IIABA Says Estate Tax A Concern

He said the IIABA supports significantly modifying the estate tax by decreasing the tax rate and or increasing the exemption amount to provide permanent relief to family-owned small businesses across the country.

In addition, he said that the IIABA will be lobbying Congress to extend the individual income tax rates in order to stave off tax increases on the thousands of independent insurance agencies that are organized as Subchapter S corporations and pay individual tax rates.

"The IIABA will also actively oppose any legislation that would raise taxes on individuals and small businesses, including efforts to decrease the itemized deduction limit for individuals in the top tax brackets from 35 percent to 28 percent," he said.

Robert W. Cockren, national chair of the trust and estates practice at Sonnenschein Nath & Rosenthal LLP (SNR), said failure to pass new tax legislation and allowing the current program to lapse raises the potential for endless litigation that could ultimately wind up in the Supreme Court.

Moreover, he said, the alternative to prompt congressional action in the new year to resolve the uncertainty created by its failure to extend the estate tax in some form has the potential of leaving the intent of the person who died during the period before Congress acted in the new year to be thwarted.

"This is a difficult situation, that is fraught with uncertainty for both clients, attorneys and other tax advisors," said Mr. Cockren, who is also co-managing partner of the Short Hills office of SNR.

One of the key implications is that the surviving spouse of the deceased could be left empty-handed because many wills specify that everything above the amount of the exemption under current tax law, $3.5 million in 2009, but nothing as of Jan. 1, goes to the surviving spouse.

He also notes that if Congress acts early in the new year to restore the estate tax retroactively, there is the likelihood of a challenge to the validity of the retroactive law, which could work its way to the Supreme Court. He said there have been cases where the Court has upheld the validity of retroactive tax provisions.

"The failure of Congress has caused significant confusion amongst tax practitioners," he said.

Expiration of the estate tax at the end of the year would mark the first time since 1915 that there has been no estate tax, according to the Journal of Financial Services Professionals.