You didn’t include the birthday check from your grandmother on your income tax return, so why would you have to include the money you receive from her estate? That question and a few others are answered in my latest Estate Planning Law Report. You’ll find it in the same place where it’s posted every month: in the publications section at deconcinimcdonald.com.
Your comments are welcome, as always.
This is the first sentence of the abstract for a paper by some guy at Harvard: “Historically, it is safe to say that very few laws did as much to stoke inequality as laws touching descents and hereditary transmissions.”
What exactly does he mean when he refers to “laws touching descents and hereditary transmissions?” Well, he gives us a hint in the last sentence of the abstract: “Hence, inheritance taxation is most likely necessary from a classical liberal point of view as an instrument of social mobility to counter notable problems of social immobility, say hereditary vocational stratification, which a system of private property rights creates.”
This is what I think he means: modern law allows you to leave your lifetime accumulation of assets to your children, as opposed to when no one but the King could own anything, so commoners couldn’t leave anything to their children (i.e. before the system of private property rights was created). Therefore, it is necessary for the government to take (at least some of) the assets you would otherwise leave to your children, to prevent your children from having an economic advantage over others whose parents didn’t leave them anything.
Via Taxprof Blog.
According to a report linked to by Instapundit, taxes collected by the federal government on a per capita basis, and after adjusting for inflation, more than doubled between 1961 and 2016. Those figures are from the government itself (the Office of Management and Budget), not some partisan think tank.
So when people say that the income tax cuts in the 1980s are the cause of the federal debt, or that the government just can’t afford to lose the revenue that it receives from the federal estate tax, you might want to take it with a grain of salt.
WHAT DO PRINCE, MICHAEL JACKSON, AND WHITNEY HOUSTON HAVE IN COMMON? AND HOW IS ROBIN WILLIAMS DIFFERENT?
The obvious thing that Prince, the Gloved One, and Whitney Houston have in common is that they were all pop music megastars who died young. As a result of that commonality, they also left behind a huge tax problem for their successors, thanks to the IRS’ claim that the future value of a performing artist’s publicity rights is an asset that is taxable under the federal estate tax.
Valuing those future publicity rights is probably not an exact science. I wrote about the issue when it was raised following Prince’s passing. To get a better idea of what I mean, all you have to do is look at the difference between what the IRS claims Michael Jackson’s persona is worth, $434,000,000, and what his estate said it is worth, $2,105.
And how is Robin Williams different? He wasn’t a musician, but his persona is undoubtedly every bit as much a taxable asset as the others' in the eyes of the IRS. Yet that value apparently won’t result in a tax liability for his estate. Why? Because he left his publicity rights to charity.
Congressman Levin has introduced legislation to raise the federal estate tax. The bill is called The Sensible Estate Tax Act of 2016. I probably don’t need to waste a lot of time on it because it’s obviously not going to become law anytime soon, but I can’t help thinking:
Simplifying the federal tax code would be sensible. This legislation wouldn’t do that.
A unified estate and gift tax exemption is sensible. This legislation would do away with that.
A tax increase might make sense if the additional revenue was used to pay down the federal debt. The proponents of this legislation don’t intend to do that.
So, what is it that’s “sensible” about this proposed legislation?
Following up on my post back in September about a frightening sequence of events involving the estate of the former owner of the Detroit Pistons, a recent item on the Law360 web site indicates, by my reading, that the lawsuit filed by that estate against its tax advisers is not likely to get resolved anytime soon.
The Law360 item also indicates that I underestimated the amount the estate paid to the IRS in a settlement of the IRS’ claims against the estate. It says the settlement amount was $457 million, and the estate ended up paying the IRS more than $708 million in estate and gift taxes, penalties and interest. The IRS claimed that the estate owed $2.7 billion.
That’s $2,700,000,000 claimed, and $708,000,000 paid. The estate is claiming damages of at least $500,000,000 against its tax advisers.
It’s actually a narrower issue than this Townhall item (linked to by the TaxProf Blog) makes it sound like, but apparently there’s legislation pending in Congress that would expressly exempt from the federal gift tax contributions to certain tax-exempt organizations. This item from the Proskauer Rose law firm’s blog gives a more complete explanation: contributions to charitable organizations are expressly exempted from the gift tax, as are contributions to political organizations, but there is no express gift tax exemption for contributions to so-called 501(c)(4) organizations (“social welfare organizations”).
The dust-up started back in 2011 when the IRS made noises about enforcing the gift tax on contributions to 501(c)(4) organizations. I had forgotten about it until I saw the link to the Townhall item. The IRS didn’t follow through on that threat, and has never enforced the gift tax on such contributions.
The issue has re-surfaced now because someone in Congress thought that it would be a good idea to pass explicit legislation clarifying that contributions to social welfare organizations are not subject to the gift tax. It seems to me that specifying whether or not the gift tax applies to those contributions is a good idea. But as the Townhall item notes, there are apparently some who disagree, and the Senate hasn’t acted on the measure despite the fact that it passed the House without opposition.
Don’t confuse the question of gift tax applicability with the income tax deductibility of contributions to various types of organizations. As I have become accustomed to explaining, the taxability of a transfer under the gift tax is different from the applicability of the income tax. The federal gift tax is a tax on a transfer of an asset. It’s a different tax, based on a fundamentally different concept, from the income tax.
The contents of this blog, this web site, and any writings by me that are linked here, are all my personal commentary. None of it is intended to be legal advice for your situation.