In our last Eye on Value we spoke about the IRS scrutiny of family limited partnerships. As we were going to press on our newsletter, so was the Clinton Administration. In February, the Administration published revenue raising proposals for fiscal year 1999 which could end the use of valuation discounts for ownership interests in family limited partnerships and limited liability companies used for gift and estate tax reporting purposes. Specifically, the General Explanations of the Administration’s Revenue Proposals issued by the Treasury Department states the "the proposal would eliminate valuation discounts except as they apply to active businesses.

Interests in entities would be required to be valued for transfer tax purposes at a proportional share of the net asset value of the entity tot he extent that the entity holds readily marketable assets (including cash, cash equivalents, foreign currency, publicly traded securities and real property) at the time of the gift or death". The proposal would be effective for transfers made after the date of enactment.

Congress has yet to act on the Administration’s proposal. It is uncertain when and in what form the final law will take. In fact, it is uncertain if the proposal will even survive through Congress and become law. To be safe, and until then, many practitioners are urging clients to start gifting interests now before any enactment date.