A superficial treatment is better than none at all, but an article I read on Fox Business really didn’t tell me much of any substance, even though it was loaded with quotes from authoritative-sounding lawyers.
Oh, the subject was valuation discounts for family limited partnership interests. Apparently, the IRS has proposed new regulations that would narrow the circumstances in which the IRS will allow those discounts to be applied.
Those valuation discounts are, as the Fox Business article indicates, a method to reduce the value of, and hence the estate tax on the transfer of, family limited partnership interests when an owner dies. It’s not a new idea.
STRANGE THAT I SAW NO MENTION WHATSOEVER OF THIS WHEN IT WAS ANNOUNCED: SENATE DEMOCRATS HAVE PROPOSED AN ESTATE TAX INCREASE
I didn’t learn about it until this morning when I read the estate planning update that I receive weekly from Thomson Reuters/RIA. According to that update, Senator Schumer introduced on March 7 “a $1 trillion infrastructure proposal, to be financed by tax increases, including, among other things, elimination of the increased estate tax exemption under the Tax Cuts and Jobs Act of 2017."
The update from Thomson Reuters/RIA links to a subscription only service, but I did find a story about it that elaborates on the proposed tax increases, which would apparently reverse many of the cuts that were just enacted by the Tax Cuts and Jobs Act.
WHY IS THE SECTION OF THE IRS WEBSITE ABOUT ESTATE AND GIFT TAXES UNDER THE HEADING “SMALL BUSINESS AND SELF-EMPLOYED?”
Businesses don’t pay estate and gift taxes, nor do they file estate tax or gift tax returns. Individuals pay estate and gift taxes and file estate tax returns (Form 706) and gift tax returns (Form 709). So why is the section of the IRS website about estate and gift taxes under the heading “Small Business and Self-Employed,” where no one who knows those basic facts is going to think to look? Is it because the IRS thinks that most taxpayers have the (mistaken) impression that only business owners need to be concerned about estate and gift taxes?
Most government agency web sites are poorly designed, but this is a particularly egregious example.
That’s what the IRS claimed, although they apparently settled for a lesser amount in determining the tax due on the singer’s estate.
I have written about this type of situation before. This commentator brings up something I hadn’t really thought about: doesn’t valuing the right of publicity owned by the estate of a deceased celebrity assume that the estate or the beneficiaries of the estate are going to exploit that right? What if they don’t intend to, or they even agree that they won’t?
The right of publicity isn’t like a Picasso painting, that has value whether the beneficiaries plan to sell it or not. The fact that they could market Whitney Houston’s likeness, or her name, doesn’t mean they will, and if they don’t, it’s not worth anything.
I suppose if the estate has memorabilia (tangible items) containing her likeness, those items have value, but the IRS is talking about the right to something intangible and putting a value on it. Even if you don’t think that’s unfair, putting a value on it (like $11.7 million) seems like it would have to be awfully subjective.
Continuing my series of posts on the changes to the federal tax code under the recently passed Tax Cuts and Jobs Act, the biggest change for individual taxpayers is, in my opinion, the increase of the standard deduction from $6350 in 2017 to $12,000 in 2018 for single filers, and from $12,700 in 2017 to $24,000 in 2018 for married filing jointly. The effect of that increase will be to reduce the tax liability of taxpayers who use the standard deduction instead of itemizing deductions, which is a large percentage of all taxpayers.
The large increase in the standard deduction will also have the effect of reducing, perhaps dramatically, the number of taxpayers who itemize their deductions. If your itemized deductions were more than the old standard deduction, but are now going to be less than the new standard deduction, you won’t have to itemize anymore. That’s going to not only reduce your tax liability, it’s also going to simplify the preparation of your return.
I have seen some commentaries suggesting that the new legislation doesn’t benefit lower-income taxpayers. I just don’t see how that can be so. Most lower income taxpayers (probably the vast majority) take the standard deduction. With the standard deduction nearly doubling for both single taxpayers and married taxpayers filing jointly, the result would have to be a reduction in tax in almost every case. Am I missing something?
I changed my mind on writing about the new federal tax legislation. I have two reasons:
1) the tax services have started producing their own analyses, so there’s commentary that’s not tainted (or consumed) by politics; and
2) I’m seeing a lot of what I can only call misinformation about what’s in the legislation.
I’ll start with a change made by the new legislation that’s easy to explain: the value of property that can be transferred by an individual without being subject to the federal estate tax or the federal gift tax goes up substantially under the new legislation. The individual exclusion amount will be essentially doubled, from $5.6 million to $11.2 million.
The effect on married couples will apparently be consistent with current law: a married couple gets 2x the individual exclusion amount, meaning that a married couple can now transfer $22.4 million without being subject to the federal estate or gift tax.
Stay tuned to this space for more highlights on what’s really in that tax legislation (not what the political commentators claim will be the effects).
I was going to write about some of the particulars of the just-passed federal tax legislation, but I changed my mind. I think a lot of what is being said about it is misinformed, but we will find out over time, as sources more informed and reliable than the political commentators (who are the ones making all the noise right now) weigh in. The political commentators are undoubtedly more interested in partisan posturing than they are in conveying actual facts about the legislation, anyway. I’m going to do my best to ignore them.
In the comments to this blog post, which quotes a New York Times story (or is it an editorial?) about the IRS being faced with the task of implementing the extensive tax legislation that appears to be about to become law. Despite the suggestion by the author of the Times’ story, processing tax returns for the prior year while implementing legislation effective in the current year shouldn’t be an overwhelming task for the IRS. They do it just about every year. Not only that, but I’m pretty sure that the people at the IRS who process tax returns are not the same people who revise the regulations and publications.
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.
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.