IRS Announces Modified 2018 Inflation Adjustments

The IRS recently released modified 2018 inflation adjustments for several tax provisions in Rev. Proc. 2018-18, to reflect statutory amendments from the 2017 tax act (Pub. L. No. 115-97). Rev. Proc. 2018-18 modifies and supersedes certain sections of Rev. Proc. 2017-58. The adjustments apply to tax years beginning in 2018 and transactions or events occurring during the 2018 calendar year.  

For the estate planner, here are some modified 2018 amounts to keep in mind:

Income Tax of Trusts and Estates  

The taxable income thresholds on trusts and estates under newly added §1(j) are:   

If Taxable Income is:     The Tax is:
Not over $2,550

10% of taxable income.

Over $2,550 but not over $9,150 $255 , plus 24% of the excess over $2,550.
Over $9,150 but not over $12,500 $1,839 , plus 35% of the excess over $9,150.
Over $12,500 $3,011.50 plus 37% of the excess over $12,500.

  The alternative minimum tax exemption amount for estates and trusts under (§55(d)(1)(D)) is:  

Filing Status Exemption Amount
Estates and Trusts (§55(d)(1)(D))    $24,600

 The phaseout amounts of alternative minimum tax for estates and trusts under (§55(d)(3)(C)) are:  

Filing Status    Threshold Phaseout            Completed Phaseout
Estates and Trusts (§55(d)(3)(C))      $500,000          $598,400

Estate and Gift Tax

For decedents dying and gifts and generation-skipping transfers made in 2018, the basic exclusion amount, for purposes of determining the §2010 credit against estate tax, is $11,180,000.

The calculated credit generated by the §2010 or §2505 inflation-adjusted basic exclusion amount is $4,417,800 for 2018 decedents or gifts.

The §2503(b) annual gift tax exclusion for gifts of current interest in property made in 2018 is $15,000 per donee.

For gifts of current interests in property made to a non-citizen spouse in 2018, the annual gift tax exclusion under §2523(i)(2) is $152,000.

Additionally, donees of gifts from certain foreign persons may be required to report these gifts under §6039F if the aggregate value of the gifts received in 2018 exceeds $16,076.

For estates of decedents dying in 2018 that elect to use the §2032A special valuation method for qualified property, the aggregate decrease in value must not exceed $1,140,000.

For estates of decedents dying in 2018 that elect to extend the payment of estate tax under §6166, the 2% portion for determining the interest rate under §6601(j) is $1,520,000.


For individuals losing U.S. citizenship in 2018, an average annual net income tax of more than $165,000 for the five previous tax years is a covered expatriate for purposes of §877A(g)(1).

For 2018, the amount that would be includible in the gross income of a covered expatriate under §877A(a) is reduced (but not below zero) by $711,000

For exempt organizations, here are some modified 2018 amounts to keep in mind:

For the §6033(e)(3) reporting exception for certain exempt organizations with nondeductible lobbying expenditures, the annual per person, family, or entity dues threshold is $115 or less.

For §501(c)(5) agricultural and horticultural organizations, the §512(d)(1)limitation for exemption of annual dues required to be paid by a member is $165

The unrelated business income of certain exempt organizations under §513(h)(2) does not include a low cost article of $10.80 or less. 

For organizations receiving fully deductible charitable contributions under §170 where the donor received insubstantial benefits in return, the inflation-adjusted guidelines of Rev. Proc. 90-12, 1990-1 C.B. 471, §3 are $10.80$54.00, and $108

Here are some of the 2019 penalty amounts to keep in mind:

In the case of failure to file a return, the addition to tax under §6651(a)(1) is not less than the lesser of $210 or 100% of the amount required to be shown on the return. 

The penalties under §6652(c) for certain exempt organizations and trusts failing to file returns, disclosures, etc., which are required to be filed in calendar year 2019, are:

Scenario Penalty Per Failure Per Day Maximum Penalty Per Return
Penalty on Organization (§6652(c)(1)(A))           $20 Lesser of (i) $10,000 or (ii) 5% of gross receipts for year
Penalty on Organization with Gross Receipts Greater than $1,046,500 (§6652(c)(1)(A))    $100 $52,000
Penalty on Managers (§6652(c)(1)(B)(ii))    $10 $5,000
Public Inspection of Annual Returns and Reports (§6652(c)(1)(C))    $20 $10,000
Public Inspection of Applications for Exemption and Notice of Status (§6652(c)(1)(D))  $20 No limit


    Scenario Penalty Per Failure Per Day Maximum Penalty Per Return
    Penalty on Organization or Trust (§6652(c)(2)(A)) $10 $5,000
    Penalty on Managers (§6652(c)(2)(B)) $10 $5,000
    Penalty on Split Interest Trust (§6652(c)(2)(C)) $20 $10,000
    Split Interest Trust with Gross Income Greater than $261,500 (§6652(c)(2)(C)(ii)) $100 $52,000


    Scenario Penalty Per Failure Per Day       Maximum Penalty Per Return
    Penalty on Tax-Exempt Entity (§6652(c)(3)(A))    $100 $52,000
    Failure to Comply with Demand (6652(c)(3)(B)(ii))    $100 $10,000


    With a free trial to the Estates, Gifts and Trusts Portfolios Library , you’ll receive in-depth analysis of key issues necessary for developing and implementing the best estates, gifts, and related income tax strategies.