 50% to 70% of their prorated share of the value of the assets owned by the entity. The IRS believes these arrangements are abusive when used to minimize gift and estate taxes on gifts and other transfers to family members.”

(Read Mitchell’s full analysis on the K∙Coe Isom blog.) 

A full description of the rules changes by the IRS is available at under the title “Estate, Gift, and Generation-skipping Transfer Taxes: Restrictions on Liquidation of an Interest.” 

Farmers may comment on the proposed changes through electronic correspondence or by mail by signing a typed comment statement along with eight copies of the signed statement. Electronic statements should be submitted through the web portal available at Mailed statements should be sent to:

CC:PA:LPD:PR (REG-163113-02)
Room 5203
Internal Revenue Service
POB 7604
Ben Franklin Station
Washington, DC 20044

A public hearing on the rules is scheduled for 10 a.m. Eastern time on Dec. 1. You can find more information on the proposed changes from K∙Coe Isom. 

Mitchell notes it’s possible Congress or the courts could step in to request changes but that either venue would take time rather than providing immediate relief for farmers.