SECTION OF TAXATION COMMENTS ON TRANSFER TAX ISSUES The following comments are the individual views of members of the Section of Taxation who prepared them and do not represent the position of the American Bar Association or the Section of Taxation. This report was prepared by members of the Committee on Estate and Gift Taxes. Members who participated in preparation of the report are Zoe M. Hicks, Ronald D. Aucutt, Shirley D. Peterson, and John R. Cummins. The comments were reviewed by James Halpern of the Committee on Government Submissions. Dated: July 7, 1987 The following issues have been submitted previously, but were not addressed in the General Explanation or the 1987 Technical Corrections Act, as introduced, and are resubmitted for clarification, as appropriate in the technical corrections, regulations, or announcements. These issues relate to the acquisition or waiver by a nonparticipant spouse of a right granted by the Retirement Equity Act of 1984 (REA). New Code section 2503(f) is a partial solution to the transfer tax questions which arise as a result of rights granted by REA, but additional transfer tax issues remain. Transfer tax issues raised by REA have been previously discussed in Comments on Section 1552(e)(2) of H.R. 3838, Repeal of Section 2517. Proposed statutory language, which would solve the transfer tax issues, was submitted on March 6, 1986, and is being resubmitted at this time. The Code should make clear that unintended transfer tax consequences do not result under REA. Section 1: Estate Tax. 1.01 No Waiver of REA Rights. A. Issue. If a nonparticipant spouse predeceases a participant spouse without having made a waiver of rights granted by REA, is the value of the REA benefits includable in the nonparticipant's gross estate? B. Discussion. No provision has been made with respect to estate tax consequences of the nonparticipant spouse's failure to waive REA rights. A nonparticipant spouse who predeceases the participant, not having waived REA benefits, should not have such benefits includable in the spouse's estate for estate tax purposes. Or, if includable, the mari tal deduction should be available to offset the inclusion. C. Clarification Needed. Unless clarified, the estate tax consequences to the estate of the nonparticipant spouse will remain uncertain. 1.02 Consent to Waiver at Death. A. Issue. If a nonparticipant spouse consents to a waiver of the spousal annuity at death, has a transfer occurred for estate tax purposes, causing inclusion of the benefits in the nonparticipant spouse's estate under sections 2035 through 2038? B. Discussion. The fact that new section 2503 (f) excludes from the gift tax a waiver of REA rights by a nonparticipant spouse during life arguably creates a negative inference that such a waiver at death may be a transfer for estate tax purposes. C. Clarification Needed. Where the nonpartici pant spouse consents to a waiver of REA rights at death, conformity with new section 2503(f) would require no transfer for estate tax purposes. Section II: Gift Tax. A. Issue. What are the gift tax consequences of the acquisition by a nonparticipant spouse of the, right to a REA spousal annuity, the payment of a spousal annuity, or the lapse of the right to a REA spousal annuity? B. Discussion. There is no reference in new section 2503(f) to the gift tax consequences of the acquisition by a nonparticipant spouse of a REA right, of the payment of a REA right, or to the gift tax consequences of the lapse of a REA right. C. Clarification Needed. Further clarification is needed that neither the acquisition, payment nor lapse of a REA right is deemed a transfer for gift tax purposes. |