where even the current 1 year period may not be satisfactory, the auditing agent will do what he has done in the past-request that the section 2204 letter be temporarily withdrawn.

The administration's new proposal does propose that section 2204 be modified to permit a fiduciary other than an executor to secure a discharge from personal liability for estate tax. However, it fails to deal with the decedent's liabilities for income tax and gift tax. We have discussed this omission informally with represenatives of the Treasury and been advised that extension of the discharge to income tax and to gift tax would present "administrative problems" for the Internal. Revenue Service because audits of three types of returns are involved. We are unimpressed with the justification. The discharge provision should be expanded to coved income tax and gift tax as well as estate

tax.

The new proposal also fails to change the 1 year rule to 9 months. We would point out that absent such a change there is nothing in the administration draft bill that contains a specific Congressional mandate for the spending up in the time for auditing Federal estate tax returns. We believe it is essential that if acceleration of the payment of estate tax is enacted the legislation should contain such a mandate and we suggest that this mandate be expressed by a shortening of the period of time for discharge in section 2204. There can be no disagreement with the statement that the payment of the estate tax within 9 months after death rather than within 15 months after death is in some cases going to create a hardship for the estate. This fact was recognized in the original administration proposal by the net liquid asset limitation on the amount of the estimated estate tax that would have to be paid. Any acceleration proposal that did not specifically recognize the hardship problem and liberalize the rules with respect to securing extensions of time within which to pay the tax would be deficient, as is the administration's current draft bill which says nohing about extensions. The hardship problem may be minimized by making the clarification I have already referred to with respect to securing extensions of time to pay the estate tax. It is to amend section 6161(a) (2) to eliminate the word "undue" and to revise section 20.6161-1 of the Treasury Regulations. The revision that we desire is discussed in detail in our written statement.

Finally, I would like to call the committee's particular attention to the discussion in our written statement of two technical defects in the administration's draft bill. Both of these relate to the change in the holding period rule. Proposed section 1223 (11) of the draft bill should be revised to eliminate the distinction made between estates involving community property and other estates which limits the change in the holding period rule to the decedent spouse's share of community property. Also, if acceleration is to be made retroactive in the sense that it applies to estates of decedents dying prior to the date of enactment of the legislation, the change in the holding period rule should also be made retroactive. While there may be some dispute as to the extent of the retroactivity, this change should clearly be applied to sales made after the date of enactment.

(The appendixes referred to follow :)

APPENDIX A

The American Bankers Association opposed the administration's original proposal to accelerate the payment of estate and gift taxes which, briefly stated, is that in the case of estates of more than $150,000 on the date of death an estimated estate tax would be payable 7 months after date of death in an amount equal to 80 percent of the tax that would be due if the gross estate were valued as of the date of death, but in no event more than the net liquid assets of the estate valued 6 months after date of death, and that gift taxes would be payable quarterly instead of annually.

The administration has abandoned its original proposal for accelerating the payment of estate tax, which had some troublesome features that are described in appendix A, and now supports three elements of an alternative method of acceleration suggested by our association.

These elements are to change the alternate valuation date from 1 year after death to 6 months from date of death, to change the time for filing the estate tax return and paying the estate tax from 15 months after date of death to 9 months after date of death and to change the holding period rule as to property included in a decedent's gross estate so that in the case of sales during the first 6 months after death such property will be considered to have been held for more than 6 months and the sale will be treated as a long-term gain or loss.

The change in the holding period rules was a part of the original administration proposal as set forth in the draft bill that was submitted to the Congress on July 30, 1970.

Despite this commendable change of position by the administration our association continues to oppose acceleration of the payment of estate and gift taxes. This committee has already indicated its intention of reviewing the entire gift and estate tax areas.

We believe consideration of the matter of the time of payment of these taxes should not be taken up separately but rather as a part of the contemplated general review.

Our comments will be limited to acceleration of the payment of estate tax, except that some technical points are made later in this statement with respect to certain aspects of the draft bill submitted by the administration involving gift tax acceleration and since the making of a gift is a voluntary act, we do not find the concept of acceleration of the payment of gift tax objectionable.

Nevertheless, we do question the advisability of making a change to quarterly returns with their increased administrative burden when the additional revenue from gift tax acceleration in fiscal year 1971 is estimated at only $100 million, a figure which we believe significantly overestimates the actual increase that would result from enactment of the administration's proposal bearing in mind that only gifts made in first quarter of 1971 will be shifted from fiscal 1972 to fiscal 1971.

OPPOSITION TO CONSIDERATION OF ACCELERATION PROPOSAL SEPARATELY FROM GENERAL ESTATE TAX REVISION

Under current law the estate tax is due 15 months after the decedent's death. The alternate proposal now suggested would require estates to make the tax payment 6 months earlier. This 6-month loss of tax funds would have the same effect on the estate beneficiaries as an increase in estate tax rates, which we and other interested groups believe are now too high.

If there is to be acceleration, it should be accompanied by a general overall reduction of estate tax rates that would compensate for the loss of income resulting from acceleration. Rate reduction may, of course, be achieved only as a part of general estate tax revision when the rate structure again can be considered. Thus we favor postponing action at this time on the administration's proposal for accelerating the payment of estate tax.

SUBSTITUTE ACCELERATION PROPOSAL

Although the administration now supports three elements of the alternate estate tax acceleration proposals suggested by our association, it has, except in one respect which will be referred to later, rejected two important elements of our proposal. They are:

1. To change the 1-year rule for discharge of an executor from personal liability for payment of estate taxes in section 2204 to 9 months and expand the discharge (a) to cover the decedent's income and gift taxes, and (b) to provide that the discharge of the executor will also discharge any other fiduciary who on the date of the decedent's death holds property included in this gross estate from personal liability for these same taxes, provided the existence of the fiduciary relationship and the property subject to the relationship was disclosed on the estate tax return and,

2. To clarify the rules with regard to securing extensions of time to pay the estate tax clearly to indicate that an extension will be granted when the funds available to the executor are not sufficient to pay the entire tax or for other good

cause.

If this committee determines that fiscal considerations are paramount and that acceleration of the payment of estate tax should be enacted prior to general estate tax revision, we urge that each of these elements of our alternate proposal be accepted. Absent their inclusion our membership would be virtually unanimous in opposing acceleration.

The most frequent criticism made by beneficiaries of estates is the length of time required to complete administration and make a final distribution of the estate assets. A contributing factor to the delay in making final distribution is the settlement of the decedent's tax liabilities which may be for gift tax or income tax as well as for estate tax.

Item 1, containing the suggested liberalization of the rules with regard to the liability of an executor for a decedent's taxes and the extension of these rules to a fiduciary, usually a trustee, holding property included in the decedent's gross estate, relates solely to personal liability and not to transferee liability and will permit a more prompt distribution of property by the fiduciary while at the same time preserving the right of the Internal Revenue Service to proceed for taxes owed by a decedent against any person to whom the fiduciary made a distribution. Similar changes were suggested by the tax section of the American Bar Association in 1968.

The change in the 1-year rule for discharge of an executor from personal liability to 9 months is eminently reasonable. If the estate is to file the estate tax return within 9 months of death, the Treasury should in the "typical" case assume the burden of completing the audit within 9 months after the return is filed. In the unusual case, where even the current 1-year period may not be satisfactory, the auditing agent will do what he has done in the past-request that the section 2204 letter be temporarily withdrawn.

The administration's new proposal does contain an element of item 1 in that it proposes that section 2204 be modified to permit a fiduciary other than an executor to secure a discharge from personal liability for estate tax. However, it fails to deal with the decedent's liabilities for income tax and gift tax.

We have discussed this omission informally with representatives of the Treasury and have been advised that extension of the discharge to income tax and to gift tax would present "administrative problems" for the Internal Revenue Service, because audits of three types of returns are involved.

We are unimpresed with this justification. The discharge provision should be expanded to cover income tax and gift tax as well as estate tax.

The new proposal also fails to change the 1-year rule to 9 months. We would point out that absent such a change there is nothing in the administration draft bill that contains a specific congressional mandate for the speeding up in the time for auditing estate tax returns.

We believe it is essential that if acceleration of the payment of estate tax is enacted the legislation should contain such a mandate and we suggest that this mandate be expressed by a shortening of the period of time for discharge in section 2204.

The payment of the estate tax within 9 months after death rather than within 15 months after death is in some cases going to create a hardship for the estate. This fact was recognized in the original administration proposal by the net liquid asset limitation on the amount of the estimated estate tax that wou'd have to be paid. The hardship problem may be minimized by making the clarification referred to in item 2 above with respect to securing extensions of time to pay the estate tax.

It is to amend section 6161 (a) (2) to eliminate the word "undue" and to revise 20.6161-1 of the Treasury Regulations.

50-374-70—17

APPENDIX A

The American Bankers Association opposed the administration's original proposal to accelerate the payment of estate and gift taxes which, briefly stated, is that in the case of estates of more than $150,000 on the date of death an estimated estate tax would be payable 7 months after date of death in an amount equal to 80 percent of the tax that would be due if the gross estate were valued as of the date of death, but in no event more than the net liquid assets of the estate valued 6 months after date of death, and that gift taxes would be payable quarterly instead of annually.

The administration has abandoned its original proposal for accelerating the payment of estate tax, which had some troublesome features that are described in appendix A, and now supports three elements of an alternative method of acceleration suggested by our association.

These elements are to change the alternate valuation date from 1 year after death to 6 months from date of death, to change the time for filing the estate tax return and paying the estate tax from 15 months after date of death to 9 months after date of death and to change the holding period rule as to property included in a decedent's gross estate so that in the case of sales during the first 6 months after death such property will be considered to have been held for more than 6 months and the sale will be treated as a long-term gain or loss.

The change in the holding period rules was a part of the original administration proposal as set forth in the draft bill that was submitted to the Congress on July 30, 1970.

Despite this commendable change of position by the administration our association continues to oppose acceleration of the payment of estate and gift taxes. This committee has already indicated its intention of reviewing the entire gift and estate tax areas.

We believe consideration of the matter of the time of payment of these taxes should not be taken up separately but rather as a part of the contemplated general review.

Our comments will be limited to acceleration of the payment of estate tax, except that some technical points are made later in this statement with respect to certain aspects of the draft bill submitted by the administration involving gift tax acceleration and since the making of a gift is a voluntary act, we do not find the concept of acceleration of the payment of gift tax objectionable.

Nevertheless, we do question the advisability of making a change to quarterly returns with their increased administrative burden when the additional revenue from gift tax acceleration in fiscal year 1971 is estimated at only $100 million, a figure which we believe significantly overestimates the actual increase that would result from enactment of the administration's proposal bearing in mind that only gifts made in first quarter of 1971 will be shifted from fiscal 1972 to fiscal 1971.

OPPOSITION TO CONSIDERATION OF ACCELERATION PROPOSAL SEPARATELY FROM GENERAL ESTATE TAX REVISION

Under current law the estate tax is due 15 months after the decedent's death The alternate proposal now suggested would require estates to make the tax pay ment 6 months earlier. This 6-month loss of tax funds would have the same eff on the estate beneficiaries as an increase in estate tax rates, which we other interested groups believe are now too high.

If there is to be acceleration, it should be accompanied by a generat reduction of estate tax rates that would compensate for the loss of sulting from acceleration. Rate reduction may, of course, bechle part of general estate tax revision when the rate structur sidered. Thus we favor postponing action at this time on proposal for accelerating the payment of estate tax.

SUBSTITUTE ACCELERATION PROPOSA

Although the administration now supports three eleme tax acceleration proposals suggested by our associat respect which will be referred to later, rejected two proposal. They are: