November 29, 2016
By the time you read this article, the 2016 elections will be over. Of course, at the time I’m writing it I have no idea about the outcome. However it played out, I’m sure most of us are either totally disgusted or just mildly annoyed. But I digress.
In the September 19 issue of Board Converting News, Mitch Klingher of Klingher Nadler LLP wrote a sobering story about new regulations out of the IRS that could imperil the estate plans of many private business owners. In it, Klingher gives a comprehensive overview of the theory of business valuation, explaining that when an interest in a closely held business is transferred, its value can be enhanced or discounted, depending on how much control on the business the particular interest exerts. The value can be “discounted” if it is a minority share, for example, on the theory that a buyer would not want to pay a premium if an element of control in the business were not included.
This discount is important in family business situations because the “discounted value” allows a transfer of interest at less than full value, saving taxes and allowing more wealth to be retained in the family. According to Klingher’s article, the IRS is proposing to do away with these valuation discounts in those instances where family members control more than 50 percent—a situation which puts in peril the ability of any family to successfully pass on the business.
These rules being proposed by the IRS are a classic example of the kind of regulatory overreach we have witnessed in the past several years as Congress is deadlocked and nothing gets done. This allows government agencies like the IRS, the Department of Labor, the National Labor Relations Board, and the EPA to, in a sense, run amok and act unilaterally. While they ostensibly are acting under prior legislative authority, in reality they often depart from the original congressional intent of their enabling legislation.
Our AICC/FBA Industry Fly-Ins are opportunities for us to come to Washington and meet face to face with our legislators to discuss these kinds of abuses of power. Whatever your political persuasion, we can all agree that our Constitution guarantees a separation of powers in the branches of government; they are, however, being eroded as the IRS example above shows.
Please plan on attending our Washington Fly-In next June to help us protect the interests of independent businesses. We need independent business owners like you to show up, take a stand, and speak out.
John Forrey is president of Specialty Industries and NuPak Printing in Red Lion, Pa., and is Chair of AICC’s Government Affairs Committee. He can be reached at 717-246-4301 or jforrey@specialtyindustries.com.
