On November 24, 2009, the Treasury Department and the Internal Revenue Service published their annual “Priority Guidance Plan” – often referred to as the “business plan” – for the twelve-month period from July 1, 2009, through June 30, 2010. While the Plan is out a bit later than usual this year (last year’s was published on September 10), it nevertheless gives us valuable insight into how Treasury and the Service propose to allocate resources to published guidance projects over the next several months.
Items of interest appear throughout the Plan. For example, the section on “Exempt Organizations” includes a number of important ongoing projects regarding private foundations and the new rules for supporting organizations, and the section on “Tax Administration” includes item 45 on “Revisions to Circular 230 regarding practice before the IRS” and item 50 on “Guidance pertaining to enhancing return preparer compliance.” But inevitably our focus will be on the section entitled “Gifts and Estates and Trusts.” There are seventeen items in that section this year. That is a relatively high number; last year there were fifteen. But the longer list of items does not reflect many new initiatives.
The following is the complete text of the items under the heading of “Gifts and Estates and Trusts”:
1. Regulations under §67 regarding miscellaneous itemized deductions of a trust or estate. Proposed regulations were published on July 27, 2007.
2. Final regulations under §642(c) concerning the ordering rules for charitable payments made by a charitable lead trust. Proposed regulations were published on June 18, 2008.
3. Guidance under §643 regarding uniform basis rules for trusts.
4. Guidance concerning adjustments to sample charitable trust forms under §664.
5. Revenue ruling regarding the consequences under various income, estate, gift, and generation-skipping transfer tax provisions of using a family owned company as a trustee of a trust. A proposed Rev. Rul. was published on August 4, 2008.
6. Guidance under §2032(a) regarding imposition of restrictions on estate assets during the six month alternate valuation period. Proposed regulations were published on April 25, 2008.
7. Guidance under §2036 regarding graduated grantor retained annuity trusts (GRATs). Proposed regulations were published on April 30, 2009.
8. Guidance providing procedures for filing and perfecting protective claims for refunds for amounts deductible under §2053.
9. Guidance under §2053 regarding personal guarantees and the application of present value concepts in determining the deductible amount of administration expenses and claims against the estate.
10. Final regulations under §2053 regarding the extent to which post-death events may be considered in determining the deductible amount of a claim against the estate. Proposed regulations were published on April 23, 2007.
• PUBLISHED 10/20/09 as TD 9468.
11. Limited Reexamination of Estate Tax Return Applicable to Certain §2053 Claims for Refunds.
• PUBLISHED 10/16/09 in IRB 2009-44 as NOT. 2009-84.
12. Regulations under §2642(g) regarding extensions of time to make allocations of the generation-skipping transfer tax exemption. Proposed regulations were published on April 17, 2008.
13. Guidance under §2704 regarding restrictions on the liquidation of an interest in a corporation or partnership.
14. Final regulations under §7477 regarding declaratory judgment procedures relating to gift tax valuation issues.
• PUBLISHED 09/08/09 as TD 9460.
15. Final regulations under §7520 updating the mortality based actuarial tables to reflect data compiled from the 2000 census. Proposed regulations were published May 4, 2009.
16. Guidance on whether a grantor’s retention of a power to substitute trust assets in exchange for assets of equal value, held in a nonfiduciary capacity, will cause insurance policies held in the trust to be includible in the grantor’s gross estate under §2042.
17. Guidance under §2801 regarding the tax imposed on U.S. citizens and residents who receive gifts or bequests from certain expatriates.
As the text indicates, many of these projects have already been reflected in public actions, and three of them (items 10, 11, and 14) are already completed. Many have been on previous Plans. Item 13 is making its seventh annual appearance and is intertwined with the proposal to “Modify Rules on Valuation Discounts” in the Administration Fiscal Year 2010 Revenue Proposals published in May. (See Capital Letter Number 17.) Items 8, 10, and 11 were just addressed in Capital Letter Number 20.
The only projects new to the Priority Guidance List are the last two. Item 16 will address the estate tax implications of a grantor’s retained nonfiduciary power to exchange assets of a trust that owns trust insurance. This promises to take its place in a series of recent Revenue Rulings clarifying the role of grantor trusts in estate planning – Rev. Rul. 2008-22, 2008-16 I.R.B. 796, which addressed generally the estate tax implications of a grantor’s retained nonfiduciary power to acquire property held in trust by substituting property of equivalent value; Rev. Rul. 2007-13, 2007-11 I.R.B. 684, which held that the transfer of life insurance contracts between two grantor trusts treated as owned by the same grantor is not a transfer for a valuable consideration for purposes of section 101; and Rev. Rul. 2004-64, 2004-2 C.B. 7, which addressed the reimbursement of a grantor for income tax attributable to the income of a grantor trust.
Finally, Item 17 will address the Heroes Earnings Assistance and Relief Tax Act of 2008 (“HEART Act”), which imposes a tax on the recipient of a “covered gift or bequest” from a “covered expatriate.”
Although not ambitious in its announcement of new initiatives, the 2009-10 Priority Guidance Plan includes challenging ongoing projects that are very important to our practices and will be closely watched by estate planners and by Capital Letters. Some projects, such as items 1, 2, and 12, might be close to completion.