It would be an understatement to say that practitioners are eagerly awaiting guidance regarding the 2017 tax act (Pub. L. No. 115-97). On February 7, 2018, the Treasury took the first step by identifying the issues it would like addressed in the updated 2017-2018 Priority Guidance Plan, which accounts for issues it wants to complete by the end of the 2nd Quarter of 2018.
To begin with, the Treasury provides that most guidance will not involve the issuance of regulations, which especially makes sense considering the requirement that two regulations be removed for every one new regulation issued. This may result in the IRS issuing guidance a bit faster than normal.
Estates, Gifts, and Trusts:
The most significant immediate impact to the EGT area was increasing the applicable exclusion amount for estate and gift tax purposes (and therefore the GST exemption amount as well) from $5 million to $10 million. The Treasury added the inflation-adjusted exclusion amount to the Priority Guidance Plan. In the meantime, Bloomberg Tax projects that the inflation-adjusted applicable exclusion amount for decedents dying or transfers made in 2018 will be $11.18 million.
The increased applicable exclusion amount also sunsets, which means that many practitioners are concerned about the potential clawback if the applicable exclusion amount returns to $5 million. Although the “Recent Developments” panel at 52nd Annual Heckerling Institute on Estate Planning did not believe that a clawback would be a significant issue for future estate planning, many practitioners would like guidance on this issue. Unfortunately, the clawback does not appear to be included in the Priority Guidance Plan.
The Priority Guidance Plan also added the following EGT related items:
Guidance implementing changes to §1361 regarding electing small business trusts (ESBT). The 2017 tax act made nonresident aliens permissible current beneficiaries of an ESBT and changed the charitable deduction rules for ESBTs to those applicable to individuals, rather than trusts.
Guidance implementing changes to §529. The 2017 tax act allows rollovers from §529 accounts to certain ABLE accounts without penalty and expands the definition of qualified expenses to elementary and secondary school expenses.
Computational, definitional, and anti-avoidance guidance for §199A. This new deduction for qualified business income is available to trusts and estates.
The remaining Priority Guidance Plan under “Gifts and Estates and Trusts” remains at three items, including guidance for the basis of grantor trust assets under §1014 and personal guarantees and present value concepts for deducting expenses and claims against the estate under §2053.
The Priority Guidance Plan also added the excise tax on excess remuneration paid by applicable tax exempt organizations under §4960. The excise tax is the product of the §11 tax rate (21%) and the sum of (i) remuneration over $1,000,000 paid by an applicable tax-exempt organization to a covered employee (1 of the 5 highest compensated employees for the taxable year or any preceding taxable year) during the taxable year, and (ii) any excess parachute payment paid to a covered employee. Section 4960 excludes remuneration paid to licensed medical professionals, including veterinarians, that is for the performance of medical or veterinary services.
The Priority Guidance Plan also added guidance for computing unrelated business taxable income for separate trades or businesses under §512(a)(6). Section 512(a)(6) requires that unrelated taxable income (UBTI) be calculated separately for each trade or business. Section 512(a)(6) provides that UBTI for each trade or business may not be less than zero; however, the 2017 tax act does not provide guidance about what constitutes a trade or business. Hopefully, the calculations will also clarify what constitutes a separate trade or business.
Unfortunately, the new excise tax on certain private colleges’ and universities’ investment income is not included on the Priority Guidance Plan.
The Priority Guidance Plan also continues to include 10 items under “Exempt Organizations,” including guidance for §529A Qualified ABLE Programs, §512 regarding allocating expenses related to dual use facilities (which may now include guidance for the §512(a)(7) addition relating to UBTI on certain fringe benefit expenses), and §4941 regarding private foundation investments in partnerships in which disqualified persons are also partners
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