Tax Law Update

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By R. Zebulon Law, Esq. and Christy L. Lewis, Esq.
R. Zebulon Law, A Professional Corp., Costa Mesa, CA

As you may already know, the tax cuts implemented in 2001 (known as the "Bush Tax Cuts") expire at the end of this year (2012). As they relate to gift and estate tax, this means that the current $5.12 million exemption amount is scheduled to decrease to $1 million as of January 1, 2013, unless Congress and the President enact legislation otherwise. Although it is impossible to predict what Congress will do, many commentators believe that Congress will be unable to implement legislation impacting these tax cuts before the election.


Despite the high degree of uncertainty surrounding Congress' actions, we take note of recent legislative activity addressing the impending lapse in tax cuts given that Congress' action or inaction will have a major impact on the planning opportunities available to individuals and businesses. In the past three to four weeks, over seven bills have been introduced to extend the Bush tax cuts in one form or another. Senate Bill 3412 (the Middle-class Tax Cut Act) and Senate Bill 3413 (the Tax Hike Prevention Act of 2012) are two examples of proposals to extend the Bush tax cuts. In general, both of these proposals could extend the Bush tax cuts by one year. However, Senate Bill 3412 proposes to extend cuts only as to low and middle income taxpayers-not for taxpayers with income in excess of $250,000.


Interestingly, three bills have been proposed that specifically address estate and gift tax. One such proposal would simply extend the current estate and gift tax provisions by one year (through 2013). House Bill H.R. 16 (the Sensible Estate Tax Relief Act) would also extend the current provisions through 2013, but would lower the exemption amount from $5.12 million to $3.5 million. Additionally, Arkansas Senator John Boozman has taken an ambitious approach by proposing a bill (S. 3403) which seeks to eliminate estate and gift tax entirely.


In summary, the good news is that, judging by recent legislative activity, Congress is at least paying attention to this issue. The bad news is that, Congress is unlikely to make any changes before the end of the year, and the fate of any congressional proposal depends entirely upon the outcome of the election and the ability of both houses of Congress to reach an agreement. These potential changes will affect everything from basic income tax rates and capital gains and dividend rates, to gifting and estate planning opportunities.
© 2012 R. Zebulon Law, APC.