Capital Letters

2021-2022 Treasury – IRS Priority Guidance Plan

Capital Letter No. 54
October 19, 2021

Amidst the current whirlwind of uncertainty about pending legislation, let’s pause to be reminded of the projects in the somewhat more predictable Treasury-IRS Priority Guidance Plan.

Dear Readers Who Follow Washington Developments: 

On September 9, 2021, the Treasury Department and the IRS released the first Priority Guidance Plan in the Biden Administration for the plan year from July 1, 2021, through June 30, 2022. Similar to past Plans, the introduction to the 2021-2022 Plan states:

“The 2021-2022 Priority Guidance Plan contains 193 guidance projects that are priorities for allocating Treasury Department and Service resources during the 12-month period from July 1, 2021 through June 30, 2022 (the plan year). The projects on the plan will be the focus of our efforts during the plan year. However, the plan does not provide any deadline for completing the projects.”

The 2021-2022 Plan includes the following items under the subject heading of “Gifts and Estates and Trusts,” which will be described and analyzed in order in this Capital Letter:

1. User fee for estate tax closing letters

2. Consistent basis rules

3. “Anti-abuse” amendment to “anti-clawback” regulations

4. Effect of events between death and the alternate valuation date

5. Effect of guarantees and present value concepts on estate tax deductions

6 and 7. Allocation of GST exemption

8. Taxation of transfers from certain expatriates

9. Actuarial tables


Item 1 is described as “Final regulations establishing a user fee for estate tax closing letters. Proposed regulations were published on December 31, 2020.” It was new in the 2020-2021 Plan, as Item 2 under Gifts and Estates and Trusts.


Before June 1, 2015, the IRS routinely issued a closing letter (not the same as a formal “closing agreement”) when the examination of an estate tax return was closed, except returns that were not required for estate tax purposes but were filed solely to elect portability. The “Frequently Asked Questions on Estate Taxes” on the IRS website was updated on June 16, 2015, to state that for such returns filed on or after June 1, 2015, closing letters would be issued only upon request. Notice 2017-12, 2017-5 I.R.B. 742, confirmed that, and also confirmed that an estate tax account transcript that includes the transaction code “421” and the explanation “Closed examination of tax return” can, as the Notice put it, “serve as the functional equivalent of an estate tax closing letter.”

Many estate planning professionals have been frustrated with efforts to obtain such transcripts and in any event have not found that a transcript has the same dignity as a closing letter for purposes of obtaining the approval of courts and the release of liens and otherwise documenting the propriety of making distributions, closing accounts, and taking other financial actions.

The IRS released proposed regulations at the end of 2020 and finalized them on September 27, 2021, establishing a $67 user fee for issuing an estate tax closing letter, effective October 28, 2021. Reg. §300.13, T.D. 9957, 86 Fed. Reg. 53539 (Sept. 28, 2021), 2021-41 I.R.B. 452.

The preamble to the proposed regulations acknowledged the importance of closing letters to executors, but added:

“The practice of issuing estate tax closing letters to authorized persons is not mandated by any provision of the Code or other statutory requirement. Instead, the practice is fundamentally a customer service convenience offered to authorized persons in view of the unique nature of estate tax return filings and the bearing of an estate’s Federal estate tax obligations on the obligation to administer and close a probate estate under applicable State and local law.”

That is not persuasive at all. Surely the “unique nature of estate tax return filings” includes the IRS’s benefit from liens, transferee liability, priority over other creditors, and other advantages, and with such power should come some level of responsibility. The preamble to the final regulations states that the IRS received comments opposing the establishment of a user fee, but it reaffirms the notion of the previous preamble that a user fee is appropriate because an estate tax closing letter is “the provision of a service that confers special benefits, beyond those accruing to the general public,” without any acknowledgment of the fact that “the general public” does not face those liens, liabilities, and other burdens.

Probably, however, if there is anything more petty that the imposition of this $67 user fee, it would be an executor’s choice to waste time fighting it.


The preamble to the proposed regulations explained that the practice of issuing closing letters for every filed estate tax return was changed in 2015 primarily for two reasons – (1) the increase in the volume of filed returns since the enactment of portability and (2) the availability of the transcript alternative described in Notice 2017-12. Regarding the first reason, the preamble noted that in 2016 approximately 20,000 optional estate tax returns were filed solely to elect portability, compared to approximately 12,000 mandatory returns. (A closing letter in the case of a portability-only return is arguably not as serious a matter, because no estate tax liability is at stake, and because the return may in effect be audited under section 2010(c)(5)(B) upon the surviving spouse’s death anyway.)

The preamble to the proposed regulations also included a detailed description of the calculation of the user fee, based on fiscal year 2017 and 2018 data, culminating in the determination of a full annual cost to the IRS (including direct labor and non-labor costs and a 74.08% overhead factor) of $1,160,058, divided by an estimated volume of 17,249 requests to produce the proposed user fee of $67. The calculations included an average of one-half hour of quality assurance review by a senior staff member applied to 5% of mailed closing letters.

The regulations do not explain how to request a closing letter and pay the user fee, but the preamble to the proposed regulations stated:

“The Treasury Department and the IRS expect to implement a procedure that will improve convenience and reduce burden for authorized persons requesting estate tax closing letters by initiating a one-step, web-based procedure to accomplish the request of the estate tax closing letter as well as the payment of the user fee. As presently contemplated, a Federal payment website, such as, will be used and multiple requests will not be necessary. The Treasury Department and the IRS believe implementing such a one-step procedure will reduce the current administrative burden on authorized persons in requesting estate tax closing letters and will limit the burden associated with the establishment of a user fee for providing such service.”

On October 6, 2021, the IRS posted Frequently Asked Questions, confirming the use of and addressing other procedural issues.


Item 2 is described as “Final regulations under §§1014(f) and 6035 regarding basis consistency between estate and person acquiring property from decedent. Proposed and temporary regulations were published on March 4, 2016.” In the 2020-2021 Plan, this was Item 14 of Part 3, which was titled “Burden Reduction.”

As noted in Capital Letters Number 44 and Number 50, the appearance of this subject under the heading of “Burden Reduction” offered hope that the final regulations would relax one or two or all of the following very burdensome requirements of the proposed regulations published in March 2016:

  • The requirement of Proposed Reg. §1.6035-1(c)(3) that within 30 days of filing the estate tax return each beneficiary must be told on a Schedule A of Form 8971 the initial basis (that is, the value reported for estate tax purposes) of each asset that beneficiary might ever receive even though the statutory requirement of section 6035(a)(1) itself attaches only “to each person acquiring any interest in property.” 
  • The requirement of Proposed Reg. §1.1014-10(c)(3) that property that is after-discovered or otherwise omitted from the estate tax return in good faith is given an initial basis of zero even though such property is neither “property the final value of which has been determined for purposes of the [estate] tax” within the meaning of section 1014(f)(1)(A) nor property “with respect to which a statement has been furnished under section 6035(a)” within the meaning of section 1014(f)(1)(B) and therefore the special consistent basis rule in section 1014(f) by its terms does not apply.
  • The seemingly open-ended requirement of Proposed Reg. §1.6035-1(f) that a recipient of a Schedule A must in turn file a Schedule A when making any gift or other retransfer of the property that results wholly or partly in a carryover basis for the transferee, regardless of the size of the estate of that transferor and even though section 6035 imposes the reporting requirement only on an “executor,” not on a donor.

Those and other issues were discussed in ACTEC’s comments on the proposed regulations and Lora Davis’sGregg Simon’s, and my statements at the public hearing on the proposed regulations. While the separate part of the Priority Guidance Plan labelled “Burden Reduction” is not used in the Biden Administration, there is no reason to believe that Treasury and the IRS are not still considering the relaxation of those burdens, as well as the provision of more robust exceptions. The final regulations should be close to completion. 

For more detailed discussion, including analysis of the history of sections 1014(f) and 6035, see Part 4.b of Washington Update, available at


Item 3 is described as “Regulations under §2010 addressing whether gifts that are includible in the gross estate should be excepted from the special rule of § 20.2010-1(c).”

Regulations to prevent “clawback” were proposed in November 2018 (REG-106706-18, 83 Fed. Reg. 59343 (Nov. 23, 2018)) and finalized in November 2019. Although neither the statute nor the regulations use the word “clawback,” the regulations carry out the mandate of the 2017 Tax Act in new section 2001(g)(2), which provides that Treasury:

“shall prescribe such regulations as may be necessary or appropriate to carry out this section with respect to any difference between (A) the basic exclusion amount [‘BEA’] under section 2010(c)(3) applicable at the time of the decedent’s death, and (B) the basic exclusion amount under such section applicable with respect to any gifts made by the decedent.”

The Problem Under the 2017 Tax Act

The concern that prompted that mandate for regulations is that the remedy added in 2010 as subsection (g) (now paragraph (1) of subsection (g)) addressed only changes in tax rates, and the 2017 Tax Act did not change any rates when it doubled the exclusion amount. New paragraph (2) obviously contemplated that regulations would reach a similar result for the potential sunset of the doubled exclusion amount, but left the details to the IRS and Treasury.

To illustrate the concern, assume that an unmarried individual made a $9 million gift (the donor’s only lifetime gift) in 2019 when the indexed exclusion amount was $11.4 million. With no change in the law, the donor dies in 2026 with a taxable estate of $20 million. Assume further – just a guess, for the sake of simplicity – that the 2026 $5 million exclusion amount (indexed) is $6.8 million. With a 40 percent rate and the exclusion amount used up, the intuitively correct estate tax is 40 percent of $20 million, or $8 million. But, as illustrated in the table below, without anti-clawback relief the estate tax turns out to be $8,880,000, producing a “clawback penalty” of $880,000. Other ways to look at this $880,000 million are:

  • 40 percent of the amount by which the $9 million gift exceeded the $6.8 million date-of-death exclusion amount; or
  • the gift tax on the gift if the gift had been made in 2026; or
  • the additional estate tax on a taxable estate of $29 million if the gift had not been made at all.

In other words, all the benefit the 2017 Tax Act apparently promised this donor for making a gift before the sunset would be wiped out by the sunset.

The Solution Under Reg. §20.2010-1(c)

Pursuant to section 2001(g)(2) and corresponding guidance projects identified in the 2017-2018, 2018-2019, and 2019-2020 Treasury-IRS Priority Guidance Plans, proposed anti-clawback regulations were published in November 2018 (REG-106706-18, 83 Fed. Reg. 59343, Nov. 23, 2018), and final regulations were released November 22, 2019 (T.D. 9884, 84 Fed. Reg. 64995, Nov. 26, 2019). New Reg. §20.2010-1(c) (with the former paragraphs (c), (d), and (e) re-lettered (d), (e), and (f)) states the heart of the anti-clawback rule, applicable to the extent the credit is based on the basic exclusion amount (emphasis added):

“If the total of the amounts allowable as a credit in computing the gift tax payable on the decedent’s post-1976 gifts … exceeds the credit allowable within the meaning of section 2010(a) in computing the estate tax, … then the portion of the credit allowable in computing the estate tax on the decedent’s taxable estate … is the sum of the amounts … allowable as a credit in computing the gift tax payable on the decedent’s post-1976 gifts.”

In other words, in the example above (which has the same facts as Example 1 in the regulations), because $9 million of basic exclusion amount used for the 2019 gift (the only post-1976 lifetime gift) is greater than the $6.8 million basic exclusion amount otherwise allowable in computing the 2026 estate tax, that larger amount of $9 million is used for estate tax purposes instead of the $6.8 million. (This is simplified for the sake of readability; technically, the credits based on the exclusion amounts are compared under the regulation.) The elimination of the clawback penalty under that rule is illustrated in the following table, by changing the entry on line 9a from $6.8 million (the 2026 basic exclusion amount) to $9 million (the amount of the 2019 basic exclusion amount used for computing the gift tax):

Calculation of the Estate Tax With and Without Clawback
Using the Estate Tax Return, Form 706 (August 2019) as a Template
Line Illustrating ClawbackUnder Reg. §20.2010-1(c)*
3cTaxable estate20,000,00020,000,000
4Adjusted taxable gifts9,000,0009,000,000
5Add lines 3c and 429,000,00029,000,000
6Tentative tax on the amount on line 511,545,80011,545,800
7Total gift tax paid or payable00
8Gross estate tax (subtract line 7 from line 6)11,545,80011,545,800
9aBasic exclusion amount6,800,000* 9,000,000
9bDeceased spousal unused exclusion (DSUE) amount [not applicable]00
9cRestored exclusion amount [not applicable]00
9dApplicable exclusion amount (add lines 9a, 9b, and 9c)6,800,0009,000,000
9eAllowable credit amount (tentative tax on the amount in line 9d)2,665,8003,545,800
10Adjustment to applicable credit amount [not applicable]00
11Allowable applicable credit amount (subtract line 10 from line 9e)2,665,8003,545,800
12Subtract line 11 from line 8 (but do not enter less than zero)8,880,0008,000,000
16Net estate tax [same as line 12 in this case]8,880,0008,000,000
 Intuitively correct tax8,000,0008,000,000
 Clawback penalty880,0000

Comment on This Approach

The approach of the 2010 explicit statutory anti-clawback rule in section 2001(g)(1) – specifically section 2001(g)(1)(A) – was that the rates in effect at the time of death would be used to calculate the hypothetical “tax imposed by chapter 12” on pre-2026 adjusted taxable gifts – in other words, the “total gift tax paid or payable” that is deducted on line 7 of the return. Before the proposed regulations were released, therefore, there was speculation that the regulations under section 2001(g)(2) would mirror the regulations under section 2001(g)(1) and provide (using the above table as an example) that line 7 would be changed from zero to $880,000 (which is what the 2019 gift tax would have been if 2026 law had applied in 2019). After subtracting that amount, line 8, and therefore line 12, would be $880,000 smaller, which would exactly eliminate the clawback penalty.

But the regulations take a different approach. The preamble to the proposed regulations implies that other approaches were considered, but concludes that “in the view of the Treasury Department and the IRS, the most administrable solution would be to adjust the amount of the credit in … the estate tax determination required to be applied against the net tentative estate tax.”

By increasing the amount on line 9a, rather than the amount on line 7, the regulations achieve the same result, of course, because both line 7 and line 9a are subtractions in the estate tax calculation. But line 7 already required two pages of instructions, including a 24-line worksheet, to complete. An incremental increase of complexity in what already had a reputation for being a challenge might have been easier to process than adding a new challenge to line 9a, which previously required only 21 words of instructions. Needless to say, IRS personnel see more returns than any member of the public does, they see the mistakes, and they hear the complaints. Presumably – hopefully – they contributed to the assessment

that the line 9a approach is “the most administrable solution.”

That approach should work fine if the law is not changed and sunset occurs January 1, 2026 (or 2022 under recently proposed legislation). But, although the examples in Reg. §20.2010-1(c)(2) assume that the donor’s “date of death is after 2025,” the substantive rule in Reg. §20.2010-1(c) applies by its terms whenever “changes in the basic exclusion amount … occur between the date of a donor’s gift and the date of the donor’s death.” It is not limited to 2026 (or 2022) or to any other particular time period. The 2010 statutory rule in section 2001(g)(1) and the 2017 statutory rule in section 2001(g)(2) are not limited to any time period either. Therefore, if Congress makes other changes in the law, particularly increases in rates or decreases in exemptions, and doesn’t focus on the potential clawback issue in the context of those changes, the generic anti-clawback regime of section 2001(g)(1) and (2) and these regulations could produce a jigsaw puzzle of adjustments going different directions that may strain the notion of administrability cited in the preamble.

The “Off the Top” Option

There had also been speculation that the regulations might address the option of making, for example, a $5 million gift during the 2018-2025 period (assuming no previous taxable gifts) and treating that gift as using only the temporary “bonus” exclusion resulting from the 2017 Tax Act, which is sometimes described as using the exclusion “off the top,” still leaving the exclusion of $5 million (indexed) to generate a credit to be used against the estate tax after 2025. Example 2 was added to the final regulations to illustrate what the preamble to the final regulations acknowledges is the “use or lose” nature of the doubled exclusion amount when a donor uses some but not all of the exclusion amount available from 2018 through 2025.

Preservation of Portability Elections

The text of the regulations and the examples (particularly the original Example (1) of the proposed regulations) are painstakingly limited in all cases to the amount of the credit that is attributable to the basic exclusion amount – that is, the amount (indexed since 2012) defined in section 2010(c)(3). Regarding portability, for example, that approach makes it clear that the deceased spousal unused exclusion amount (DSUE amount) defined in section 2010(c)(4) is not affected by this special rule and is still added under section 2010(c)(2)(B), in effect thereby generating an additional credit of its own in cases in which the anti-clawback rule applies. But the proposed regulations still left open the possibility that the words “lesser of” in section 2010(c)(4) would limit the DSUE amount after 2025 (assuming no change in the law) to the sunsetted basic exclusion amount of $5,000,000 indexed for inflation in effect at the time of the death of the surviving spouse referred to in section 2010(c)(4)(A), despite clues to the contrary, including:

  • The assertion in Reg. §20.2010-2(c)(1) that “the DSUE amount of a decedent with a surviving spouse is the lesser of the following amounts – (i) The basic exclusion amount in effect in the year of the death of the decedent” (presumably the predeceased spouse); and
  • The statement in the preamble to the June 2012 temporary regulations that “the temporary regulations in § 20.2010-2T(c)(1)(i) confirm that the term ‘basic exclusion amount’ referred to in section 2010(c)(4)(A) means the basic exclusion amount in effect in the year of the death of the decedent whose DSUE amount is being computed.”

The limiting words “lesser of” in section 2010(c)(4) reflect the notion held by congressional drafters that portability should not be allowed to more than double what would otherwise be the survivor’s exemption, although that limitation might be viewed as unfair and inapplicable in the case of a predeceased spouse whose estate plan and executor’s election forgo the immediate use of the larger exemption allowed before 2026.

In that light, it is not particularly reassuring, standing alone, that the preamble to the final regulations stated:

“The regulations in §§ 20.2010-1(d)(4) and 20.2010-2(c)(1) confirm that the reference to BEA is to the BEA in effect at the time of the deceased spouse’s death, rather than the BEA in effect at the death of the surviving spouse.”

Nor is it even completely reassuring that the preamble to the 2012 temporary regulations (T.D. 9593) rather logically explained:

“The temporary regulations in § 20.2010-2T(c)(1)(i) confirm that the term ‘basic exclusion amount’ referred to in section 2010(c)(4)(A) means the basic exclusion amount in effect in the year of the death of the decedent whose DSUE amount is being computed. Generally, only the basic exclusion amount of the decedent, as in effect in the year of the decedent’s death, will be known at the time the DSUE amount must be computed and reported on the decedent’s estate tax return. Because section 2010(c)(5)(A) requires the executor of an estate electing portability to compute and report the DSUE amount on a timely-filed estate tax return, and because the basic exclusion amount is integral to this computation, the term ‘basic exclusion amount’ in section 2010(c)(4)(A) necessarily refers to such decedent’s basic exclusion amount.”

What is most helpful and reassuring is that the final regulations themselves (not just the preamble) add Examples (3) and (4), which illustrate scenarios where a DSUE amount from a predeceased spouse who dies before 2026 is applied to the surviving spouse’s gifts before 2026 and to the calculation of the estate tax when the surviving spouse dies after 2025.

An “Anti-Abuse” Warning

Finally, the preamble to the final regulations adds:

“A commenter recommended consideration of an anti-abuse provision to prevent the application of the special rule to transfers made during the increased BEA period that are not true inter vivos transfers, but rather are treated as testamentary transfers for transfer tax purposes. Examples include transfers subject to a retained life estate or other retained powers or interests, and certain transfers within the purview of chapter 14 of subtitle B of the Code. The purpose of the special rule is to ensure that bona fide inter vivos transfers are not subject to inconsistent treatment for estate tax purposes. Arguably, the possibility of inconsistent treatment does not arise with regard to transfers that are treated as part of the gross estate for estate tax purposes, rather than as adjusted taxable gifts. An anti-abuse provision could except from the application of the special rule transfers where value is included in the donor’s gross estate at death. Although the Treasury Department and the IRS agree that such a provision is within the scope of the regulatory authority granted in section 2001(g)(2), such an anti-abuse provision would benefit from prior notice and comment. Accordingly, this issue will be reserved to allow further consideration of this comment.”

The commenter the preamble cites is the Tax Section of the New York State Bar Association, in its February 20, 2019, letter to Treasury and the IRS. For an in-depth discussion, see Lynagh, Potential Anti-Abuse Rules May Limit Use of the Temporarily Increased Gift Tax Exclusion, 45 Tax Mgmt. Est., Gifts & Tr. J. 183 (May 14, 2020).

Illustration of the Anti-Abuse Issue

To illustrate the circumstances in which such an anti-abuse rule might apply, consider again the example above, a $9 million gift in 2019 and an otherwise taxable estate of $20 million and basic exclusion amount of $6.8 million in 2026, except that the gift is of such nature that the value of the property is included in the donor’s gross estate under, for example, section 2036, thereby making the taxable estate $29 million (assuming no intervening change in value). In that case, the intuitively correct estate tax seems to be the tax on a taxable estate of $29 million, which is $8,880,000 (as shown under “Illustrating Clawback” in the above table, calculated on the tax base of $29,000,000 on line 3 after adding adjusted taxable gifts in that case). Two ways of computing that are:

  • $11,545,800 (the tax on $29,000,000 under the section 2001(c) rate schedule) minus $2,665,800 (the applicable credit amount, which is the tax on the applicable exclusion amount of $6,800,000 under the section 2001(c) rate schedule) = $8,800,000; or
  • 40% times (the taxable estate of $29,000,000 minus the applicable exclusion amount of $6,800,000) = 0.4 × $22,200,000 = $8,800,000.

Thus, application of the anti-clawback calculation in this case would not eliminate an $880,000 clawback penalty, it would in effect produce an $880,000 bonus, as the following variation of the previous table illustrates:

Calculation of the Estate Tax With and Without the Anti-Clawback Regulations
Again Using the Estate Tax Return, Form 706 (August 2019) as a Template
Line Without Reg. §20.2010-1(c)Under Reg. §20.2010-1(c)*
3cTaxable estate29,000,00029,000,000
4Adjusted taxable gifts00
5Add lines 3c and 429,000,00029,000,000
6Tentative tax on the amount on line 511,545,80011,545,800
7Total gift tax paid or payable00
8Gross estate tax (subtract line 7 from line 6)11,545,80011,545,800
9aBasic exclusion amount6,800,000* 9,000,000
9bDeceased spousal unused exclusion (DSUE) amount [not applicable]00
9cRestored exclusion amount [not applicable]00
9dApplicable exclusion amount (add lines 9a, 9b, and 9c)6,800,0009,000,000
9eAllowable credit amount (tentative tax on the amount in line 9d)2,665,8003,545,800
10Adjustment to applicable credit amount [not applicable]00
11Allowable applicable credit amount (subtract line 10 from line 9e)2,665,8003,545,800
12Subtract line 11 from line 8 (but do not enter less than zero)8,880,0008,000,000
16Net estate tax [same as line 12 in this case]8,880,0008,000,000
 Intuitively correct tax8,880,0008,880,000
 Unintended anti-clawback bonus0880,000

That “bonus” is probably what has prompted the IRS and Treasury to consider an “anti-abuse provision,” and probably what such an amendment would curtail. Put another way, it would simply preserve the “clawback,” in effect, that provisions like section 2036 have been designed to achieve since at least the 1930s.

Effective Date of the Anti-Abuse Amendment

It is likely that the contemplated amendment of the regulations would apply only prospectively – that is, after the date it is published as a final regulation. But it should also be noted that it would apply only to the calculation of the estate tax when a provision like section 2036 (including those in chapter 14) applies. It should be expected to first apply to the estate of someone who dies after December 31, 2025 (or 2021), when the “sunset” enacted in 2017 occurs, Thus, it would achieve the “anti-abuse” outcome described above with respect to gifts made and other lifetime actions taken since 2017 that result in estate includability, whether or not those actions are taken before the regulations are amended.

The pending proposal in the House of Representatives to accelerate the “sunset” to January 1, 2022, could mean that, unless the “anti-abuse” regulations are issued before the end of 2021 (which is possible but by no means certain), some persons who have made post-2017 gifts with potential for inclusion in the gross estate will die before the regulations are effective. Those persons’ estates might benefit from the anti-clawback bonus. Or the regulations might provide for retroactive application to their estates, which is sometimes done in true “abuse” cases. Planning after December 31, 2017, by persons who die after December 31, 2021, and after the regulations are final would be caught in any event.


Item 4 is described as “Regulations under §2032(a) regarding imposition of restrictions on estate assets during the six-month alternate valuation period. Proposed regulations were published on November 18, 2011.” This project first appeared in the 2007-2008 Plan.

The first set of proposed regulations related to this project, Proposed Reg. §20.2032-1(f) (REG-112196-07), was published on April 25, 2008. The preamble appeared to view these regulations as the resolution of “two judicial decisions [that] have interpreted the language of section 2032 and its legislative history differently in determining whether post-death events other than market conditions may be taken into account under the alternate valuation method.”

Flanders v. United States

In the first of these cases, Flanders v. United States, 347 F. Supp. 95 (N.D. Calif. 1972), after a decedent’s death in 1968, but before the alternate valuation date, the trustee of the decedent’s (formerly) revocable trust, which held a one-half interest in a California ranch, entered into a land conservation agreement pursuant to California law. The conservation agreement reduced the value of the ranch by 88 percent. Since that reduced value was the value of the ranch at the alternate valuation date (which until 1971 was one year after death), the executor elected alternate valuation and reported the ranch at that value.

Citing the Depression-era legislative history to the effect that alternate valuation was intended to protect decedents’ estates against “many of the hardships which were experienced after 1929 when market values decreased very materially between the period from the date of death and the date of distribution to the beneficiaries,” the court held that “the value reducing result of the post mortem act of the surviving trustee” may not be considered in applying alternate valuation.

Kohler v. Commissioner

The second of these cases was Kohler v. Commissioner, T.C. Memo. 2006-152, nonacq., 2008-9 I.R.B. 481, involving the estate of a shareholder of the well-known family-owned plumbing fixture manufacturer. The executor had received stock in a tax-free corporate reorganization that had been under consideration for about two years before the decedent’s death but was not completed until about two months after the decedent’s death.

The court rejected the IRS’s attempt to base the estate tax on the value of the stock surrendered in the reorganization (which had been subject to fewer restrictions on transferability), on the ground that Reg. §20.2032-1(c)(1) prevents that result by specifically refusing to treat stock surrendered in a tax-free reorganization as “otherwise disposed of” for purposes of section 2032(a)(1).

The court also noted that the exchange of stock must have been for equal value or the reorganization would not have been tax-free as the parties had stipulated (although, ironically, the executor’s own appraiser had determined a value of the pre-reorganization shares of $50.115 million and a value of the post-reorganization shares of $47.010 million – a difference of about 6.2 percent). The court distinguished Flanders, where the post-death transaction itself reduced the value by 88 percent.

The Tax Court in Kohler viewed the 1935 legislative history relied on in Flanders as irrelevant, because Reg. §20.2032-1(c)(1) (promulgated in 1958) was clear and unambiguous and because “the legislative history describes the general purpose of the statute, not the specific meaning of ‘otherwise disposed of’ in the context of tax-free reorganizations.”

The First Proposed Regulations

The 2008 proposed regulations would have made no change to Reg. §20.2032-1(c)(1), on which the Kohler court relied. But they invoked “the general purpose of the statute” that 

was articulated in 1935, relied on in Flanders but bypassed in Kohler, to beef up Reg. §20.2032-1(f) and to clarify and emphasize, with both text and examples, that the benefits of alternate valuation are limited to changes in value due to “market conditions.” The 2008 proposed regulations would specifically add “post-death events other than market conditions” to changes in value resulting from the “mere lapse of time,” which are ignored in determining the alternate value under section 2032(a)(3).

The Second Proposed Regulations

New proposed regulations (REG-112196-07) were published on November 18, 2011. In language that actually seems to have foreshadowed the public reaction to the section 2704 regulations proposed in 2016, the 2011 preamble stated:

“… Some commentators expressed concern that the proposed regulations (73 FR 22300) would create administrative problems because an estate would be required to trace property and to obtain appraisals based on hypothetical property.…

“In view of the comments, the Treasury Department and the IRS are withdrawing the proposed regulations (73 FR 22300) by the publication of these proposed regulations in the Federal Register.”

In contrast to the 2008 approach of ignoring certain intervening events – and thereby potentially valuing assets six months after death on a hypothetical basis – the new approach is to expand the description of intervening events that are regarding as dispositions, triggering alternate valuation as of that date. The expanded list, in Proposed Reg. §20.2032-1(c)(1)(i), includes distributions, exchanges (whether taxable or not), and contributions to capital or other changes to the capital structure or ownership of an entity, including “the dilution of the decedent’s ownership interest in the entity due to the issuance of additional ownership interests in the entity.” Proposed Reg. §20.2032-1(c)(1)(i)(I)(1). But under Proposed Reg. §20.2032-1(c)(1)(ii), an exchange of interests in a corporation, partnership, or other entity is not counted if the fair market values of the interests before and after the exchange differ by no more than 5 percent (which would still subject a 6.2 percent difference as in Kohler to the new rules).

If the interest involved is only a fraction of the decedent’s total interest, an aggregation rule in Proposed Reg. §20.2032-1(c)(1)(iv) values such interests at a pro rata share of the decedent’s total interest. The proposed regulations also include special rules for coordinating with annuities and similar payments (§20.2032-1(c)(1)(iii)(B)) and excepting qualified conservation easements (§20.2032-1(c)(4)), and also many more examples (§20.2032-1(c)(5), (e) Example (2), (f)(2)(B) & (f)(3)).

The 2008 proposed regulations were to be effective April 25, 2008, the date the proposed regulations were published. The 2011 proposed regulations, more traditionally, state that they will be effective when published as final regulations.


While the 2008 proposed regulations were referred to as the “anti-Kohler regulations,” the most significant impact of these proposed regulations may fall on efforts to bootstrap an estate into a valuation discount by distributing or otherwise disposing of a minority or other noncontrolling interest within the six-month period after death (valuing it as a minority interest under section 2032(a)(1)) and leaving another minority or noncontrolling interest to be valued six months after death (also valued as a minority interest under section 2032(a)(2)).

Examples 7 and 8 of Proposed Reg. §20.2032-1(c)(5) specifically address the discount-bootstrap technique – Example 8 in the context of a limited liability company and Example 7 in the context of real estate – and leave no doubt that changes in value due to “market conditions” do not include the valuation discounts that might appear to be created by partial distributions.

And perhaps most significantly, Example 1 reaches the same result with respect to the post-death formation of a limited partnership.


Item 5 is described as “Regulations under §2053 regarding personal guarantees and the application of present value concepts in determining the deductible amount of expenses and claims against the estate.”

This project first appeared in the 2008-2009 Plan as an outgrowth of the project that led to the final amendments of the section 2053 regulations in October 2009, when Treasury and the IRS, as they were to do two years later regarding the “anti-Kohler regulations,” acknowledged public criticism of an element of the proposed regulations. That acknowledgment highlighted the significance of present value concepts, as elaborated in this paragraph in the preamble to the 2009 regulations (T.D. 9468, 74 Fed. Reg. 53652 (Oct. 20, 2009)):

“Some commentators suggested that the disparate treatment afforded noncontingent obligations (deduction for present value of obligations) versus contingent obligations (dollar-for-dollar deduction as paid) is inequitable and produces an inconsistent result without meaningful justification. These commentators requested that the final regulations allow an estate to choose between deducting the present value of a noncontingent recurring payment on the estate tax return, or instead deducting the amounts paid in the same manner as provided for a contingent obligation (after filing an appropriate protective claim for refund). The Treasury Department and the IRS find the arguments against the disparate treatment of noncontingent and contingent obligations to be persuasive. The final regulations eliminate the disparate treatment by removing the present value limitation applicable only to noncontingent recurring payments. The Treasury Department and the IRS believe that the issue of the appropriate use of present value in determining the amount of the deduction allowable under section 2053 merits further consideration. The final regulations reserve § 20.2053-1(d)(6) to provide future guidance on this issue.”

But it is easy to see how the Treasury Department’s and the IRS’s “further consideration” of “the appropriate use of present value concepts” could turn their focus to the leveraged benefit in general that can be obtained when a claim or expense is paid long after the due date of the estate tax, but the additional estate tax reduction is credited as of, and earns interest from, that due date. Graegin loans (see Estate of Graegin v. Commissioner, T.C. Memo. 1988-477) could be an obvious target of such consideration.

If this project results in a deduction of only the present value of the payment, as of the due date of the tax, and the discount rate used in the calculation of the present value is the same as the rate of interest on the tax refund, and the interest is not subject to income tax (or the discount rate is also reduced by the income tax rate), then the invocation of “present value concepts” might make very little difference on paper. But it might require legislation to accomplish all these things. And because claims or expenses are rarely paid exactly on the due date of the tax, the precise application of such principles might be exceedingly complicated.


Context of Item 7 of the Priority Guidance Plan

Item 7 is described as “Final regulations under §2642(g) describing the circumstances and procedures under which an extension of time will be granted to allocate GST exemption.” This project first appeared in the 2007-2008 Plan.

The background of this project is section 564(a) of the 2001 Tax Act, which added subsection (g)(1) to section 2642, directing Treasury to publish regulations providing for extensions of time to allocate GST exemption or to elect out of statutory allocations of GST exemption (when those actions are missed on the applicable return or a return is not filed). Before the 2001 Tax Act, similar extensions of time under Reg. §301.9100-3 (so-called “9100 relief”) were not available, because the deadlines for taking such actions were prescribed by the Code, not by the regulations.

The legislative history of the 2001 Tax Act stated that “no inference is intended with respect to the availability of relief from late elections prior to the effective date of [section 2642(g)(1)],” and section 2642(g)(1)(A) itself directs that the regulations published thereunder “shall include procedures for requesting comparable relief with respect to transfers made before the date of the enactment of [section 2642(g)(1)].” Section 2642(g)(1)(B) adds:

“In determining whether to grant relief under this paragraph, the Secretary shall take into account all relevant circumstances, including evidence of intent contained in the trust instrument or instrument of transfer and such other factors as the Secretary deems relevant. For purposes of determining whether to grant relief under this paragraph, the time for making the allocation (or election) shall be treated as if not expressly prescribed by statute.”

Shortly after the enactment of the 2001 Tax Act, Notice 2001-50, 2001-2 C.B. 189, acknowledged section 2642(g)(1) and stated that taxpayers may seek extensions of time to take those actions under Reg. §301.9100-3. The Service has received and granted many requests for such relief over the years since the publication of Notice 2001-50.

In addition, Rev. Proc. 2004-46, 2004-2 C.B. 142, provides a simplified method of dealing with pre-2001 gifts that meet the requirements of the annual gift tax exclusion under section 2503(b) but not the special “tax-vesting” requirements applicable for GST tax purposes to gifts in trust under section 2642(c)(2). Gifts subject to Crummey powers are an example. In such cases, GST exemption may be allocated on a Form 709 labeled “FILED PURSUANT TO REV. PROC. 2004-46,” whether or not a Form 709 had previously been filed for that year. Post-2000 gifts are addressed by the expanded deemed allocation rules of section 2632(c), enacted by the 2001 Tax Act.

Proposed Reg. §26.2642-7 (REG-147775-06) was released on April 16, 2008. When finalized, it will oust Reg. §301.9100-3 and become the exclusive basis for seeking the extensions of time Congress mandated in section 2642(g)(1) (except that the simplified procedure for dealing with pre-2001 annual exclusion gifts under Rev. Proc. 2004-46 will be retained). The proposed regulations resemble Reg. §301.9100-3, but with some important differences. Under Proposed Reg. §26.2642-7(d)(1), the general standard is still “that the transferor or the executor of the transferor’s estate acted reasonably and in good faith, and that the grant of relief will not prejudice the interests of the Government.”


Proposed Reg. §26.2642-7(d)(2) sets forth a “nonexclusive list of factors” to determine whether the transferor or the executor of the transferor’s estate acted reasonably and in good faith, including (i) the intent of the transferor to make a timely allocation or election, (ii) intervening events beyond the control of the transferor or the executor, (iii) lack of awareness of the need to allocate GST exemption to the transfer, despite the exercise of reasonable diligence, (iv) consistency by the transferor, and (v) reasonable reliance on the advice of a qualified tax professional.

Proposed Reg. §26.2642-7(d)(3) sets forth a “nonexclusive list of factors” to determine whether the interests of the Government are prejudiced, including (i) the extent to which the request for relief is an effort to benefit from hindsight, (ii) the timing of the request for relief, and (iii) any intervening taxable termination or taxable distribution.

Noticeably, the proposed regulations seem to invite more deliberate weighing of all those factors than the identification of one or two dispositive factors as under Reg. §301.9100-3.

“Hindsight,” which could be both a form of bad faith and a way the interests of the Government are prejudiced, seems to be a focus of the proposed regulations. This is probably explained by the obvious distinctive feature of the GST tax – its effects are felt for generations, in contrast to most “9100 relief” elections that affect only a current year or a few years. There simply is more opportunity for “hindsight” over such a long term. Thus, the greater rigor required by the proposed regulations seems to be justified by the nature of the GST tax and consistent with the mandate of section 2642(g)(1)(B) to “take into account all relevant circumstances.” 


Proposed Reg. §26.2642-7(h)(3)(i)(D) requires a request for relief to be accompanied by “detailed affidavits” from “each tax professional who advised or was consulted by the transferor or the executor of the transferor’s estate with regard to any aspect of the transfer, the trust, the allocation of GST exemption, and/or the election under section 2632(b)(3) or (c)(5).”

The references to “any aspect of the transfer” and “the trust” appear to go beyond the procedural requirement of Reg. §301.9100-3(e)(3) for “detailed affidavits from the individuals having knowledge or information about the events that led to the failure to make a valid regulatory election and to the discovery of the failure.” Presumably, a professional who advised only with respect to “the transfer” or “the trust” would have nothing relevant to contribute other than a representation that they did not advise the transferor to make the election, a fact that the transferor’s own affidavit could establish.

Status and Predictions

Section 2642(g)(1) itself, having been enacted by the 2001 Tax Act, was once scheduled to “sunset” on January 1, 2011, then on January 1, 2013, and is now permanent. These regulations ought to have been close to completion for a long time.

The current Item 7 last appeared in the 2015-2016 Plan. It was removed in the 2016-2017 Plan. Then it was revived in the 2017-2018 Plan. Like the consistent basis regulations, it appeared under the heading of “Burden Reduction” project. How can this be, when the proposed regulations would generally be more burdensome than Reg. §301.9100-3, which Notice 2001-50 now allows to be used? 

As noted above, the multi-generational context of these issues and the mandate of section 2642(g)(1)(B) to “take into account all relevant circumstances, including evidence of intent … in the trust instrument” do seem to justify greater substantive analysis. Indeed, the specific reference to “intent” and “the trust instrument” could actually make it easier to support a finding that an election was appropriate but was missed, when actual witnesses are not available. But perhaps the extensive experience of the IRS with ruling requests under Notice 2001-50 and Reg. §301.9100-3 has shown that less onerous procedural requirements may be sufficient, especially with respect to the excessive requirements of affidavits, again when witnesses are not available.

Item 6 of the Priority Guidance Plan

Item 6 is described as “Regulations under §2632 providing guidance governing the allocation of generation-skipping transfer (GST) exemption in the event the IRS grants relief under §2642(g), as well as addressing the definition of a GST trust under §2632(c), and providing ordering rules when GST exemption is allocated in excess of the transferor’s remaining exemption.” It is the only new item under the heading of “Gifts and Estates and Trusts” in the 2021-2022 Plan.

It is evidently related to Item 7 and is intended to address not only the consequences of the relief described in Item 7 but also, as the description says, the definition of a “GST trust” and ordering rules when too much GST exemption is ostensibly allocated.


It is hard to remember when we last had a reason to discuss section 2801!

The Heroes Earnings Assistance and Relief Tax Act of 2008 (the “HEART” Act) enacted a new income tax “mark to market” rule (section 877A) when someone expatriates on or after June 17, 2008, and a new succession tax on the receipt of certain gifts or bequests from someone who expatriated on or after June 17, 2008. The new succession tax is provided for in section 2801, comprising all of new chapter 15.

Item 8 of the 2021-2022 Priority Guidance Plan is described as “Final regulations under §2801 regarding the tax imposed on U.S. citizens and residents who receive gifts or bequests from certain expatriates. Proposed regulations were published on September 10, 2015.” This project first appeared on the 2008-2009 Priority Guidance Plan, but was dropped from the Plans during the Trump Administration.

Now it’s back, but it won’t be easy!

Initial Responses

Referring to the guidance contemplated by this project, Announcement 2009-57, 2009-29 I.R.B. 158 (released July 16, 2009), helpfully stated:

“The Internal Revenue Service intends to issue guidance under section 2801, as well as a new Form 708 on which to report the receipt of gifts and bequests subject to section 2801. The due date for reporting, and for paying any tax imposed on, the receipt of such gifts or bequests has not yet been determined. The due date will be contained in the guidance, and the guidance will provide a reasonable period of time between the date of issuance of the guidance and the date prescribed for the filing of the return and the payment of the tax.”

Nevertheless, it seems likely that the longer it takes to finalize these regulations consistently with the June 17, 2008, effective date the harder it is going to be, and that the harder it is the longer it might take. A dilemma that has led some to think that this provision of the HEART Act will never take effect, and that Congress must intervene to provide a more workable approach.

When this project first appeared on the 2008-2009 Plan, Treasury and IRS personnel referred to it as a top priority. Evidently the implementation of what amounts to a succession tax on transferees, not transferors or their estates, is quite complicated and challenging. Perhaps the current interest in broader proposed deemed realization legislation (like that discussed in Capital Letter Number 52) has given this project new cause for optimism, or pessimism, as the case may be.

Proposed Regulations

The regulations proposed in 2015 (§§28.2801-1 through -7 and related procedural sections, REG-112997-10) are about 18,000 words long and were accompanied by a preamble of about 8,600 words. The preamble included the estimate that there would be 1,000 respondents annually.

Proposed Reg. §28.6011-1(a) provides that “covered” gifts and bequests must be reported by the recipient on Form 708, “United States Return of Tax for Gifts and Bequests from Covered Expatriates.” Under Proposed Reg. §28.6071-1(a)(1), Form 708 is generally due on the 15th day of the 18th month following the close of the calendar year in which the transfer was received. But, fulfilling the promise of Announcement 2009-57, Proposed Reg. §28.6071-1(d) states that no Form 708 will be due before the date specified in the final regulations. Under Proposed Reg. §28.2801-3(c)(1) and (2), if a gift or bequest is reported by the expatriate donor or executor of the expatriate decedent on a Form 709 or 706, and gift or estate tax is paid, it is not a covered gift or bequest and need not be reported on Form 708.

Proposed Reg. §28.2801-3(b) confirms that covered bequests include the receipt of assets the value of which would be included in a U.S. citizen’s gross estate under section 2036, 2037, 2038, 2040, 2042, or 2044.

Some Oddities and Surprises in the Calculation of the Tax

Under Proposed Reg. §28.2801-4(b)(2), the sum of both covered gifts and covered bequests is reduced by the annual exclusion amount provided for gift tax purposes under section 2503(b). But only one such reduction is allowed, regardless of the number of donors. In the case of a gift to a spouse who is not a U.S. citizen, that amount is determined under section 2523(i) (see Proposed Reg. §28.2801-3(c)(4) and -3(f), Example 1) and is 10 times the unrounded amount determined under section 2503(b).

Under section 2801(b), the tax is an obligation of the recipient. Nevertheless, under the calculation rules in Proposed Reg. §28.2801-4(b), the gift tax the recipient pays is not deducted from the amount subject to tax, as it would be in the case of a typical “net gift.” The section 2801 tax, whether on a gift or a bequest, is “tax-inclusive.”

Proposed Reg. §28.2801-4(a)(2)(iii) provides rules for computing the tax in the case of a covered transfer to a charitable remainder trust. The value of the transferred property is allocated between the noncharitable interest and the charitable remainder interest in the usual way and the tax is calculated on the noncharitable portion. Although the payment of the tax by the trust does not reduce the value of the gift for purposes of the calculation of the section 2801 tax, it does reduce the value of the charitable remainder and therefore might actually increase the value of the covered gift.

Under Proposed Reg. §28.2801-6(a), the recipient’s payment of the tax does not increase the basis of the transferred property.

Getting the Necessary Information

One of the most vexing issues regarding the section 2801 tax has been figuring out how the recipient will know when a gift or bequest is a “covered” gift or bequest from a “covered” expatriate. Gifts and bequests normally have no tax consequences to the recipient. Proposed Reg. §28.2801-7(a) provides this ominous and exasperating, but probably unavoidable, confirmation:

“(a) Responsibility of recipients of gifts and bequests from expatriates. It is the responsibility of the taxpayer (in this case, the U.S. citizen or resident receiving a gift or bequest from an expatriate or a distribution from a foreign trust funded at least in part by an expatriate) to ascertain the taxpayer’s obligations under section 2801, which includes making the determination of whether the transferor is a covered expatriate and whether the transfer is a covered gift or covered bequest.”

Apparently doing the best it can to be helpful, Proposed Reg. §28.2801-7(b) adds:

“(b) Disclosure of return and return information—(1) In general. In certain circumstances, the Internal Revenue Service (IRS) may be permitted, upon request of a U.S. citizen or resident in receipt of a gift or bequest from an expatriate, to disclose to the U.S. citizen or resident return or return information of the donor or decedent expatriate that may assist the U.S. citizen or resident in determining whether the donor or decedent was a covered expatriate and whether the transfer was a covered gift or covered bequest. The U.S. citizen or resident may not rely upon this information, however, if the U.S. citizen or resident knows, or has reason to know, that the information received from the IRS is incorrect. The circumstances under which such information may be disclosed to a U.S. citizen or resident, and the procedures for requesting such information from the IRS, will be as provided by publication in the Internal Revenue Bulletin (see §601.601(d)(2)(ii)(b)).

“(2) Rebuttable presumption. Unless a living donor expatriate authorizes the disclosure of his or her relevant return or return information to the U.S. citizen or resident receiving the gift, there is a rebuttable presumption that the donor is a covered expatriate and that the gift is a covered gift. A taxpayer who reasonably concludes that a gift or bequest is not subject to section 2801 may file a protective Form 708 in accordance with §28.6011-1(b) to start the period for the assessment of any section 2801 tax.”

The preamble further explains:

“Section 28.2801-7 provides guidance on the responsibility of a U.S. recipient, as defined in §28.2801-2(e), to determine if tax under section 2801 is due. The Treasury Department and the IRS realize that, because the tax imposed by this section is imposed on the U.S. citizen or resident receiving a covered gift or covered bequest, rather than on the donor or decedent covered expatriate making the gift or bequest, U.S. taxpayers may have difficulty determining whether they are liable for any tax under section 2801. Nevertheless, the same standard of due diligence that applies to any other taxpayer to determine whether the taxpayer has a tax liability or a filing requirement also applies to U.S. citizens and residents under this section. Accordingly, it is the responsibility of each U.S. citizen or resident receiving a gift or bequest, whether directly or indirectly, from an expatriate (as defined in section 877A(g)(2)) to determine its tax obligations under section 2801. Thus, the burden is on that U.S. citizen or resident to determine whether the expatriate was a covered expatriate (as defined in section 877A(g)(1)) and, if so, whether the gift or bequest was a covered gift or covered bequest.”

In other words, if a family member expatriates, life will be tougher for other family members (or any objects of the expatriate’s bounty) who do not expatriate.

Proposed Reg. §28.6011-1(b)(i) does provide that a recipient who reasonably concludes that a gift or bequest is not a “covered” gift or bequest may file a protective Form 708, and that such a filing will start the period for assessment of tax with respect to any transfer reported on that return.

More Math

Section 2801(e)(1) provides that a “covered gift or bequest” includes any property acquired “directly or indirectly.” Section 2801(e)(4)(A) provides that a covered transfer includes a transfer to a U.S. domestic trust. Section 2801(e)(4)(B)(i) provides that in the case of a covered gift or bequest to a foreign trust, the tax is imposed on distributions from the trust “attributable to such gift or bequest.”

Proposed Reg. §28.2801-5(c)(1)(i) provides that the amount of any distribution attributable to covered gifts and bequests is determined by applying a “section 2801 ratio” to the value of the distribution. Tracing of particular trust assets is not allowed. Under Proposed Reg. §28.2801-5(c)(1)(ii), the “section 2801 ratio,” representing the portion of the trust and of each distribution that is deemed to be attributable to covered transfers, is redetermined after each contribution to the trust in a manner resembling the calculation of the inclusion ratio for GST tax purposes. Proposed Reg. §28.2801-5(c)(3) provides:

“If the trustee of the foreign trust does not have sufficient books and records to calculate the section 2801 ratio, or if the U.S. recipient is unable to obtain the necessary information with regard to the foreign trust, the U.S. recipient must proceed upon the assumption that the entire distribution for purposes of section 2801 is attributable to a covered gift or covered bequest.”

This encourages the expatriate transferor to cooperate with transferees.

Elections and Appointments

Proposed Reg. §28.2801-5(d) permits a foreign trust to elect to be treated as a U.S. domestic trust. Thereby the section 2801 tax is imposed on the value of the trust multiplied by the section 2801 ratio and on all current and future transfers to the trust from covered expatriates, but not on future distributions from the trust.

The trustee of an electing foreign trust must designate and authorize a U.S. agent solely for purposes of section 2801. Proposed Reg. §28.2801-5(d)(3)(iv) states:

“By designating a U.S. agent, the trustee of the foreign trust agrees to provide the agent with all information necessary to comply with any information request or summons issued by the Secretary. Such information may include, without limitation, copies of the books and records of the trust, financial statements, and appraisals of trust property. … Acting as an agent for the trust for purposes of section 2801 includes serving as the electing foreign trust’s agent for purposes of section 7602 (‘Examination of books and witnesses’), section 7603 (‘Service of summons’), and section 7604 (‘Enforcement of summons’) with respect to … any request by the Secretary to examine records or produce testimony related to the proper identification or treatment of covered gifts or covered bequests contributed to the electing foreign trust and distributions attributable to such contributions; and … any summons by the Secretary for records or testimony related to the proper identification or treatment of covered gifts or covered bequests contributed to the electing foreign trust and distributions attributable to such contributions.”

Care would be advisable in agreeing to be a U.S. agent.


Item 9 is described as “Regulations under §7520 regarding the use of actuarial tables in valuing annuities, interests for life or terms of years, and remainder or reversionary interests.” This item was new in the 2018-2019 Plan.

The current mortality tables, based on 2000 census data, became effective May 1, 2009. Previous mortality tables had taken effect on May 1, 1989, and May 1, 1999. Section 7520(c)(2) mandates revision of the tables at least once every ten years. This project is that routine revision, to reflect 2010 census data and to be effective as of May 1, 2019, even though it was not completed by that date. Now, almost two and a half years late, it must be almost done!

When completed, the tables will reflect longer life expectancies. Thus, for example, for trusts lasting for life, there will be:

  • lower values in general for remainder interests;
  • larger charitable deductions for charitable lead annuity trusts (CLATs);
  • smaller charitable deductions for charitable remainder annuity trusts (CRATs);
  • more difficulty satisfying the at-least-10-percent-remainder test for CRATs imposed by section 664(d)(1)(D); and
  • more difficulty satisfying the not-more-than-5-percent-possibility-of-exhaustion test for CRATs elaborated and applied in Rev. Rul. 70-452, 1970-2 C.B. 199.

Transitional Relief?

It is reasonable to assume that there will be transitional relief for taxpayers who, since May 1, 2019, have relied on the mortality tables that took effect May 1, 2009. Because the mortality tables have not been late before, there is no model for such transitional relief. But even the timely promulgation of the 2009 mortality tables provided two months of relief the preamble described as “certain transitional rules intended to alleviate any adverse consequences resulting from the proposed regulatory change.” T.D. 9448, 74 Fed. Reg. 21438, 21439 (May 7, 2009). The preamble elaborated:

“For gift tax purposes, if the date of a transfer is on or after May 1, 2009, but before July 1, 2009, the donor may choose to determine the value of the gift (and/or any applicable charitable deduction) under tables based on either [the 1990 or 2000 census data]. Similarly, for estate tax purposes, if the decedent dies on or after May 1, 2009, but before July 1, 2009, the value of any interest (and/or any applicable charitable deduction) may be determined in the discretion of the decedent’s executor under tables based on either [the 1990 or 2000 census data]. However, the section 7520 interest rate to be utilized is the appropriate rate for the month in which the valuation date occurs, subject to the … special rule [in section 7520(a)] for certain charitable transfers.”

In other words, transitional relief may be provided with respect to the actuarial components of calculations based on mortality (life expectancy) tables, but not with respect to merely financial components such as applicable federal rates and the section 7520 rate, which have been published monthly as usual without interruption. For example, such transitional relief would apply to the calculations since May 1, 2019, of the values of an interest for life, an interest for joint lives, an interest for life or a term whichever is shorter or longer, or a remainder following such an interest. But no transitional relief would be necessary for calculations related to promissory notes or GRATs, for example, that involve only fixed terms without mortality components, which the new mortality tables would not affect.


The following topics have been in Priority Guidance Plans in the past but do not appear in the current Plan:

  • The basis of grantor trust assets under section 1014 (deleted from the 2021-2022 Plan)
  • The valuation of promissory notes (deleted in the Trump Administration)
  • The gift tax effect of defined value clauses (deleted in the Trump Administration)
  • “Material participation” by trusts and estates for purposes of the 3.8 percent tax on net investment income under section 1411 (deleted in the Trump Administration)
  • Family-owned trust companies as fiduciaries (deleted in the Obama Administration)
  • Trust decanting (deleted in the Obama Administration)

For detailed discussion of these topics, see Part 4.i of Washington Update, available at

Ronald D. Aucutt

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