[Federal Register Volume 82, Number 202 (Friday, October 20, 2017)]
[Proposed Rules]
[Pages 48779-48780]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-22776]


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DEPARTMENT OF THE TREASURY

Internal Revenue Service

26 CFR Part 25

[REG-163113-02]
RIN 1545-BB71


Estate, Gift, and Generation-Skipping Transfer Taxes; 
Restrictions on Liquidation of an Interest

AGENCY: Internal Revenue Service (IRS), Treasury.

ACTION: Withdrawal of notice of proposed rulemaking.

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SUMMARY: This document withdraws proposed regulations concerning the 
estate, gift and generation-skipping transfer (GST) tax treatment of 
lapses of liquidation rights in family-controlled entities, as well as 
the valuation of interests in family-controlled corporations and 
partnerships for estate, gift, and GST tax purposes. Specifically, the 
proposed regulations would have treated certain lapses of liquidation 
rights as transfers occurring at death. The proposed regulations also 
addressed the treatment of restrictions on liquidation and withdrawal 
in determining the value of transferred interests in family-controlled 
entities. This withdrawal affects certain transferors of interests in 
corporations and partnerships.

DATES: The notice of proposed rulemaking published August 4, 2016 (81 
FR 51413) is withdrawn as of October 20, 2017.

FOR FURTHER INFORMATION CONTACT: John D. MacEachen, (202) 317-6859 (not 
a toll-free number).

SUPPLEMENTARY INFORMATION: 

Background

    Section 2704 of the Internal Revenue Code provides special rules 
for purposes of subtitle B (relating to estate, gift, and GST taxes). 
Under section 2704(a), a lapse of certain voting or liquidation

[[Page 48780]]

rights is treated as a transfer of an amount equal to the excess of the 
fair market value of all interests held by the transferor, determined 
as if the voting or liquidation rights were nonlapsing, over the fair 
market value of such interests after the lapse. In addition, under 
section 2704(b) certain restrictions on liquidation are disregarded in 
determining the fair market value of the transferred interest. Section 
2704(b)(4) authorizes the Secretary to provide by regulation that other 
restrictions may be disregarded if the restriction has the effect of 
reducing the value of an interest transferred to a member of the 
transferor's family for estate, gift, or GST tax purposes but does not 
ultimately reduce the value of such interest to the transferee.
    On August 4, 2016, the Treasury Department and the IRS published in 
the Federal Register (81 FR 51413) a notice of proposed rulemaking 
under section 2704 (REG-163113-02), relating to restrictions on the 
liquidation of an interest in a corporation or a partnership. The 
proposed regulations sought to amend the existing regulations: (1) To 
address what constitutes control of a limited liability company or 
other entity or arrangement that is not a corporation, partnership, or 
limited partnership; (2) to address the effect of deathbed transfers 
that result in the lapse of a liquidation right; (3) to clarify the 
treatment of a transfer that results in the creation of an assignee 
interest; (4) to address the effect of restrictions created by state 
law; (5) to address restrictions on withdrawal from an entity and the 
liquidation of an interest in an entity; and (6) to address the effect 
of insubstantial interests held by persons who are not members of the 
family.
    The Treasury Department and the IRS received numerous written 
comments on the proposed regulations from interested parties, and held 
a public hearing on December 1, 2016.
    Executive Order 13789, issued on April 21, 2017, instructs the 
Secretary of the Treasury (the Secretary) to review all significant tax 
regulations issued on or after January 1, 2016, and to take concrete 
action to alleviate the burdens of regulations that (i) impose an undue 
financial burden on U.S. taxpayers; (ii) add undue complexity to the 
Federal tax laws; or (iii) exceed the statutory authority of the IRS. 
E.O. 13789 further instructs the Secretary to submit to the President 
within 60 days an interim report that identifies regulations that meet 
these criteria. Notice 2017-38 (2017-30 I.R.B. 147 (July 24, 2017)) 
included the proposed regulations in a list of eight regulations 
identified by the Secretary in the interim report as meeting at least 
one of the first two criteria specified in E.O. 13789.
    E.O. 13789 further instructs the Secretary to submit to the 
President by September 18, 2017, a final report that recommends 
specific actions to mitigate the burden imposed by regulations 
identified in the interim report. The Secretary published this final 
report in the Federal Register (82 FR 48013), recommending a complete 
withdrawal of the proposed regulations to mitigate their potential 
burden. To implement the Secretary's recommendation, the Treasury 
Department and the IRS, are withdrawing the proposed regulations.

List of Subjects in 26 CFR Part 25

    Gift taxes, Reporting and recordkeeping requirements.

Withdrawal of Notice of Proposed Rulemaking

    Accordingly, under the authority of 26 U.S.C. 7805, the notice of 
proposed rulemaking (REG-163113-02) that was published in the Federal 
Register on August 4, 2016 (81 FR 51413) is withdrawn.

Kirsten Wielobob,
Deputy Commissioner for Services and Enforcement.
[FR Doc. 2017-22776 Filed 10-17-17; 4:15 pm]
 BILLING CODE 4830-01-P