Proposed IRS regulations issued to address when lifetime exemption differs from estate exemption

The Tax Cuts and Jobs Act of 2017 (TCJA) provided for a substantial increase in the estate and gift tax exclusion amount, effective for the years 2018 to 2025. The TCJA did not specify whether taxpayers who made gifts during this eight-year period would enjoy the benefit of the higher exemption levels after 2025, or clarify other technical issues.

On November 21, 2018, the IRS issued proposed regulations that provide that there will be no “clawback” imposed upon taxpayers.

What would happen under the proposed regulations?

Under the TCJA, the exclusion amount used to compute federal and estate gift taxes increased to $10,000,00 (as adjusted annually for inflation; $11,400,000 in 2019) and will revert to $5,000,000 (as adjusted for inflation) on January 1, 2026.

The proposed regulations provide that gifts made during 2018 through 2025 in excess of the reversion amount are sheltered from the estate tax. There are other technical corrections sheltering certain pre-2018 gifts. 

What is the plan for the proposed regulations?

IRS has invited public comments on the proposed regulations and has scheduled a public hearing on March 13, 2019.

The proposed regulations will not take effect until the final regulations are issued.