The Treasury Department is withdrawing a proposed regulation that would have changed how wealthy business owners can pass on businesses to children and other heirs.
Currently, individuals are able to discount valuations of stakes in family-controlled businesses in order to reduce the taxes due upon transfer of that entity during one's lifetime or at death. A 40% levy is applied to estate values exceeding $5.49 million.
The rule, proposed in the waning months of the Obama administration under Section 2704 of the tax code, would have eliminated such business-valuation discounts and, in the process, a key tax-planning strategy used by the super wealthy.
"Treasury and the IRS currently believe that these proposed regulations should be withdrawn in their entirety," Treasury Secretary Stephen Mnuchin wrote in a document published Monday that lays out areas identified as tax regulatory burdens.
The Treasury and Internal Revenue Service plan to publish a withdrawal of the proposed regulation "shortly" in the Federal Register, according to the document, which called the rule "unworkable."
The Obama administration's primary aim was to prevent a tax strategy allowing wealthy individuals to put marketable securities into a business like a limited partnership, and transfer those securities at a discounted valuation.
"The IRS thought that was gaming the system. They really bristled at that," said Richard Behrendt, an estate planning attorney at Behrendt Law.
However, critics of the regulation believed it to be overly broad, thereby hurting family businesses in order to curb the abuse, Mr. Behrendt said.
A repeal of the federal estate tax, as has been proposed by congressional Republicans and the Trump administration as part of a tax-reform package, would also have meant scrapping the regulation.