IRS proposes no 'clawback' from higher estate and gift tax exemption

The tax agency says it won't try to collect retroactively when the higher exemptions expire in 2025

By Bloomberg News

Nov 30, 2018 @ 10:27 am EST

The Internal Revenue Service has proposed a potential benefit for wealthy taxpayers, saying that individuals who give lots of gifts to their heirs under a generous but temporary provision of the 2017 Republican tax overhaul won't later owe taxes on them.

Last year's tax law doubled the value of assets that can be transferred to heirs without triggering federal estate or gift taxes over a lifetime — to almost $11.2 million for an individual and $22.4 million for a married couple. The thresholds rise slightly in 2019 and potentially more in later years, before expiring in 2025, when the exemptions revert back to half of their current levels. Amounts over exemption levels are taxed at 40%.

Estate planning professionals had been worried that come 2026, the tax agency might attempt to collect taxes on gifts that were already made under the doubled exemptions. But the IRS said late Tuesday in a proposed regulation that it won't seek such retroactive taxes.

"Making large gifts now won't harm estates after 2025," the agency said in a brief accompanying statement.

"This is definitely good news — it takes uncertainty off the table," said Lester Law, an estate and trust planning lawyer in Washington. "It's clear that Treasury did not want to have a clawback be a 'gotcha."'

Mr. Law added that taxpayers shouldn't wait to take advantage of the exemption because Democrats could potentially seek to roll it back.

"It's use it or lose it," he said.

Individual gifts will still be limited by an annual exclusion, which is $15,000 this year.

The agency will hold a hearing on the proposed rule on March 13.

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