Estate of confusion
Struggling with uncertain estate tax rules
taxnews
Accountants are squarely on the front line of the problems
with the 2010 estate tax hiatus, according to practitioners and
estate-planning attorneys.
BY ROGER RUSSELL
of the carryover basis rules are causing tremendous uncertainty for taxpayers and their
advisers,” the AICPA said.
A huge concern is whether or not carryover
basis will apply to the assets left surviving
spouses and family members, according to
Eileen Sherr, tax senior technical manager at
the AICPA. “People are dying every day, and
they need to know whether they should sell
certain assets or not, what records they need
to keep, and will any potential fix be retroac-
tive,” she said. “Also, do they need to revise
their wills and trusts? If someone were to die,
their will may carry out their desires the way
the law is right now, but it may not be that
way a month from now. So they don’t know
whether to change the will or not.”
“You feel you have to do something for cli-
ents in the unlikely event one of them were to
die this year,” agreed Lawrence Peck, a New
York-based estate attorney. “One of the issues
is whether your estate will go to the right ben-
eficiaries, because, for example, the credit
shelter trust and marital bequest are drafted
using formulas that are geared to the federal
estate tax. Now you have to look at wills to see
how the formula would operate if there is no
federal estate tax.”
TREASURY REQUIRES MORE
ELECTRONIC TRANSACTIONS
WASHINGTON, D.C. — The Treasury Department has launched a new initiative
to dramatically increase the number of
electronic transactions. First, it will require individuals receiving Social Security,
Supplemental Security Income, veterans,
railroad retirement and Office of Personnel Management benefits to receive
payments electronically, either through
direct deposit into a bank account or the
Treasury’s Direct Express debit card. The
requirement will apply to new enrollees
on March 1, 2011, and to existing recipients on March 1, 2013. Second, businesses currently permitted to use paper
Federal Tax Deposit coupons will have
to make those deposits electronically
beginning in 2011, with a few exceptions.
Finally, the Treasury will eliminate the
option to purchase paper savings bonds
through payroll deductions for federal
employees on Sept. 30, 2010, and for the
private sector by Jan. 1, 2011.
“They are advising clients today on such
issues as whether an income tax deduction
is available for gifts to a charitable remain-
der trust, whether gifts to grandchildren are
subject to the [generation-skipping transfer]
tax, and whether gifts to trusts for grandchil-
dren will be subject to the GST tax when they
make distributions after 2010,” said Howard
Zaritsky, a consultant and estate planning
attorney. “There are no perfect answers to
any of these questions, but there definitely
are wrong answers.”
The estate tax, which expired at the begin-
ning of the year, may or may not be resurrect-
ed before the end of 2010, and it may or may
not be resurrected retroactively. If nothing is
done, 2011 will bring a return to the pre-2001
estate tax regime, bringing with it a return to
stepped-up basis. But the uncertainty sur-
rounding its possible return has wreaked
havoc with those engaged in advising clients
about their life situation.
Accountants with the worst problems are
those advising executors of decedents who
die this year, Zaritsky explained. “They have
to be preparing to file both carryover basis
and estate tax returns, depending upon what
Congress does. They have to figure out wheth-
er to start raising cash to pay estate taxes, or
to refrain from selling assets that might have
a potential capital gains tax liability.”
“The only things we really know are that
the gift tax rate is only 35 percent this year,
there is no estate tax on estates of decedents
who die this year, and there is no GST tax
on generation-skipping transfers made this
year,” he said.
AICPA, ABA WEIGH IN
Meanwhile, both the American Institute
of CPAs and the American Bar Association
Section of Taxation have urged Congress to
correct the current state of federal estate, gift
and GST taxes. In recent letters to lawmakers,
both bodies stressed the uncertainty affecting
taxpayers and their advisors. “The expiration
of the estate and generation-skipping transfer
taxes at the end of 2009 and the imposition
QUESTIONS ABOUT GIFT TAX RATE
A big uncertainty is the gift tax rate, noted
Sherr. “We don’t know if it will stay at its lower
rate [ 35 percent] or move back to the higher
rate [45 percent].”
In fact, the potential increase in the gift tax
rate could present a planning opportunity, if
it were more certain, according to Peck.
“To the extent you want to incur a gift tax,
this would be the year to do it, assuming no
retroactive installation of the system back
to January 1,” he explained. “That’s one of
the problems of trying to plan, because we
don’t know if there will be any action this
year, and if there is, we don’t know if it will
be retroactive to January 1. And the longer we
go through 2010 the more likely it is that any
action will not be retroactive to January 1.”
Someone who receives assets from a dece-
dent this year is faced with practical issues,
said Gordon F. Spoor, of St. Petersburg, Fla.-
based Spoor & Associates PA and chair of the
AICPA’s Trust, Estate and Gift Tax Technical
Resource Panel. “The distribution isn’t tax-
able under the old law currently in force, but
that could change,” he said. “And no one can
tell him his basis in the assets if he wishes to
See ESTATE TAX on 11
WITHHOLDING COMES UP SHORT
WASHINGTON, D.C. — By identifying higher
wage earners who are having too few
taxes withheld from their paychecks, the
Internal Revenue Service could collect as
much as $1.6 billion in additional taxes
over a five-year period, according to a report by the Treasury Inspector General for
Tax Administration, which reviewed the
IRS’s processes for determining whether
employers are withholding the proper
amount of taxes from employees’ pay.
IBM HELPS COLLECT TAX DEBT
ARMONK, N. Y. — IBM has introduced
software to help governments around
the world collect delinquent tax debt.
The IBM Tax Collections Optimizer helps
identify the best methods for collecting
taxes from delinquent debtors. It uses
a combination of data analytics and
other models to create action plans for
each case. The plan optimizes the order
of activities agents will take in order to
maximize the total amount of debts collected while taking into consideration the
case load, personnel resources, and the
anticipated effectiveness of the suggested actions. For more, visit www.ibm.com.
