Joint Committee on Taxation Report on Possible Areas of Tax Reform

The staff of the Joint Committee on Taxation has prepared a document entitled Taxation of Wealth Transfers Within a Family: A Discussion of Selected Areas for Possible Reform. This report was scheduled for a public hearing before the Senate Committee on Finance on April 3, 2008.

Here is an excerpt from this document:

This document is divided into two parts. The first part describes a prominent feature of the current Federal estate and gift tax system, the partially unified credit against estate and gift tax, and evaluates two possible reforms to that credit. The credit against estate and gift tax is partially unified under present law because a single tax rate schedule applies to gifts made during life and transfers at death but the effective exemption amount under the gift tax ($1 million) is different from the effective exemption amount under the estate tax ($2 million in 2008).***

The second part of this document sets forth a discussion of liquidity to pay estate tax when estates consist largely of farms or other businesses. Congress at various times has passed reforms intended to mitigate the effect of the estate tax on family farms and other family-owned businesses. A particular concern has been that if the value of an estate is largely attributable to a farm or other business, heirs of the estate may be forced to sell the business to pay the estate tax. Forced sales of family businesses are seen as undesirable in part because of possible job losses and other disruptions to communities.

Special thanks to Patrick S. Sylvester (Attorney & Counselor at Law, Sylvester Law Firm, PC) for bringing this document to my attention.