Unintended Consequences to IRS Proposed Regulation

In August the IRS proposed regulations that may eliminate some or almost all of the discounts that family farms can take via transfer of land or operations. CliftonAllenLarson principle and Farm CPA Today blogger Paul Neiffer shares an unintended consequence of this proposed regulations
Neiffer: “These discounts are still going apply if you end up making transfers at your death to a charity. So one example is you have $10 million worth of farmland in sometime of LLC or LLP and you want half of it to go to your heirs and the other half to go to a charity. You have to value the part that goes to your heirs at full fair market value, so at $5 million —- which means you are going to pay an extra $1.5 million in estate tax. But when you make the transfer to the charity and value it on the estate tax return, the IRS in these proposed regulations require it that you value it as if you took the discount — so instead of value it at $5 million they may make you value it at $3 1/2 million which leads to a phantom asset. That difference of a $1.5 million that we have to put on the estate tax return and you don’t get a deduction for it. So that is an extra possible $1.5 million in taxes that you might potentially owe. It can add up fairly fast. These regulations are not finalized yet. There is a hearing in early December, so we will keep you posted.”