Divorce Mediation Blog

Proposed IRC §2704: Life Imitating Divorce?

Wednesday, October 12, 2016

We receive newsletters from several CPA firms, and they are often both informative and useful. Recently, they are aflame with comment on proposed IRC §2704, issued by the Internal Revenue Service on August 4th. Section 2704 would limit or eliminate the use of discounts for lack of control and lack of marketability for businesses being valued for estate and gift tax purposes: raising values and taxation on intergenerational transfers; and challenging estate planners in crafting tax avoidance/minimization strategies.

To accomplish this, we understand, the proposed rule includes minimum valuation rules (pro rata share of net worth); mandated disregard of ownership agreement and state law restrictions on stock transfers; and close scrutiny of personal goodwill, size and customer concentration concepts as value reducers. Valuation experts and estate planners promise complexity, uncertainty, litigation and general misery ahead. Among other things, critics opine that treating highly illiquid assets, as most small businesses are, as liquid, indulges a fiction that will undermine families’ ability to preserve businesses across generations.

In divorce world, we have seen this movie before. Since 2007’s Bernier v. Bernier, Massachusetts has led the way in severely limiting -- all but abolishing -- the application of discounts in valuation: rejecting the concept that divorce valuation is based on a hypothetical sale, with attendant discounting; and analogizing divorce, instead, to that of the involuntary purging of a shareholder from a going concern for which sale is not, in fact, contemplated. Fair value, rather than fair market value,now holds sway in most cases since business owners can’t dispose of their firms – quite apart from market realities – because they, and their families, depend on the businesses for their economic support. As with proposed §2704, the result of Bernier is higher valuations that often disregard business realities, to the consternation of business owners.

Policy is shaped by goals. In Bernier, the Supreme Judicial Court felt it unfair to reduce the non-owner’s sharing of value when continued operation is the value to the holder, and ruled accordingly. The government wants more tax receipts and the I.R.S., exists to collect it. No surprise there.

Is Bernier the chicken to the federal government’s egg?

Get e-mail notifications of new blog posts! Enter email address below.:

Delivered by FeedBurner

other articles

recent posts


divorce litigation private dispute resolution Alimony Reform Act divorce arbitrators mediation alimony law Family Law Arbitration arbitration medical benefits General term alimony divorce arbitrator divorce arbitration Massachusetts divorced family law arbitrators disputes resolve disputes child support Divorce Agreements alimony reform legislation Twinkies family mediation divorce lawyers divorce mediators Chouteau Levine mediations Divorce divorce and family law Massachusetts Alimony Reform Act Defense of Marriage Act family and probate law disputes traditional negotiations Massachusetts alimony and child support conciliation med/arb rehabilitative alimony arbitrators Levine Dispute Resolution Center annulment Massachusetts lawyers divorce mediation divorce and family law mediators Baseball Players mediators Cohabitation health insurance Act Reforming Alimony in the Commonwealth mediator family law mediation facilitated negotiations IRC §2704 support orders separation Matrimonial Arbitration MLB labor agreement Major League Baseball Arbitration Same Sex Marriage lawyer-attended mediation family support divorce judgment COLA Boston how baseball arbitration works alimony orders SJC DOMA The Seven Sins of Alimony lawyers med-arb Levine Dispute Resolution Baseball alimony pre-ARA alimony Massachusetts alimony divorce process special master Child Support Guidelines family law health coverage litigation high-risk methodology LDRC dispute resolution Massachusetts divorce mediators divorce agreement Obamacare self-adjusting alimony Massachusetts Lawyers Weekly Baseball Arbitration lawyer family law arbitrator Uniform Arbitration Act divorce mediations Levine Dispute Resolution Center LLC Self-adjusting alimony orders arbitrator divorce mediator Levine Dispute Resolutions fraud alimony statute