WASHINGTON, D.C. - According to the Hardwood Federation, a body representing 28 hardwood associations, the U.S. Department of Treasury has proposed changes to federal estate tax regulations that will have a significant, negative impact on small and medium businesses, including hardwood lumber businesses. Proposed August 2, the changes potentially prohibit the use of any type of discounts that are customarily applied in valuing assets and property for both tax and non-tax purposes. These include discounts for both minority interests and lack of marketability.

The proposed changes add considerable complexity, says the Hardwood Federation, to the process of valuing and transferring closely-held interests, adding to the costs and burdens for family business owners.

The federation, along with the National Association of Manufacturers (NAM) and the Family Business Estate Tax Coalition (FBETC), have written an open-letter to Dept. of Treasury Secretary Jack Lew urging the withdrawal of these proposed regulations.

If imposed, the regulations would:

  • Treat as an additional transfer the lapse of voting and liquidation rights for transfers made within three years of death of interests in a family-controlled entity, thereby eliminating or substantially limiting the lack of control and minority discounts for these transfers;
  • Eliminate any discount based on the transferee’s status as a mere assignee and not a full owner and participant in the entity;
  • Disregard the ability of most nonfamily member-owners to block the removal of covered restrictions unless the nonfamily member has held the interest for more than three years, owns a substantial interest in the entity, and has the right, upon six months’ notice, to be redeemed or bought out for cash or property, not including a promissory note issued by the entity, its owners, or anyone related to the entity or its owners;
  • Disregard restrictions on liquidation that are not mandated by federal or state law in determining the fair market value of the transferred interest; and
  • Clarify the description of entities covered to include limited liability companies and other entities and business arrangements, as well as corporations and partnerships.

All family-owned businesses in the wood manufacturing industry can sign the letter, which can be found here.  

Separately, the National  Hardwood Federation will hold its annual convention and conference October 5-7, 2016 in Washington, D.C.