The US Treasury Department and the Internal Revenue Service (IRS) published in the November 26, 2019, Federal Register final regulations implementing the temporary increase of the estate and gift tax basic exclusion amount pursuant to the Tax Cuts and Jobs Act (TCJA). By way of reminder, the 2017 tax reform law doubled the estate and gift tax exemption from US$5 million to US$10 million for individuals (US$10 million to US$20 million for couples), adjusted for inflation. However, as is the case with all of the individual tax reforms made by TCJA, the increased exemption is set to expire in 2026 and revert back to pre-tax-reform levels.
Importantly, the final regulations adopt the same special rule as the proposed regulations with regard to calculating differences in the basic exclusion amount if a taxpayer uses their increased exemption while in effect, but dies in a year when the exemption is lower. Citing the Joint Committee on Taxation’s Bluebook:
Because the increase in the basic exclusion amount does not apply for estates of decedents dying after December 31, 2025, it is expected that this guidance will prevent the estate tax computation under section 2001(g) from recapturing, or ‘‘clawing back,’’ all or a portion of the benefit of the increased basic exclusion amount used to offset gift tax for certain decedents who make taxable gifts between January 1, 2018, and December 31, 2025, and die after December 31, 2025.
As indicated in the final regulations, the US Treasury Department and the IRS consider the Bluebook’s explanation of the grant of regulatory authority to be an “accurate reflection” of congressional intent.