Baldwin Haspel Burke & Mayer LLC

BHBM Tax Law Alert 10/3/2017


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BHBM Seminar for CPAs

We will be hosting our 34th Annual Seminar for Certified Public Accountants on the following dates. To access the registration brochure, click here: 2017 CPA Seminar Brochure.

Northshore Seminar – October 18, 2017
Program 1pm-4:45pm, Reception 4:45pm
Clarion Inn & Suites
501 N. Hwy 190
Covington, LA 70433

Metairie Seminar – November 8, 2017
Program 1pm-4:45pm, Reception 4:45pm
Sheraton Metairie
4 Galleria Boulevard
Metairie, LA 70001


Trump Administration’s Proposed Tax Plan

On September 27, 2017, the Trump Administration released its framework of proposed tax legislation. Although this framework is the most comprehensive proposed by the Trump Administration thus far, many of the ultimate decisions are left up to the House Ways and Means and Senate Finance committees. The framework consists of the following proposals:

Individual Tax Changes:

Business Tax Changes:

View the complete text of the framework here.

Projected Increases to Estate/Gift Tax Exemption and Annual Exclusion Amount for 2018

Based on recent inflation figures, the federal estate and gift tax exemption amount is projected to be $5,600,000 (or $11,200,000 per couple) in 2018. Under current law, the unified gift and estate tax credit exempts the first $5,490,000 in fair market value of assets, after which a flat rate of 40% applies.

In addition, the annual exclusion amount for gifts is expected to be increased to $15,000 per donee. The annual exclusion amount has remained at $14,000 since 2013. In general, if a taxpayer makes lifetime gifts in excess of the annual exclusion amount, such gifts will count against the applicable estate/gift tax exemption amount.

IRS May Audit First Spouse’s Estate Tax Return if Second Spouse’s Return Reflects Portability

In a recent decision (Estate of Sower, 149 TC No. 11 (2017)), the Tax Court held that the IRS is not precluded from auditing the estate tax return of the first-to-die spouse for purposes of determining the estate tax liability of the surviving spouse, where the estate of the first-to-die spouse made the estate tax portability election.

IRC § 2010 provides a unified credit against estate tax (the “Unified Credit”). The Unified Credit effectively reduces the value of the estate for the purpose of calculating the tax. The Unified Credit includes both the basic estate tax exclusion amount ($5.49 million) and, in the case of a surviving spouse, the deceased spousal unused exclusion amount (“DSUE”).

The DSUE is the unused portion of the basic estate tax exclusion amount that remains if the first-to-die spouse has not fully used up his or her estate tax exclusion amount. The DSUE can be transferred to the surviving spouse where the first-to-die spouse’s estate makes the estate tax portability election. Thereafter, for both gift and estate tax purposes, the surviving spouse’s exclusion is the sum of (i) his/her own exclusion (as such amount is adjusted for inflation), plus (ii) the predeceased spouse’s transferred DSUE amount.

In Estate of Sower, Frank and Minnie Sower were husband and wife. In 2012, Frank died and his estate elected portability. Following Frank’s death, the IRS issued Estate Tax Closing Documents (Letter 627) to Frank’s estate showing no estate tax liability.

Minnie died in 2013. The IRS conducted an audit of Minnie’s estate tax return. Solely for purposes of determining Minnie’s estate tax, the IRS reviewed Frank’s estate tax return and determined that the DSUE amount on that return was overstated. As a result, the IRS determined that there was a deficiency on Minnie’s estate tax return.

The Court held that pursuant to IRC § 2010(c)(5)(B), the IRS has the power to examine the estate tax return of the predeceased spouse to determine the DSUE amount, regardless of whether the period of limitations on assessment has expired for the predeceased spouse’s estate. The Court further found that the IRS’s issuance of the Estate Tax Closing Documents (Letter 627) to Frank’s estate did not represent a Closing Agreement under IRC § 7121.



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