August 7, 2017 was the close of the comment period for Treasury Notice 2017-38. The Treasury Department released this notice pursuant to Executive Order 13789, and contains an interim list of eight tax regulations that possibly impose an undue financial burden on U.S. taxpayers or add excessive complexity to the Federal tax laws. The S Corporation Association joined several other trade groups in submitting its final comments on the proposed regulations affecting Section 2704 of the Internal Revenue Code, and included its study highlighting the threat these rules pose to family businesses and their employees. The study, authored by former Clinton economist Dr. Robert Shapiro, makes it clear that the proposed Section 2704 rules violate all three of the criteria established in the president’s executive order: (1) they are financially burdensome; (2) they are unduly complex; and (3) they exceed Treasury’s authority.
The study concludes “that measures that substantially increase the estate tax burden on large family businesses, such as the Treasury-IRS proposal for valuation discounts, would reduce business investment and, with it, economic growth and job creation. The Treasury-IRS proposal has no sound or reasonable economic basis.”
Scary numbers: Specifically, the study finds that the proposed rules would increase estate taxes for large family businesses by $633.3 billion (present discounted dollars) over the next 46 years. To pay the extra taxes, businesses would forego capital investments, which would lead to a reduction in GDP growth by $2,476 billion (in 2016 dollars) from 2016 to 2062. This slower growth also would reduce job growth over the next decade.
Now we must wait for the Treasury and IRS to submit a final report by Sept. 18, 2017, to recommend their proposed reforms for the regulations identified in the notice (eight in all). This could range from modification to full repeal.