AICPA suggests changes in GST tax exemption rules

The American Institute of CPAs asked officials in the Treasury Department and the Internal Revenue Service for changes in the final regulations governing generation-skipping transfer tax exemptions.

Last April, the Treasury and the IRS issued final regulations providing guidance describing the circumstances and procedures under which an extension of time will be granted to make certain allocations and elections related to the GST tax. The relief provisions are supposed to offer a kind of safety net for taxpayers so their estate planning and tax strategies can be effectively implemented even if some errors are made initially.

The AICPA sent a comment letter last week in response to the recent GST final regulations in which Treasury and the IRS said they're prepared to issue further revenue procedures or other guidance when they identify situations for which simplified or automatic relief under Section 2642(g)(1) of the Tax Code would be appropriate and administrable. 

The AICPA suggested the Treasury and IRS should extend the relief provided by Rev. Proc. 2004-46 to tax years 2001 and later. The Treasury and the IRS should also provide a similar revenue procedure to Rev. Proc. 2004-46 for situations in which the donor's GST exemption has been automatically allocated to a prior transfer, but the donor either did not intend for GST exemption to be allocated or the donor was not aware that GST exemption was allocated to the transfer, the AICPA suggested.

The administrative burden on both taxpayers and the IRS to process private letter rulings for small amounts is disproportionate to the amounts involved, the AICPA pointed out. Extending the relief provided by Rev. Proc. 2004-46 to tax years 2001 and later would streamline the process for taxpayers seeking to allocate their GST exemption to post-2000 transfers, thus reducing the administrative burdens and costs associated with PLRs for both taxpayers and the government.

In addition, extending relief to tax years 2001 and later would help taxpayers who didn't file gift tax returns for certain gifts to trusts, the AICPA recommended. That would enable taxpayers to make more informed decisions and fix their past mistakes so their GST exemptions can better match their tax planning goals.

"While the final regulations offer a safety net for missed GST elections, the high cost and complexity make the Private Letter Ruling approach impractical for many taxpayers," said Eileen Sherr, the AICPA's director of tax policy and advocacy, in a statement Wednesday. "The AICPA's suggestions will help taxpayers effectively utilize their GST exemptions and reduce unnecessary administrative burdens on taxpayers and the IRS."