Paul L. Caron

Wednesday, July 31, 2019

Johnson: The Estate Tax Gap

Calvin H. Johnson (Texas), The Estate Tax Gap, 163 Tax Notes 1479 (June 3, 2019):

The Internal Revenue Code provides that all property transferred by reason of death shall be included in the gross estate whether the property is real or personal, tangible or intangible and wherever located. The IRS Statistics of Income, however, indicates that estate and gift tax reaches only 25% of the IRS would expect to collect if wealth transferred at death were included in full in the gross estate. The paper uses calculations based on the Saez and Zucman statistics of wealth, and defends those statistics as the best for estate tax purposes. The rest or 75% of value is lost to undervaluation of the property transferred. The articles suggests some simple steps to combat undervaluation, including ignoring temporary restrictions the decedent has added to the property to suppress its supposed value, and delaying the valuation date until the decedent’s retained interest have expired. But the talent of the estate planning bar is such that we should not expect full and fair valuation of property transferred by reason of death.

See also Paul L. Caron (Dean, Pepperdine) & James R. Repetti (Boston College), The Estate Tax Non-Gap: Why Repeal a 'Voluntary' Tax?, 20 Stan. L. & Pol'y Rev. 153 (2009)

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A sort-of-confiscatory nominal rate focused on (rich) people who die unexpectedly, focus on running money instead of sheltering it, or possibly don't feel right about hyper-technical ways to lowball their taxes is both ineffective and shameful.

My experience with NYU's "Estate Planning" class - even "Advanced" and "International", with some of Biglaw's best - suggests patching the rules could change *a lot.* Often tremendous value didn't vanish through financial wizardry, or even sophisticated economic arguments, just cookie-cuttering facts of highly artificial court cases that who knows why Congress and Treasury - who could for instance consider 7520(b) as authority to address aggressive GRATs - let stand.

Posted by: Anand Desai | Jul 31, 2019 9:54:33 PM