Congress recently passed the Fiscal Year 2009 budget resolutions. The House of Representatives passed its spending outline on a mostly party-line vote of 212 - 207 and the Senate passed its version on a vote of 51 - 44. The House and Senate versions of the budget resolutions are similar in a number of areas, with the House blueprint being more fiscally responsible.

Estate tax reform was included in both budget resolutions. If the 2008 tax act is eventually passed as proposed by both houses, the 2009 applicable exclusion amount of $3,500,000 per person and the 45% marginal tax rate will be extended for the foreseeable future.

If you would like a copy of an informative report entitled Description and Analysis of Alternative Wealth Transfer Tax System, which was issued earlier this year by the Congressional Joint Committee of Taxation, please call our office. The report analyzes the various approaches to tax wealth transfers, including an overview of the estate and inheritance tax systems of other countries.

Because of the drop in estate tax returns that needed to be filed since 2001 as a result of the implementation of the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), the IRS offered voluntary early retirement or separation to most Estate and Gift tax employees nationwide. A large number of IRS employees took the buy-out, leaving a coverage problem for local estate tax audits.

Unless the estate tax reforms discussed above come to fruition, the provisions of EGTRRA are scheduled to sunset at the end of 2010 and the gift and estate tax law will return to the law as it existed in 2011.

Aileen Condon, Chief of the IRS Estate & Gift Tax program spoke at the Heckerling Institute in January 2008 and she reiterated that the IRS Estate Tax staff reductions were due to a decrease in filings of estate and gift tax returns since 2001. She explained that there was now a "national workload" concept.

Estate tax attorneys and other tax practitioners have commented that they dislike this concept because they miss the face-to-face interaction with the estate tax attorney. Many tax practitioners have also expressed frustration because nationally assigned attorneys do not have knowledge of state and local law, which can be helpful in resolving issues such as community property and tenancies by the entireties. Because legal assistants and estate tax attorneys have not had the same level of supervision as with past IRS systems, there has been an increase in incorrect reports and theories that are not well supported.

The IRS employees have not fully embraced the changes, which include national quality assessments. Nor does it appear the IRS Estate & Gift Tax program is fully meeting its work plan. Many attorneys have complained that they are having difficulty resolving issues that they previously were able to resolve through local managers. Where there is no local manager, the attorneys have had problems finding an address or telephone number for the remote manager. In a recent instance, no address was listed for the office to which a request for appeal should be sent in the "thirty day letter."

The good news is that the IRS Estate & Gift Tax program has received permission to recruit twelve new estate tax attorneys. The hiring is expected to be concentrated in California, which not only is the state which has the largest number of estates owing tax according to the Citizens for Tax Justice, but is a state in which the IRS finds it difficult to recruit and retain estate tax attorneys. The training of these new attorneys will require resources to be used this fall and winter, but ultimately, new estate tax attorneys are needed. It does not appear that the estate tax and gift tax will go away and, even if it does, it could come back with a vengeance, with a need for many more estate and gift tax attorneys.

Our Firm focuses on estate planning and administration. To learn more about our services, call us to schedule an appointment to speak with one of our attorneys.