D. DEFERRED PAYMENT OF ESTATE TAXES ATTRIBUTABLE TO INTERESTS IN CLOSELY-HELD BUSINESSES The earliest provision of the Internal Revenue Code granting a deferral privilege to estates as a matter of right* was $6166 added to the Code in 1958. It was "primarily designed to make it possible to keep together a business enterprise where the death of one of the larger owners of the business results in an imposition of a heavy estate tax".** This was to be accomplished by spreading out the period over which the estate taxes would be paid to permit earnings of the farm or closely-held business to be used to pay the estate taxes. In the Tax Reform Act of 1976, Congress changed the section number of existing $6166 to $6166A, and added a new $6166, which provided a longer payout period and a lower interest rate for those estates which meet its more stringent qualification tests. It was added in response to concern that some businesses were not profitable enough to permit both payment of estate tax and interest thereon, especially if the interest rate is high.** The Revenue Act of 1978 amended $6166 * * Under $6161(a)(2) of the Code the time for payment of estate taxes may be extended for up to ten years by the Secretary of the Treasury upon a showing of reasonable cause. Since $6161 does not permit deferral as a matter of right, its utility as a planning tool is limited. ** H.R. Rep. No. 2198, 85th Cong., 2d Sess. (1958). * ** H.R. Rep. No. 1380, 94th Cong., 2d Sess. (1976). (but not §6166A) to provide for the application of certain constructive ownership rules in determining if a decedent's estate owned the minimum percentage interest required to constitute an "interest in a closely held business" for purposes of §6166. As a result, two sections now deal with the same subject, each having different tests as to what property constitutes "an interest in a closely held business" as to which deferral is available, what minimum value the interest must have in relation to the value of the estate in order to qualify for deferral, under what conditions two or more "interests" may be combined to meet the threshold requirement, under what conditions acceleration of the deferred tax takes place, what maximum period of deferral is available, and what rate of interest is payable on the unpaid installments. There are also numerous other differences between the two sections. The Tax Reform Act of 1976 also changed the test under $303 for the minimum value which the stock of the redeeming corporation owned by the estate must have in relation to the value of the estate to qualify for "exchange" redemption Thus, this minimum value percentage is no longer the same as any of the threshold minimum value tests of either $6166 and $6166A. treatment. Simplification of the tax laws would be greatly promoted by combining SS6166 and 6166A and coordinating those provisions with $303. The Wallop Bill, S. 395, addresses some of these questions. However, more can and should be done. The Section of Taxation is in the process of developing a comprehensive report on this subject and hopes to soon be able to discuss the report with the Joint Committee and Treasury Staffs. E. ORPHANS' DEDUCTION Section 2057 was enacted by The Tax Reform Act of 1976 to provide a limited estate tax deduction for an interest in property passing to a minor (defined as a child under age 21) orphan. The deduction is not allowable, however, if the interest passing to the minor orphan would violate the terminable interest rule of section 2056 if it were an interest passing to a surviving spouse. Moreover, the deduction is available only where the decedent is not survived by a spouse and the minor child has no known parent. Enact There are significant problems with the orphans' deduction. Primary among them is the requirement that the interest in property passing to the minor orphan not violate the terminable interest rule. This results in undesirable complexities. ment as part of the Revenue Act of 1978 of the provision recognizing "Qualified Minors' Trusts" as further exceptions to the terminable interest rule only served to increase those complexcomplexities which are now reflected in the wills of most parents of minor children. This undoubtedly results in increased estate planning fees, though the deduction will actually be used very infrequently. Though the objective of Congress in ities providing for the deduction is obviously laudable, many responsible tax lawyers believe that in furtherance of the simplification of our tax laws, it should either be repealed in its entirety or the burdensome requirements attendant to its application should be eliminated. In any event, whatever changes in the law may be considered, the problems of implementing new proposals are formidable and should be carefully studied before enactment. Many estate plans have been implemented based on present law, and changes should be made slowly and carefully, if at all. CONCLUSION The Section of Taxation of the American Bar Association has a deep and abiding interest in the integrity of our tax system. We are particularly committed to the cause of simplification, to the extent consistent with objectives of economic efficiency and equity of the tax structure. We look forward to further opportunities to present our views to the Congress. The National Association of Retail Druggists represents the owners of more than 30,000 pharmacies where 75,000 pharmacists practice their profession. These pharmacies fill approximately 70% of all prescriptions and serve 18 million consumers daily. The reform of the Federal estate and gift tax structure has Ironically, Federal estate and gift taxes, originally designed to prevent the excessive concentration of wealth are actually increasing concentration. This is especially true in the retail drug industry. Again and again, at the very moment that the family of one of our members is experiencing a tragic personal loss and are very likely confronted with a struggle to exist, the IRS, under current law, extracts a tax which forces |