Beth Kaufman Comments on Bernie Sanders' Estate Tax Proposal

Bloomberg Law, Daily Tax Report

Senator Bernie Sanders’ recent proposal to rein in estate tax avoidance could create a scenario that is more like the Greek myth of the Hydra: cut off one head and two grow back in its place.

“It's hard to win at this game if you're Congress,” said Beth Shapiro Kaufman of Caplin & Drysdale in Washington. Once lawmakers draft new rules, “They can be used in some cases to the government's advantage and in other cases to the taxpayer's advantage. It's hard to write a rule that just says, ‘The taxpayer always loses’ because there aren't such rules.”

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For a historical example, look to the intentionally defective grantor trusts that Sanders, an independent from Vermont, proposes curtailing in his bill. The strategy allows a person to transfer assets into a trust and continue to pay income tax on the value of those assets, but freezes the value for estate tax purposes so any gain—which can be substantial—escapes the 40 percent tax.

“That technique takes advantage of rules that were enacted decades ago to prevent other abuses,” Kaufman told Bloomberg Tax.

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New Opportunities

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More taxpayers may take advantage of the sweetened farmland and conservation easement tax perks than they have in the past if Sanders's bill is enacted. But the trend would likely be limited among ultra-high net worth individuals, because the benefits may not be significant enough to prompt a change in behavior, Kaufman said.

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Loophole or Not?

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“There are a number of things that I would hesitate to call loopholes,” Kaufman said.

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But to extent the strategy is a loophole, it's “a congressionally created loophole,” Kaufman said.

For the full article, please visit Bloomberg’s website (subscription required).

Excerpt taken from the article “Bernie Sanders’ Plan May Spur Types of Tax Dodges It Aims To Stop” by Allyson Versprille for Bloomberg Law’s Daily Tax Report.


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