Academic journal article Journal of Accountancy

AICPA Testimony Calls for Moratorium on Section 2036(c) Antifreeze Provision

Academic journal article Journal of Accountancy

AICPA Testimony Calls for Moratorium on Section 2036(c) Antifreeze Provision

Article excerpt

AICPA TESTIMONY CALLS FOR MORATORIUM ON SECTION 2036(c) ANTIFREEZE PROVISION

Arthur S. Hoffman, chairman of the executive committee, and Thomas E. Reardon, chairman of the subcommittee on small business taxation, of the American Institute of CPAs federal taxation division, testified before the Senate Committee on Small Business on Internal Revenue Code section 2036(c) freeze provisions. They recommended the effective dates of the provisions be deferred for two years, until December 31, 1991, giving Congress and the Treasury time to study the issue.

They noted that under today's standard valuation methods a business needn't generate much income to be valued at the highest estate tax levels. Thus, estate tax liability can run as high as 60% of the value of a business and interest on the estate tax deferrals can tie up a business's income for years.

They said section 2036(c) precludes a freeze of the value of the founder's interest at the time he or she wishes to pass the business's operations, and its rewards, to family members before the company appreciates under their management. The founder could make a gift of the shares, "but the gift tax is as high as the estate tax, and cash in the necessary amounts is ordinarily not available to the prospective donor,"

Furthermore, they pointed out, the founder may need dividend income from the company to fund his or her retirement. …

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