May 23, 2022 - Douglas Myser

IRS to amend gift and estate tax exclusion. The issued proposed regulations that would provide an exception to the anti-clawback special rule that preserves the benefits of the temporarily higher gift and estate basic exclusion amount. The regulations would apply to certain transfers that are includible, or treated as includible, in a decedent's gross estate under Sec. 2001(b). Specifically, the proposed IRS regulations would add a provision at Regs. Sec. 20.2010-1(c)(3), which was reserved for that purpose in final regulations issued in 2019. Those final regulations addressed situations where the basic exclusion amount that applies at the time of a decedent's death differs from the exclusion amount that applied with respect to any gifts made by the decedent. IRS to amend gift and estate tax exclusion.

This disparity occurred--and is scheduled to occur again, in reverse--as a result of the legislation known as the Tax Cuts and Jobs Act, which temporarily increased the basic exclusion amount from $5 million to $10 million, both adjusted for inflation, for decedents dying and gifts made after Dec. 31, 2017, and before Jan. 1, 2026, when it will revert back to the lower level. The 2019 final regulations ensured in part that the currently higher exclusion amount applied to gifts would not then be "clawed back" from the estate of a decedent subject to a future lower exclusion amount. For that purpose, they included Regs. Sec. 20.2010-1(c), which provides a special rule that applies when the credit against estate tax attributable to the basic exclusion amount is less at the date of death than the sum of credits attributable to the basic amount allowable in computing gift tax payable with regard to gifts the decedent made in his or her lifetime.

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