Friday, June 3, 2011

IRS Issues New Gift Tax Return; GST Exemption Issues Unaddressed

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On March 15, little more than one month before the filing deadline, the IRS released the 2010 version of Form 709, the Gift (and Generation-Skipping Transfer) Tax Return. The late release date was presumably due to the need to revise the form to reflect the significant changes made to the GST tax by the Tax Relief, Unemployment Compensation Reauthorization, and Job Creation Act of 2010.

Although the revised form takes the new 0% GST tax rate into account, it fails to make any special provision for elections out of the automatic allocation of GST exemption to direct skips. As noted in our February 2 blog, on January 27 four prominent estate planners wrote to Treasury, asking that the 2010 Form 709 be drafted so that the transferor would be presumed to have elected out of the automatic allocation of GST exemption to direct skips. The letter pointed out that it makes no sense to allocate valuable GST exemption to a transfer subject to a 0% tax rate, and asked that the form, at least for 2010, require that the transferor elect into any allocation to a direct skip.

This advice appears to have gone unheeded. The instructions to Form 709, as in prior years, require that the transferor both check a box and attach a statement to the return in order to elect out of the automatic allocation. Many return preparers, accustomed to simply putting the numbers on the return, will fail to elect out of the automatic allocation for 2010, thereby doing their clients a serious disservice. The IRS can look forward to receiving a slew of requests for 9100 relief, asking for permission to make a late election out when clients realize that a mistake has been made.

Harold W. Pskowski, Managing Editor for Estates, Gifts and Trusts

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