Death of the Death Tax?

On January 10, 2017, Rep. Kristi Noem (R-S.D.) introduced H.R. 631, the “Death Tax Repeal Act of 2017.” While this bill resembles a similar bill that failed to become law in 2015, with the 2016 elections, the political landscape in Washington has changed considerably. In brief, H.R. 631 provides that:

  • The estate tax will be repealed for descendants dying on or after the date of enactment.
  • The generation-skipping transfer (GST) tax is repealed for GST transfers occurring on or after the date of enactment.
  • The gift tax is retained with its current lifetime exemption of $5.49 million, but its tax rate is reduced to 35% (down from 40%). The gift tax exemption amount will continue to be adjusted annually for inflation.
  • The special “anti-freezing” tax rules, also known as Chapter 14, are retained, presumably to maintain the overall effectiveness of the current gift tax system.
  • The estate tax will continue to be imposed on principal distributions from pre-existing qualified domestic trusts (also known as “QDOTs”) with respect to non-citizen decedents dying before the date of enactment, but only for the 10-year period following the date of enactment.

Notably absent from this bill is any reference to a change in the current system in which the tax basis of an appreciated asset received from a decedent’s estate is “stepped-up” to the fair market value of such asset on the decedent’s date of death. This system effectively eliminates the capital gains on the pre-death appreciation of the value of such inherited assets. In earlier reports, many speculated that this rule would be changed either to a carryover basis system (where inherited assets would retain the same tax basis of the decedent), or even the “Canadian system” (whereby capital gains would be immediately recognized on the appreciated assets of a decedent, with such a tax payable shortly after death).

H.R. 631 is unlikely to pass simply as a stand-alone piece of legislation. Rather, as Congress begins to assemble a larger tax reform bill later in 2017, many tax experts feel that it’s likely that such legislation will include provisions that will repeal the current estate tax rules. Whether the tax basis rules will be changed, and whether a tax reform bill ultimately passes, will ultimately depend upon the political and fiscal realities that arise as the legislative process moves forward.

If the New England Patriots can win the Super Bowl from 25 points down, then anything can happen in 2017!

ABLE Act – New Planning Tools for Families

On October 5, 2015, Oregon Senate Bill 777D became effective. In this bill, Oregon implemented the federal ABLE (Achieving a Better Life Experience) Act. This legislation gives families use of a tax-deferred savings plan, similar to the 529 college-savings plan, to save for individuals with disabilities. These plans would have the tax benefits of 529 college savings plans combined with the benefits of a special needs trust, in that the account would not count as a qualifying asset when determining qualification for needs based aid such as Social Security Income and Medicaid.

There are important differences between ABLE plans and special needs trusts of which families should be aware. First, ABLE plans can only be created for people who are disabled before the age of 26 and all funds are subject to payback after the recipient’s death. Second, the funds can only be used for qualifying expenses, and that list may be narrower than the qualifying expenses from a special needs trust, depending on how the trust is drafted. Third, contribution and asset caps apply to an ABLE account, whereas they do not apply to a special needs trust. However, the cost of creation and administration of an ABLE plan will likely be significantly lower than those of a special needs trust, making them a helpful planning tool for lower income families.

At this point, though the ABLE Act is now effective in Oregon, it is unclear exactly how the plans will be managed. The IRS issued proposed regulations in June of this year, which gives the state more guidance in establishing the plans. SB 777D requires the Oregon 529 Savings Board to establish rules and maintain the program in accordance with the requirements of the federal ABLE Act. Families who may benefit from these new accounts should keep an eye on the Oregon 529 Savings Board as they draft these rules.

For more information on the ABLE Act, read our previous post “A Tax-Favored Solution for Individuals With Disabilities“.

Get Your Discounts Before They Are Gone

The IRS is talking rule changes again.  It may be time to take another look at your estate plan.

Family-owned businesses often gift ownership interests in the business to younger generations in an effort to reduce gift or estate tax liability.  The reported tax value of those gifts is discounted to reflect the fact that the new owners lack the ability to control the business and cannot market the interest to other buyers.  The IRS now thinks it may be time for that practice to end.

The WSJ has recently reported that the IRS may soon greatly restrict or even disallow those discounts for family businesses. Exactly how and or when the IRS will inhibit discounts is still uncertain unclear, but, if the agency does act, the impact will be substantial.  Have you considered how such a change might impact you and your family?  Call the estate planning attorneys at SYK today to see how the proposed change affects you.

Is Picasso Coming to Portland?

On Monday, May 11, 2015 Pablo Picasso’s oil painting, “Women of Algiers (Version O)” sold for an astonishing, and record breaking, $179.4 million, inclusive of buyer’s premium, at Christy’s in New York.  This surpasses the paltry $142 million paid for the previous record holder “Three Studies of Lucien Freud,”  by Francis Bacon, which was loaned to the Portland Art Museum for public display over 15 weeks last year.  As with so many things in life, there is an interesting tax wrinkle here.

We wait with baited breath to see if the Portland Art Museum or some other Oregon museum announces a public viewing of this masterpiece.  Elaine Wynn’s decision to display Francis Bacon’s triptych for 105 days in Oregon is hardly surprising given the slightly over 8% sales tax rate at her home in Las Vegas, Nevada.  If the first use of the property occurred in Las Vegas, the tab would have been north of $11 million.  However, Nevada (like many states that have a sales tax) considers that tangible personal property like a painting) is not taxable in Nevada if the property is first used outside of Nevada.  Many states will say that there is a presumption that the first use occurs in their jurisdiction if the property comes into the state within 90 days after the sale takes place.  So, if the first use occurs in Oregon, no sales tax may be incurred. In many respects, this is a win-win for the public and for the collector.  The viewing public gets to see some of the most expensive works of art sold at auction and the buyers get to take advantage of a sales tax break. 

Sales tax at the relatively standard rate of 8% on $179 million would be closer to $14.3 million in sales tax revenue.  Hopefully that’s enough to motivate the anonymous buyer to let it hang in Portland for a few months.


Deadline Extended to December 31, 2014 for Charitable Distributions from IRAs

Congress has extended the qualified charitable distribution tax break for 2014. An eligible taxpayer may make a tax free charitable distribution directly from their IRA or Roth IRA to a qualified charitable organization. An eligible tax payer is an individual age 70½ or older and the aggregate contribution cannot exceed $100,000.

This tax break was set to expire at the end of 2013 but has now been extended to the end of 2014. Those interested in participating in the program must make a distribution to their designated public charity on or before December 31, 2014.

Additional Points to Consider:

• For eligible taxpayers who are married and file joint tax returns, their spouse can also have a qualified deduction and exclude up to $100,000.

• Any distribution in excess of the $100,000 cap must be included in income but may be taken as an itemized charitable deduction, subject to the usual AGI annual caps for contributions.

• Distributions must go directly to a public charity that is not a supporting organization.

• Written substantiation of each IRA rollover contribution from each recipient charity is required to benefit from the tax-free treatment.

Whether this charitable tax break will be extended through 2015 or made permanent will be for next year’s Congress to decide.

If you have any questions about this charitable contribution deadline extension, please call the charity that you are considering or contact Jeffrey M. Cheyne at

Oregon Tax Rule Invalidated For Failure to Consider Impact on Small Business

Because of a recent court decision, perhaps Oregon government agencies will begin to meaningfully consider the economic impact of state regulations on small Oregon businesses.

In Oregon Cable Telecommunications Association v. Department of Revenue the Oregon Court of Appeals invalidated a property tax regulation affecting cable and internet service providers. The court invalidated the rule because it failed to provide a legally sufficient small business impact statement.


Since 2005 all Oregon government agencies subject to the Administrative Procedures Act who adopt, amend or repeal any rule must as part of the rule making process satisfy the following steps:

  • Estimate the number of small businesses subject to the proposed rule.
  • Identify the types of small business industries and businesses subject to the proposed rule.
  • Briefly describe the reporting, recordkeeping and other administrative activities required to comply, including costs of professional services.
  • Identify the equipment, supplies, labor and increased administration required to comply.
  • Describe the manner in which small businesses were involved in the development of the proposed rule. [ORS 183.336(1)]

If the cost of compliance with the proposed rule has a significant adverse effect on small business, the agency, to the extent consistent with the public health and safety purposes of the rule, must reduce the economic impact of the rule on small business. [ORS 183.540]

This law defines “small business” as an independently owned and operated corporation, partnership, sole proprietorship or other legal entity with 50 or fewer employees. [ORS 183.310(10)]

This ruling represents a victory for small businesses in Oregon, as it aids in providing protection against the adoption of agency rules which fail to adequately consider the impact on small businesses. 

  • Generalized assumptions or undetermined estimates of the impact of the proposed rule are no longer adequate. 
  • Small businesses that will be impacted by the proposed rule have enforceable rights to require compliance with the above-described rules. 

This case invalidated a rule adopted by the Oregon Department of Revenue, but the holding applies to all Oregon governmental agencies when they adopt rules affecting small businesses. 

Hopefully, these agencies will communicate more meaningfully with small businesses and consider the economic impact of their regulations before adopting their rules.

Oregon Tax Basis for 2010 Oregon Estates Follows Federal Law

Since January 2010 Oregon tax professionals have been asking the Oregon Department of Revenue which income tax basis rules apply to 2010 Oregon Estates. 

Generally, this has been a pretty easy question to answer.  The traditional rule has been that most assets belonging to a decedent receive a tax basis step-up equal to the fair market value as of the decedent’s date of death. 

However, the Federal income tax basis rules are different this year. For 2010 estates the traditional rule does not apply. Generally the 2010 Federal rules are:

1.     First, determine the modified carry over basis (“MCOB”) of each asset held by the decedent. The MCOB is the lower of decedent’s actual basis or fair market value as of the date of death for each asset. 

2.     If the value of decedent’s assets exceeds the MCOB, then an additional basis increase of up to $1.3 million may be allocated to these assets.

3.     If the decedent is married and the value of decedent’s assets exceeds the MCOB, then the assets passing directly to the surviving spouse or into a qualified trust for the benefit of the surviving spouse, up to an additional $3 million can be added to the basis.


The Oregon Department of Revenue recently released Oregon Revenue Bulletin 2010-07 announcing that the Oregon income tax basis rules of 2010 Oregon estates will follow the Federal rules that are applicable this year.


For estates that have asset values in excess of what can be covered under these basis adjustment rules, the 2010 Oregon rule can result in a double tax.  First, the Oregon inheritance tax due 9 months after the date of death, and then an Oregon income tax based on the same asset value later on when the asset is sold. This double tax problem occurs with the larger estates becuase they will not receive a full income tax basis increase on the assets that are part of the Oregon estate.

The Oregon Inheritance Tax Workgroup of the Oregon Law Commission is looking into this matter, and there may be corrective legislation, but it will not be enacted until some time in 2011. 

Oregon Inheritance Tax Refund for 2007 & 2008 Estates with Natural Resource Property

In 2007, the Oregon legislature passed a law which allowed an estate to exclude up to $7.5 million of natural resource property from Oregon Inheritance Tax. The tax policy was two-fold. First, the legislature wanted to preserve family farms, fishing and forestry operations. Second, the legislature wanted to help preserve natural resource property, such as timber, from having to be harvested prematurely, before it was ready for harvesting. 

A number of 2007 estates and early 2008 estates relied on this exclusion and filed Oregon Inheritance Tax returns owing little or no tax.  But the 2007 legislation, which was passed in the last few days of that session, had a number of unanswered questions. So, in 2008, a number of technical corrections were made, and these were applied retroactively to 2007. As a result, estates which claimed the natural resource property exclusion for decedents dying between January 1, 2007 and March 11, 2008, had additional taxes due. 


Last year some of these taxpayers asked the legislature for relief from this retroactive tax burden, but some members of the legislature turned a deaf ear. However, during the February 2010 session, the Oregon legislature granted relief to these taxpayers. They may now apply for a tax refund. 


So, what are the eligibility requirements?

  • First, the estate must have eligible natural resource property. See the 2007 version of ORS 118.140.
  • Second, the death must have occurred between January 1, 2007 and March 11, 2008.
  • Third, less inheritance tax would be due under the 2007 version of the law.
  • Fourth, eligible taxpayers must apply by December 31, 2010 or within two years of the tax payment.

If you are aware of an estate which claimed a natural resource property exclusion in 2007 or early 2008 and then subsequently had to pay Oregon Inheritance Tax as a result of the 2008 law change, they are probably eligible for a refund. The Oregon Department of Revenue is in the process of finalizing Form NRE Inheritance Tax Refund Application which taxpayers may utilize to process their refund claim. Generally, this application must be completed by December 31, 2010.

Taxes on Health Insurance Premiums: A New Kind of “Trickle-Down”?

Effective September 28, 2009, a new bill passed by the 2009 Oregon legislature imposes a new tax on what a legislative staff summary refers to as a “specified group of health insurers.” In particular, the new law assesses a 1% tax upon the gross amount of premiums earned by health insurance providers. The stated purpose of the new tax is to provide health insurance to low income children – a commendable objective.

As the popularity of insurance companies is probably not high, most people might not have a great deal of sympathy for the plight of the newly taxed. However, the tax has already begun to “trickle down” to the rest of us. I’ve recently read a copy of a letter from a CEO of a major Oregon health insurance provider to a customer. Noting the new tax’s impending effective date, the letter pleasantly informs the small business insurance customer that “your premium rates will be adjusted to reflect the new 1 percent tax.”

However, the “trickle” does not stop with the small business. The owner of that business will now need to make a difficult decision as to whether to raise prices, absorb the cost, cut costs of other employee benefits, or pass the additional costs on to employees. You get the idea – the tax lands upon small businesses and their employees at a time when many such businesses are stretched to the breaking point (assuming they’ve made it this far in the recession).

Is this really the intended consequence of the new policy? I welcome your comments and questions.

Tax Amnesty Program For Oregon Taxpayers – A Cruel Joke

Recently, the Oregon Legislature passed a tax amnesty program with the hope of raising $16.2 million in additional revenue. (See Revenue Impact of Proposed Legislation (pdf)) The amnesty applies to corporate income and excise tax, personal income tax, inheritance tax, and transit district (self-employment) taxes. Any Oregon taxpayer with any of these underreported taxes or unfiled tax returns for any period prior to January 1, 2008 will be eligible to apply. (For a copy of the bill see SB880-B (pdf))

  • Short time period: The tax amnesty program is only open for 50 days, beginning on October 1, 2009 and closing on November 19, 2009.
  • Minimal Benefit: The only benefits being offered are the waiver of one half of the interest and all penalties. Not much of an incentive.
  • No Taxes Waived: All the taxes due and the reduced interest must either be paid in full within 60 days of the application or be paid under an installment plan on or before May 31, 2011. Failure to complete an installment plan voids the amnesty benefits.
  • Gotcha Penalty: Anyone who is eligible for this program, but fails to apply will be subject to an additional 25% penalty. This penalty can apply to tax adjustments discovered after November 19, 2009. Also any taxpayer who has received a notice of delinquency or notice of assessment from the Oregon Department of Revenue for any year that would be eligible for the amnesty program cannot participate.

This program is a "cruel joke" because:

  • The amnesty program is only open for 50 days.
  • The amnesty offer is minimal. There is no provision to compromise taxes.
  • Anyone who is currently delinquent with Oregon taxes is probably not eligible.
  • An eligible taxpayer who chooses not participate will have an additional 25% penalty added on.
  • If there is a tax adjustment after the amnesty program has closed it is possible that the additional penalty can be assessed even though the tax payer was not aware of additional tax liability during the 50 day election period.

In conclusion it is hard to see that this program will help either the state of Oregon or its taxpayers.