List of Expiring Federal Tax Provisions by piu97943

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									                                                                                 08/04/2009


                              ESTATE TAX REFORM

Background
 The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) phased
   out the estate tax over several years and completely in 2010, then in 2011, reinstates it
   back up to full pre-EGTRRA 2001 levels - $1 million per person estate tax exemption
   and 55 percent maximum estate tax rate. Over the past few years, Congress has been
   considering possible transfer tax reforms to deal with the uncertainty and frustration of
   taxpayers and practitioners regarding the possible reinstatement of the estate tax in
   2011.

   In 2006, the U.S. House of Representatives approved two bills, H.R. 5970, the Estate
    Tax and Extension of Tax Relief Act of 2006, and H.R. 5638, The Permanent Estate
    Tax Relief Act of 2006, while the Senate continued to work on compromise legislation
    but did not pass these bills.

   Both bills would:

    1) Exempt all estates worth less than $5 million per person;
    2) Unify the gift, estate and generation skipping tax exemptions at $5 million;
    3) Tax gifts and estates between $5 million and $25 million at the capital gains rate,
       currently 15 percent;
    4) Tax gifts and estates above $25 million at 30 percent (as stated in the August bill)
       or double the capital gains rate (30 percent) (as stated in the June bill, but could go
       higher if the capital gains rate should increase);
    5) Index the $5 million exemption to inflation; and
    6) Provide portability – allowing any unused lifetime exemption of the first spouse to
       die to be available for use by the surviving spouse, greatly simplifying estate
       planning.

   Both of the 2006 House-passed estate tax reform bills contained many
    recommendations that the AICPA had previously suggested (and continues to reiterate
    in     AICPA       letters  and    testimony    to    Congressional tax    writers
    http://tax.aicpa.org/Resources/Trust+Estate+and+Gift/Legislation/.)

   In November 2007, and March and April 2008, the Senate Finance Committee held
    hearings on the estate tax. The AICPA testified at the April 4, 2008 Senate Finance
    Committee hearing, focusing on reunification of the gift and estate tax exemptions.

   The Obama Administration’s budget proposal for fiscal year 2010 contains a summary
    table S-5 footnote that states, “In continuing the 2001 and 2003 tax cuts, the estate tax
    is maintained at its 2009 parameters ($3.5 million exemption per person and 45 percent
    maximum rate).”

   On March 26, 2009, S. 722, Taxpayer Certainty and Relief Act of 2009, was
    introduced by Chairman of the Senate Finance Committee, Max Baucus, with

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    cosponsors Sen. John Rockefeller (D-WV) and Sen. Charles Schumer (D-NY). Among
    other things, it would follow President Obama’s budget proposal and many of the
    AICPA suggestions in this area. It would:

       1. Permanently extend the estate tax as in effect in 2009
               Maximum estate tax rate would be 45%.
               Applicable exclusion amount of $3,500,000.
       2. Unify the gift and estate tax by providing a single applicable exclusion amount
          of $3,500,000.
       3. Index for inflation the applicable exclusion amount beginning in 2011.
       4. Provide portability – the unified credit would be increased by the unused
          unified credit of the deceased spouse.
       5. Make permanent other transfer tax changes from the 2001 Act, including the
          generation skipping transfer tax exemption technical and section 9100 relief
          changes that AICPA strongly supported.

   Congress may consider some revenue raisers to help pay for the estate tax reforms. One
    possible revenue raiser may be the elimination of non-business valuation discounts, as
    included in H.R. 435, introduced by House Ways and Means Committee Member Earl
    Pomeroy on Jan. 9, 2009. The AICPA continues to monitor this, met with Rep.
    Pomeroy in April and May 2009, and submitted comments to the tax-writing
    committee chairs on March 20, 2009, in opposition to this provision and
    recommending changes to the legislation.

AICPA Position and Legislative Recommendations
 As Congress considers various issues and alternatives with regard to a compromise on
   estate tax reform, the AICPA encourages Congress to make permanent changes to the
   estate tax prior to the current law expiring in 2010 in order to provide certainty to
   taxpayers.

   AICPA developed and sent to Congress in 2005, 2006, 2008, and most recently in
    January 2009, a priority list of suggested reforms of the current estate and gift tax
    system. Many of these suggestions were published and sent to Congress in 2001 as
    part of the AICPA’s Study on Reform of the Estate and Gift Tax System (see link
    below). That study focused on the complexity of the current system, taxpayer planning
    and compliance burdens, ease of administration and revenue constraints. The AICPA
    study remains a timely and relevant analysis of the current transfer tax system. As
    Congress considers whether significant reform of the U.S transfer tax system is
    appropriate at this time, the study could serve as a valuable resource.

   AICPA recommendations include:

    1) Increasing (and indexing for inflation) the exemption to eliminate the filing and tax
       burdens for all but the very wealthiest Americans;
    2) Retaining the full step-up in basis for inherited assets and avoid the complexities of
       carryover basis;
    3) Creating a uniform exemption amount for estate, gift, and GSTT purposes;


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    4) Making permanent the technical changes Congress made to the generation-skipping
       transfer tax (GSTT) in 2001;
    5) Reinstating the full state estate tax credit, or provide another mechanism (such as a
       surtax) that would allow states to uniformly “piggyback” on the federal estate tax;
    6) Providing broad-based liquidity relief, rather than targeted relief provisions;
    7) Making the top estate tax rate no higher than the maximum individual income tax
       rate; and
    8) Provide portability of the estate, gift and GSTT exemptions to a surviving spouse to
       simplify estate planning and estate administration for married couples.

   The AICPA also co-sponsored the 2004 Report on Reform of Federal Wealth Transfer
    Taxes, developed by the Task Force on Federal Wealth Transfer Taxes, a joint effort of
    the AICPA, ABA, and several other organizations. Like the 2001 study, the 2004
    report provides diverse views and perspectives on many issues concerning the current
    federal wealth transfer tax system and the changes made to that system by the
    Economic Growth and Tax Relief Reconciliation Act of 2001. The 2004 report
    suggests options for Congress to consider, but does not make specific
    recommendations for legislative or regulatory action. A letter was sent to Congress in
    July 2009 reminding Congress of the 2004 report.

   For more information, including the AICPA studies on this issue, see
    http://tax.aicpa.org/Resources/Trust+Estate+and+Gift/Legislation/ .




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