AICPA wants more clarity on estate and gift tax exclusion amount

The American Institute of CPAs has written a letter to the Treasury Department and the Internal Revenue Service asking them to clarify their proposed regulations on changes in estate and gift taxes under the Tax Cuts and Jobs Act, particularly the increased basic exclusion amount.

The proposed regulations in REG-106706-18 will have an impact on donors of gifts made after 2017 and estates of decedents dying after 2017.

The AICPA suggested in its letter that the Treasury and the IRS “provide guidance clarifying that if the BEA is lower in future years (either because of the 2026 expiration of the provision in the TCJA or other Congressional action), a taxpayer is allowed a deceased spousal unused exclusion (DSUE) that is not lower than the DSUE on the filed tax return of the first spouse to die (and not a lower BEA when the second spouse dies).”

Without such a clarification, the AICPA noted, an individual could arguably interpret the language of Internal Revenue Code section 2010(c)(4) to “provide that the DSUE available to the second spouse’s estate is not a larger $10 million, but a smaller amount of $5 million, which is the BEA then in effect.”

“Treasury and IRS should confirm that the DSUE is $10 million,” wrote AICPA Tax Executive Committee chair Annette Nellen in a letter last Friday.

The Tax Cuts and Jobs Act amended the tax code to allow the exclusion amount for estates to be effectively doubled. For people who died and gifts made after Dec. 31, 2017 and before Jan. 1, 2026, the basic exclusion amount, or BEA, increased by $5 million to $10 million as adjusted for inflation (increased BEA). But since most of the changes in the new tax law for individuals only last until 2025 for budgetary reasons, on Jan. 1, 2026, the BEA base will go back to $5 million. That means an individual or their estate can use the increased BEA to transfer an additional $5 million without paying a transfer tax during the eight-year period starting on Jan. 1, 2018, and ending on Dec. 31, 2025 (increased BEA period), the AICPA noted.

AICPA Tax Executive Committee chair Annette Nellen

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