Economic Tsunami Forces a Re-Assessment of Tax Legislation

Huge government expenditures coinciding with precipitous declines in recession era tax receipts are forcing interested prognosticators to look hard at proposals formerly viewed only as long shots, compared to the permanent extension of the 2009 exemptions and tax rates. Overlooked in previous posts was the following:

On January 9, 2009 Representative Pomeroy of North Dakota introduced HR 436.  This Bill has been referred to the House Ways and Means Committee. He has introduced such legislation before without success -there are at least four Bills dealing with the estate tax currently pending in the House.  Pomeroy’s  Bill amends the Internal Revenue Code to: (1) provide for an increase to $3.5 million of the estate tax exclusion (eliminating the phase-in period); (2) impose a maximum estate tax rate of 45% ; (3) restore the phase-out of graduated estate tax rates and the unified credit against the estate tax; (4) set forth estate valuation rules for certain transfers of non-business assets; and (5) limit estate tax discounts for certain individuals with minority interests in a business acquired from a decedent.

Other long shot outcomes which have gained some recent credence are 1) an extension of the 2009 regime into 2010, followed by the planned reversion to the transfer tax regime in place prior to 2001, and 2) an intentional failure to amend existing law, with repeal of transfer taxes and implementation of carryover basis for one year in 2010, followed by the planned pre-2001 regime.

The Will Doctor still considers temporary repeal, or a return to the $1 million exemption unlikely-although we should consider the possibility that Congress will fail to act as we expect until doing so retroactively-they could even retroactively act (we hope, to extend the 2009 regime) in 2011, to change 2010 taxes.

We are increasingly concerned that the hoped for and likely extension of the $3.5 million exemption and the 45% rate could be coupled with provisions like HR 436 to:

  • Eliminate QPRTs, and possibly GRATs (or making a 10% remainder mandatory);
  • Eliminate discounts on non-public enterprises, or on non-business assets;
  • Extend family attribution to limit discounts to related family members.
Posted in Status of Tax Legislation, WillPlan Blog.

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