The IRS in FR Doc 2017-22776 made official the withdrawal of proposed regulations issued in August of 2016 (REG-163113-02) under IRC §2704 that would have effectively reversed the Kerr decision with regard to family limited partnerships.

The proposed regulations would have significantly changed the regulations under IRC §2704 in ways that would have rendered it much more difficult to create family limited partnerships that could give rise to significant transfer tax discounts.  The regulations specifically addressed issues that the Tax Court had noted in the Kerr decision when it decided for the taxpayer based on the IRS’s regulations for that section.

Most advisers considered these regulations dead following the elections in November of 2016.  The regulations were one of many studied by the IRS for possible withdrawal and, not surprisingly, were on the list of those the agency planned to withdraw when that study of regulations was completed.  This notice simply makes that withdraw official.

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The IRS has issued proposed regulations governing limiting the use of certain liquidation restrictions in reducing the value of property for gift and estate purposes in REG-163113-02.  These regulations attempt to breathe life back into IRC §2704 that was part of the “Chapter 14” provisions Congress added in 1990s.

The “Chapter 14” provisions were Congress’s attempt in 1990 to eliminate the use of what they viewed as “artificial” valuation discounts by taxpayers in estate planning—effectively looking at items such as family limited partnerships.  However the law and the implementing regulations proved rather ineffective in practice, as planners, taxpayers and state legislatures combined to make the provisions effectively toothless.