FINANCE COMMITTEE TAKES AIM AT AMT: A bipartisan coalition of members of the U.S. Senate Finance Committee, including chairman Charles Grassley, R-Iowa; ranking member Max Baucus, D-Mont.; Ron Wyden, D-Ore.; and Jon Kyl, R-Ariz., have introduced legislation to repeal the alternative minimum tax.The Individual Alternative Minimum Tax Repeal Act of 2005 would amend the Internal Revenue Code to end the AMT beginning in the 2006 tax year.
The current temporary "patch" or increase in AMT exemptions is set to expire at the end of 2005. According to the Congressional Research Service, the end of those exemptions would increase the number of taxpayers paying the AMT to more than 19 million next year - up from 2.3 million in 2003.
The AMT, created some 35 years ago to snag rich people who tried to dodge paying federal income taxes, has increasingly snared middle-class taxpayers. In a 2003 annual report to Congress, the National Taxpayer Advocate designated the AMT as the No. 1 problem facing individual taxpayers. According to that same report, in 2010, the AMT will affect nearly 32 million taxpayers, the majority of whom will have incomes under $100,000.
"We have two parallel tax systems that make taxpayers do two sets of calculations, and if they get an AMT hit, pay more. If we do nothing, the situation will get worse. It's a mess, and we need to clean it up for good, " said Grassley.
AAA-CPA WARNS OF ESTATE TAX REPEAL PROBLEMS: Legislators and the public should be aware that carry-over basis problems of estate tax repeal could be a nightmare, according to the American Association of Attorney-CPAs.
"If the only financially feasible way to permanently repeal the estate tax is to institute a carry-over basis regime which essentially replaces the estate tax with an income tax, serious consideration should be given to retention of the federal estate tax with a lowering of the tax rate and an increase in the amount exempt from tax," said AAA-CPA president Bernard Eizen, Esq., CPA, of Philadelphia.
Under present law, the tax basis of inherited property becomes its fair market value on the date of death or the alternate valuation date, thus giving heirs a fresh start. Repeal of the estate tax as now proposed would partially repeal the fresh-start rule as well, causing heirs of larger inherited estates to be subject to higher taxable gains upon the sale of inherited property.
"How would you determine the cost of inherited property that might have been purchased any time within the last 40 years, when the person who bought it is dead and cannot tell you?" said Atlanta-based C. Murray Saylor Jr., Esq., CPA, a past president of the association.
Sydney S. Traum, Esq., CPA, spoke about the fairness of subjecting inherited assets to a transfer tax when the items may have been purchased with money that had already been subject to an income tax. "In many cases the funds used were from tax-exempt sources such as municipal bond interest, gifts or previous inheritances," he said. "Furthermore, the argument fails when you consider that people pay sales taxes and real estate taxes on items that were purchased using funds that were already subject to income taxes."
TAX PANEL UNLIKELY TO SEEK ESTATE TAX OVERHAUL: The president's panel studying tax overhaul options isn't expected to recommend major changes to the estate tax, according to published reports.
In remarks to reporters, Jeffrey Kupfer, executive director of the Advisory Panel on Federal Tax Reform, said, "I don't see us getting into the estate tax issue at all," Dow Jones reported. The comment came after Kupfer's update on the panel's deliberations at an American Bar Association tax section conference late in May.
The nine-member panel, appointed by President Bush in January, is supposed to produce its recommendations for overhauling the tax code by July 31.
According to reports, Kupfer said that the panel is working on the assumption that Bush's budget proposals - which assume permanent repeal of estate taxes and making the 2001 and 2003 tax cuts permanent - will be enacted.
"Under the idea that we're following the president's baseline, which is repeal, there is no reason to jump into [the estate tax issue]," Kupfer reportedly said. However, he added that he didn't want to rule out that the panel's final report might make some reference to estate taxes.
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