Families with interests in closely held entities such as corporations, limited liability companies and limited partnerships have long benefitted from reduced estate, gift and generation-skipping transfer tax exposure due to valuation discounts. If regulations proposed by the Internal Revenue Service are adopted in their present form, however, most valuation discounts will no longer be available for intra-family transfers.
An owner of an equity position in an entity who can neither control the entity nor find a ready market for sale of the interest cannot force liquidation or sell that equity position for its liquidation value. Accordingly, for transfer tax purposes that equity position has traditionally been valued at a discount to the pro rata value of the underlying entity assets.
