Last year, the Obama administration proposed changes to what is known as section 2704 of the Internal Revenue code. The proposed rules impact how much a minority stake in a family owned business is valued at for purposes of the estate or gift tax rules. Currently the IRS recognizes that due to lack of controlling interest a minority share is not necessarily equal in value—in real terms—to a majority share. Therefore, they’ve been giving a “valuation discount” for these tax purposes.  

For example, if you own 15% of a family-owned company and want to pass that share to a child, the IRS would likely value that share at something less than 15% of the total value of the company based on number of possible e factors. Your family would only owe the applicable estate or gift tax amount on that discounted valuation.  The Obama administration’s proposed rule would have essentially ended this practice costing family businesses more money in taxes.