Biden’s Tax Proposals for Capital Gain, Like Kind Exchanges, Basis Step-Up & the Estate Tax – Tough Times Ahead?

August 17, 2020

“The board is set. The pieces are moving. We come to it at last.”

With these words, Gandalf the White acknowledged that the decisive battle for control over Middle Earth had been joined.[i]

So it is now for the U.S. Presidential election scheduled for November 3, with both major parties having identified their respective standard-bearers and running mates.[ii]

Unfortunately, we have no Gandalf.[iii] I daresay we don’t even have a Peregrin Took.[iv]

Not Just the White House

Perhaps as important as the race for the White House is the struggle for control of the Senate, where the Republicans hold a slim majority.[v] Depending upon the outcomes of these contests,[vi] we may be looking at four years of deadlock,[vii] or we may be in store for some significant legislative changes, especially with respect to taxes.[viii]

After all, we’ve just spent trillions of dollars in response to the dire economic consequences resulting from the pandemic, we’re getting ready to spend trillions more and, depending upon which side of the aisle you sit, the pandemic may have brought into sharp focus many systemic, societal issues that call out for a solution.[ix] Someone has to bear the cost.

Because there is a possibility that the Democrats will sweep the November elections, today’s post will outline some of Mr. Biden’s tax proposals, as articulated by the then-candidate during the Democratic primaries, along with some post-primary adjustments and additions by the now-presumptive nominee. We will then consider, from a more practical perspective, his positions with respect to capital gains, like kind exchanges, basis step-up, and the estate tax.

Biden’s Tax Plan – In Brief

Of course, a nominee’s proposals are just that. Even if Mr. Biden is elected President, and even if the Senate flips, the fact remains that the more “progressive” wing of the Democratic Party is feeling its oats, which means that several of the items described below – most of which still need to be fleshed out – may eventually have to be “tweaked” before being enacted into law.[x]

For the moment, some of the key elements of Mr. Biden’s tax plan – from the perspective of the closely held business and its owners – may be summarized as follows:[xi]

Increase Personal Income Tax Rate

• Increase the maximum federal tax rate on ordinary income from 37 percent[xii] to 39.6 percent.
  • This is the rate at which ordinary income was taxed before the Tax Cuts and Jobs Act of 2017.[xiii]
• Ordinary income includes most income; for example, wages, commissions, business income (including one’s share of business income from a partnership or S corporation), guaranteed payments,[xiv] rent, interest, nonqualified dividends, royalties, gains from dealings in property (e.g., inventory), cancelation of indebtedness, depreciation recapture for tangible personal property and amortizable Section 197 intangibles, gain from the sale of depreciable property between certain related persons, short-term capital gain, etc.[xv]

 Increase Capital Gain Tax Rate

• Increase the federal tax rate for long-term capital gains and for qualified dividends from 20 percent[xvi] to 39.6 percent.[xvii]
  • This increased rate would apply to the long-term capital gain of individuals with gross income for the taxable year in excess of $1 million.
    • In determining the $1 million threshold for a taxable year, the taxpayer will presumably include the capital gain for that year.
      • What about the gain arising from the sale of a business?
      • What if the purchase price is payable in installments,[xviii] or is contingent?[xix]
    • Individuals with less than $1 million of gross income for a taxable year would continue to enjoy the favorable 20 percent rate for capital gain and qualified dividends under current law.
    • Long-term capital gain is the gain from the sale, exchange or other disposition[xx] of (a)(i) a capital asset, or (ii) depreciable property used in a trade or business, or (iii) real property used in a trade or business,[xxi] and (b) held for more than one year.[xxii]
      • Thus, the capital gain from the sale of a closely held business would be taxed at the rate for ordinary income.
      • This would include a sale of shares of stock, a sale of assets – including goodwill and Sec. 1231 property, for example – and a deemed sale of assets resulting from a Sec. 338(h)(10) election.
        • This is a key item that needs to be clarified. Does Mr. Biden intend to tax the gain from the sale of assets used in a trade or business, or only the gain from the sale of investment assets?
        • It is also unclear whether Mr. Biden’s proposal will cover that portion of the gain from the disposition of real estate that is attributable to previously used depreciation allowances, which is currently taxed at 25 percent.[xxiii]
      • A “qualified dividend” is one that is paid in respect of the shares of a domestic corporation, and of certain foreign corporations, for which the owner of the shares satisfies a prescribed holding period.[xxiv]
      • What about the carried interest?[xxv] The taxation of capital gain at ordinary income rates would effectively eliminate the benefit associated with the carried interest.
        • Mr. Biden has previously stated that carried interests should be taxed as ordinary income.
      • Query whether we will see an uptick in transactions before the end of the year as taxpayers try to avoid the application of ordinary income tax rates to capital gains?
        • Of course, the sale of a business is not something to be rushed into even in the best of circumstances; nor should it be undertaken merely for tax purposes.[xxvi]

Limit QBI Deduction

• Phase out the 20 percent qualified business income deduction for higher income taxpayers.[xxvii]
  • The deduction would be maintained for those making less than $400,000 during a taxable year.

Limit Itemized Deductions

• Limit the benefit of itemized deductions for higher income taxpayers.[xxviii]

Increase Social Security Taxes

• Impose social security taxes on income over $400,000.
  • Currently, employers pay a tax equal to 6.2 percent of an employee’s wages, up to $137,700, and they also withhold the same amount from the employee’s wages; a total tax of 12.4 percent of the first $137,700 of wages paid to an employee.[xxix]
• Mr. Biden would require that the 12.4 percent Social Security tax – which is borne equally by the employer and the employee – be imposed on all wages in excess of $400,000.
  • The 2.9 percent Medicare tax (1.45 percent on each of the employer and the employee), which is imposed without regard to any cap, would continue to apply.
  • In other words, an employee’s wages would be subject to Social Security and Medicare taxes of 15.3 percent of the first $137,700, and 15.3 percent of every dollar of wages over $400,000.[xxx]

Restrict Like Kind Exchanges

• Limit the use of like kind exchanges of real property to investors with annual incomes of not more than $400,000.
  • Beginning with exchanges completed after December 31, 2017, the TCJA limited the tax deferral benefit afforded by the Code’s like kind exchange provisions to exchanges involving real property (a) held for use in a trade or business, or (b) held for investment.[xxxi]
• Mr. Biden’s proposal would eliminate the ability of any taxpayer with income in excess of $400,000 to use the like kind exchange provisions to defer the recognition of gain from the sale of real property used in a business or held for investment.
  • Assuming the $400,000 cap includes the gain from the sale of the real property, Mr. Biden’s proposal would basically eviscerate the Code’s like kind exchange rules.
  • Query how the cap will be applied in the case of a partnership? Presumably, it will applied at the level of each partner; thus, some partners may qualify to use the like kind exchange to defer the recognition of their pro rata share thereof, while others may not.[xxxii]

Eliminate Basis Step-Up at Death OR Make Death a Realization Event[xxxiii]

• Eliminate the step-up in basis for assets acquired from a decedent.
  • Under current law, the basis of property in the hands of a taxpayer who acquires such property from a decedent, or to whom the property passes from the decedent, is equal to the fair market value of the property at the date of the decedent’s death.[xxxiv]
  • This taxpayer is also treated as having held the property so acquired for more than one year, thus ensuring long-term capital gain treatment for any disposition of the property occurring before the first anniversary of the decedent’s death.[xxxv]
  • The basis step-up enables the taxpayer (for example, the decedent’s estate or beneficiary) to dispose of the property acquired or passed from the decedent without recognizing any of the appreciation in such property that accrued during the decedent’s lifetime.[xxxvi]
  • If the property is depreciable, and it is placed in service by the taxpayer in a trade or business, or in an investment activity, then the taxpayer’s depreciation deductions are determined using the stepped-up basis.[xxxvii]
  • The partnership provisions of the Code allow a similar basis adjustment for a deceased partner’s share of the partnership’s basis for its assets (so-called “inside basis”). This basis adjustment benefits only the transferee who acquired the partnership interest from the decedent.[xxxviii]
• By eliminating the step-up in basis at death, the decedent’s beneficiaries would presumably take the decedent’s properties with the same basis the properties had in the hands of the decedent.[xxxix] This acts to preserve the gain inherent in the property.
  • Thus, all unrealized appreciation on a decedent’s assets would be subject to tax on the subsequent disposition of such assets by the decedent’s estate or beneficiaries.
  • If the decedent’s assets were depreciable, the beneficiaries would not enjoy the ability to offset income by depreciating the assets, assuming they were placed in service.
  • In the case of a partner with a negative capital account balance that is attributable to partnership indebtedness (not uncommon in real estate investments), the loss of the basis step-up at death means that the recapture of debt-financed deductions or distributions will be inevitable.
• Nota Bene. Mr. Biden has previously stated that the “built-in gain” or appreciation in a decedent’s assets would be subject to income tax upon their death.
  • The decedent’s death would be treated as a realization event for income tax purposes – income tax would be owed as if the assets had been sold for an amount equal to their fair market value at the date of death.
    • Presumably, the tax will be determined using the 39.6 percent rate described above.
  • Query how the decedent’s estate or beneficiaries are to raise the money with which to pay such income tax? After all, the assets will not yet have been sold and, in fact, may be difficult to sell.[xl]
  • The estate tax would presumably be applied to the remaining – i.e., post-income-tax – assets of the estate.
• Ironically, by imposing an income tax at the time of the decedent’s death on the unrealized appreciation of the decedent’s property, the beneficiaries of the decedent’s estate will take the property with a basis equal to the fair market value of the property.

Reduce Gift, Estate and GST Tax Exemptions

• Reduce the so-called “basic exclusion amount” under the federal estate and gift tax, as well as the exemption amount under the generation-skipping transfer (“GST”) tax, from $10 million to $5 million.[xli]
  • The basic exclusion amount is adjusted annually for inflation.
  • An individual taxpayer may transfer an aggregate amount of property by gift and by testamentary transfer up to the adjusted exclusion amount without incurring any gift tax or estate tax.
  • The TCJA doubled the basic exclusion amount to $10 million, but only for decedents dying, or gifts made, after December 31, 2017 and before January 1, 2026; the estate and gift tax exclusion amount for 2020, as adjusted, is equal to $11.58 million, or $23.16 million per married couple; the GST tax exemption amount for 2020 is also equal to $11.58 million.
• Mr. Biden’s proposal accelerates the reinstatement of the pre-2018 basic exclusion amount, which as adjusted to date would be $5.49 million, or $10.58 million per married couple.[xlii]
  • The prospect of such a significant reduction in the exclusion amount will put many taxpayers into a “use it or lose it” frame of mind.[xliii]
• To the extent a predeceasing spouse has not exhausted their gift and estate tax exclusion amount, the surviving spouse may utilize the unused amount in determining their own gift and/or estate tax liability.[xliv]
  • Mr. Biden’s proposal does not change this rule.
• The maximum federal rate for the gift, estate and GST taxes is 40 percent.
  • Mr. Biden has not proposed increasing the tax rate.
  • I would be surprised if a Democratic Congress did not seek to increase the tax rate and further reduce the exclusion amount.

Increase Corporate Taxes

• Increase the federal income tax rate on C corporations[xlv] from 21 percent to 28 percent.
  • The TCJA replaced the graduated rates previously applied in determining a corporation’s income tax liability with a flat rate.
  • Whereas the maximum rate under the graduated rate system was 35 percent for taxable income in excess of $10 million – generally speaking, the rate was 34 percent for taxable income between $75,000 and $10 million – the TCJA’s flat rate is equal to 21 percent.[xlvi]
• Increase the effective rate on Global Intangible Low Tax Income (“GILTI”; basically, unrepatriated overseas income) from 10.5 percent to 21 percent.[xlvii]
• Reinstate a form of corporate minimum tax for C corporations that have book profits of at least $100 million – the tax would be equal to 15 percent of such profits.[xlviii]
• Eliminate the ability to carry back net operating losses (“NOLs”) generated in 2018, 2019 and 2020, and eliminate the suspension of the “80-percent-of-taxable-income” limit for utilizing NOLs in 2018 through 2020.[xlix]

Putting It All Together?

Now let’s see if we can illustrate, on a simplified basis, the application of some of these proposed changes.

Imagine, if you will, that Mr. Biden is elected President, and that the Democrats also take control of the Senate (while retaining control of the House). Assume also that they enact the proposals described above without change, effective for tax years beginning on or after January 21, 2021.[l]

Assume that Taxpayer has long been engaged in the business of acquiring, renovating and renting commercial real properties. At the end of 2020, Taxpayer owns three such properties with a total fair market value of $15 million.

During 2021, Taxpayer sells one of the real properties for $5 million in order to raise funds for the acquisition of another property in a more desirable location. Taxpayer believes this other property will generate better cash flow and more profit in the short-run, and will enjoy greater appreciation in the long-run.

Prior to 2021, Taxpayer would have used the sale proceeds, as part of a deferred like kind exchange, to acquire the desired property for $6.5 million;[li] to the extent Taxpayer would have needed additional funds to complete the acquisition (trading up in value), Taxpayer could have borrowed the shortfall of $1.5 million.

Assume Taxpayer has income of $5.5 million for the year of the sale – including the gain from the sale. Taxpayer will not be able to utilize the like kind exchange provisions to defer the tax on the sale and to apply the sale proceeds toward the acquisition of the new property. If Taxpayer’s basis in the property sold was only $1 million, Taxpayer will recognize gain of $4 million. The federal income tax on this long-term capital gain will be equal to 39.6 percent of the $4 million gain, or $1.584 million.

Taxpayer is left with approximately $3.4 million of after-tax proceeds, which is approximately $3.0 million shy of the price for the other property; in other words, Taxpayer would have to borrow twice as much as would have been required if a like kind exchange were permitted. Taxpayer is unable to borrow the extra amount, and is unwilling to admit a new investor to raise the additional capital.

As a result, Taxpayer loses the deal for the new property. Taxpayer, who is already suffering from high blood pressure, obesity, and diabetes, is very upset, which causes Taxpayer to eat. After finishing a whole pizza pie (half sausage, half mushrooms) and a half-dozen donuts, Taxpayer has a massive heart attack and dies. Taxpayer is survived by an adult daughter – the sole beneficiary of Taxpayer’s estate – and two Chihuahuas.

Taxpayer’s estate is worth $15 million. It is comprised of the remaining commercial rental properties ($10 million), a residence ($1 million), cash from the sale ($3 million after paying $400,000 for various debts and expenses) and securities ($1 million). Because of health issues, Taxpayer could never obtain life insurance.

If Taxpayer’s death is a realization event, $12 million of assets (the rental properties, the residence and the securities) are deemed to be sold. Assuming a total basis in such assets of $4 million, the gain of $8 million results in a federal income tax of $3.168 million.

The income tax reduces Taxpayer’s estate to $11.83 million. Assuming the estate tax exclusion amount is $5.6 million, and that Taxpayer has made no taxable gifts, and assuming the estate tax rate is 40 percent, Taxpayer’s estate will owe $2.49 million of federal estate tax. Of course, Taxpayer’s daughter will take the three real properties and the securities with a basis equal to their fair market value as a result of their deemed sale.

Thus, Taxpayer’s estate will have paid $5.66 million of federal income and estate tax with respect to an estate of $15 million, and Taxpayer’s daughter will take the Taxpayer’s assets with a stepped-up basis.

Prior to 2021, Taxpayer would have completed the like kind exchange by incurring $1.5 million of debt and acquitting the $6.5 million property (net value of $5 million). Instead of eating himself to death out of sadness, Taxpayer dies celebrating instead.[lii]

The estate is worth $16.6 million ($15 million of rental properties, $1 million residence, and $600,000 securities), there’s a taxable estate of $5.02 million, there is a federal estate tax of $2 million, and daughter would have taken the assets with a stepped-up basis.

Summary: Post-2020 total tax from “blown” like kind exchange, deemed sale at death, plus estate tax: $7.24 million; Post-2021 estate tax: $2 million.[liii]

What to Do?

We’ve covered a lot of ground, but still there are many important questions that remain unanswered.

The Democratic Party’s convention will run from August 17 (today) through August 20. During that period, at least some of the open items identified above should be addressed. The election will be held 75 days later.

In between, there will be three presidential debates – September 29, October 15 and October 22[liv] – during which, one can only hope, there will be some meaningful exchange on tax policy generally, and on Mr. Biden’s proposals in particular.

Whether you are the owner of a closely held business, or an adviser to such a business and its owners, now is the time to determine how Mr. Biden’s tax plans may impact you and your business.

In order to do so effectively, you will need to remain attuned to messages coming out of Mr. Biden’s camp.

In addition, you will want to calculate the economic and tax consequences that may reasonably be expected as a result of a Biden victory and the enactment of the foregoing proposals.

As regards taxes that may be payable at the death of a business owner, how will their estate or beneficiaries satisfy (a) the income tax resulting from a deemed sale of the decedent’s assets, and (b) the estate tax liabilities arising from the reduction of the exclusion amount? Will the business have the wherewithal to redeem or liquidate interests? Will it be in a position to borrow money?[lv] Will the owner have to start thinking about acquiring life insurance to cover any gaps?

There’s a lot to think about, and there may a lot to do before the year-end.

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[i] From “The Return of the King.”

[ii] The nation’s 59^th quadrennial election. Think about it. The Articles of Confederation – which did not provide for a head of state – were approved by the Continental Congress in 1777, and were ratified by the States in 1781. The Articles were scrapped. The Constitution was ratified in 1788 and the first presidential election was concluded in January of 1789.

Since then, we have held elections during the Civil War, the Great Depression, and the Second World War. The election has never been delayed.

[iii] I have a T-Shirt which reads: “Keep Calm and Call Gandalf.”

It’s worth repeating: “Every nation gets the government it deserves.” – Joseph de Maistre.

[iv] Perhaps better known as “Pippin,” a Hobbit of the Shire.

[v] The Republicans hold 53 seats in the Senate, and are defending 23 of them; the Democrats hold 47 seats, and are defending 12 of them. If the Democrats win the White House, they will need to win three seats to control the Senate – the Vice President would be the tie-breaker. If the Republicans retain the presidency, the Democrats will need to win four Senate seats in order to control that chamber of Congress.

The House breaks down as follows: 232 Democrats, 198 Republicans, 4 vacancies, and one independent.

If the Republicans win the presidency and the Democrats end up with both chambers of Congress, it is extremely unlikely that the latter will win enough seats to override any presidential veto – Article One, Section 7, Clause 3 of the Constitution requires a two-thirds vote by each chamber.

[vi] On August 9, the NY Times reported that, in June and July, “Fox News was the highest-rated television channel in the prime-time hours of 8 to 11 p.m. Not just on cable. Not just among news networks. All of television. The average live Fox News viewership in those hours outstripped cable rivals like CNN, MSNBC and ESPN, as well as the broadcast networks ABC, CBS and NBC, according to Nielsen.” In fact, in terms of number of viewers, Fox equaled CNN and MSNBC combined. https://www.nytimes.com/2020/08/09/business/media/fox-news-ratings.html

If Fox viewers are more likely to support Trump over Biden, query, whom are the pollsters interviewing?

Speaking of pollsters, according to a recent Gallup poll, Congress’s approval rating has dropped to 18 percent; the president’s is at 41 percent. https://news.gallup.com/poll/316448/congress-approval-drops-trump-steady.aspx

[vii] Deadlock = (Republican President + Democrat Congress), or (Republican President + Republican Senate + Democrat House), or (Democrat President + Republican Senate + Democrat House).

[viii] A sweep by the Democrats.

[ix] I.e., more spending by those folks in the nation’s capital.

[x] That’s not to say we’re going to see a Warren- or Sanders-like wealth tax. However, there is a not insignificant number of Democrats in the House, and many vocal members of the general public, who would prefer a more punitive or “confiscatory” – euphemistically “progressive” – approach to taxing the “wealthier” members of society. (To borrow a line from Disney: “Tale as old as time.”) Concessions may have to be made.

“And again I say unto you, it is easier for a camel to go through the eye of a needle, than for a rich man to enter into the kingdom of God.” Matthew 19:24 (KJV).

[xi] In most cases, the plan is short on details; in some cases, there has been waffling. Hopefully, a more definite version will be provided as we approach Election Day.

[xii] This maximum rate applies to taxable income in excess of $510,300 in the case of a single taxpayer, and in excess of $612,350 in the case of a married couple filing jointly.

[xiii] P.L. 115-97; the “TCJA”.

[xiv] IRC Sec. 707(c).

[xv] IRC Sec. 61, 197, 1245, 1239. And don’t forget the 3.8 percent surtax on net investment income, which will continue to apply to investment income, and to a taxpayer’s share of the income of a business with respect to which the taxpayer is not a material participant. IRC Sec. 1411.

[xvi] IRC Sec. 1(h). Short-term capital gain is already taxed at the rate for ordinary income.

[xvii] Don’t forget the 3.8 percent surtax on net investment income.

Last week, Mr. Trump hinted that he may call for the reduction of the capital gain rate from 20 percent to 15 percent.

[xviii] An installment sale. IRC Sec. 453.

[xix] As in the case of an earn-out.

[xx] Including a deemed disposition; for example, a current distribution of cash by a partnership to a partner in an amount that exceeds the partner’s adjusted basis for their partnership interest. IRC Sec. 731(a) and 741.

[xxi] Property that is held primarily for sale in the ordinary course is not included.

[xxii] IRC Sec. 1221, 1222, 1231 and 1223.

[xxiii] IRC Sec. 1250; “unrecaptured Section 1250 gain”.

[xxiv] IRC Sec. 1(h)(11).

[xxv] The “promote,” as it is called in the real estate industry. IRC Sec. 1061.

[xxvi] As for the sale of marketable securities, there is nothing to prevent a taxpayer from selling now, recognizing the gain at the lower rate, then reacquiring the same class of securities in the same issuer with a cost basis.

Foreigners who are planning to emigrate to the U.S. often do this.

[xxvii] IRC Sec. 199A. This deduction was added to the Code by the TCJA as a concession to non-corporate taxpayers after the corporate tax rate was reduced from a top rate of 35 percent to a flat 21 percent. The deduction is already limited based on one’s taxable income.

[xxviii] Specifically, those in tax brackets with rates in excess of 28 percent.

[xxix] IRC Sec. 3101, Sec. 3111, and Sec. 3121. The Medicare tax of 1.45 percent is imposed on each of the employer and the employee – 2.9 percent in total – based on all wages.

[xxx] Query why there is a gap between $137,700 and $400,000 of wages?

[xxxi] No other property qualifies. Regulations were recently proposed under revised IRC Sec. 1031: https://www.taxlawforchb.com/2020/06/the-like-kind-exchange-of-real-property-according-to-the-proposed-regulations/

[xxxii] For example, LLC has two members, A and B; A has a 66.67% interest while B has a 33.33% interest. LLC sells investment real property for $1 million. Assuming neither member has any other income, A will not qualify to use Sec. 1031, but B will. Practically speaking, how will B carry out a like kind exchange?

[xxxiii] The only other instance that comes to mind in which death is a realization event for income tax purposes is upon the termination of a trust’s status as a grantor trust where the grantor had previously transferred a property to the trust in exchange for a promissory note.

[xxxiv] IRC Sec. 1014. There are exceptions; for example, items representing income in respect of a decedent (IRC Sec. 691) – such as cash basis receivables, accrued interest, unrecognized gain on installment notes – do not enjoy a basis step-up at the death of their owner. Similar rules apply with respect to partnership interests and shares of stock in an S corporation to the extent the value of these equity interests is attributable to items of income in respect of a decedent. Reg. Sec. 1.742-1; IRC Sec. 1367(b)(4).

Of course, death does not always result in a step-up. It is possible for the value of an asset to have dropped in comparison to its adjusted basis; for example, A purchases stock on the market at $50 per share; a week later, the stock tanks to $10 per share on some bad news for the issuer; A suffers a fatal stroke; his estate takes the stock with a $10 basis.

[xxxv] IRC Sec. 1223(9).

In general, property is considered to have been acquired from, or to have passed from, a decedent if: the property is acquired by bequest, devise or inheritance, or by the decedent’s estate from the decedent; the property was transferred by the decedent during their lifetime in trust, and the decedent retained certain rights with respect to the trust property such that the property is included in determining the value of the decedent’s gross estate; the property passed to the taxpayer by reason of form of ownership, or the decedent’s exercise or non-exercise of a power of appointment, if by reason thereof the property is included in determining the value of the decedent’s gross estate.

[xxxvi] The step-up is thought to have been enacted to account for the fact that the estate tax was also being imposed upon the decedent’s assets. Of course, many estates are not subject to the estate tax, yet their beneficiaries still enjoy the basis step-up for the assets they acquire from the estate or the decedent. For that reason, we cannot allow the taxability of an estate to determine whether or not there is a step-up – more affluent folks would receive the adjustment while the less affluent would end up paying income tax.

[xxxvii] IRC Sec. 162, 212, 167 and 168.

[xxxviii] IRC Sec. 754 and Sec. 743. The amount of the adjustment is treated as a separate asset that is newly placed into service.

[xxxix] So-called “carryover” basis.

[xl] Query whether estates will be allowed to pay the income tax in installments? Perhaps something akin to IRC Sec. 6166 and the estate tax attributable to a decedent’s interest in a closely held business?

[xli] IRC Sec. 2010, Sec. 2505 and Sec. 2631. The federal gift, estate and generation skipping transfer taxes may be referred to as the “transfer taxes.”

[xlii] Significantly, final regulations issued in late 2019 prevent the claw-back of the exemption amount. See T.D. 9884. https://www.taxlawforchb.com/2019/12/a-tale-of-two-estate-taxes-federal-new-york/#_ednref12

[xliii] Remember the end of 2012?

[xliv] “Portability.” This benefit is not available for a pre-deceasing spouse’s unused GST tax exemption.

[xlv] And S corporations subject to the built-in gains tax under IRC Sec. 1374.

[xlvi] IRC Sec. 11.

[xlvii] The current rate results from the interaction of IRC Sec. 951A and Sec. 250 (the latter allows a deduction for 50 percent of a corporation’s GILTI).

[xlviii] This is aimed at corporations that have no taxable income but which still report a “book profit” to their shareholders.

[xlix] NOL carrybacks were eliminated by the TCJA, but were temporarily restored by the CARES Act in response to the economic consequences of the pandemic. Likewise, the 80-percent-of-taxable-income” limit was enacted by the TCJA, but was temporarily suspended by the CARES Act.

[l] I think this is unlikely. In fact, it’s conceivable that the exclusion amount may be set even lower; say, $3.5 million, and the rate higher, at 45 percent – basically, where we were in 2009.

In addition, there are a number of other “fixes” that have long been part of the Democratic estate and gift tax agenda (or at least were part of President Obama’s Green Books); for example, the elimination of zeroed-out GRATs, the requirement of a minimum term for GRATs, the elimination of the inconsistency between the grantor trust rules and the transfer tax rules, and the limitation of valuation discounts.

I cannot see Mr. Biden’s proposals, or some version thereof, being enacted without the inclusion of one or more of the foregoing items.

[li] Reg. Sec. 1.1031(k)-1.

[lii] “I eat because I’m depressed and I’m depressed because I eat. It’s a vicious cycle.” Fat Bastard in “Austin Powers – Gold Member.”

[liii] Timing is everything? In part. The result also depends upon the fair market value and adjusted basis for the properties.

[liv] https://www.debates.org/

[lv] Think Graegin loan. https://www.taxlawforchb.com/2017/05/paying-the-estate-tax/