Beth Kaufman Weighs in on Potential Crack Down on Grantor Trusts by Treasury in Tax Notes

Tax Notes

In the absence of any legislative momentum to limit the tax-free step-up in basis, it’s time for the Treasury Department to take the lead and crack down on grantor trusts on its own, a top House lawmaker says.

Both the Biden administration and House Ways and Means Oversight Subcommittee Chair Bill Pascrell Jr., D-N.J., offered up legislation in the past year to restrict stepped-up basis, but neither of those efforts has gotten off the ground, Pascrell acknowledged in a March 8 letter to Treasury Secretary Janet Yellen.

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There’s no reason why Treasury shouldn’t issue regulations to clarify the definitions in section 1014(b) as Pascrell is calling for, but whether there’s a compelling enough reason to do so is another matter, according to Beth Shapiro Kaufman of Caplin & Drysdale.

“It’s a perfectly reasonable suggestion that doesn’t address the bigger issue,” Kaufman told Tax Notes.

Pascrell’s ask “is not anything that mainstream estate planners ever thought you could do anyway,” Kaufman continuedWhile both Biden and Pascrell called for dramatically limiting the tax-free step-up in basis at death in their legislative proposals, what Pascrell is calling for Treasury to do now instead is “like an ant compared to those proposals,” she said.

Pascrell’s concern with the definitions in section 1014(b) is one that could likely be remedied more quickly and easily through the issuance of a revenue ruling, as opposed to proposing regulations through the more lengthy notice and comment rulemaking process, Kaufman said. However, given the setbacks the IRS has faced on Administrative Procedure Act grounds in two recent cases — Mann Construction Inc. v. United States, No. 21-1500 (6th Cir. 2022), and Hewitt v. Commissioner, No. 20-13700 (11th Cir. 2021) — the government might prefer to lean on a properly documented notice and comment process, she said.

For the full article, please visit Tax Notes’ website (subscription required).


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