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Estate Tax Review

Tax Hikes On Rich Loom If Treasury Revives Hard Look At Estates


Estate planners are keeping a close eye on the Treasury Department’s agenda, anticipating the possible revival of several regulatory projects shelved by the Trump administration.

Estates, gifts, and trusts were among the regulatory areas significantly cut back under former President Donald Trump—planned projects in that area were reduced to about a quarter of what was included in the Obama administration’s last priority guidance plan.

Some of the regulations, either withdrawn or made a low priority under Trump, would restrict access to tools for reducing estate tax bills, in effect acting as a tax increase without the hurdle of passing tax legislation in an evenly divided Senate. And, the changes would complement the priorities President Joe Biden campaigned on, including broadening and raising the estate tax.Advertisement

“You might see more inclination to actually press some of these things that came off the priority guidance plan when the Trump administration came to power,” said James F. Hogan, managing director at Andersen Tax LLC.

Treasury and the IRS didn’t return requests for comment on regulatory priorities. A regulatory freeze has remained in effect since the start of Biden’s administration, which has focused in the first several months on delivering pandemic relief to Americans. At the same time, many of the individuals recently appointed to key roles at Treasury’s Office of Tax Policy, where tax regulations are written, are still settling in.

Valuation Discounts
Estate planners are particularly interested in whether the new administration revives a project to limit the use of valuation discounts that reduce the value of assets held in closely-held family businesses for estate and gift tax purposes.

The discounts are typically applied to compensate for the lack of marketability and control that can make the assets harder to sell. A 2016 IRS proposal (REG-163113-02) sought to place limitations on these discounts to stem perceived abuses, but they were later withdrawn by the Trump administration—a move heralded by trade groups and Republican lawmakers who opposed the regulations for being overly broad.

Beth Shapiro Kaufman, a member in the Washington office of Caplin & Drysdale Chartered, said she could see the Biden administration proposing a more tailored version of the rules. Kaufman formerly worked as associate tax legislative counsel in Treasury’s Office of Tax Policy.

Mark Mazur, who was the assistant secretary for tax policy at the end of President Barack Obama’s term, is currently running the Office of Tax Policy until Lily Batchelder—announced Thursday as the nominee for his old job—is confirmed. Mazur defended the valuation discount project in an interview several years ago, saying he believed people who didn’t like the estate tax generally were intentionally misreading the intent and scope of the initial rules.

More Guidance Projects
Another project that could be revived under the Biden administration is a rule on valuing promissory notes used in estate and gift tax planning. The project was included on the priority guidance plan in the final years of the Obama administration but was taken off the list during the Trump years.

Wealthy individuals will often sell assets to a trust in exchange for a promissory note, which is essentially an IOU. The trust must repay the principal of the loan and interest, with a minimum rate set by the IRS. If the assets appreciate at a rate faster than the minimum rate, that appreciation passes—free of gift tax—to the trust beneficiaries.

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