The 2010 Gift Tax Conundrum – The IRS Issues a Notice Addressing the Uncertainty of Gifts Under IRC §2511(c)
IRS Notice 2010-19
On February 2, the IRS issued a Notice stating that they intend to issue formal guidance in the form of regulations on the application of IRC §2511(c). Although the Notice itself is not formal guidance, it suggests the IRS interprets the section to mean Congress did not intend to eliminate or change the application of gift tax to transfers made to “grantor trusts” when the section was added to the taxcode by EGTRRA.
It should be noted that Congressional action to defer the sunset provisions of EGTRRA may occur before the IRS has an opportunity to publish regulations. This tax section is effective for transfers made after December 31, 2009 and before January 1, 2011. In 2011, the 2001 estate, gift, and generation skipping transfer tax laws will be reinstated.
Why has this been such a concern?
While most planners were focusing on the impact of Congress’ failure to address the 2010 sunset of Federal Estate Tax and Generation Skipping Transfers, few, initially, identified the gift tax planning dilemma posed by gifts to Intentionally Defective Grantor Trusts (IDGT) and other grantor trusts. Among the potential tax traps created by The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) was IRC §2511(c), effective for gifts to trusts made between January 1, 2010 and December 31, 2010. [Reminder: In 2011 the rules and rates are scheduled to revert back to pre-EGTRRA status] Although around for over ten years, the Congressional intent of it’s reference to “grantor trusts” and its impact on gift taxes on these trusts had remained shrouded in uncertainty. IRC 2511 (c) Treatment of certain transfers in trust.
Continue reading about the impact of IRC §2511(c)…
