News & Events


With the November national elections just around the corner, Congress has little interest in passing new tax legislation. One new bill of note was introduced in late September by Senator Bernard Sanders (I - VT) and impacts the federal estate tax. Also, regardless of the lull in legislative action, it is still wise for individuals to start thinking about year-end tax planning. These items and others are discussed below.

1. Senator Sanders Calls For A More Progressive Estate Tax

On September 18, 2014, Senator Bernard Sanders (I - VT) introduced S. 2899, interestingly named the "Responsible Estate Tax Act". Some of the more significant changes to the federal estate, gift and generation skipping transfer (GST") tax that would be achieved by S. 2899, effective for transfers made after December 31, 2014, include the following:
  • Impose a 50% tax rate on estates, gifts, and GSTs of $10 million to $50 million (presently being taxed at the top rate of 40%);
  • Impose a 55% tax rate on estates, gifts and GSTs of over $50 million (presently being taxed at the top rate of 40%);
  • Impose an additional 10% surtax on transfers worth more than $1 billion;
  • Reduce the "applicable exclusion amount" (the amount up to which no tax is due) to $3,500,000, with no index for inflation (presently set at $5,340,000 for transfers in 2014);
  • Eliminate valuation discounts for minority interests in entities that hold passive assets, such as stocks and other securities; 
  • Require a 10-year minimum term for GRATs; and
  • Require inclusion in the gross estate of assets sold by an individual to a grantor trust established by the individual.

However, it is unlikely that S. 2899 will be considered by Congress until after the November elections, if at all.

2. Affordable Care Act (ACA) Tax Subsidy Rule Challengers Press the U.S. Supreme Court For Review

In the last few months three Federal Courts have independently considered challenges to the ACA by taxpayers. These challenges involve the argument that the Federal Government cannot award health care insurance premium subsidies to taxpayers obtaining individual health insurance policies from ACA Exchanges run by the Federal Government (rather than by a State). In a 2-to-1 decision, the D.C.  Circuit Court of Appeals ruled that the subject premium subsidies were improper. This was followed by a similar decision by a Federal District Court in Oklahoma. However, the Fourth Circuit U.S. Circuit Court of Appeals took a contrary approach, and approved the propriety of the subsidies.

This challenge to the ACA may ultimately be decided by the US Supreme Court.

3. Tea Party Group Founder's Lawsuit Against the IRS Employees Alleging Retaliatory IRA Goes To Trial

A  Judge for the U.S. District Court for the Southern District of New York has agreed to allow the creator of a Tea Party group to file a "Bivens" action against IRS employees. The plaintiff is alleging that his filing of an application for tax-exempt status for a Tea Party group he created resulted in certain IRS employees initiating a federal income tax investigation of him. He alleges this was part of a broader effort by the IRS to penalize Tea Party members for their political activities. A "Bivens" action is a lawsuit brought against IRS officials to redress an alleged federal official's violation of the plaintiff's rights under the U.S. Constitution.

4. 2014 Year-End Tax Regardless of Congressional Action

Year-end income tax planning to minimize an individual's 2014 federal income taxes is especially challenging this year, since Congress has yet to act on reinstating a number of tax deductions and tax credits that expired at the end of 2013. Some of these tax breaks may be retroactively reinstated and extended, but Congress may not decide the fate of these tax breaks until the very end on 2014 (and possibly, not until sometime in 2015). Even so, there are some tax planning ideas that can still make sense for some taxpayers.

For example, if a taxpayer believes that a Roth IRA is better than a traditional IRA, and wants to remain in the securities market for the long-term, the taxpayer can consider converting traditional IRA funds invested in under-performing stocks into a Roth IRA. This assumes the taxpayer is eligible to make a roll-over to the Roth IRA. Taxpayers should keep in mind, however, that doing a roll-over to the Roth IRA in 2014 will increase their 2014 adjusted gross income.

For additional information regarding these topics, please contact your local UHY LLP professional.