The general consensus among attorneys and accountants had been that the Treasury hoped to issue new proposed regulations under Section 2704(b) prior to this fall’s tax section meeting of the ABA, which was September 17 through 19. Those dates passed without new regulations being issued. Now, the speculation is that new regulations won’t be released until the end of 2015.
The concern that many have is that the new regulations will place stringent limitations on, or completely eliminate, the use of valuation discounts in family-controlled entity transactions. Those wanting to take advantage of valuation discounts in such situations should keep these potential regulations in mind.
No one knows if the soon-to-be-issued Proposed Regulations will be effective as of the date of the Proposed Regulations (this is not usually the case), or as of the date of issuance of the Final Regulations (which can be years after the issuance of the Proposed Regulations). One possibility is that the “regulations will be effective as to the date of the gift of the business interest, as opposed to the date of the formation of the family controlled entity . . . .”
Further, no one is certain how restrictive the new regulations will be. Articles began circulating regarding these new regulations when Catherine Hughes, an Estate and Gift Tax Attorney Advisor in the Office of Tax Policy of the U.S. Treasury Department, made comments about the 2704 regulation project at an ABA conference in Washington, D.C. in April 2015. She said that the scope of what the new regulations might include are indicated by the 2704 legislative proposal, last included in the Obama administration’s Fiscal Year 2013 Greenbook. The proposed 2704 regulations may include some or all of those proposals, including the following:
Disregarded Restrictions: An additional category of restrictions may be disregarded in determining the value of an interest in a family-controlled entity that is transferred to family members if after the transfer the restrictions will lapse or can be removed by the transferor and/or the transferor’s family. “The transferred interest would be valued by substituting for the disregarded restrictions certain assumptions to be specified in regulations.” 
- “Disregarded restrictions would include limitations on a holder’s right to liquidate that holder’s interest that are more restrictive than a standard to be identified in regulations.”
- “A disregarded restriction also would include any limitation on a transferee’s ability to be admitted as a full partner or to hold an equity interest in the entity.”
- To determine whether a restriction may be removed by members of the family after the transfer, certain interests held by charities or others who are not family members of the transferor would be deemed to be held by the family.
Ability to Create Safe Harbors. The Treasury would have the authority “to create safe harbors to permit taxpayers to draft the governing documents of a family-controlled entity so as to avoid the application of section 2704 if certain standards are met.”
Transfer Tax Marital and Charitable Deductions. “This proposal would make conforming clarifications with regard to the interaction of this proposal with the transfer tax marital and charitable deductions.”
 Moira A. Jabir, Hints of the New IRS Regulations on Family Limited Partnerships, ACCOUNTING TODAY, November 18, 2015, available at http://www.accountingtoday.com/news/tax-practice/hints-of-the-new-irs-regulations-on-family-limited-partnerships-76459-1.html.