Background Materials on Federal Estate and Gift Taxation

EXHIBIT II

COMPARISON OF THE MAJOR FEATURES OF ESTATE AND GIFT TAX LEGISLATION INTRODUCED IN THE U.S. SENATE DURING 1975

Proposals to alter individual exemptions

Bill numbers:

8. 227, 436, 678, 679, 1173, 1803, 2187, 2272, 2764, 2465*.

S. 927, 2394.

*S. 227, 82465 proposed an exemption equal to the lesser of (1) $200,000; (2) "The value of the decedent's interest in a family farming operation continually owned by him or his spouse during the five years prior to the date of his death and which passes or has passed to an individual or individuals or individuals related to him or his spouse." This exemption would be in addition to the individual $60,000 exemption.

$150,000.

$80,000 from 1975 to 1978; $100,000 from 1977 to 1980; $120,000
after 1980.

Proposed deduction limit

$100,000 plus 50 percent of decedent's adjusted gross estate.
$240,000 plus 50 percent of decedent's adjusted gross estate as
exceeds $242,000.

PROPOSALS TO ALLOW CERTAIN REAL PROPERTY TO BE VALUED ACCORDING TO ITS EXISTING USE RATHER THAN ITS FAIR MARKET VALUE FOR ESTATE

Revocation of election and recapture

If (1) land is converted to a non-qualifying
use (2) rezoned to permit a non-qualifying.
use, or (3) removed from the National
Register of Historic Places; then the excess
of tax liability based on market valuation
over liability based on qualifying use vio-
lation must be paid plus 9 percent interest.
Same recapture provisions are activated if
owner sells an interest in property with
respect to which election was made.

J

Same as S.80, except it uses the wording "open pastoral space" than "open space" to describe qualifying use under (C).

Same as S. 80 except property listed in National Register of Historic Places is excluded. Also limited to "scenic" open space.

Substantially all of property must have been devoted to farming during the 60 months preceding the date of death of decedent. Also: qualifying property must constitute at least 35 percent of the value of gross estate of resident, or 50 percent of the decedent's taxable estate.

Same is S. 1173.

Same as S. 80 except: (1) sale or transfer of property must take place within 5 years after date on which return was filed in order for revocation and recapture to be activated; (2) interest on recapture payments is 6 percent; (3) revocation is activated if property is removed from the National Register of Historic Places, or if "the maintenance of historic values" is

discontinued.

If property is "sold or transferred, within
5 years after the date on which the return
was filed" or "is converted substantially
to a [non-qualifying] use", then recapture
provisions are activated. No interest pay-
ments required.

In order for recapture to apply, either prop-
erty must be converted to non-qualifying
use within 5 years after date on which
return was filed or must be sold or trans-
ferred within 5 years after date on which
return was filed. No interest payments
required.

If credit is taken, lien is placed on qualified property. Conversion to "a use inconsistent with its use as qualified farm property" results in recapture of credit. Interest payments upon recapture determined according to Sec. 6621 of Internal Revenue Code. Same as S. 1184, except interest rates on recapture set at 4 percent. Same as S. 1184.

Same as S. 1184, except interest rates on recapture set at 4 percent.

PROPOSALS TO EXTEND THE TIME FOR PAYING ESTATE TAXES

President's proposal, as described in New
York Times, January 6, 1976 (P. 1, col. 1).

Nature of extension

Changes the provisions of Sec. 6161 (a) (2) of
the Internal Revenue Code so that Secre-
tary of the Treasury can grant time exten-
tion on estate tax payments in cases of
"hardship" rather than "undue hardship."

Allows payment of the estate tax in 2 or more
equal installments over a period of not
more than 10 years.

No estate tax payments required for first 5
years, starting with 6th year, estate tax
payments would be required over 20. year
period. Interest on the unpaid amount
would be 1 percent per annum.

No payments required for first five years.
(N.B. bill appears to be drafted incor-
rectly.)

Authorizes the Secretary of the Treasury to
study the impact of provisions of the In-
ternal Revenue Code allowing deferral and
extension of estate tax payments of closely
held enterprises on the decisionmaking of
these enterprises.

Limitations on extension
Applies only to estates of decedents dying
after Deo. 31, 1974. (S. 2465.)
Applied only to estates of decendents dying
after Dec. 31, 1975; if due date for pay-
ment established in Sec. 6161 (a) (2), 6166,
or 6163 is extended or postponed, interest
shall be paid at 4 percent. Otherwise in-
terest rate is as prescribed in Sec. 6161
(S. 2394).

(1) Applies only to estates worth $300,000
or less.

(2) Applies only to estates of decedents
dying after June 30, 1975.
Limited to farm or business in which de-

cedent owns at least 20 percent interest.
Firm can consist of no more than 10 part-
ners or shareholders. Provisions would ap-
ply only to tax due on $300,000 of property
of decedent. [(N.B.) curently, same types
of farms and businesses can postpone their
tax payments for nine months and pay over
a 10-year period. $300,000 limitation is not
in current law. Current interest require-
ment is 9 percent annum-7 percent after
Feb. 1, 1976.]

GIFT TAX
Increases annual exclusion from $3,000 to
$10,000 inorease specific exemption (life-
time) from $30,000 to $100,000.
Increases specific exemption from $30,000 to
$60,000, allows taxpayer to transfer his es-
tate tax exemption to gift tax. (S. 2819
changes estate tax exemption. See page 1
of this chart.)

INTEGRATION OF ESTATE AND GIFT TAXES
Sets a uniform rate structure for both estate
and gift tax. Ranges from 20-80 percent
(80 percent rate applies to estates worth
more than $5 million.) Sets specific ex-
emption of $25,000 for both sets of taxes
(1.e. exemptions for both taxes equals
$25,000.) Special tax is imposed on trans-
fers that skip generations. Rate equals 60
percent of marginal rate imposed on por-
tion of estate that does not skip a genera-
tion.

EXHIBIT III

THE LIBRARY OF CONGRESS,
CONGRESSIONAL RESEARCH SERVICE,

Washington, D.C., August 4, 1975.

From: Economics Division
Subject: Revenue estimate for S. 2187 of the
94th Congress, a proposal to revise cer-
tain features of the Federal estate tax
This memorandum is in response to your
request for revenue estimates for various
features of 6. 2187 of the 94th Congress.
S. 2187 was introduced July 28, 1975, by
Senator Robert C. Byrd and is designed to
revise Federal estate tax law. Each major
provision of S. 2187 is briefly described below
and the revenue loss attributable to each
provision is noted.

The total revenue loss for S. 2187 is esti-
mated at $2.52 billion, based on 1974 levels.
Revenue from the Federal estate tax for fiscal
year 1975, based on present law, is estimated
at $4.3 billion. Thus, S. 2187 would reduce
estate tax revenue by more than 50 percent.
The source of all revenue estimates is the
Department of the Treasury, Office of the
Secretary.

THE LIBRARY OF CONGRESS,
CONGRESSIONAL RESEARCH SERVICE,
Washington, November 17, 1975.
From: Economics Division.
Subject: Revenue loss estimates of substi-
tuting $25,000 credit, $40,000 credit, and
$50,000 credit for $60,000 estate tax ex-
emption; revenue loss estimates for rais-
ing exemption.

The folowing estimates are based on data
from Statistics of Income 1972, Estate Tax
Returns, Internal Revenue Service:

$25,000 credit in lieu of $60,000 exemp-
tion-estimated revenue loss in 1975: $400

million.

$40,000 credit in lieu of $60,000 exemp-
tion: $940 million.

$50,000 credit in lieu of $60,000 exemp-
tion: $1.32 billion.

The following estimates were given to us
by Mr. Floyd Reeves of the Department of
the Treasury in February, 1975:

Grāmatas