If you're of a certain age, that headline probably has you replaying in your mind the continuous Weekend Update report from Saturday Night Live's first season telling all that Spain's Generalissimo Francisco Franco is still dead.
The same thing can be said about the estate tax.In case you've forgotten, the federal estate tax was temporarily eliminated on Jan. 1.
And folks are beginning to get antsy. The longer the fate of the estate tax remains unknown, the more it becomes a political liability for lawmakers.
The possibility of any retroactive reinstatement, however, is
causing even more worries.
"The move could create endless litigation as taxpayers cry foul over being taxed subsequent to receiving their inheritance," writes The Hill's Jay Helfin. "The longer Congress postpones its decision on the estate tax, the more estates could be subjected to a retroactive tax that could incite more lawsuits."
The legal morass is part of the reason that some lawmakers are exploring the possibility of reinstating the estate tax as well as leaving it dead for the rest of the year.
Yes, Congress reportedly is really trying to have it both ways here. And it might just happen this time.
Tax some, not others: The estate tax is scheduled to return in a tougher form in 2011. But currently, the IRS can't collect on an estate, regardless of the amount of property left by a decedent.
Really rich folks are generally ecstatic about that, although truth be told, really rich people had probably already figured out ways within the old laws to protect from taxation much of
what they left.
But the bad thing about the death of the estate tax, even in the eyes of those who adamantly oppose it, is that the stepped-up basis option died, too. That's where heirs get to count the value of what they receive at its fair market value on the date the rich relative who owned it died.
So instead, for example, of inheriting Uncle Harry's basis of $1,000 in stock that was worth $10,000 when he died, you get the 10 grand value, too. That's better for you tax wise when you sell the stock for $15,000. You only have a $5,000 taxable gain instead of having to pay taxes on a $14,000 profit.
To counter this potentially nasty tax bite created by the loss of the step-up option, Congress authorized the IRS to exempt the first $1.3 million in capital gains and an additional $3 million in gains for a spouse. But anything over those thresholds will be subject to the original basis valuation and tax calculation method.
For some, and in fact for many who inherit relatively small estates, the 2009 rules that allowed for exemption of estates up to $3.5 million and use of stepped-up basis might be better.
Recognizing they could get more votes help more taxpayers, some in Congress are talking about a law change that would give estates a choice for 2010. Estates could pay using 2009's rules or take advantage of the one-year repeal of the tax.
The suggestion isn't in any bill yet, but it is picking up some buzz on Capitol Hill, especially since it would take care of concerns that reinstating the tax in the middle of the year would violate the Constitution (and prompt lawsuits).
And that happened in late March when mega-billionaire Dan Duncan died.
The Houston oil pipeline magnate was the first uber-wealthy person to pass away in the no-estate tax era.
Or, as The Trust Advisor Blog put it: Billionaire's Heirs First to Win 2010 Estate Tax Jackpot.
Obviously Duncan's team of attorneys and tax advisers are on top what's best for his family.
Still, since the executors have nine months before filing an estate tax return, it will be interesting to see just what the Duncan estate does if the choice of estate tax law is available by then.
- Senate pulls the estate tax plug
- The estate tax, a Dickens of a law
- The heiress, farmer and estate taxes
- Death and taxes will continue
- A tax by any other name
- Delaware tax tidbit: estate tax is back
- Dead estate tax costs U.S. billions (Bankrate Taxes Blog)
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