Task force makes GST proposal.

The Multi-Professional Organization Allocation Task Force (which includes members of the AICPA, the American Bankers Association, the American College of Trust and Estate Counsel and several bar associations) recently submitted a proposal to Congress advocating changes in the application of the generation-skipping transfer (GST) tax exemption.

The proposed changes would help taxpayers and their advisers fully make use of the GST exemption.

"In the proposal we are trying to increase fairness and equity by simplifying what is an extremely complex area of the law," said Lloyd Leva Plaine, a partner at the law firm of Sutherland, Asbill & Brennan LLP, Washington, D.C.,

and a member of the task force.

"People are trying to use the $1 million generation-skipping transfer exemption that they are allowed by law," she said, "but the usage is being unnecessarily restricted by the complexity of the exemption allocation rules."

The GST tax, enacted by Congress in 1986, imposes the maximum gift and estate tax rate (55%) on transfers to beneficiaries more than one generation removed from that of the benefactor. The law, however, allows every individual a $1 million GST exemption. The exemption may be allocated to any property subject to estate or gift tax.

The GST exemption is automatically allocated in direct gifts from grandparents to grandchildren, unless the transfer is made through a trust, in which case the exemption must be elected.

"In most cases people just miss the allocation," said John H. Gardner, chairman of the AICPA trust, estate and gift tax committee.

By the time the missed allocation is discovered, he added, a $1 million transfer may have ballooned into $5 million. At that point, the entire gift trust would be subject to the maximum gift and estate tax rate.

(Note: Examples of how the GST tax might be applied can be found in the "AICPA's Legislative Solution to the GST Tax Exemption Allocation Trap" Tax Adviser, August 1998, page 562.)

When taxpayers realize they might have avoided additional tax liabilities by making the allocation, they may sue their tax advisers for failing to instruct them to do so.

"Small accounting firms, big accounting firms, law firms and/or anyone who files gift tax returns potentially could be sued over this," said Eileen Sherr, technical manager in the AICPA taxation division.

The task force proposal attempts to remedy the GST tax-exemption dilemma through the following recommendations:

* Extending the automatic exemption allocation rule to GST-type trusts.

* Providing statutory authority for the IRS to grant 9100 relief to taxpayers for late allocation.

* Confirming that substantial compliance provisions cover allocations evident from the return and other documents.

* Extending the predeceased parent exception to provide for retroactive allocation of the GST exemption for unnatural order of death when the transferor is still alive.

* Providing a trust-severance rule to cover various situations, including unexpected order of death and when there is an inclusion ratio between zero and one.

"This proposal would extend the automatic allocation of the GST exemption to trusts and situations where one rationally would want it to be made, making the GST exemption more user-friendly and more accessible to taxpayers" Plaine said.

Utah CPA Named Taxpayer Advocate

Charles O. Rossotti, commissioner of the IRS, recently announced the appointment of W. Val Oveson, a member of the AICPA state and local taxation committee, to the enhanced national taxpayer advocate position.

Having the reputation of an innovative and effective administrator, Oveson expects to play a major role on the management team that will push for modernization and customer service improvements at the IRS in accordance with the provisions of the IRS Restructuring and Reform Act of 1998.

Oveson, chairman of the Utah State Tax Commission since 1993 and Utah's former lieutenant governor for two terms, described his new job as being the manager of information between taxpayers and tax legislators.

He said he will focus on three main areas in his new role.

1. Listening to taxpayers to determine the areas of tax administration that cause problems. He will use the IRS Problem Resolution Program (PRP) to collect anecdotal and statistical information and rely heavily on the new citizen advocacy panels (CAP) to gather information.

Another way to get the taxpayer's point of view will be communicating with groups that represent tax practitioners such as the AICPA, Oveson said.

2. Communicating taxpayers' complaints within the IRS and developing solutions to those problems.

3. Reporting to Congress on the taxpayer problems found, what the IRS is doing to correct them and the legislative action needed (if any) to resolve the problems.

Oveson said that, as the national taxpayer advocate, he will play a big part in reshaping how the IRS deals with taxpayers. The position, formerly called the "taxpayer advocate," has had more than a name change, he said. It now has more authority within the IRS, an increased staff allocation and an enhanced reporting relationship to Congress.

"The national taxpayer advocate plays a very prominent role in the restructuring movement," Oveson said. "The new position will enhance the restructuring and not diminish it."

RELATED ARTICLE: Rossotti Appoints New IRS Team

IRS Commissioner Charles O. Rossotti reached beyond the circle of IRS insiders when he created the agency's new management team.

"These changes are part of our effort to place the right people in the right jobs to help move us toward the creation of a new, taxpayer-focused IRS," said Rossotti about the appointments.

Management Team

National Taxpayer Advocate--W. Val Oveson, chairman of the Utah State Tax Commission.

Deputy Commissioner (Modernization)--John LaFaver, secretary of the Kansas Department of Revenue.

Deputy Commissioner (Operations)--Robert Wenzel, IRS chief operations officer since April 1998.

Chief Information Officer--Paul J. Cosgrave, whose experience includes 25 years in the information technology industry.

Deputy Chief of Management and Finance--Lynda Willis, GAO director of tax policy and administration issues.

Chief Financial Officer--Donna H. Cunninghame, CFO of the Corporation for National Service.

National Director of Education--Ronald P. Sanders, executive director of George Washington University's Center for Excellence in Municipal Management.