Lawmakers asked to lower estate, trust tax rates.
The Tax Reform Act of 1986 and the Omnibus Budget Reconciliation Acts of 1990 and 1993 have combined to increase tax rates and compress rate brackets for estates and trusts. Before the TRA's passage, estates and trusts were taxed at the highest income tax rates applicable to individual taxpayers--those pertaining to married persons filing separate returns. Now, the 15% income tax bracket for estates and trusts ends at $1,500, as compared with $18,450 for married persons filing separate returns; the 39.6% surtax rate levied on all taxable income in excess of $7,500 for estates and trusts applies to taxable income above $125,000 for married persons filing separately.
In a letter to members of the House Ways and Means and Senate Finance Committees, Harvey Coustan, then chairman of the AICPA tax executive committee, said the highly compressed rates have a harsh effect on many trusts and estates. "The greatest areas of difficulty," wrote Coustan, "arise when there is a need to accumulate income for nontax reasons." For example, estates may need to accumulate income to pay bequests and debts, and trusts may need to build a fund for the future education of minor children or for the care of surviving spouses, orphans, elderly parents or the disabled, the letter said.
A letter from members of the American Bankers Association said the 1993 tax act unfairly targeted estates and trusts on the incorrect premise that wealthy taxpayers use them to shelter income, and that the bill perpetuates a "discriminatory effect against two types of entities that are commonly used by the middle class." Coustan wrote, "There is nothing sinister or subversive about estates and trusts."
The letters suggested that restoring estate and trust tax rate brackets to the highest individual income tax rate brackets could lead to revenue gain as trusts accumulate income they otherwise would be driven to distribute to lower-bracket individuals. "Even if there is revenue loss," wrote Coustan, "it would be in those circumstances when there is the greatest nontax objective."
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|Publication:||Journal of Accountancy|
|Article Type:||Brief Article|
|Date:||Nov 1, 1994|
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