From $5 Million to $1 Million? Increased Gifting Opportunity May End Sooner Than Expected


By Melanie LaSota

Individuals and families who plan to make gifts in 2011 or 2012 to take advantage of the increased gift tax exclusion may need to proceed more quickly than planned. Tax practitioners across the country are discussing the possibility that the Joint Select Committee on Deficit Reduction (the “Super Committee”) is considering the reduction or elimination of the current $5 million gift tax exemption, effective as early as November 23 of this year.

The Budget Control Act of 2011 (the “Act”) was signed into law by President Obama on August 2 in order to raise the nation’s debt ceiling to avert a sovereign default. In addition to the authorization of a $900 billion increase in the debt ceiling, the Act required that a bipartisan twelve-member Super Committee be established to identify an additional $1.5 trillion in deficit reduction over the next ten years by means of spending cuts or new revenues.

The Super Committee is required to issue its recommendation by November 23, 2011, to be voted on by Congress by a straight up-or-down vote no later than December 23. If no proposal is set forth, or if such proposal is rejected by Congress, $1.2 trillion in automatic cuts will be triggered, divided equally among defense and non-defense programs.

Tax professionals and legal analysts speculate that, as a means of engineering new revenues, the Super Committee may propose a reversion to a $1 million federal gift tax exemption from the current $5 million federal gift tax exemption, effective January 1, 2012. Some anticipate the operative date could be accelerated to as early as November 23 of this year, or even that the current $5 million exemption could be eliminated in its entirety.

Most Super Committee meetings have been held privately and lawmakers have released little information regarding their closed-door discussions. Any predictions regarding the content of the final proposal are unverified. However, it has been confirmed that on September 19, President Obama submitted a detailed recommendation to the Super Committee that includes reductions in the estate and gift tax exemptions.

As the deadline looms with no deal on the horizon, the latest reports by the New York Times and the Los Angeles Times indicate that the panel may be considering a two-step plan under which policymakers would now agree on the amount of revenue to be generated from new taxes but leave the specific details to be decided later by Congressional tax-writing committees. This alternative would temporarily sidestep the current impasse but would stretch the difficult political decisions into the upcoming 2012 election year.

Whether a compromise will ultimately be reached remains to be seen. In light of the uncertainty, those who intend to avail themselves of the current increased gift tax exclusion may wish to proceed rather than risk the closing of this window of opportunity.

Michael W. Darpino, LL.M., JD, MBA also contributed to this Insight.

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This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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