COMMITTEE ON WAYS AND MEANS WILBUR D. MILLS, Arkansas, Chairman

JOHN M. MARTIN, Jr., Chief Counsel
J. P. BAKER, Assistant Chief Counsel
RICHARD C. WILBUR, Minority Counsel
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CONTENTS

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Letter to the Speaker of the House of Representatives from the Honorable
David M. Kennedy, Secretary of the Treasury, July 30, 1970-----
Draft bill to extend excise taxes on communication services and automo-
biles_.

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Draft bill to accelerate the collection of estate and gift taxes, and for other purposes.-.

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Draft bill to impose a tax on lead additives used in gasoline, and for other

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purposes-

Technical explanation of proposed bill to provide for a tax upon lead additives used in gasoline..

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(III)

THE SECRETARY OF THE TREASURY,

Hon. JOHN W. MCCORMACK,

Speaker of the House,

Washington, July 30, 1970.

House of Representatives, Washington, D.C.

DEAR MR. SPEAKER: The President has recommended three tax measures on which we urge immediate action by Congress. These include a postponement of scheduled reductions in the automobile and communication services excise taxes for an additional year until January 1, 1972; an acceleration in the required time of payment of gift and estate taxes; and a tax on lead additives used in the refining of gasoline. The first two of these measures are designed to serve principally as short term revenue raising measures, although the acceleration in payment of estate and gift taxes is desirable for other reasons as well. This acceleration improves the operation of the estate and gift tax laws by giving the government, subject to reasonable limitations, a more current use of its tax revenues. The tax on lead additives in gasoline is necessary at this time to take an essential step forward in our battle against increasing air pollution. In order to facilitate early action on these three recommendations, I am enclosing draft bills for consideration by Congress. The following explanations should facilitate understanding of these proposals.

EXCISE TAX EXTENSION

The postponement of scheduled reductions in excise taxes on automobile and communication services will prevent a revenue loss of $650 million in the fiscal year 1971 and $1,250 million in the fiscal year 1972. This postponement has already been taken into account in the fiscal 1971 budget and is essential to maintain a fiscally responsible position.

ACCELERATION IN GIFT AND ESTATE TAX PAYMENTS

The proposed acceleration will result in approximately $1.5 billion in additional receipts for fiscal year 1971 and will assist in providing for the cost of the government-wide pay increase which accompanied the postal pay settlement. The Treasury Department has previously submitted to the Congress detailed recommendations for implementing the President's proposal. The enclosed draft bill carries out these recommendations.

Under this bill, the filing of the gift tax return and payment of the gift tax will be required on a quarterly basis, that is, on the last day of the month following the end of the calendar quarter in which the gift was made. Under present law it is possible to defer payment of gift taxes for as much as fifteen and one-half months after the gift is made. Quarterly returns and payment will not prove burdensome. The timing of gifts is at the donor's option, and gifts made during

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any calendar quarter are readily identifiable. At the present time, a substantial majority of taxpayers making taxable gifts make all such gifts in a single calendar quarter of any taxable year. Thus, it is expected that few additional gift tax returns will be required under the quarterly system.

The bill also requires payment of an estimated estate tax seven months after death. This payment will consist of 80 percent of the estate tax which would be due if the gross estate were valued as of the date of death.

Every effort has been made to ease the impact of this proposal on those estates for which payment of an estimated estate tax might be difficult. The estimated estate tax return will be required only if the gross estate, based on date of death values, exceeds $150,000. As a result, the requirement will apply to only about 35,000 of the 100,000 estates for which estate tax returns are filed annually. In addition, the estimated tax payment required will be limited to the value of the "net liquid assets" six months after death. Net liquid assets would include cash, readily marketable securities, and other liquid assets in the gross estate less funeral and administration expenses, debts payable within fifteen months after death, and an allowance of $15,000 for a surviving spouse or minor child plus $5,000 for each additional surviving minor child. This limitation on the amount of estimated tax required to be paid will prevent hardship for those estates which consist of nonliquid assets. While the enclosed draft bill does not provide for it, further attention is being given to whether interest should be charged on the estimated tax payment which would be due but for the net liquid asset test, or but for an extension in time of payment of the tax under sections 6161, 6163, or 6166 of the Internal Revenue Code of 1954. This would avoid any discrimination in favor of nonliquid estates.

At the same time, we are re-examining the provisions of regulations governing extensions of time for payment in an effort to grant extensions on more libéral terms where the net liquid asset test is itself insufficient to prevent any hardship.

This bill provides that any property included in the gross estate which is sold within six months after death will be given long term capital gains treatment. This avoids taxing the executor too heavily on short term gain on appreciation in value occurring after the decedent's death where, for example, assets must be sold to make the estimated estate tax payment. The bill provides a quick refund procedure if the estimated estate tax payment exceeds the tax finally due as, for example, where the alternate valuation date is used. Interest would also be paid on such an overpayment.

This recommendation for an estimated estate tax payment has generated considerable interest and controversy. The American Bankers Association and the American Bar Association have proposed an alternative under which the time for filing the federal estate tax return and paying the tax would be changed from fifteen months to nine months after death. An accompanying change would reduce the alternate valuation date from one year to six months after death. This alternative also calls for a speedup in the audit of federal estate tax returns and the release of fiduciaries other than the executor from personal liability for the tax.