Recently, a beneficiary of a 2010 estate reached out to alert me to an article from BNA: Brett Ferguson and Heather M. Rothman, Applying Estate Tax Retroactively Increasingly Unlikely, Baucus Says, July 28, 2010. This heir (who asked that I refer to him as DPD) explained that the BNA article provides comments by Sen. Max Baucus on the prospects for a retroactive estate tax.
In his correspondence, DPD explained that the uncertainty over the federal estate tax is causing his family a lot of stress. DPD also shared a letter that he sent to prominent people, including Senators Dodd [D-CT] and Lieberman [I-CT].
 DPD’s words capture the chaos that Congress has imposed on some people. In addition to dealing with the loss of a close and loved family member, DPD is having to cope with the uncertainty caused by Congress’ inaction:
So much time has gone by since he passed away. The estate tax issue has made it difficult to move on with life. Since he passed away, my wife quit her job, I have changed careers, we sold our house and bought a new house, and my wife is now four months pregnant with our second child. We have made many decisions based on assets we inherited a long time ago in January.
Had Congress acted early in the year, I would accept it as an effort to correct a mistake. Congress has had ample time to address this issue. As the year comes to an end, a retroactive estate tax would smack of an illegal seizure of my assets. This is not only concerning from a financial standpoint, but as a citizen: a retroactive estate tax nine months after repeal should scare and offend every American because it sets a precedent for other tax issues.
 DPD also shared the following letter that he wrote to prominent people. DPD explains that “[i]t quotes important tax writing elected officials and presents a factual evolution of the estate tax debate this year”:
September 1, 2010
Senator Christopher Dodd
30 Lewis St Suite 101
Hartford, CT 06103
Dear Senator Dodd:
In an opinion piece in yesterday’s Wall Street Journal authored by Robert Rubin and Julian Robertson, they attempted to make the case for a retroactive estate tax with flawed and incomplete information. This missing information severely undermines their argument.
In that article, they stated that, “there has been notice—through the president's budget and statements by public officials—that a (retroactive estate) tax would be enacted earlier this year that would apply to the whole of this year.”
In January and February of this year, Max Baucus, Chairman of the Senate Finance Committee, and Treasury Secretary Timothy Geithner expressed a desire to impose an estate tax retroactive to the start of 2010. But as early as February, Charlie Rangel, Chairman of the tax writing House Ways and Means Committee stated, "I don't like retroactivity, but you never can tell."
When Sander Levin replaced Charlie Rangel as Chairman of the House Ways and Means Committee in March, he indicated that if a retroactive estate tax were put in place, he favored giving taxpayers the choice of complying with current law- no estate tax but a capital gains tax- or whatever Congress eventually passed. According to a March 16th Bloomberg article, “One possibility being considered, (Levin) said, would let heirs choose to pay the capital gains tax that replaced the estate levy if that is more beneficial. “We have to write it so we don’t disrupt estate planning in this country.”
After the Kyle Lincoln estate tax proposal failed to reach the Senate floor in May, Max Baucus signaled that he was moving away from the idea of pure retroactive reinstatement. Although Baucus was perhaps the strongest and most influential proponent of retroactivity in the early part of the year, on July 27th, a BNA Tax and Accounting article quoted him as saying, “Practically speaking, the later that we take up and pass the estate tax law or provision, the more difficult it is to make it retroactive. However, it's possible there could be an election for the executor which would, in effect, make that question moot.”
At the IRS Tax Forum in New York on August 12th, Patrick Leahy, an attorney with the estate and gift tax division in Manhattan, told an audience of tax prepares not to file a Form 706 for 2010 estates, or the estate tax return. According to Web CPA, Leahy said, “If you file a 706 to the IRS Service Center, we will rapidly return it to you because we don’t have a place to put them.”
As the estate tax debate has evolved this year, the majority has concluded that either nothing will be done by Congress, or at the very least, there would be an option for estates in terms of compliance with existing and future law. This was made clear in a July 30th straw poll of estate tax experts in Julie Garber’s Wills and Estate Planning Blog. Only 11% of respondents believed there would be a retroactive estate tax.
If the keystone in the retroactive estate tax argument rests between what public officials have communicated to the public and the expectations of the public, then Congress should follow through with what it has indicated throughout the year: give 2010 estates a choice in estate tax compliance.
For more information (in chronological order):
- Hani Sarji, Rep. Rangel and Sen. Baucus on retroactively imposing the federal estate tax, Future of the Federal Estate Tax, Jan. 15, 2010.
- Hani Sarji, Rep. Levin states retroactive fix for federal estate tax is coming, Future of the Federal Estate Tax, March 16, 2010.
- Robert Rubin And Julian Robertson, Bring Back the Estate Tax Now, The Wall Street Journal, Sept. 1, 2010.
- Brett Ferguson and Heather M. Rothman, Applying Estate Tax Retroactively Increasingly Unlikely, Baucus Says, BNA, July 28, 2010.
- Hani Sarji, Round-up of comments on the WSJ op-ed by Rubin and Robertson, Future of the Federal Estate Tax, Sept. 29, 2010.