Cutting IRS Estate Tax Auditors

Cutting IRS Estate Tax Auditors

By: Martin M. Shenkman, CPA, MBA, JD

The IRS is cutting 157 of its 345 attorneys that audit gift and estate tax returns. Could this be that what George Bush hasn't done legislatively to repeal the estate tax, he is doing through a back door by undermining audit enforcement? The claim is that fewer returns are being filed because of the increase in the exclusion from $600,000 a few years ago to $2 million today. Obviously true, but the reality is that only selected returns logically are the focus of audit attention: those for decedent's without a surviving spouse (so the marital deduction doesn't eliminate any tax), and those with hard to value assets like real estate and businesses, especially those claiming discounts. While it is hard to believe that enforcement won't be reduced, remaining agents will obviously continue to focus their efforts on the returns most likely to yield big audit dollars. So a grantor retained annuity trust (GRAT) transaction that can include a self adjusting mechanism to avoid an audit adjustment may receive less attention than a defective note sale to a grantor dynasty trust that could potentially generate significant estate and GST tax. Plan accordingly.

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