The New York State Society of Public Accountants, the oldest state accounting association, representing approximately 30,000 CPAs, has offered certain suggestions regarding pending legislation in Congress affecting estate planning-- specifically emphasizing the pressing need for certainty and ease of administration with respect to the transfer tax.
We all know that CPAs are asked frequently to advise clients on the effects of their financial and transactional planning on the taxability of their estate but as the Society points out, without legislation to clarify the long-term tax treatment of estates, planners are subject to trying to foretell what regime the Congress and the Executive Branch are ultimately likely to decide. "This situation does not foster confidence in our system of taxation; nor does it allow professionals such as CPAs to serve their clients most effectively."
For one, the Society feels a need for certainty in order to plan successfully for those taxpayers and their businesses and families in order to comply with the law. "We need certainty as it pertains to the structure of the transfer tax regime, the rates and the exemption level, and effective dates so that resources are not wasted planning for a tax that may not apply." In that regard, the Society says that it is necessary to engage in economically efficient planning in order to plan properly for funding of the estate tax in situations in which a tax will apply. "The more complexity that exists, the more the taxpaying public is left unsure that their estate plan will prove sufficient."Next, there is a need for ease of administration. The Society notes that resetting the tax basis of assets upon death to fair market value is a critical component of current law that must be retained. "Any alternative would create chaos and a tremendous administrative burden with respect to assets that have been acquired by the decedent prior to the implemented change." Without a step-up in basis, the Society argues, a large number of taxpayers would not have the historical cost information required to comply with a carryover basis regime. "Carryover basis is likely to lead to taxpayers, in good faith, simply guessing at their cost bases with no real proof or substantiation. In addition, it could lead to a significant tax increase on those who acquire property from any estate (regardless of size) by requiring income taxes to be paid on pre-estate appreciation for disposed-of property."The Society commends the effort in current legislative proposals to create certainty in the transfer tax area while retaining a "stepped-up" basis in the proposed legislation. It also makes specific comments, such as:
- Estate Tax Exemption: "We applaud recent proposed legislation for its recognition of the need for the exemption level to be readjusted upward seriously and permanently. While we are not wedded to the $5 million amount proposed (because we consider the $3.5 million that some have proposed also to be reasonable), it is important that the exemption be raised to a reasonable level."
- Certainty in Rates: "We urge that the transfer tax rates also be set with certainty rather than annual adjustments, or by reference to capital gains rates. If the estate tax rates were tied to the then prevailing capital gains rates, more uncertainty would result because we have experienced several changes to the capital gains rate in the past and it may well change again over time. It is a frequent element of proposed tax legislation."
- Portability of Estate Tax Exemption: "The portable spousal exemption is a necessary element of estate planning, and we support legislation that reflects this need. A husband and wife should not have to go through the time, expense and effort to split assets solely to utilize their respective estate tax exemptions. A surviving spouse should be allowed to employ the unused exemption of the decedent spouse. Congress should not penalize a couple that chooses not to separately re-title ownership of its assets, as is the current circumstance. We recognize that Congress may determine it appropriate to place limits upon the portability of the estate tax exemption between spouses in the case of multiple marriages."
- Benefit of Having Unified Estate, Gift and GST Tax Exemptions: "U.S. taxpayers need consistency and uniformity similar to that which we have experienced under prior law. The public will have certainty that will aid it in planning as well as an understanding of the system. There should not be a difference in transfer tax treatment if one makes gifts during his or her lifetime versus at the time of death."
- Proposed Repeal of the State Estate Tax Deduction: "Under the proposed legislation, there is no Federal deduction for state estate tax paid or incurred. We believe that repeal of this deduction (or credit under pre-2001 law) will result in a disproportionate disadvantage to New York resident decedents, and urge that this particular provision of the current proposal not be adopted."
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