Taxation

Gift tax credit schedule under 2001 and 2010 Tax Acts

The Economic Growth and Tax Relief Reconciliation Act of 2001 enacted a schedule of federal estate tax and gift tax rate reductions that apply to tax years from 2002 to 2010. The Act repeals the federal estate tax as of 2010, but provides for the continuation of the gift tax, so the 2010 schedule below applies to federal gift tax only. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJC) created a new unified federal estate and gift tax schedule for 2011-2012. The American Taxpayer Relief Act of 2012 made permanent a revised and still unified federal estate and gift tax schedule for 2013 and beyond. Unified Gift and Estate Tax Rate Schedule: 1988 -2001

The schedule below applied for 1997 -2001 and then was superseded by the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) for 2002 – 2010. However, EGTRRA included a sunset provision that absent a change in tax law, would cause gift and estate tax credit amounts to revert to the schedule below. This potential reversion has been postponed to at least 2013 by the Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Congress passed The Economic Growth and Tax Relief Reconciliation Act of 2001 on May 26, 2001 and the President signed the Act into law in early June. A brief analysis of the sweeping changes brought about by this legislation that relate to gift planning follows.

The gift tax deduction is a deduction that a donor may declare on his or her federal gift tax return (Form 706) that reduces the amount of a taxable gift.

In the context of planned giving, a charitable lead trust earns a gift tax deduction for the donor that is equal to the value of the income stream the trust will pay to the charity during the trust term. For example, if a donor funds a charitable lead trust with $1,000,000 and earns a $600,000 gift tax deduction, the taxable gift will be only $400,000, not the whole $1,000,000.

The unified gift and estate tax credit is the lifetime federal credit available to each taxpayer to reduce the tax on taxable transfers that he or she makes during life and at death.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the gift tax credit schedule and estate tax credit schedule were not unified in 2004 - 2010. They have been reunified for 2011 – 2012 under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.

Gift tax is a federal transfer tax that is assessed on an individual who transfers assets to another individual during life. The tax is computed using the Gift and Estate Tax Schedule applicable in the year of transfer and with reference to the donor's annual gift tax exclusion and available gift tax credit.

Example

Suppose Fred Donor gives $100,000 to his son in 2011. Fred has applied his gift tax credit against $5,000,000 in past taxable gifts and makes no other taxable gifts in 2011. The tax on Fred's gift to his son would be computed as follows:

The generation skipping transfer tax exemption is a tax exemption allowed each taxpayer for transfers subject to generation skipping transfer tax (GST) up to a certain amount.

As long as the total taxable transfers that a taxpayer makes to skip persons during his or her lifetime are less than the prevailing GST exemption amount, the transfers will not be subject to GST.

A General Counsel's Memorandum is a legal memorandum prepared by the IRS office of Chief Counsel. GCMs typically address issues raised by IRS technical staff in considering various types of IRS rulings.

The deduction that a donor is allowed to claim in one year for gifts "for the use of" a public charity or to a private foundation is limited by the donor's adjusted gross income (AGI). The deduction is limited to 20% of the donor's AGI for a gift of appreciated property. The deduction is limited to 30% of the donor's AGI for a gift of cash. The donor may carry forward excess deductions of this type for up to an additional five years.