In January, Rep. Earl Pomeroy, D-N.D., introduced HR 436, Certain Estate Tax Relief Act of 2009, which has been referred to the House Ways and Means Committee. The bill would continue the federal estate tax exemption at $3,500,000, and set the tax rate for estates exceeding that amount at 45% (50% for estates between $10 million and $23.5 million). As a revenue raiser to help pay for the expensive estate tax changes, the bill also seeks to dramatically affect a popular estate planning technique by eliminating most discounts associated with family limited partnerships.
If HR 436 becomes law, appraisers would not be allowed to apply any discounts to “nonbusiness” assets held by partnerships or other entities. Instead, those assets would be valued as though they were transferred directly to the recipient. In addition, if a family (which the bill broadly defines using the IRC § 2032A attribution rules) controls an entity that is not “actively traded,” in contrast to current law, no discounts will be allowed for the transferee’s lack of control of the entity.
The bill as drafted would be effective for transfers occurring after the date of enactment. There is always the possibility, however, that any final statute might be applied retroactively. Practitioners with clients with family limited partnerships may want to consider the potential impact of this legislation on the timing of any contemplated transfers.
The AICPA Forensic and Valuation Services Executive Committee, Business Valuation Committee and Trust, Estate, and Gift Tax Technical Resource Panel are monitoring the legislation. Comments on the proposal were drafted and submitted to Congress in March. For more information, click here.
Eileen Reichenberg Sherr , CPA, M. Tax., is a senior manager with the AICPA in Washington, D.C. Her e-mail address is firstname.lastname@example.org.