Bonner & Nevius: Congress Passes Fiscal Cliff Act

Paul Bonner and Alistair M. Nevius, Congress passes the fiscal cliff act, Journal of Accountancy:

Pulling back from the “fiscal cliff” at the 13th hour, Congress on Tuesday preserved most of the George W. Bush-era tax cuts and extended many other lapsed tax provisions.

Shortly before 2 a.m. Tuesday, the Senate passed a bill that had been heralded and, in some quarters, groused about throughout the preceding day. By a vote of 89 to 8, the chamber approved the American Taxpayer Relief Act, H.R. 8, which embodied an agreement that had been hammered out on Sunday and Monday between Vice President Joe Biden and Senate Minority Leader Sen. Mitch McConnell, R-Ky. The House of Representatives approved the bill by a vote of 257–167 late on Tuesday evening, after plans to amend the bill to include spending cuts were abandoned. The bill now goes to President Barack Obama for his signature.

“The AICPA is pleased that Congress has reached an agreement,” said Edward Karl, vice president–Tax for the AICPA. “The uncertainty of the tax law has unnecessarily impeded the long-term tax and cash flow planning for businesses and prevented taxpayers from making informed decisions. The agreement should also allow the IRS and commercial software vendors to revise or issue new tax forms and update software, and allow tax season to begin with minimal delay.”

With some modifications targeting the wealthiest Americans with higher taxes, the act permanently extends provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16 (EGTRRA), and Jobs and Growth Tax Relief Reconciliation Act of 2003, P.L. 108-27 (JGTRRA). It also permanently takes care of Congress’s perennial job of “patching” the alternative minimum tax (AMT). It  temporarily extends many other tax provisions that had lapsed at midnight on Dec. 31 and others that had expired a year earlier.

The act’s nontax features include one-year extensions of emergency unemployment insurance and agricultural programs and yet another “doc fix” postponement of automatic cuts in Medicare payments to physicians. In addition, it delays until March a broad range of automatic federal spending cuts known as sequestration that otherwise would have begun this month.

Among the tax items not addressed by the act was the temporary lower 4.2% rate for employees’ portion of the Social Security payroll tax, which was not extended and has reverted to 6.2%.

See full article by Paul Bonner and Alistair M. Nevius, Congress passes the fiscal cliff act, Journal of Accountancy, January 1, 2013.

Post Presidential Election, Tax Professionals Predict Expiration of Lifetime Gift & Estate Tax Exemption

Now that the dust has settled following the 2012 presidential election, some tax experts are predicting that President Barack Obama's administration and the new Congress may let the current lifetime gift and estate tax exemption expire.  In his article, Grab the $5M Gift and Estate Tax Perk: It's Gone in 2013, Robert W. Wood discusses this important issue:

It’s post-election, nearly year-end, and taxes are on everyone’s mind. You may not be able to do much about the fiscal cliff or other imponderables. But you can fix your will and trust or just make a gift by year-end.

Act now! Think infomercial. This is a special limited time offer! Procrastination is understandable, especially about taxes and mortality. Yet it’s still surprising most people haven’t taken advantage of the incredibly favorable estate and gift tax law expiring in 2012. See It Pays To Plan For Future Estate Tax Changes. 

Congress enacted a $5 million exemption for both gift and estate taxes, but only through 2012. See Making Tax Decisions In Limbo. But wait, there’s more! Indexed for inflation, the exemption is now $5,120,000. It drops to only $1 million January 1, 2013. That’s a free pass to give away up to $5,120,000 without tax. If you are married, that’s up to $10,240,000 for a married couple with no tax.

IRS Releases 2011 Tax Stats - Estate Tax and Gift Tax Statistics

The IRS Statistics of Income Program (SOI) has posted "SOI Tax Stats - Estate Tax Statistics" and "Gift Tax Statistics," with data from 2011.  The update includes three estate tax statistics spreadsheets showing data from filing year 2011 for estate tax returns (Form 706).  One spreadsheet shows income, deduction, and tax computation data, classified by taxability of estate tax return and size of estate.  A second spreadsheet shows selected estate tax computation data classified by State of residence.  A third spreadsheet shows data regarding charitable bequests classified by state of residence.  Below is an excerpt from the first spreadsheet showing estate tax revenue classified by taxability of estate tax return and size of estate.

Table 1. Estate Tax Returns Filed in 2011, by Tax Status and Size of Gross Estate [Money amounts are in thousands of dollars.] Tax status and size of gross estate	Gross estate for tax purposes
	Number	Money Amount   (in thousands)
All Returns	4,588	48,009,811
Under $3.5 million	601	1,427,959
$3.5 million < $5.0 million	990	4,129,975
$5.0 million < $10.0 million	2,110	13,874,974
$10.0 million < $20.0 million	563	7,531,234
$20.0 million or more	324	21,045,670
All Taxable Returns	1,480	19,832,684
Under $3.5 million	174	428,126
$3.5 million < $5.0 million	278	1,181,171
$5.0 million < $10.0 million	654	4,443,130
$10.0 million < $20.0 million	218	2,967,290
$20.0 million or more	156	10,812,968
All Nontaxable Returns	3,108	28,177,127
Under $3.5 million	427	999,833
$3.5 million < $5.0 million	712	2,948,804
$5.0 million < $10.0 million	1,456	9,431,844
$10.0 million < $20.0 million	345	4,563,945
$20.0 million or more	168	10,232,702

...

Permanent Change on the Way for the Estate Tax?

Jeffrey A. Cooper of Quinnipiac University School of Law makes the case in his recently published paper, Time for Permanent Estate Tax Reform:

 

In the next four years, preferably in the next four months, Congress and the President must work together to implement their own vision for the estate tax, rather than allowing mere inertia to effectuate choices made by their predecessors. Put simply, the Congress of 2013 must enact permanent estate tax reform.

Unfortunately, that task will not be so simple. In many ways, the challenge facing estate tax reform is but one narrow slice of a far larger problem confronting modern tax policy. In much of the recent past, Congressional action on tax legislation has been dictated by short-term considerations rather than long-term policy goals. Through skillful legislative drafting and genuine compromise, the President and the Congress of 2013 can reverse this trend. I offer this essay as a modest contribution to that effort.