Most valuation discounts used today to cut gift and estate taxes could disappear by the end of the year. That’s how soon recently proposed Treasury regulations that dramatically curtail discounting could be adopted. Urging clients to consider transfers to family members while significant discounts remain available is thus a year-end tax-planning priority.
“It’s the biggest thing going on in my business right now,” says CPA Tony A. Rose, founding partner of Rose, Snyder & Jacobs LLP, an accounting firm in Encino, Calif. “If the client hasn’t used the full $5.45 million per person exemption from estate and gift tax, it would be smart to revisit making transfers. Clients who want to gift are better off doing it now than a year from now.”
The interest rates for intra-family dealings, i.e., the Applicable Federal Rate under Internal Revenue Code Section 1274(d) and the code Section 7520 rate, hit their 2016 lows in August, and that’s noteworthy because some discounting techniques provide additional tax savings when rates are low. Grantor retained annuity trusts (GRATs) and installment sales to intentionally defective grantor trusts, including sales involving regular promissory notes, self-canceling installment notes and private annuities, fall into this category, says estate planning attorney Steve Oshins, a partner at Oshins & Associates LLC in Las Vegas.
But don’t let the environment entice clients into gifting assets they need. “When you make a transfer, theoretically you’re not using that money anymore,” Rose tells advisors to remind clients.
Treasury is taking public comments on the proposed changes through November 2, followed by a hearing December 1. All but one proposal would take effect upon publication of final regulations, while the other proposed rule would be effective no sooner than 30 days afterward.
Unfortunately, “We really don’t have a good idea on the timing of the final regs,” says Mark Luscombe, principal analyst at Wolters Kluwer Tax & Accounting, an information company in Riverwoods, Ill. “The proposed regulations are arousing some controversy, so there could be a lot of comments the IRS might want to thoughtfully consider.”
Get An Early Jump
Impending changes to the due dates of certain business returns have been cheered by the American Institute of Certified Public Accountants, CPAs’ membership organization, even if some practitioners are skeptical about the purported benefits. Domestic partnership returns, including returns for limited liability companies that file as partnerships, are due March 15, 2017, versus April 15 in prior years. Returns for calendar-year C corporations have made the opposite switch; they’ll be due April 18, 2017, instead of in mid-March.
In theory, this allows a partnership to finish its return and distribute Schedule K-1, showing each partner’s share of the profits and other tax items, in time for individual and C corp partners to file in April.