COLUMN: Protect Families from Stealth Death Tax

October 18, 2016
Weekly Column and Op-Ed

The Internal Revenue Service is at it again, this time targeting farmers, ranchers, and other businesses operated by families. It may not be politically-motivated targeting, but the IRS is now pushing a new rule that would revise the valuation of family-operated businesses, resulting in a higher tax burden when a family member passes away. In Congress, I proudly voted to repeal the onerous death tax because I have seen firsthand that it prevents hardworking Americans from passing on the fruits of their labor to the next generation. The IRS’ new ‘stealth death tax’ proposal would create a heavier tax burden for family farmers and ranchers.

One of the challenges for family businesses is “marketability,” or the difficulty in setting a fair market value when passing on assets from one family member to another. 15 percent of a family-held business may be valued at a certain sum, but that valuation does not mean that it is cash liquid. There may not be a willing non-family buyer to purchase that percentage of the business at that ‘valued’ price. Because of this difficulty evaluating the value of family businesses when passing on assets, the IRS has allowed valuation discounts for family-held businesses to reduce the tax liability for minority shareholders. For 25 years, this common sense ‘valuation discount’ has helped family businesses survive to be run by the next generation. The IRS proposal to limit the ability of families to use valuation discounts would increase the taxes that must be paid when passing on family businesses, making it more likely that family businesses would have to be broken up or even fold after the death of a loved one.

How hard would you work and save to build a family business if you knew that the beneficiary of your labor would ultimately be the taxman? I recently cosponsored the Protect Family Farms and Businesses Act, introduced by my colleague, Rep. Warren Davidson, (R-OH), because no American should put blood, sweat, and tears into a business only for the family to be hit with a hefty tax penalty. The bill I cosponsored would block the proposed IRS valuation rule from increasing the burden of the death tax on families.

The American Dream means the freedom to create and pass on opportunity to the next generation. The government should not inherit a larger share of results of a lifetime of work. The IRS rule change would make that more likely, and family farms, ranches, and other businesses would pay the price.