January 14, 1999 | Read Time: 2 minutes
The Internal Revenue Service is seeking public comment on changes it plans to make in the way estate and gift taxes are calculated and collected. Donors who use charitable annuity lead trusts and some other planned-giving arrangements could be affected by the changes.
The proposed rules, which would implement parts of the Taxpayer Relief Act of 1997, do not focus specifically on charitable gifts, which are not subject to taxation. But they would affect so-called split-interest gifts that are held for a period of time by a charity and then become subject to taxation if they shift to a beneficiary.
An example of such a transaction is a charitable annuity lead trust, in which donated assets are invested and a fixed dollar amount is paid to a charity for a set period. After that, the remaining assets revert back to the donor free of gift taxes or go to a beneficiary.
The proposed regulations state that until a donor met a series of strict disclosure requirements in filing a gift- or estate-tax return, the I.R.S. would have unlimited time to review the case and, possibly, assess new taxes or penalties. Only when the disclosure requirements were met would the I.R.S. face a time limit — usually three years from the date the disclosure is made — to review the case.
Ron Aucutt, a McLean, Va., lawyer who specializes in estate matters, says the rules appear to be aimed at thwarting abusive estate-planning techniques in which property that was grossly undervalued for estate- or gift-tax purposes is subsequently sold by heirs for a far greater amount. Mr. Aucutt says, however, that the proposed regulations could impose heavy disclosure burdens on many other kinds of transactions.
“I think there’s going to be some difficult choices between whether to make a disclosure and possibly provoke an audit or not disclose and have no time limit” in which the I.R.S. can review the case, he says.
The proposed regulations were published in the December 22, 1998, issue of the Federal Register, Pages 70,701-07.
A public hearing on the proposed rules is scheduled for April 28 at I.R.S. headquarters, in Washington. Comments must be submitted to the government by March 22. They should be mailed to CC:DOM:CORP:R (REG-106177-98), Room 5226, Internal Revenue Service, POB 7604 Ben Franklin Station, Washington 20044.
