Permanent Estate Tax Relief.

In a letter to Congress, the AICPA urged members to consider various issues and alternatives toward a compromise on estate tax reform and, in particular, the Permanent Estate Tax Relief Act of 2006 (HR 5638). The letter encourages permanent changes to the estate tax prior to its expiration in 2010, to give taxpayers certainty.

The following suggestions focus on the complexity of the current system, taxpayer planning and compliance burdens, ease of administration and revenue constraints:

* Make permanent the technical modifications to the generation-skipping transfer (GST) tax rules enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). These technical modifications provide relief from several GST tax "traps" that existed under previous However, as with other EGTRRA provisions, these changes will sunset at the end of 2010, unless Congress acts to make them permanent.

* Increase the applicable exclusion (exemption) amount, to eliminate filing and tax burdens for 90%-95% percent of estates, and index the exemption for inflation.

* Retain the flail step-up in basis to fair market value for inherited assets and avoid the complexities of carryover basis.

* Create a uniform exemption amount for estate, gift and GST tax purposes. All three exemptions need to be uniform, to simplify planning for individuals.

* Reinstate the full state estate tax credit, or provide another mechanism (such as a surtax) that would allow states to uniformly "piggyback" on the Federal estate tax. To avoid diminishing tax revenues, many states have decoupled from the Federal estate tax and enacted their own estate tax regimes, resulting in unnecessary complexity and uncertainty in both planning and administration. (For a discussion, see Godfrey, "The Phaseout of the Federal State Death Tax Credit" Part I, TTA, February 2004, p. 96, and Part II, TEA, March 2004, p. 148.)

* Provide broad-based liquidity relief, rather than targeted relief provisions. Broad provisions that would apply to all illiquid estates would be both simpler and fairer to all taxpayers.

* Make the top estate tax rate no higher than the maximum individual income tax rate. If the rate structure has a large gap between brackets, there may be significant uncertainty in the planning process for married couples with significant estates. For example, taxpayers may have to consider if estate tax should be paid at the death of the first spouse at a 15% rate, compared to paying the tax in the future at a higher rate.

Many of the above suggestions were originally published by the AICPA in 2001, as part of its Study on Reform of the Estate and Gift Tax System, available at http://tax.aicpa.org/NR/ rdonlyres/7C558E55-3E42-42D0BD2C-9612E9E313E3/0/study 0227FINAL.doc.

Lesli S. Laffie, J.D., LL.M.