Friday, December 10, 2010


Senator Reid has introduced an amendment to H.R. 4853,  a bill about the Airport and Airway Trust Fund.  So the constitutional requirement that the tax bill originate in the House has been met.  The amendment embodies the agreement President Obama reached with the Republicans, with a few tweaks.  For example, I cheered the expiration of the ethanol credit, but that has been restored for one year.

The amendment substitutes for the language of the House bill the "Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010."  That would be "TRUIRJCA 2010."  Lacks the snappiness of "ERTA" or "TEFRA," I don't think it will catch on.  "2010 Tax Act" seems more likely.

Key points on estate planning:

• $5 million exemption, no phase-in.
• 35% top tax rate, but not quite a flat rate tax, because the tax on the first $500,000 in transfers is less than 35%.
• Exemption portability for surviving spouses.  However, we might salvage credit shelter trusts.  To get the additional exemption, the estate of the first spouse to die must file an estate tax return, even though by definition no estate tax will be due. That return must put IRS on notice of the amount of unused exemption the surviving spouse inherits.  In the absence of the election, the spouse gets just the one exemption.  Having the formal estate structure that includes trusts and professional estate settlement will assure that the election is made and the enhanced exemption is secured for the family.
• The changes last for only two years, so planning for tax uncertainty remains an important point.
• The changes are retroactive to the beginning of 2010, and carryover basis is repealed.  So the 70,000 small estates adversely affected by the trade of capital gain taxes for estate taxes are protected, and no action need be taken.  Larger estates have an election to make, to be covered by carryover basis instead.  They have an extension of time to make that election, and the extension applies to ancillary planning matters such as disclaimers.

House Democrats tried to invent their own version of a filibuster yesterday.  It seems likely that the compromise will pass the House, but some Democrats argued that unless a majority of Democrats alone favored the bill, it should not even be brought up for consideration.  That argument was accepted on a voice vote in the caucus, but it is not binding.  Still, Speaker Pelosi may have the power to block this.  The Senate got to make some face-saving tweaks, the House has been told to take it or leave it.

They may have to be satisfied with their venting.

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