Proposed–The Bill, HR 436 was introduced by Congressman Earl Pomeroy (D‐ND) as the “Certain Estate Tax Relief Act of 2009”.

Current Law – Transfer taxes are imposed on the “fair market value” of the property transferred. In the case of nonpublically traded interests, the “fair market value” of that interest takes into account numerous factors, including the degree of control of the business represented by the equity interest being acquired, as well as any limits on his or her ability to dispose of the interest in the future. These factors have been recognized by the courts and have resulted in favorable rulings that have allowed steep minority interest and marketability discounts to the value of such property. Valuation discounts can significantly reduce the transfer costs (i.e. estate and gift tax) associated with business property transferred to the next generation via a gift or sale strategy implemented before the owner’s death.

IRS Position – The IRS often takes the position in audit and in litigation that the application of these discount reductions should not be available for estate and gift tax purposes. Two areas of repeated attack are:
   1. Minority interests in family held entities – the service argues that families who make gifts to a child of minority interests in a property incorrectly claim minority interest discounts (due to lack‐of‐control) since the taxpayer or the child still has control of the property being transferred.
   2. Marketability – the service also contends that marketability discounts do not apply when marketable property (such as publically traded stock) is contributed to a partnership that has limited partnership interests. The argument is that the owner of such an interest may be able to liquidate the entity and recover the full value by
accessing the underlying assets directly.