Feb 02, 2016 at 1:22 am
Proposed IRS regulations to eliminate discounts for family limited partnerships (FLPs) are to be released comment, but never seem to arrive. The Obama Administration proposed changing the law over several annual budget proposals in order to restrict or eliminate valuation discounts on transfers of interests in family-controlled entities. The Administration was not successful in having the tax law changed and now has the IRS exploring other means to reach the same end – specifically new tax regulations. After challenge to discounting was beaten back in multiple court cases in the 1980s and the IRS conceded the argument in Revenue Ruling 93-12, it’s hard to believe that aggressive regulations, if adopted, would survive this time around either. Maybe the continued delay is because the Treasury Department knows this too.
The IRS updated their audit techniques for 409A compliance in publication LB&I-04-0615-005: Nonqualified Deferred Compensation Audit Techniques Guide. This followed a 50 company compliance initiative project focused on deferral elections and payouts. The goal was to identify the highest frequency issues of non-compliance. New Section 457 regulations due out are expected to include additional 409A guidance. Effective as of 2009, all plans must be in compliance with the final regulations, both in form and operation.
Automatic IRS audits can be triggered when the same firm does tax and valuation work. For example, IRS agents in some areas will pull an estate and gift tax return prepared by the same firm that does an attached valuation. 60% of CPA firms at a recent business valuation education session said their firm does both. Rethink this strategy as it adds risk for both firms.