The Honorable William M. Thomas, Chairman
House Committee on Ways and Means
1102 Longworth House Office Building
Washington, DC 20515
The Honorable Charles E. Grassley, Chairman
Senate Finance Committee
219 Dirksen Senate Office Building
Washington, DC 20510
The Honorable Charles B. Rangel, Ranking Member
House Committee on Ways and Means
1106 Longworth House Office Building
Washington, DC 20515
The Honorable Max Baucus, Ranking Membe
Senate Finance Committee
219 Dirksen Senate Office Building
Washington, DC 20510
Dear Chairmen and Ranking Members:
As Congress considers various issues and alternatives with regard to a compromise on estate tax reform and in particular the Permanent Estate Tax Relief Act of 2006 (H.R. 5638), the American Institute of Certified Public Accountants (AICPA), the national professional association of approximately 350,000 CPAs throughout the country, encourages you to make permanent changes to the estate tax prior to the current law expiring in 2010 in order to provide certainty to taxpayers. We are providing you our priority list of suggested reforms of the current estate and gift tax system, which we previously submitted to Congress on July 28, 2005. Many of these suggestions were published in 2001 as part of the AICPA’s Study on Reform of the Estate and Gift Tax System, which we provided to you last year (see link below). In developing these suggestions, we focused on the complexity of the current system, taxpayer planning and compliance burdens, ease of administration and revenue constraints. Our suggestions follow:
1. Make permanent the technical modifications to the generation-skipping transfer tax (GSTT) rules enacted in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). These technical modifications provide relief from several GSTT “traps” that existed under previous law. However, as with other provisions of EGTRRA, these changes will sunset on December 31, 2010, unless action is taken to make them permanent.
2. Increase the applicable exclusion (exemption) amount in order to eliminate filing and tax burdens for 90 to 95 percent of estates. We also suggest indexing the exemption for inflation.
3. Retain the full step-up in basis to fair market value for inherited assets and avoid the complexities of carryover basis.
4. Create a uniform exemption amount for estate, gift, and generation-skipping transfer tax purposes. We emphasize the need for all three exemptions to be uniform in order to simplify planning for individuals.
5. Reinstate the full state estate tax credit, or provide another mechanism (such as a surtax) that would allow states to uniformly “piggyback” on the federal estate tax. To avoid diminishing tax revenues, many states have decoupled from the federal estate tax and enacted their own estate tax regimes, resulting in unnecessary complexity and uncertainty in both planning and administration.
6. Provide broad-based liquidity relief, rather than targeted relief provisions. Broad provisions that would apply to all illiquid estates would be both simpler and fairer to all taxpayers.
7. Make the top estate tax rate no higher than the maximum individual income tax rate. We note that if the rate structure has a large gap between brackets, there may be significant uncertainty in the planning process for married couples with significant estates. For example, taxpayers may have to consider if estate tax should be paid at the death of the first spouse at a 15% rate compared to an alternative of paying the tax in the future but at a higher rate.
We hope you will consider these suggestions in your debate about estate tax reform. We look forward to working with you to achieve simplicity, effectiveness, and efficiency as Congress considers changes to the current estate and gift tax system.
If you have any questions or if we can be of further assistance, please contact me at tpurcell@creighton.edu; Thomas Ochsenschlager, AICPA Vice President - Taxation, at tochsenschlager@aicpa.org; Steven A. Thorne at stethorne@deloitte.com; Roby Sawyers, Chair, AICPA Transfer Tax Reform Task Force, at roby_sawyers@ncsu.edu; or Eileen Sherr, AICPA Technical Manager, at esherr@aicpa.org.
Sincerely,
Thomas J. Purcell, III, Chair, AICPA Tax Executive Committee