December 16, 2019 - Douglas Myser

Rules eliminate estate and gift tax clawback. IRS Reg-106706-16, amending Regs. Sec. 20.2010-1 to conform with the temporary increase in the basic exclusion amount for estate and gift tax enacted by the legislation known as the Tax Cuts and Jobs Act, P.L. 115-97. For gifts made and estates of decedents dying before Jan. 1, 2018, prior law provided an IRS exclusion from taxable gifts or estates of $5 million, indexed for inflation after 2011.  Thus, the amount for 2017 was $5.49 million and for 2018, $11,180,000 (rising to $11.4 million in 2019 and $11.58 million for 2020.) The final regulations amend Regs. Sec. 20.2010-1(e)(3) to conform to the Tax Cuts and Jobs Act's increase in the exclusion amount and changes regarding the cost of living adjustment. Rules eliminate estate and gift tax clawback.

The Tax Cuts and Jobs Act also, in Sec. 2001 (g)(2) granted the IRS authority to prescribe regulations to carry out Sec. 2001, which governs the imposition and rate of estate and gift tax, with respect to any differences between the basic exclusion amount that applies at the time of a decedent's death and with respect to any gifts the decedent made. The statutory sunset of the higher basic exclusion amount and reversion to the lower amount could, in effect, retroactively deny taxpayers who die after 2025 the full benefit of the higher exclusion amount applied to  previous gifts. This scenario has sometimes been called a clawback of the applicable exclusion amount. Rules eliminate estate and gift tax clawback.

Consequently, the Internal Revenue Service has adopted a special rule for those cases: In calculating a decedent's estate tax, when the portion of the credit as of the decedent's date of death that is based on the exclusion amount is less than the sum of the credit amounts attributable to the exclusion amount allowable in computing gift tax payable on post 1976 gifts, the portion of the credit against the net tentative estate tax that is attributable to the exclusion amount is based upon the greater of those two credit amounts.

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