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The burden of proof, in asserting a particular classification regarding the assets of a decendent's estate would fall upon the legal representatives of his estate. Such burden could be substantiated by an affidavit duly executed by the executor or the administrator of the estate, filed simultaneously with the preliminary estate tax notice, within 2 months after the occurrence of the decedent's death or of qualification, as is provided under the prevailing law.

Second: Shorten elective audit period

Under the existent law, upon written application, an executor can obtain a determination of the amount of taxes due from the decedent's estate and upon payment thereof, be discharged from personal liability for any subsequently indicated deficiency, within 1 year after the return is filed This is section 2204 to which reference had already been made.

Considering the three different "classifications" above proposed, it is also recommended that the time for final tax determinations and discharge from personal liability be commensurately reduced. Thus, upon written application by the legal representative of the decedent's estate, the Commissioner's audit would have to be made within 7 months after a return is filed and estimated taxes paid, in classification No. 1; within 9 months after such return is filed and taxes paid in classification No. 2, and within 12 months in those situation falling under classification No. 3.

By way of concluding comment, it is submitted that a pronounced demand exists for effectuating a greater corelationship between the Federal gift and estate tax laws. Opportunities prevail, gentlemen, for expediting tax audits, accelerating tax determinations, and easing administrative burdens. Moreover, the Internal Revenue Code can be amended to incorporate new tax payment incentive provisions, which will not only receive the support of American taxpayers, but which simultaneously are capable of producing increased amounts of revenue for the Federal Government.

This, Mr. Chairman, completes my written statement, but I would like to comment by way of supplemental remarks, that I fully corroborate and endorse the conclusions of the acting chairman that it would be a sad mistake to proceed in a piecemeal fashion when so very much is required today to coordinate, to amend, and to generally introduce improvements in both the Federal estate and gift tax laws. You have a situation here which should very obviously be treated in its entirety and you could conceivably prejudice what you seek to accomplish in a reformatory matter by now coming in with some temporary measure which is really of small significance.

Mr. ULLMAN. Mr. Foosaner, we appreciate those remarks and we appreciate very much your statement. Are there questions? You have been very helpful. Thank you very much.

Our next witness is Mr. William P. Sutter. We are happy to have you before the commitee, Mr. Sutter. If you would identify yourself for the record, we would be very happy to recognize you.

STATEMENT OF WILLIAM P. SUTTER, THIRD VICE PRESIDENT, ILLINOIS STATE BAR ASSOCIATION

Mr. SUTTER. Thank you, Mr. Chairman and members of the committee. My name is William P. Sutter. I am a partner in the Chicago law office of Hopkins, Sutter, Owen, Mulroy, and Davis, and I am the third vice president of the Illinois State Bar Association on whose behalf I am appearing here today.

The Illinois State Bar Association was opposed to the original Treasury Department proposal which would have required the payment of an estimated estate tax within 7 months after date of death in estates over $150,000.

The association had numerous and excellent reasons for its opposition to that proposal, and I am happy to note that Secretary of the Treasury David Kennedy, on September 9, 1970, put forward an alternative approach which is very close to the alternative which the Illinois State Bar Association desires to advance to you.

Consequently I hope that I may conclude my testimony in something less than the 15 minutes allotted me.

The board of governors of the association on June 27, 1970, adopted a resolution providing, in pertinent part, as follows:

The Board of Governors of the Illinois State Bar Association recommends to Congress that there be no change at this time in the payment schedule for Federal Estate taxes. If in the long run changes are determined to be necessary, such changes should be considered during the revision of the entire statute in the next year. However, if serious consideration of acceleration payment schedules does occur in the interim, this Association supports a change calling for payment of one hundred percent of the tax within nine months after the date of death with the alternate valuation date being fixed at six months after death.

It now appears that serious consideration is being given by this committee to the question of acceleration of payment of Federal estate tax. In consequence, my appearance here this morning will be largely devoted to support for the new Treasury proposal with respect thereto. However, at the outset I would like to note that by advancing the payment of estate tax from 15 months to 9 months after death, the Treasury proposal constitutes a significant effective increase in the Federal estate tax rate.

When this committee takes up the subject of substantive estate tax revision, it is the hope of the Illinois State Bar Association that serious consideration will be given to a reduction in estate tax rates, which are presently too high.

At the same time, thorough consideration could be given to the best method of achieving acceleration of estate tax determination and collection.

If, however, acceleration of payment must be achieved at this session of Congress, the association supports the present Treasury proposal with some modifications.

OPPOSITION TO ACCELERATION OF PAYMENT OF GIFT TAX

A part of the Treasury proposal deals with the acceleration of payment of gift tax by requiring quarterly returns and quarterly pay

ments. This is not a proposal which the Illinois State Bar Association. strenuously opposes, because the making of a gift is a voluntary act, and a donor who desires to postpone gift making until the end of a particular calendar year may do so and thereby avoid the necessity of filing four returns and paying four taxes where under present law he files but a single return and pays but a single tax with respect to each year's gift.

However, the association does wish to point out that the Treasury proposal will greatly multiply the number of gift tax returns to be audited and increase the possibilities of error, as well as failures to file on time, and, after the first year, will result in no increase in tax revenue, although it will accelerate the receipt of such revenue with respect to gifts made early in a particular calendar year.

Since it is our understanding that the subject of substantive estate and gift tax reform is on the agenda for consideration by this committee at a relatively early date, and since one proposal which has been advanced, calls for a closer correlation between estate and gift taxes than presently exists, we submit that decision as to the need for acceleration of the gift tax payments should await the study of all aspects of estate and gift tax reform, rather than being made under the impetus of an asserted need for immediate revenue.

SUPPORT FOR PRESENT TREASURY PROPOSAL FOR ACCELERATED PAYMENT OF

ESTATE TAX

The draft bill submitted to this committee by the Treasury Department on September 9, incorporates a number of proposals which the Illinois State Bar Association supports. Specifically these include: (i) the change for the due date of the estate tax return and the payment of the tax from 15 months to 9 months after death and (ii) the change of the alternate valuation date from 1 year to 6 months after death.

One of the principal criticisms which could be leveled at the prior Treasury estate tax acceleration proposal was its complexity.

Far too often it appears that the tax statutes are written by experts for experts with no regard to the likelihood that the statutes will not be understood or properly complied with by the lay public, or even by attorneys who are engaged in general practice and are not tax specialists.

Consequently, we are gratified that the Treasury has in this instance. seen fit to substitute an estate tax acceleration statute which does not violently change long established and well understood estate tax concepts with respect to date of death and alternate valuation date values. The present Treasury proposal retains the established concepts but moves all the dates forward by 6 months. This change can be assimilated and lived with: it is vastly superior to any so-called "estimated estate tax" tied to an ill-defined concent of "liquid assets" and for this reason the Illinois State Bar Association endorses it.

NEED FOR SHORTENED PERIOD OF LIMITATIONS

The most common complaint of estate beneficiaries in Illinois is the length of time it takes to close an estate. Our courts, too, have been

increasingly disturbed with respect to the length of time estates have remained open, and have required the filing of periodic current accounts where estates have dragged on for several years. The filing of such accounts is time consuming and costly; other administration expenses are frequently increased when estate administration is unduly prolonged.

On the other hand, in the average case, it is impossible or unwise for an executor to make final distribution of estate assets and to close the estate prior to the time when the estate tax audit has been completed and any adjustments made, or a "no change" letter has been received.

In the handling of estates it is normal for there to be a flurry of activity immediately after the death of the decedent, when letters of administration are obtained, an inventory filed, a surviving spouse's award is obtained, and so forth.

These activities usually occur within the first several months after death. Therefore, nothing further takes place for at least 3 or 4 months, at least in a rising market. The reason for this is the desire to avoid taking short term capital gains on the sale of any estate assets within 6 months from the date of death.

Once the magic 6-month period has elapsed, there may be another flurry of activity as assets are sold to raise the cash for payment of estate and inheritance taxes, administration expenses, and the like. On the other hand, if there is any thought that the stock market may decline within the succeeding 6-month period, the fiduciary may choose to speculate, rather than to raise cash at the end of 6 months, so as to be able to take full advantage of the alternate evaluation date 1 year after death. In any event, once that date has passed, there is another flurry of activity as assets are then sold, inheritance and estate tax returns prepared and taxes paid, followed thereafter by another seemingly interminable period before the estate tax return is audited.

In Illinois the State Bar Association has held a number of meetings with officials of the Internal Revenue Service with respect to delays in the auditing of Federal estate tax returns.

These meetings have been cordial and helpful in enabling the probate and tax bar to obtain a better understanding of some of the administrative problems faced by the service, while giving the bar a chance to inform responsible persons of particular areas of poor service.

The present Treasury proposal would, if enacted, serve to ameliorate some of the problems of overlong administration by shortening by 6 months the time within which a final estate tax return would be due. In addition, the proposed amendment to section 2204 to expand its coverage to fiduciaries other than executors will serve, in some instances, to facilitate the distribution of estate assets to those entitled to them. We suggest, however, that these two aspects of the Treasury's proposal fall short of meeting the need for shortened administration of estates.

The real difficulty lies in the 3-year statute of limitations. If the administration of an estate cannot be completed until the Federal estate tax return is audited, and such return need not be audited prior to the expiration of 3 years from its due date, the Treasury proposal would shorten the duration of many estates only from 51 months to 45 months. It seems entirely reasonable to suggest that the 3-year

period is too long and that it should be shortened to a period of 18 months or 2 years.

If an executor is to be required to prepare and file a final estate tax return and to raise the money with which to pay the estate tax, all within 9 months of the date of death, to give the Internal Revenue Service another 18 months or 2 years within which to complete its audit of such return does not seem unfair.

Further, if estate tax payments are to be speeded up, a speedup in the audit of returns where deficiencies are ultimately found to exist will result in a significant benefit to the Treasury.

I might say, too, in some cases-not in the usual case but in some cases estates are intentionally kept open in order to obtain income tax benefits to the detriment of the Treasury. You can do this and you can get away with it as long as the estate tax return has not been audited.

You can just say we can't close. If the audit period is shortened and the statute of limitations period is shortened this would be a benefit to the Treasury in those situations.

In addition, if the proposed amendment to section 2204 is meaningfully to speed up the closing of estates, it should be expanded to cover the decedent's income and gift tax liabilities as well as estate tax.

NEED FOR RELIEF PROVISIONS

The Illinois Bar Association strongly supports the change in the rules regarding holding period of property acquired from a decedent, so that such property is regarded as having been held by an acquiring person for more than 6 months.

To require a fiduciary to hold estate assets, which prudent administration might dictate to be sold soon after the estate is opened, solely to avoid the higher tax rate applicable to short term capital gains is to place the fiduciary in a position of conflict as to how best to serve the beneficiaries. Furthermore, the advanced due date for payment of the tax under the Treasury proposal would greatly increase the fiduciary's problems if he were to be forced between an immediate sale and a sale after 6 months, but before 9 months from the date of death. We do not believe that the 6 months holding period has any meaning when applied to property acquired from a decedent, and we applaud the Treasury's recognition of this fact.

Of equal importance, however, is the necessity for liberalizing the rules with respect to extensions of time for the payment of estate tax. While it is undoubtedly true that most estates are dragged out because of the estate tax and that they could be closed sooner were the time span for payment and audit curtailed, it is also true that the reduction in the time for payment from 15 months to 9 months will increase the number of hardship cases.

The Illinois State Bar Association has no specific proposals to make with respect to the liberalization of section 6161 or related sections of the code. Possibly a more liberal policy with respect to payment of estate taxes could be limited to the first 6 or 12 months after the due date for the return. If a liberal provision permitting delays in payment-subject to the payment of interest-were limited to such a

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