The Obama Budget Transfer Tax Proposals – Some Old Wine And Some New Wine


Earlier this week, the Obama Administration released its 2013 revenue proposals. In the area of transfer taxes, the Administration’s wish list includes many items previously proposed, but also has at least one relatively new item. Given the current political situation in Washington D.C., the ability of the Administration to get all or most of these enacted is questionable. However, it is still useful to know what is in the scope of the Treasury Department’s rifle, even though they may not be able to take the shot this year. The proposed modifications are:

1. Restore the 2009 Credit and Exemption Levels. The 2009 unified credit and GST exemption levels will be reinstated and made permanent. These include a 45% maximum estate, gift and GST rate, an exclusion amount of $3.5 million for estate and GST taxes, and a $1 million exemption for gift taxes. However, portability of unused estate and gift tax exemption between spouses, which entered into the law after 2009, will be retained.

COMMENTS: No surprises here, although some would have expected the Administration to retain the 2001 levels which will be reinstated in 2013 if no new legislation is enacted, since they are substantially lower than the 2009 levels. The decoupling of estate and gift tax rates creates unneeded complexity, and the $1 million gift tax exemption is disappointingly low. That proposed gift tax exemption adds further urgency to taxpayers to make larger gifts in 2012 before the exemption shrinks up.

2. Consistency in Value for Transfer and Income Tax Purposes. Taxpayers who receive property by reason of an individual’s death or by gift receive a basis step-up or carryover basis for future gain/loss computations, based on various rules. The proposal mandates that the recipient is bound by and must file returns with a basis consistent with information reported by the transferor, including values when relevant.

COMMENTS: Conceptually, there is nothing wrong with this idea. However, similar to the ability of a taxpayer in the income tax arena to report a tax item in a manner that differs from a Form K-1 entry so long as that different reporting is disclosed to the IRS, hopefully the same opportunity will be open to taxpayers in this area.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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