[EstGift] [filtered] TIME SENSITIVE: Estate and Gift Tax Committee Approval of Proposed Submission of Items to Include in 2026-2027 Priority Guidance Plan [IMAN-WEALTHMGMT.FID578316]

[Cohen, Kimberly E.]

Dear E&G Tax Committee Members,

The Washington Affairs committee intends to submit write ups relating to a variety of topics and has asked for our Committee to weigh in on those proposed submissions.

Please share any comments, questions, or objections on the following two items by Monday, May 11.  Note that an additional write up dealing with GRATs and QPRTs under Section 2702 will be forthcoming and I ask for your timely response to those materials as well once circulated.

Section 2701:


  *   Write up in attached pdf from the Summer Meeting in Montreal.
  *   Modify Treas. Reg. § 25.2701-1(e), Example 2, to add the language in red:  "The facts are the same as in Example 1, except that the preferred dividend right is noncumulative. Under § 25.2701-2, P's preferred dividend right is valued at zero because it is a distribution right in a controlled entity, but is not a qualified payment right. All of P's other rights in the preferred stock are valued as if P's dividend right does not exist but otherwise without regard to section 2701. The amount of P's gift, determined using the subtraction method, is $1,500,000 minus $0 (attributed to the noncumulative preferred dividend right) minus the fair market value of all of P's other rights in the preferred stock.  If the fair market value for the right of P to receive back his/her preferred capital at the end of the partnership (the "liquidation participation right") is equal to $500,000, the amount of P's gift (before applying any valuation discounts or accounting for any consideration paid as set forth in Step 4 of the subtraction method as set forth in § 25.2701-3(b)(4)) is $1,000,000  ($1,500,000 minus $0 minus $500,000).  P may elect, however, to treat the dividend right as a qualified payment right as provided in § 25.2701-2(c)(2)."
Section 2036:

  *   Reg. Sec. 20.2036-1(c) provides that payments from transferred property that are to be made to a decedent after his or her death are not to be included in his or her gross estate under section 2033 when the transferred property is included under section 2036 because "they are properly reflected in the value of the trust corpus included under [section 2036]."   This regulation is intended to prevent the double inclusion of property under both section 2036 and section 2033.  Yet, despite this provision, the IRS successfully argued in the Powell case that a decedent who transferred property to a company over which he retained control must include in his gross estate under section 2036, all of the transferred property plus the value of his retained interest in the company.  Reg. Sec. 20.2036-1(c) should be clarified to prevent all double taxation of transferred property.
  *   Reg. Sec.  20.2038-1 (a)(2) provides that no inclusion is required under section 2038 for a power over transferred property that can be exercised only with the consent of all parties having an interest . . . in the transferred property if the power adds nothing to the rights of the parties under local law.  This provision reflects the Supreme Court's decision in Helvering v. Helmholz, 295 U.S. 93 (1935) and should be added to the regulations under section 2036.
  *   The provision in Reg. Sec. 20.2036-1(b)(3) that provides that a decedent is deemed to have retained a power over transferred property even if it's subject to a contingency beyond the decedent's control is not based on the best reading of the underlying statutory authority.  Estate of Farrel v. United States, 553 F.2d 637 (Ct. Claims 1977), which upheld this regulation, relied on the deference due to Treasury Regulations
Thanks!


Kimberly E. Cohen
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