The Treasury-IRS Priority Guidance Plan for the 12 months ending June 30, 2019, confirms and clarifies the preview offered by the OMB’s government-wide agenda.
Dear Readers Who Follow Washington Developments:
The Treasury-IRS Priority Guidance Plan for the 12 months from July 2018 to June 2019 was published on November 8, 2018. That is later than usual, especially for Plans published in years after an Administration’s first year. While we were waiting, Capital Letter Number 44 of October 22, 2018, attempted to fill the gap by drawing inferences from the Office of Management and Budget’s Fall 2018 Unified Agenda of Federal Regulatory and Deregulatory Actions, which had been released on October 17, 2018. This Capital Letter will point out the items in the Priority Guidance Plan of most interest to ACTEC Fellows and will replicate just the highlights of the analysis of those items. Capital Letter Number 44 itself may be consulted for more detail.
IMPLEMENTATION OF THE 2017 TAX ACT
Part 1 of the 2018-2019 Plan, titled “Implementation of Tax Cuts and Jobs Act (TCJA),” contains 62 items, compared to 25 in the Fourth Quarter Update of the 2017-2018 Plan. This 148-percent proliferation of projects demonstrates the overwhelming impact of the 2017 Tax Act on tax administration and the agenda for published guidance.
Item 3 of Part 1, which was not in the 2017-2018 Priority Guidance Plan, is described as “Guidance clarifying the deductibility of certain expenses described in §67(b) and (e) that are incurred by estates and non-grantor trusts.” As previewed in Notice 2018-61 , 2018-31 I.R.B. 278, regulations anticipated from this project should clarify that trust and estate administration expenses continue to be deductible because of section 67(e), despite the eight-year “suspension” of section 67(a) by new section 67(g). It is still likely, however, that deductibility will continue to be limited by the harsh treatment in Reg. §1.67-4(b)(4) and (c)(2) of fiduciary investment advisory fees, including the portion of a “bundled” fiduciary fee attributable to investment advice (which now will mean total disallowance, not just the application of a 2-percent floor). Notice 2018-16 states flatly that “nothing in section 67(g) impacts the determination of what expenses are described in section 67(e)(1).”
Notice 2018-16 indicates that regulations will also address the availability of “excess deductions” to individual beneficiaries under section 642(h) on termination of a trust or estate, and the Notice asks for comments on that issue. But it is harder to predict the outcome in that context.
“Computational, definitional, and anti-avoidance guidance under new §199A” (item 7 in the 2017-2018 Plan) has now ballooned into the following four items, confirming the complexity of the new qualified business income deduction:
13. Final regulations on computational, definitional, and anti-avoidance rules under new §199A and §643(f). Proposed regulations on computational, definitional, and anti-avoidance guidance under new §199A and §643(f) published on August 16, 2018 in FR as REG-107892-18 (NPRM) (Released on August 8, 2018).
14. Revenue Procedure on methods for calculating W-2 wages for purposes of new §199A. Notice of proposed revenue procedure published on August 27, 2018 (Released on August 8, 2018).
15. Regulations under §199A and other guidance for cooperatives and their patrons.
16. Guidance on methods for calculating W-2 wages for purposes of new §199A for cooperatives and their patrons.
And “Guidance on computation of estate and gift taxes to reflect changes in the basic exclusion amount” (item 16 in the 2017-2018 Plan) is now expanded to “Regulations under §2010 addressing the computation of the estate tax in the event of a difference between the basic exclusion amount applicable to gifts and that applicable at the donor’s date of death” (item 37 in the current Plan). That makes it clear that the target of the regulations will be the phenomenon known as “clawback” with regard to the estate tax on the estate of a donor who makes a gift before the 2026 sunset but dies after the sunset.
REDUCING REGULATORY BURDENS
Part 2 of the Plan, titled “Identifying and Reducing Regulatory Burdens,” was Treasury’s response to Executive Order 13789 of April 21, 2017. Last year it included the withdrawal of the proposed regulations under section 2704 that had been published in August 2016. Nothing has been added this year.
Part 3 of the 2017-2018 Plan was titled “Near-Term Burden Reduction.” In the 2018-2019 Plan it is simply “Burden Reduction,” a fitting revision, as it has now been over a year. It is reduced from 20 to 14 projects, reflecting the elimination of projects that have been completed. No new projects have been added. Two projects, with the same numbers as in last year’s Plan, are of special interest to ACTEC Fellows:
4. 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.
8. Final regulations under §2642(g) describing the circumstances and procedures under which an extension of time will be granted to allocate GST exemption.
To fulfill the “burden reduction” promise, these final regulations should provide some relief – for example, relief from harsh rules like the 30-day due date in the consistent basis regulations and some relief from the burdensome requirements for affidavits and maybe even from the user fee in the 2642(g) regulations.
As in the 2017-2018 Plan, Part 5 is titled “General Guidance” and is divided into traditional subject areas. Four items appear under the heading of “Gifts and Estates and Trusts”:
1. Guidance on basis of grantor trust assets at death under §1014.
2. Final 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.
3. 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.
4. Regulations under §7520 regarding the use of actuarial tables in valuing annuities, interests for life or terms of years, and remainder or reversionary interests.
Although Item 1 is intriguing, any good news it may offer is likely to be limited to trusts created by non-U.S. persons. It is described only as “guidance,” not “regulations,” and it was missing from last month’s regulatory agenda discussed in Capital Letter Number 44. Both those observations suggest that this project may produce only, for example, a revenue ruling. That in turn implies that the guidance will not radically extend the step-up in the basis of appreciated assets as we know it.
Items 2 and 3 both reflect Treasury’s responses to public criticism of previously proposed regulations. Regulations under section 2032(a) were proposed in 2008 and then reproposed in 2011 to take a new approach to distributions and other transactions within six months after death that might affect estate tax value. Regulations under section 2053 were proposed in 2007 and then finalized in 2009 with §20.2053-1(d)(6) reserved to eventually address present value concepts differently from the 2007 proposed regulations. Both new approaches were prompted by criticism of the original proposed regulations in the public comments.
Item 4 is new in the 2018-2019 Plan. The current mortality tables, based on 2000 census data, became effective May 1, 2009, and section 7520(c)(2) mandates revision of the tables at least once every ten years. Thus, this project appears to be that routine revision, to take effect by May 1, 2019.
As explained in Capital Letter Number 44, according to the OMB Unified Agenda three of the trust and estate regulation projects discussed above have a target completion date of the end of 2018 – clawback, extensions of time under section 2642(g), and alternate valuation under section 2032(a). The clawback guidance, in the form of proposed and possibly temporary regulations, is the likely frontrunner.
The OMB Unified Agenda assigned a target completion date of June 30, 2019, to the other trust and estate regulation projects discussed above – deduction of administration expenses under section 67(e), consistent basis under sections 1014(f) and 6035, present value concepts under section 2053, and actuarial tables under section 7520.