The Senate Finance Committee heard testimony from Roby B. Sawyers, a professor in the College of Management at North Carolina State University and a member of the American Institute of CPAs' Tax Executive Committee, about the institute's recommendations for estate tax reform.
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"In order to provide certainty to taxpayers, the AICPA encourages Congress to make permanent changes to the estate tax prior to its scheduled repeal in 2010," said Sawyers (pictured), who chaired the AICPA's Transfer Tax Reform Task Force.
The AICPA wants exemptions for the estate, gift and generation-skipping transfer taxes to be re-unified. "Taxpayers and practitioners face planning difficulties as a result of decoupling the estate and gift tax exemption amounts in 2004," said Sawyers. "Under the law prior to the passage of the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate and gift tax exemption was unified and could be used to offset both lifetime gifts and bequests at death. This policy was well understood by taxpayers and simplified estate and gift tax planning by reducing the number of tax and non-tax variables that must be considered in deciding whether to transfer assets during life or at death."
Under current law, he pointed out, while the estate tax exemption and generation-skipping transfer tax exemption stand at $2 million in 2008 and increase to $3.5 million in 2009, the gift tax exemption remains at $1 million. As a result of the decoupling, taxpayers such as small business owners may be discouraged from making orderly lifetime gifts of property and to engage in business succession planning, Sawyers noted.
"Historically, the gift tax has been less expensive than the estate tax, providing an incentive for taxpayers to make intrafamily transfers during life," he said. "That policy has several advantages including a potential acceleration of tax revenue to the government. However, the primary advantage is that it encourages the lifetime distribution of family capital to younger generations."