What Is the Impact on Clawback of New Tax Law?

Although Oregon’s estate tax exemption remains at $1 million, the tax cuts passed late last year include provisions that double federal estate tax and gift tax exemption limits. That is good news on multiple fronts for many people. It means that some of them will no longer have their estates subject to the federal estate tax and others can gift more than previously to help decrease the size of their estates.

However, the new federal exemption limits are scheduled to sunset in 2026 and revert back to $5.5 million for individuals. That creates a potential problem for people with gifting programs who want to take advantage of the higher exemptions.

For example, if someone makes total lifetime gifts of $8 million before 2026, it is not clear what the IRS will do as Wealth Management recently discussed in “Clawback Under the New Tax Law: Part 2.”

Congress left it up to the IRS to determine through regulations whether the excessive gift amounts should be clawed back or allowed. It appears that Congress intended for the IRS to allow such gifts through a reading of the legislative history of the tax cuts.  However, it is not known whether the IRS agrees with that assessment.

Whatever the IRS decides to do, there will likely be court challenges to their actions. A definitive answer to what will happen is unlikely to come anytime soon. That means those who utilize the new law to give lifetime gifts in excess of $5.5 million, are taking on some risk in doing so.

Reference: Wealth Management (Jan. 26, 2018) “Clawback Under the New Tax Law: Part 2.”

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