Focus on what counts

Heard at Heckerling

January 10, 2017
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Great first day at Heckerling. Not unexpectedly, the first day focused on “what if” and talking about uncertainty. Howard M. Zaritsky (of Checkpoint’s Estate Planning Update fame) and Lester Law (Abbot Downing) began the day discussing Portability.  For the record, Zaritsky thinks the estate tax will be repealed completely in 2017. He qualifies this prediction by stating that he has been making predictions about estate tax for 40 years and has yet to be right, but this year he is feeling fairly confident.

Portability, the right to a Deceased Spouse’s Unused Exemption (DSUE), remains an issue, and Zaritsky and Law provided some interesting strategies for getting the most out of the exemption for the surviving spouse and family.
The afternoon centered around to separate panel discussions on current events.  The first part featured Catherine Veihmeyer Hughes (US Treasury Department’s office of Tax Policy), John Porter (Baker Botts, LLP), and Dennis I. Belcher and Ronald D. Aucutt (both of McGuireWoods LLP). 

Hughes explained the IRS’ position on the proposed 2704 regulations. Watch for our summary of her comments soon. Belcher, Porter, and Aucutt spoke at length about the gift tax not being included in the taxes that have been promised to be repealed, and the concern that basis is going to be a major issue. Aucutt doubts whether the government can afford the repeal of the estate tax, and thinks Congress will realize that they simply cannot ignore the cost of repealing of estate, gift, and GSTT tax while still providing a step-up in basis. Belcher revisited the Congressional discussions that took place in 2002, which eventually resulted in the repeal of the estate tax for just one year (2010). He also relayed a story about how President Regan wanted to repeal the estate tax, but when given the choice between it and giving up the B2 Bomber, chose the bomber (as a colleague quipped, “leaving us with a Stealth Bomber and stealth tax increases”). 

Aucutt thinks it is likely that the Republican Congress will try to get tax reform through before the August recess, using Budget Reconciliation to get them.  His prediction is that Congress’ changes will focus on the taxation of businesses and individuals, but because of the interrelated nature of the transfer tax (estate, gift, and income), it is disproportionately tricky and affects too few taxpayers and it will not be repealed.  There you have it – two experts in the field, two opinions!

Suggestions for the tax planner on how to proceed: Wait and see, with caution.  There is too much uncertainty, and you might want to sit back and do nothing. But, that might cause you to miss an opportunity. A better idea might be to proceed with caution, perhaps in shifting appreciation without triggering any gift tax.

To end the session, Dennis Belcher took us back to 2009 and reminded us “It’s déjà vu all over again”. As then, the best idea is keep flexibility in your documents. 

For the second session of the day, Aucutt and Porter were followed by Amy E. Heller (McDermott Will & Emery LLP) and the always entertaining Samuel A.  Donaldson (Georgia State University). This session focused on important cases that had been decided in the past year, including the settling of the Woelbing cases, (involving a defined value clause, settled in the taxpayers favor); and some cases involving family limited partnerships.  We plan to explore some of the more interesting of these cases in greater depth shorty after we return from Heckerling.

Catherine Veihmeyer Hughes provided an update on the Treasury-IRS Priority Guidance Plan, and the projects completed, added and substituted in 2016.  She also discussed the new Form 8971 and gave some insight into what the IRS was thinking when the regs were drafted. She mentioned that due to budget cuts and resulting staffing issues, the IRS will no longer issue PLRs on for GST tax issues, which is temporary, or estate closing letters, which is scheduled to be permanent. In lieu of estate tax closing letters, the IRS has asked that the practitioner either go on line, or call and request a transcript. If the transcript contains the code “421”, this means that the exam is closed.  A transcript with that code is the functional equivalent of a closing letter, and the IRS is asking Courts to accept them in lieu of a letter.  This might be something to watch for in states where closing letters are required to be filed with the Surrogate.

Watch for another installment tomorrow, when we will summarize Day 2 of the 51st Annual Heckerling Institute on Estate Planning.