Recent developments in estate planning: Part 2

By: Justin Ransome, CPA, J.D., with members of Ernst and Young LLP’s National Tax Department in Private Client Services (David Kirk, Todd Angkatavanich, Marianne Kayan, Jennifer Einziger, Caryn Friedman, John Fusco, Nicholas Davidson, Ankur Thakkar, and Utena Yang)

PHOTO BY KICKIMAGES/ISTOCK
PHOTO BY KICKIMAGES/ISTOCK
 

EXECUTIVE
SUMMARY

 
  • In two letter rulings, the IRS ruled that erroneously reported split-gift elections were not subject to IRS redetermination where the statute of limitation had expired, but generation-skipping transfer exemption amounts could be properly allocated to each spouse's gift tax return.
  • A Tenth Circuit decision, reversing a district court, held that a trust's deduction for its charitable contributions of three parcels of donated real estate was limited to the basis of the properties, not their fair market value.
  • The IRS Office of Chief Counsel elaborated on an earlier Chief Counsel Advice that a trust could not take a charitable deduction under Sec. 642(c) for payments to two private foundations after a state court order's modification of a trust because the payments were not made pursuant to the trust's governing instrument.
  • The conversion of a nongrantor charitable lead annuity trust (CLAT) to a grantor CLAT was not a taxable transfer to the grantor, but the grantor was not thereby entitled to a charitable deduction for income tax purposes, the IRS ruled in a letter ruling.

This is the second part of a two-part article examining developments in estate, gift, and generation-skipping transfer (GST) tax and fiduciary income tax between June 2017 and May 2018. Part 1, in the October issue, discussed legislative, gift, and estate tax developments. Part 2 discusses GST tax and trust tax developments as well as inflation adjustments for 2018.

GST tax

Finality of gift tax returns

A pair of private letter rulings continue a recent trend of rulings regarding the finality of gift tax returns pursuant to Sec. 2504 and the Treasury regulations thereunder. The rulings note the distinction between the finality of gift-splitting elections and how the rules governing allocation of GST exemption work regardless of how the former are reported on a gift tax return.

Letter Ruling 201724007: In Letter Ruling 201724007, the IRS ruled that even though split-gift treatment by taxpayers was incorrectly elected on their timely filed gift tax returns, Sec. 2504(c) prevented the IRS from determining whether the election was effective because the time for such a determination had expired and the split-gift treatment was irrevocable. Further, the IRS determined that since the election to split gifts was determined to be irrevocable, GST exemption would be automatically allocated to each one-half transfer reported on the taxpayers' respective gift tax returns.

The wife created a trust for the benefit of her husband and their descendants. Under the terms of the trust and during the husband's life, the trustee of the trust had discretion to distribute income and principal to the husband for his comfort, welfare, and best interests. If the wife predeceased the husband, the trustee had discretion to distribute income and principal to the husband and their descendants for their comfort, welfare, and best interests. Upon the death of the husband, the remaining principal was to be divided and held in separate trusts for the benefit of the wife's surviving children and the issue of her deceased children.

In the same year, the husband transferred property to three adult children. The husband and the wife each timely filed a gift tax return electing to split the gifts they made to the trust and the children. On the wife's Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, the property transferred to the trust was mistakenly reported on Schedule A, "Computation of Taxable Gifts," Part 1, "Gifts Subject Only to Gift Tax." The wife did not report any allocation of her GST exemption to the transfer to the trust on Schedule D, "Computation of Generation-Skipping Transfer Tax," Part 2 (pertaining to the allocation of GST exemption). Additionally, the wife did not attach a statement electing out of the automatic allocation of GST exemption to her gift tax return. The husband's Form 709 was similarly filed. The couple later amended their gift tax returns to correctly report the transfer to the trust on Schedule A, Part 3, "Indirect Skips," and on Schedule D, Part 2, line 5, to indicate that their respective GST exemptions were automatically allocated to the transfers to the trust.

The taxpayers requested two rulings pertaining to the gift tax returns they originally filed: (1) that the period for assessment of gift tax under Sec. 6501 had expired and that the gift-splitting election on the returns was final and applied to all gifts made by both taxpayers, as reported; and (2) that the automatic allocation rules of Sec. 2632(c) applied to the transfers made to the trust and that the exemption amount allocated to such transfers was equal to the amount each spouse was deemed to have transferred on the couple's gift tax returns.

For the first requested ruling, the IRS considered the applicability of Sec. 2513 to gifts made by a spouse. Generally, Sec. 2513 allows a spouse to elect to treat a gift made by one spouse as made one-half by each spouse, as long as the gift is to a third party. Further, the IRS noted that Rev. Rul. 56-439 disallows gift splitting on transfers to trusts if the donor's spouse is a potential beneficiary of the trust. Despite this analysis, the IRS ruled that because the time had passed to determine whether the election to split gifts under Sec. 2504(c) was effective, the election was irrevocable with respect to the transfer to the trust.

For the second requested ruling, the IRS ruled that since the trust qualified as a GST trust under Sec. 2632(c), the taxpayers' GST exemption would be automatically allocated to transfers to the trust. The IRS also noted that the couple each filed a timely gift tax return to treat the initial transfers to the trust as split gifts and that the taxpayers later filed amended Forms 709 to show the automatic allocation of their GST exemption to the transfers. Therefore, since the IRS had ruled that the split-gift treatment was irrevocable, each spouse was treated as the transferor of one-half of the transfers to the trust, and the automatic allocation rules applied to allocate each spouse's GST exemption to one-half of the transfers.

Letter Ruling 201811003In Letter Ruling 201811003, the IRS ruled: (1) even though a husband's and wife's gift tax returns erroneously reported that a split gift was made 75% by the husband and 25% by the wife, the amount of the taxable gift could not be adjusted because the statute of limitation for assessment of gift tax had expired; and (2) the executor of the wife's estate could make a late allocation of GST exemption to prior years' transfers.

The husband created four irrevocable trusts — one for each of his children. The couple agreed to split the gifts to the trusts. However, their accounting firm erroneously treated the gifts as having been made 75% by the husband and 25% by the wife (instead of 50/50, as mandated by Sec. 2513). Although the trusts had GST tax potential, neither the couple's attorney nor their accountant advised them about the allocation of GST exemption.

Several years later, the couple made additional gifts (not to the trusts). The accounting firm, realizing that no GST exemption had been allocated to the transfers to trust, advised the husband, but not the wife, to make a late allocation of GST exemption. The husband's late allocation of GST exemption erroneously allocated an amount equal to 100% of the value of the year 1 transfers.

The executor of the wife's estate requested a ruling that because the period for assessment of gift tax had ended, the wife be treated as the transferor of the 25% of the gifts to the trusts that were reported on her return. The IRS ruled that the statute of limitation for assessment of the gift had run, and, even though the gift had been erroneously split 75% to the husband and 25% to the wife, the amount of the gift could not be adjusted.

Additionally, the executor of the wife's estate requested permission to make a late allocation of GST exemption to the wife's portion of the year 1 gifts. The IRS granted permission to make the late allocation because the wife reasonably relied on a qualified tax professional who failed to make, or advise her to make, the election to allocate GST exemption to those gifts. For GST tax purposes, the wife was treated as the transferor of 50% of the total value of the year 1 gifts to the trusts, pursuant to Regs. Sec. 26.2652-1(a)(4) (providing that the electing spouse is treated as the transferor of one-half of the entire value of the property transferred by the donor spouse, regardless of the interest the electing spouse is actually deemed to have transferred under Sec. 2513).

Trusts: Charitable deductions

Green

In Green,1 the Tenth Circuit reversed a district court and directed it to enter summary judgment for the government, having concluded that the amount of the charitable deduction a trust could take under Sec. 642(c)(1) stemming from its donation of three real estate parcels was limited to the trust's adjusted basis in the donated properties, not their fair market value (FMV).

The taxpayers created a trust to provide for their descendants and charity. The trust instrument: (1) directed all charitable contributions to be made to entities described in Sec. 170(c); (2) did not specify whether charitable distributions could be made only from the trust's principal (as opposed to from its income); and (3) gave the trustee the authority to determine the manner in which expenses were to be treated and which receipts were to be credited as between income and principal to determine what constituted income or principal. The trust wholly owned a single-member limited liability company (LLC) treated as a disregarded entity for federal income tax purposes. In addition, the trust held a 99% ownership interest in Hob-Lob Limited Partnership, which owned and operated Hobby Lobby retail stores nationwide. For the years at issue (2002 through 2004), the trust's distributive share of Hob-Lob's ordinary business income totaled approximately $201.3 million, and its distributions from Hob-Lob totaled approximately $109.3 million. The trust used a portion of the Hob-Lob distributions to purchase several pieces of real property, which it then donated to various charities.

In February 2003, the LLC paid approximately $10.3 million for 109 acres and two industrial buildings in Lynchburg, Va. In March 2004, the LLC donated 73 acres of the land and the two buildings to National Christian Foundation Real Property Inc. On its 2004 income tax return, the trust reported that the adjusted basis of the Virginia property was approximately $10.4 million as of the date of the donation, which was the same amount as the property's FMV on that date. In August 2002, the LLC paid $150,000 for a church building and outbuildings in Ardmore, Okla. In October 2004, the LLC donated the property to a church. The trust reported on its 2004 tax return that the adjusted basis of the property was $160,477 on the date of donation. The FMV of the Oklahoma property on the same date was $355,000. In June 2003, the LLC paid $145,000 for 3.8 acres in Dickinson, Texas. In October 2004, the LLC donated the property to a church. On its 2004 income tax return, the trust reported that its adjusted basis in the Texas property was $145,180 on the date of donation, with an FMV of $150,000.

On its income tax return for 2004, the trust: (1) reported approximately $58.8 million in income, approximately $58.7 million of which was unrelated business income (UBI); (2) claimed a $20.5 million charitable deduction, based on the donations of real property and a cash donation to the Reach the Children Foundation Inc.; and (3) reported adjusted basis in the three donated real properties as totaling approximately $10.7 million and their FMV as totaling approximately $30.3 million. The trust did not report as income the properties' unrealized appreciation, which totaled approximately $19.6 million.

In October 2008, the trust filed an amended tax return for 2004, claiming a $3.2 million refund and increasing its reported charitable deduction from approximately $20.5 million to approximately $29.7 million. The IRS disallowed the refund, asserting that the charitable contribution deduction for the real property was limited to the donor's basis in the property. The trust filed a refund action alleging that the IRS's determination was erroneous and that the trust overpaid its income tax for 2004 by nearly $3.2 million. The district court granted summary judgment for the trust.2 The parties subsequently reached an agreement regarding the FMV of the Oklahoma and Texas properties; the value of the Virginia property was decided at trial. A judgment was ultimately entered awarding the trust a tax refund of approximately $2.8 million plus interest, and the government appealed.

On appeal, the IRS argued that the district court's decision ran contrary to the language of Sec. 642(c)(1) and effectively provided a double tax benefit to the trust by failing to collect tax on the property appreciation that had never been taxed. Reviewing the district court's decision, the Tenth Circuit noted that the parties agreed that Sec. 642(c)(1) governed the trust's donations of real property in 2004 but disagreed over the allowable amount of the deductions stemming from those donations.

Sec. 642(c)(1) (in lieu of Sec. 170) allows estates and trusts, in calculating their taxable income, to claim charitable contribution deductions for "any amount of the gross income" paid during the tax year to charity pursuant to the terms of the governing instrument. The Tenth Circuit noted that the central question for it to determine was the authorized amount of the deduction under Sec. 642(c)(1). To answer it, the court addressed various possible interpretations of the phrase "any amount of the gross income," including:

  1. The charitable contribution must be made out of gross income that the trust earned in the tax year at issue (which the IRS had asserted in Old Colony Trust Co.,3 but the Supreme Court rejected);
  2. The charitable contribution must be made exclusively out of gross income earned by the trust and kept separate from the trust's principal until donated (which, although consistent with Old Colony Trust, was not argued by either party in the instant case);
  3. The charitable deduction need not be made directly from current or accumulated gross income but must be traceable to it (which the court stated both parties appeared to be arguing); or
  4. The charitable deduction is limited by the amount of gross income that the taxpayer earned during the year at issue (which neither party argued).

The fact that "any amount of the gross income" could be interpreted multiple ways led the Tenth Circuit to conclude that the phrase was ambiguous. The court determined that the IRS's regulatory construction of Sec. 642(c)(1) in Regs. Sec. 1.642(c)-1 was reasonable — it interpreted "any amount of the gross income" to mean the trust must make any charitable donations out of its gross income. Although this interpretation is consistent with interpretations 2 and 3, the court noted that it does not favor one over the other. Both parties agreed with the IRS's assertion that the charitable donation must be made out of the trust's gross income. The court also determined that it was a reasonable interpretation of Sec. 642(c)(1) that real property purchased with gross income could also be treated as the equivalent of gross income.

Turning to the allowable amount of the deduction, the Tenth Circuit noted that the IRS had consistently asserted that the trust's charitable deduction was limited to the trust's adjusted basis in the donated property, and the court found this to be the most reasonable interpretation of Sec. 642(c), particularly when considered in light of the Code as a whole. Although tax provisions that provide charitable deductions are considered "public policy" positions that should be liberally construed in the taxpayer's favor, the court rejected the trust's assertion that liberal construction meant the deduction should be construed to be as large as possible (based on the FMV rather than the basis). Agreeing with the IRS, the court concluded the amount of the deduction was limited to the adjusted basis of the property. Further, the court noted that the gain on the property had never been previously taxed and that allowing it to escape tax would be inconsistent with the Code's general treatment of gross income.

Finally, the Tenth Circuit rejected the trust's contention that, because the donated properties were allocable to UBI, Sec. 512(b)(11) operated to allow the charitable deduction. The IRS noted that the trust had not raised this argument previously, so the court could not consider it now.

The Tenth Circuit likely reached the correct result. The holding, however, was not a total win for the government. Because gross income can be traced to the basis in the donated land, the court agreed the trust should be entitled to claim that amount as a deduction. But the land in this case was purchased and donated within two years. Consider whether the trust would still be entitled to a deduction if the land were acquired 20 years earlier. This case would confirm the deduction is available — if one traces the purchase of the land to the income of the trust at that time.

Additionally, the trust raised a unique argument when it brought up the limitation on deductions imposed by Sec. 681 when such a contribution is attributable to UBI. Sec. 681 disallows a deduction under Sec. 642(c) for contributions of UBI. Although the deduction under Sec. 642(c) is entirely disallowed by Sec. 681(a), a partial deduction is nevertheless allowed for such amounts by the operation of Sec. 512(b)(11), which allows a trust to deduct actual payments allocable to UBI made to organizations described in Sec. 170. The deduction is subject to the percentage limitations applicable to contributions by an individual under Secs. 170(b)(1)(A) and (B). The amount of the Sec. 512(b)(11) deduction is determined on the basis of UBI computed without regard to Secs. 512(b)(11) and (12). In general, a trust in this position can deduct 50% or 30% of its UBI, depending upon the status of the charitable recipient. The Tenth Circuit, however, was able to sidestep the issue because it was not raised in the lower court.

CCA 201747005

In CCA 201747005, the Office of Chief Counsel of the IRS advised that a trust that was modified pursuant to a state court order was not entitled to a Sec. 642(c) charitable deduction for payments made to two private foundations because the payments were not made "pursuant to the terms of the governing instrument," reaffirming the position that it took on the same issue and facts in CCA 201651013.4 In addition, the IRS reasserted its position taken in CCA 201651013 that the trust was not entitled to a distribution deduction under Sec. 661 because Sec. 642(c) provides the exclusive mechanism for an income tax charitable deduction for trusts and estates.

According to CCA 201651013, which was discussed in last year's article,5 the trust was created for the benefit of two children during their lives and then for the benefit of their descendants, subject to the two children's testamentary limited power to appoint the trust's income among descendants, spouses of descendants, and charities. After the death of Child 1, the trust was divided into Trust A and Trust B, for the respective benefit of each child's descendants. Trust B later filed a petition with the state court requesting: (1) that Child 2's testamentary power of appointment be changed to an inter vivos power of appointment; and (2) that Child 2 be allowed to immediately exercise the power to appoint all of the income and principal of Trust B to two private foundations. The court approved the modification and termination of Trust B. On an amended income tax return, Trust B claimed a charitable deduction for the entire amount paid to the foundations, less attorney and preparer fees, claiming the deduction was allowed under Sec. 642(c)(1) and/or Sec. 642(c)(2), or alternatively, under Sec. 661.

Whether Trust B is entitled to a charitable deduction under Sec. 642(c)In determining whether the payments to the foundations were made "pursuant to the terms of the governing instrument" under Sec. 642(c)(1), the IRS concluded that the case law does not hold that a modification to a governing instrument will be construed to be a governing instrument where the modification does not stem from a conflict. In this case, the purpose of the court order modifying the trust was not to resolve a conflict but, instead, to obtain an economic benefit. Therefore, the IRS determined that Trust B was not entitled to a deduction under Sec. 642(c) for payments made to the foundations.

Whether the IRS must give effect to a state court decree: According to CCA 201747005,the trust in its protest argued that, under Bosch's Estate,6 the IRS must defer to a state court's modification order when determining the federal tax consequences of such an order. However, the IRS stated, in Bosch,the Supreme Court held that the decision of a state trial court as to an underlying issue of state law should not be controlling when applied to a federal statute; rather, the highest court of the state is the best authority on the underlying substantive rule of state law to be applied in a federal manner. Bosch has been interpreted to require the highest court in a state to affirm a lower court's result before it will be binding upon the IRS. Noting that the modification order was not issued by the highest court of the state and that it was not the result of any conflict regarding the terms of the trust, the IRS determined that the modification order was not binding for purposes of determining the federal tax consequences of the charitable distributions.

Whether Trust B was entitled to a distribution deduction under Sec. 661: In CCA 201747005, the IRS also reaffirmed its conclusion in CCA 201651013 that Trust B was not entitled to a distribution deduction under Sec. 661. In CCA 201651013, the IRS fully analyzed whether Trust B was entitled to a distribution deduction under Sec. 661 even if it was not entitled to a deduction under Sec. 642(c).

Sec. 663(a)(2) and Regs. Sec. 1.663(a)-2 provide that a deduction that is allowed under Sec. 642(c) may not be deducted under Sec. 661. Regs. Sec. 1.663(a)-2 states that any amount paid, permanently set aside, or to be used for the purposes specified in Sec. 642(c) and that is allowable as a deduction under that section is not allowed as a deduction to an estate or trust under Sec. 661 or treated as an amount distributed for purposes of determining the amounts includible in the gross income of beneficiaries under Sec. 662. Amounts paid, permanently set aside, or to be used for purposes set for them in Sec. 642(c) are deductible by estates or trusts only as provided in Sec. 642(c).

In CCA 201651013, the IRS concluded that, pursuant to Regs. Sec. 1.663(a)-2, Sec. 642(c) provides the exclusive means for a trust or estate to take an income tax charitable deduction, for the following reasons: (1) Sec. 642(c) is a specific statute, while Sec. 661 is general, such that the specific statute should be controlling; (2) charitable payments are not included in the conduit tax system applicable to trusts and estates, as evidenced by the gross income tracing requirement in Sec. 642(c); (3) in the case where both an income and estate tax charitable deduction are claimed, a double benefit could arise if a contribution of corpus was deductible under Sec. 661; and (4) the regulation was enacted shortly after the statute it interprets and has not been subsequently overturned by Congress. Therefore, the IRS concluded that Trust B was not entitled to a deduction under Sec. 661 for payments made to the foundations. In CCA 201747005, the IRS further defended this position against the trust's claims that (1) its interpretation of Regs. Sec. 1.663(a)-2 is invalid under Auer v. Robbins7and (2) that the regulation itself is invalid under Chevron8 and/or the Administrative Procedure Act.

Trusts: CLAT conversion

In Letter Ruling 201730018, the IRS ruled that the conversion of a nongrantor charitable lead annuity trust (CLAT) to a grantor CLAT would not be treated as a taxable transfer from the trust to the grantor. The IRS also ruled that such a conversion would not be self-dealing under Sec. 4941. Finally, the IRS ruled that because the conversion was not a taxable transfer between the trust and the grantor for income tax purposes, the grantor would not be entitled to an income tax charitable deduction under Sec. 170(a).

The grantor and initial trustee entered into a trust agreement that created a nongrantor CLAT. The trust agreement provided that until a certain anniversary of the initial contribution date, the annuity amount would be distributed to a specific charity. Prior to the requested rulings, the CLAT was allowed income tax deductions pursuant to Sec. 642(c)(1) for the amounts of gross income included in the annuity amount each year. The CLAT sought to amend the trust agreement to include a provision that would allow the sibling of the grantor to substitute the property of the CLAT at any time in a nonfiduciary capacity and without the approval or consent of any person in a fiduciary capacity. The ruling request stated that the sibling was not a trustee of the CLAT and that the amendment would comply with state laws that governed the CLAT.

The grantor requested three rulings: (1) that the conversion of the CLAT from a nongrantor trust to a grantor trust was not a taxable transfer of property between the CLAT and the grantor; (2) that the conversion not be an act of self-dealing resulting in tax under Sec. 4941; and (3) that the conversion would result in an income tax charitable deduction for the grantor under Sec. 170.

With regard to the first requested ruling, the IRS considered Rev. Rul. 77-402, in which it had held that a grantor who renounces all powers over a trust as its grantor would be treated as having transferred the interest in the trust and would recognize any gain or loss associated with the assets of the trust. Further, the IRS reviewed its holding in Rev. Rul. 85-13, in which it had stated that when a grantor acquires the property of a nongrantor trust in exchange for a promissory note, the transaction results in grantor trust status for the trust. That ruling concluded that the transfer of the trust assets to the grantor was not a sale for federal income tax purposes and that the grantor did not acquire a cost basis in the assets of the trust.

The IRS determined in regard to the first requested ruling that no authority supported the contrary position, and it ruled that the conversion of the CLAT from a nongrantor trust to a grantor trust would not result in a taxable event for the grantor.

Next, the IRS addressed self-dealing, first noting that Sec. 4947(a)(2) applies the private foundation self-dealing excise tax rules of Sec. 4941 to CLATs. Sec. 4941 imposes an excise tax on each act of self-dealing between a private foundation and a "disqualified person." Under Sec. 4946(a), a disqualified person includes a substantial contributor to the foundation, a foundation manager, or a family member. The definition of a family member under Sec. 4946(d) includes only an individual's spouse; ancestors; children; grandchildren; great-grandchildren; and the spouses of children, grandchildren, and great-grandchildren. The IRS also noted that Rev. Proc. 2007-45, Section 8.09(1), provides that exercising a power to substitute trust assets as described in Sec. 675(4) may result in an act of self-dealing under Sec. 4941.

With regard to the grantor, the IRS found the CLAT to be a split-interest trust described in Sec. 4947(a)(2) and that it was subject to the self-dealing rules described in Sec. 4941, which prohibit certain disqualified persons (as defined in Sec. 4946(a)) (such as the grantor in this case) from engaging in transactions with the CLAT. The sibling of the grantor is not included among the list of parties that are considered disqualified persons in Sec. 4946(a).Since the sibling of the grantor was not considered a disqualified person under Sec. 4946(a), no disqualified person was involved in the conversion. Therefore, the IRS ruled that the conversion of the CLAT did not constitute an act of self-dealing under Sec. 4941.

Finally, the IRS reviewed the allowance of a federal income tax charitable deduction under Sec. 170(a)(1). Generally, a deduction is allowed only in the tax year in which a payment to a charity is made. Further, Sec. 170(f)(2)(B) provides that a charitable deduction is not allowed for a transfer of any property interest in trust (other than a remainder interest) unless the interest is in the form of a guaranteed annuity, or the trust instrument specifies that the interest is a fixed percentage distributed yearly of the FMV of the trust property and the grantor is treated as the owner of the interest under Sec. 671. Further, the IRS mentioned Rev. Proc. 2007-45, which provides guidelines for creating CLATs. Section 8.01(2) of the revenue procedure states that the donor to a CLAT may claim a deduction under Sec. 170(a) in the year the assets are ­irrevocably transferred to the trust.

Based on the above, the IRS ruled that a charitable deduction under Sec. 170(a) is allowed only when a transfer of property from a nongrantor trust to a grantor trust occurs. Since the conversion of the CLAT from a nongrantor trust to a grantor trust was not considered a transfer of property for income tax purposes, the IRS determined the grantor was not entitled to a charitable deduction under Sec. 170(a).

Inflation adjustments

Rev. Proc. 2017-58, as modified and superseded in certain sections by Rev. Proc. 2018-18,9 sets forth inflation adjustments for various tax items for 2018. The following may be of interest to estate planning professionals:

Unified credit against estate tax: The basic exclusion amount is $11,180,000 for determining the amount of the unified credit against estate tax under Sec. 2010.

Valuation of qualified real property in decedent's gross estate: If the executor elects to use the special-use valuation method under Sec. 2032A for qualified real property, the aggregate decrease in the value of the qualified real property resulting from electing to use Sec. 2032A for purposes of the estate tax cannot exceed $1,140,000.

Gift tax annual exclusion: The gift tax annual exclusion for gifts of a present interest is $15,000. The gift tax annual exclusion for gifts of a present interest to a spouse who is not a United States citizen is $152,000.

Interest on a certain portion of estate tax payable in installments: The dollar amount used to determine the "2 percent portion" (for purposes of calculating interest under Sec. 6601(j)) on the extended period for payment of estate tax, as provided in Sec. 6166, is $1,520,000.  

Footnotes

1Green, 880 F.3d 519 (10th Cir. 2018).

2Green, No. CIV-13-1237-D (W.D. Okla. 11/4/15).

3Old Colony Trust Co., 301 U.S. 379 (1937).

4CCA 201747005 was requested by examiners in the Small Business/Self-Employed (SB/SE) division to whom the Office of Chief Counsel had issued a previous memo (apparently, CCA 201651013 — the subsequent CCA discusses the same fact situation and mentions a transmittal date of the prior memo within a few days of CCA 201651013's issuance date). The trust that was the subject of the earlier memo had filed protests in response to SB/SE's proposed denials. SB/SE sought the follow-up CCA to aid in its reply to the trust's protests.

5Ransome, "Recent Developments in Estate Planning: Part 2," 48 The Tax Adviser 728 (October 2017).

6Bosch's Estate, 387 U.S. 456 (1967).

7Auer v. Robbins, 519 U.S. 452 (1997).

8Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837 (1984).

9Due to the passage of the legislation known as the Tax Cuts and Jobs Act of 2017, P.L. 115-97.

 

Contributors

Justin Ransome, CPA, J.D., is a partner in the National Tax Department of Ernst & Young LLP in Washington. He was assisted in writing this article by members of Ernst & Young's National Tax Department in Private Client Services — David Kirk, Todd Angkatavanich, Marianne Kayan, Jennifer Einziger, Caryn Friedman, John Fusco, Nicholas Davidson, Ankur Thakkar, and Utena Yang. For more information about this article, contact thetaxadviser@aicpa.org.

 

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