Family business entities, and eligible non-family businesses, historically have enjoyed transfer tax discounts stemming from factors that affect valuation of interests in these assets, such as lack of marketability or control. Currently, and in the past, these discounts have provided tax relief when family business interests pass to heirs. The changes to 2704 would eliminate these discounts, or reduce them to a figure that offers insignificant benefit.
When business interests transfer upon the death of the business owner(s), surviving family heirs face several tax concerns that hinge upon the estate planning and business succession planning efforts of the business owner. If the business owner neglected to regularly update their plan to respond to legislation and tax code changes, the plan is likely inefficient. Surviving parties who inherit business interests after the potential provisions are enacted into law likely would not enjoy a transfer tax discount. This could result in higher valuations, increasing the taxable value of the estate, and thus escalating the estate tax liability.
Executors handling probate of family business assets may need the counsel of a probate or tax attorney to ensure appropriate taxes are paid accurately and timely. All business interests would be affected by the proposed provisions, even if the assets valued in the estate are within the annual estate tax exemption. ($5.45 million for the 2016 tax year.) According to a recent piece in Bloomberg:
The valuation rules do not apply solely to estates that are large enough to incur an estate tax in the first place, and a taxpayer holding interests in a family-owned entity, but with an estate well under the current exemption amount is equally bound to the reductions in discounts mandated by the new rules.
According to the North Carolina Department of Commerce, as of 2007 there were more than 820,000 small businesses operating across the state. The number of businesses created in or moving to the state has grown. Forbes named North Carolina the #2 Best State for Business in 2015, and that same year Ernst & Young ranked the state with the #3 Lowest State and Business Tax Burden.