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APPENDIX A

The American Bankers Association opposed the administration's original pro posal 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 asso. ciation 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 suflicient 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 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 in. come 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 grossestate, 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 19968.

The «hange 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 claritication 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.

70-371-70-17

APPENDIX A The American Bankers Association opposed the administration's original pro posal 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 asso. ciation 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.

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OPPOSITION TO CONSIDERATION OF ACCELERATION PROPOSAL SEPARATELY FROM

GENERAL ESTATE TAX REVISION
Under current law the estate tax is due 15 months af ecedent's dea'
The alternate proposal now suggested would require es

ke the tax ment 6 months earlier. This 6-month loss of tax fund

the same on the estate beneficiaries as an increase in estat

which other interested groups believe are now too high. If there is to be acceleration, it should be accou

"el reduction of estate tax rates that would compens: sulting from acceleration. Rate reduction may, of part of general estate tax revision when the rate sidered. Thus we favor postponing action at thi: proposal for accelerating the payment of estate ta

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1. To change the 1-year rule for discharge of an eseurich bility for payment of estate taxes in section 2204 to 9 *** discharge (a) to cover the decedent's income and gift taso 21! that the discharge of the executor will also discharge aLT

It on the date of the decedent's death holds property includ. I

is, from personal liability for these same taxes, prorid, "Ip fiduciary relationship and the property subject to the rea", D.

the on the estate tax return and,

of the 2. To clarify the rules with regard to securing exte-300

after estate tax clearly to indicate that an extension will be pa

limitaavailable to the executor are not sufficient to pay the

resolve cause.

$ as to If this committee determines that fiscal considerat - 2.1;

disputed acceleration of the payment of estate tax should be eL:-*

to retain tax revision, we urge that each of these elements

ire to see accepted. Absent their inclusion our membership in c.

Tition 2204 in opposing acceleration.

The most frequent criticism made by beneficiaris . time required to complete administration and makt estate assets. A contributing factor to the delay it the settlement of the decedent's tax liabilities 11

oncern because Come tax as well as for estate tax. Item 1, containing the suggested liberalization on

ps for the estate the liability of an executor for a decedent's tast 2

king the legislarules to a fiduciary, usually a trustee, holding pruta

ditional revenue gross estate, relates solely to personal liability and be will permit a more prompt distribution of prog

sales required to same time preserving the right of the Interut

after appointment taxes owed by a decedent against any personu

ortly before the paytribution. Similar changes were suggested to de

would require estate Bar Association in 1968.

ns prior to maturity The change in the 1-year rule for discharp

ps at a loss. bility to 9 months is eminently reasonable

ľ was proposed by the return within 9 months of death, the Treak

rired from the proposal the burden of completing the audit within m (ed for fiscal 1971. More

In the unusual case, where even the parts the light of this fact we factory, the auditing agent will do what be me

any retroactive effect is section 2204 letter be temporarily withdrar.

decedents dying after enThe administration's new proposal die

al 1971 but the loss in that it proposes that section 2204 be modif

1g which additional revenue executor to secure a discharge from Jan it fails to deal with the decedent's Lune 'oactive effect with respect to We have discussed this omission in

if there is to be retroactivity Treasury and have been advised tha

s made after March 31, 1970 of and to gift tax would present "adming int dying after March 31, 1970, Service, because audits of three typer - that all sales of property made

We are unimpr. .? this jus erty included in the gross estate expanded to cove

ind gia

De long term transactions. The new prop

sic fairness, and any estate that is point out that a

ate tax, particularly one as to which bill that contai

should be entitled to sell promptly time for auditin

ne sale is a short term or a long term We believe i enacted the leg

VTS ON DRAFT BILL mandate her section 2

The. 13

ars” and “preceeding calendar quarters" are

revised. The definitions in subsections (c) (1) i purposes to chapter 12 as is done in section calendar quarter." rfectly clear subsections (c) (1) and (2) should is "Wherever used in this title in connection with meter 12," at the beginning of each subsection.

The Foundation is funded by the Office of Economic Opportunity. For program year ending August 31, 1970, the Foundation received a grant of $1,762,968. Projected funding for next year is $2,415,000. Much of this money will go into covering construction costs of a permanent health care facility. At the present time, no fee is charged the patients for services rendered. Reimbursement for such services comes from Titles XVIII and XIX of the Social Security Act as well as reimbursement from the Office of Economic Opportunity.

The permanent health center is expected to be ready for occupancy in 1971. The facilities of the new center are designed to serve the 110,000 residents of the Cardozo area. The permanent facilities will include two emergency rooms, sixteen consultation rooms, thirty-two examining rooms, a pharmacy, a physical therapy room, and various administration offices. This center will also have facilities to be used for training medical and paramedical personnel who will act as part of medical care teams. Neither the temporary health center nor the permanent health center will have facilities to provide for in-patient care.

C. TAX STATUS OF FOUNDATION

The Community-Group Health Foundation, Inc. is a District of Columbia nonprofit corporation organized and operated exclusively for charitable purposes. On July 25, 1968, the Internal Revenue Service ruled that the Foundation was exempt from federal income tax under $501(c)(3) of the ('ode. It also ruled that contributions to the Foundation were deductible in computing federal income, estate and gift taxes.

The Community-Group Health Foundation has not applied for a ruling that it is a "hospital" within the meaning of $ 170(b) (1) (A) (iii). Given the clarity of the regulations on the point of treating out-patient clinics as hospitals, such a ruling was thought to be unnecessary—until the IRS excise tax ruling of July 30, 1970.

The Community-Group Health Foundation is not a “private foundation" within the meaning of $ 509 of the Code. It regards itself as an organization described in $ 509(a) (1) by reason of its status as a hospital under $ 170 (b) (1) (A) (iii). IRS Forms 4653 (Notification Rega rding Foundation Status) will shortly be filed (or at this writing, has been filed) indicating to the Internal Revenue Service its classification under $ 509(a) (1).

On April 30, 1969, the Community-Group Health Foundation, Inc. applied for exemption from communications tax imposed under $ 4251 by reason of being a “nonprofit hospital" within the meaning of $ 4253 (h). On July 31, 1970, the Internal Revenue Service issued a private ruling letter to the Foundation holding that the term “nonprofit hospital" used in $ 4253(h) does not mean a hospital established and operated primarily as an out-patient clinic. The Internal Revenue Service cited as the basis for the ruling the legislative history of $ 4253(h).' It stated that the references in such history to the fact that private nonprofit hospitals will receive the same tax exemption as a state or local government hospital meant that the Congress (in enacting $ 4253(h)) wanted only those hospitals which would be in the same class as government hospitals to be exempt from the telephone tax. The Internal Revenue Service, by inference, suggests that the government hospitals are organizations which do not principally provide medical care through out-patient facilities (or exciusively), but which provide care through both in-patient and out-patient facilities. The Internal Revenue Serrice's ruling did not take cognizance of the fact that the language of $ 4253 (h) was identical to the descriptive language contained in $ 170(b) (1) (A) (iii) (referring to $ 503 (b)) for years prior to 1970. It did note the fact that exemption language for communications tax, after the Tax Reform Act of 1969, now directly relates to an organization described in $ 170 (b) (1) (A) (iii). The ruling did not refer to or distinguish the fact that the regulations under $170 (b) (1) (A) (iii) clearly allow an out-patient clinic to qualify as a hospital. Other than its reference to inconclusive legislative bistory of the exemption provided “nonprofit hospitals" under $ 4253(h), there was no citation of authority by the Internal Revenue Service for the position that an out-patient clinic was not a "nonprofit hospital.”

The final paragraph of the Internal Revenue Service ruling states their conclusion :

1 H. Rep. 1285 (February 15, 1966), S. Rep. 1010 (March 2, 1966), 89th Cong.. 2d Sess.

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