Tax Rate Extension Act of 1957 (PL 85-12; March 29, 1957) Tax Rate Extension Act of 1958 (PL 85-475; June 30, 1958) Tax Rate Extension Act of 1959 (PL 86-75; June 30, 1959) Public Debt and Tax Rate of 1960 (PL 86-564; June 30, 1960) Tax Rate Extension Act of 1961 (PL 87–72; June 30, 1961) Tax Rate Extension Act of 1962 (PL 87-508; June 28, 1962) Excise Tax Rate Extension Act of 1963 (PL 88-52; June 29, 1963) Excise Tax Rate Extension Act of 1964 (PL 88-348; June 30, 1964) Excise Tax Reduction Act of 1965 (PL 89-44; June 21, 1965) Tax Adjustment Act of 1966 Revenue and Expenditure Control 10% to 7% scheduled for reduction April 1, 1957 Reduction postponed until July 1, 1958 10% to 7% scheduled for reduction July 1, 1958 Reduction postponed until July 1, 1959 10% to 7% scheduled for reduction July 1, 1959 Reduction postponed until July 1, 1960 10% to 7% scheduled for reduction July 1, 1960 Reduction postponed until July 1, 1961 10% to 7% scheduled for reduction July 1, 1961 Reduction postponed until July 1, 1962 10% to 7% scheduled for reduction July 1, 1962 Reduction postponed until July 1, 1963 10% to 7% scheduled for reduction July 1, 1963 Reduction postponed one year until July 1, 1964 10% to 7% scheduled for reduction July 1, 1964 Reduction postponed one year until July 1, 1965 Scheduled reductions 10% to 7% June 22, 1965 thru December 31, 1965 7% to 6% Jan. 1, 1966 thru December 31, 1966 6% to 4% Jan. 1, 1967 thru December 31, 1967 4% to 2% Jan. 1, 1968 thru December 31, 1968 2% to 1% Jan. 1, 1969 Postponed reduction and increased tax to: 7% March 16, 1966 thru March 31, 1968 7% to 2% April 1, 1968 thru December 31, 1968 2% to 1% January 1, 1969 Postponed and rescheduled reductions to: 7% April 1, 1968 to December 31, 1969 (PL 90-364; June 28, 1968) 7% to 5% January 1, 1970 to December 31, Tax Reform Act of 1969 Postponed and rescheduled reductions to: (PL 91-172; December 30, 7% January 1, 1970 thru December 31, 1970 1969) 7% to 5% January 1, 1971 thru December 31, 1971 5% to 3% January 1, 1972 thru December 31, 1972 3% to 1% January 1, 1973 thru December 31, 1973 1% to 0% January 1, 1974 (Whereupon, at 11:35 a.m., the committee adjourned, to reconvene at 10 a.m., Tuesday, September 15, 1970.) TAX RECOMMENDATIONS OF THE PRESIDENT TUESDAY, SEPTEMBER 15, 1970 HOUSE OF REPRESENTATIVES, Washington, D.C. The committee met at 10 a.m., pursuant to notice, in the committee room, Longworth Building, Hon. Al Ullman, presiding. Mr. ULLMAN. The committee will be in order. Mr. MacKethan, we welcome you before the committee. Would you please identify yourself and your colleagues for the record and then we will be glad to recognize you. STATEMENT OF EDWIN R. MacKETHAN, PRESIDENT, TRUST DIVISION, AMERICAN BANKERS ASSOCIATION; ACCOMPANIED BY AUSTIN FLEMING, NORTHERN TRUST CO. OF CHICAGO; WILLIAM K. STEVENS, FIRST NATIONAL BANK OF CHICAGO; AND RICHARD B. COVEY, SPECIAL COUNSEL TO THE ASSOCIATION Mr. MACKETHAN. Thank you, Mr. Chairman. Mr. Chairman, and members of the committee, my name is Edwin R. MacKethan. I am executive vice president of the Virginia National Bank and am president of the Trust Division of the American Bankers Association. I am accompanied by Austin Fleming, of the Northern Trust Co. of Chicago, William K. Stevens of the First National Bank of Chicago and Richard B. Covey, a lawyer with the firm of Carter, Ledyard & Milburn of New York City, who is acting as special counsel for the association with regard to various tax matters of concern to our members. I appear before your committee to testify on behalf of the American Bankers Association with respect to the administration proposal to accelerate the payment of gift and estate taxes and to summarize the position of the association, which is contained in our written statement that has already been made available. I request permission for the appendixes to be printed in full in the record. The administration has shifted from its original proposal for accelerating the payment of estate tax and now supports three points of an alternative method of acceleration suggested by our association. These points are to change the alternate valuation date from 1 year after date of 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 rule was a part of the original administration proposal. We are pleased by the administration's change of position but continue to oppose acceleration of the payment of estate and gift taxes for the reasons set forth in our written statement. These reasons will be discussed fully today by other witnesses and I do not propose to discuss them. Rather, I would like to spend my time on the alternative acceleration proposal suggested by our association. Although the administration now supports three parts of this proposal, it has, except in one respect which I will refer to later, omitted two of its important points. The omissions are: (1) To change the period for discharge of an executor from personal liability for payment of estate taxes in section 220 from 1 year to 9 months and to expand the scope of the section (a) to cover the decedent's income and gift taxes, and (b) to provide that the discharge of other fiduciaries who on the date of the decedent's death hold property included in the decedent's gross estate from personal liability for these same taxes; 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 at this time, we urge that each of these two points 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. The single most 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. Our 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 persona 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 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 limita. tion 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:) |