Time For Estate Tax To Go

That’s what the Tax Foundation is saying, and it may just be that the powers that be are listening for a change.

Generally speaking, the Foundation says estate and inheritance taxes are poor economic policy, because for the most part they hit accumulated capital which makes America richer and more productive as a whole.  These taxes restrict job growth, hurt the economy and their repeal would lead to the creation of nearly 150,000 jobs and an increase in overall Federal tax receipts of $8 billion per year.

The current government take from estates amounts to barely half of the total in real terms at the start of this century.  The tax raised almost $38 billion (today’s dollars) in 2001, though it will raise only about $20 billion in 2015 says the Office of Management and Budget.  Makes sense that the total is way down, given the substantial increase in the available exemption over that time frame.

If repeal eventuates, says the Tax Foundation, the loss of this $20 billion source of dough to Uncle Sam would be recovered through higher levels of wealth accumulation, and therefore higher receipts from individual income taxes, payroll taxes, and corporate income taxes.

Of course, Obama loves this one because it generally clips the “millionaires and billionaires” he so loves to rankle, and who don’t of course, pay their “fair share.”  But Congress is making noises that maybe the time has come to shed this confiscatory tax.  Let’s hope so.

Meanwhile, however, while you’re still alive, be happy in the knowledge that last Friday marked “Tax Freedom Day” which the Tax Foundation tracks each year.  But indeed, achievement of your freedom took one day more, this year, compared to last year.  Recall that “Tax Freedom Day” marks the date each year when you stop working for the government, and begin accumulating for yourself.  Regrettably, however, this year’s government take amounts to 31% of total national income – more than most folks are expected to spend on housing, clothing and food combined says the Foundation.

But just be glad you don’t live in Connecticut or New Jersey where a bloke has to work until May 13 in order to first pay all of his tax debts before starting to work for himself for the rest of the year!

And for those of you who have created your own “private foundation,” a recent private letter ruling from IRS reminds us of the importance of not running afoul of the “self dealing” rules, which can be draconian if not observed.

The law imposes a tax on acts of self-dealing between a “disqualified person” and a private foundation.  “Self-dealing” includes, among other things, the direct or indirect sale or exchange of property between a private foundation and a “disqualified person,” who is a substantial contributor to the foundation, a foundation director, trustee or officer and any ancestor, child, grandchild, great grandchild, or any of their spouses.  Whew.

But in this ruling, IRS found that the purchase of land owned by a partnership (in which a private foundation and a disqualified person together owned exactly a 50% interest) by the disqualified person would NOT result in self-dealing because together the private foundation and disqualified person did NOT control MORE THAN 50% of the partnership.

Sounds like hair-splitting, but goes to show that you have to read the rules very carefully in each factual situation.

CONSULT YOUR TAX ADVISOR – This article contains general information about various tax matters.  You should consult your CPA regarding the implications to your own particular situation.

Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno.  He can be reached at 831-7288, and welcomes comments at [email protected].

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