Deadline deferred. On July 31, 2015, the President signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. One minor component of the legislation implemented an idea that had been included in the President’s earlier budget messages: requiring consistent basis reporting for income and estate tax purposes. To this end, executors of estates large enough to be required to file a federal estate tax return will have additional paperwork requirements. They have to inform both the IRS and beneficiaries of the tax basis of all bequests.
The law requires such filing within 30 days of the due date for the estate tax filing or 30 days after the actual filing. There was no transition rule, so the IRS created one with Notice 2015-57, 2015-36 IRB 294, which provided that no such filings would be due before February 29, 2016. Next the IRS further extended the deadline to March 31, 2016. Proposed Regs. had not yet been issued, and the Service suggested that executors wait for the Regs. before filing.
Temporary Regulations (T.D. 9757) were published codifying the delayed deadline to March 31, with an effective date of March 4, 2016.
Regulations proposed. On the same day as the temporary Regs. on the transition rule was published, the IRS issued the anxiously awaited Proposed Regs. on consistent basis reporting (REG-127923-15). The new rules apply only to property that increases the federal estate tax obligation. The proposed Regs. confirm that property that qualifies for the marital or charitable estate tax deduction is exempt from basis reporting, because it does not generate a federal estate tax
The Regs. cover the situation is which additional estate property is discovered after the time for submitting basis reports, as well as the application of the rules to property that is sold during the period of estate administration.
Early reactions to the proposed Regs. have been positive, and practitioners have found them helpful. However, some called for an additional extension of time for these filings. Form 8971 for reporting “Information Regarding Beneficiaries Acquiring Property From a Decedent” to the IRS was only released in January. The IRS has allowed less than a month for the filings, following release of the proposed Regs., and it comes at the height of the tax filing season to boot.
According to the preamble to the newly proposed Regs. on consistent basis reporting, only about 10,000 taxpayers are expected to be affected by the information reporting per year. According to the analysis of the fiscal effects of the new law created by the Joint Committee on Taxation (JCX-105-15), the change will raise $117 million this year alone. That comes to $11,700 per taxable estate. The increased revenue grows each year, reaching $173 million in 2025.
As seen on Craigslist. The following ad really appeared on Craigslist: “Wanted: kids to claim on income taxes — $750 (Springfield, MO)[.] If you have some kids you aren’t claiming, I will pay you $750 each to claim them on my income tax. If interested, reply to this ad.”
The poster of that ad has now been indicted for filing false tax returns using real Social Security numbers for persons who were not his dependents.
While the candidates vying for the Republican presidential nomination have proposed a variety of tax reduction plans for promoting economic growth, Hillary Clinton has called for a wide range of tax increases. Among them:
- Implementing a 4% “millionaire’s surcharge” on adjusted gross income above $5 million.
- Requiring a 30% minimum tax on individuals making more than $1 million, the so-called Buffett rule named after billionaire investor Warren Buffett, who contends many of the wealthy are not taxed enough.
- Limiting the value of deductions and exclusions to 28%. While this would limit the home mortgage interest deduction, it would not apply to the deduction for charitable contributions.
- Requiring the wealthy to hold assets for six years to benefit from the preferential 23.8% capital gains tax rate—20% plus the 3.8% net investment income tax enacted under the Affordable Care Act. Assets held less than six years would be taxed on a sliding scale that goes upward from 23.8%. Those holding assets less than one year, for instance, would face a capital gains rate of 43.4%.
Reducing the tax threshold on estates to $3.5 million ($7 million for married couples), along with increasing the top estate tax rate to 45% from the current 40% and setting a lifetime limit on the gift tax exemption at $1 million.
The entire Clinton tax proposal was projected by the Urban-Brookings Tax Policy Center to increase tax revenue by $1.1 trillion over the first decade of implementation. The current proposal does not include the elimination of stepped-up basis at death, which the President had proposed and sources in the Clinton campaign said will be forthcoming.
The Tax Foundation’s analysis came to a different conclusion, finding that just $498 billion would be raised. They use a dynamic scoring model. As the tax increases would be likely to slow economic growth, that development gets factored into their tax math.
Harper Lee’s will remains a mystery. The author of To Kill a Mockingbird and, more recently, To Set a Watchman, Lee died in February. Her estate is estimated to be worth tens of millions of dollars, and there is considerable interest in what will happen to her personal papers. Lee never married and had no children, so her only living relatives are nieces and nephews. However, we may never know the terms of her will because, at the request of the attorneys for her estate, the Alabama probate judge ordered it sealed. He ruled: “The court finds by clear and convincing evidence that information contained in the will and associated court filings pertains to wholly private family matters; poses a serious threat of harassment, exploitation, physical intrusion, or other particularized harm to persons identified in those documents or otherwise entitled to notice of this proceeding; and poses potential for harm to third persons not entitled to notice of this proceeding.”
WealthManagement.com reported that Lee had apparently taken steps to prevent Hollywood from ever remaking To Kill a Mockingbird.
Scorecard. According to the Congressional Budget Office, the federal budget deficit through February 2016 was $352 billion. That’s $34 billion less than the year earlier period. Individual income and payroll tax collections were up 6%, and spending was up 2%. Spending on Social Security was up 4%, primarily due to an increase in the number of beneficiaries.
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