{"id":1615,"date":"2020-11-30T04:30:00","date_gmt":"2020-11-30T09:30:00","guid":{"rendered":"https:\/\/actec.matrixdev.net\/?post_type=capital-letter&p=1615"},"modified":"2024-01-07T20:11:59","modified_gmt":"2024-01-08T01:11:59","slug":"2020-2021-treasury-irs-priority-guidance-plan","status":"publish","type":"capital-letter","link":"https:\/\/actec.matrixdev.net\/capital-letter\/2020-2021-treasury-irs-priority-guidance-plan\/","title":{"rendered":"2020-2021 Treasury- IRS Priority Guidance Plan"},"content":{"rendered":"\n

There is not much new, but some significant affirmations of the old, in the compilation of guidance projects the Treasury and the IRS have announced their intention to focus on for the next seven months.<\/strong><\/em>
<\/p>\n\n\n\n

Dear Readers Who Follow Washington Developments:<\/p>\n\n\n\n

The Treasury Department and the IRS released their Priority Guidance Plan<\/u><\/strong><\/a> for the 12 months from July 2020 through June 2021 on November 17, 2020. As usual, the introduction stated: \u201cThe 2020-2021 Priority Guidance Plan contains guidance projects that will be the focus of efforts during the 12-month period from July 1, 2020, through June 30, 2021 (referred to as the plan year).\u201d \u201cFocus\u201d does not necessarily mean finish, of course. Except for the section 7520 actuarial tables discussed in this Capital Letter, we might see no published action by June on any of the items in the Plan. But whatever published guidance we do see by June is likely to come from the lists of projects in the Plan.<\/p>\n\n\n\n

IMPLEMENTATION OF THE 2017 TAX ACT<\/strong><\/h2>\n\n\n\n

Part 1 of the Plan, titled \u201cImplementation of Tax Cuts and Jobs Act (TCJA),\u201d contains 38 items, compared to 51 items in the Updated 2019-2020 Plan, reflecting progress in completing guidance under the 2017 Tax Act. Two items are of particular interest to estate planners.<\/p>\n\n\n\n

Deduction of Estate and Trust Expenses<\/strong><\/h3>\n\n\n\n

Item 4 of Part 1 is titled \u201cRegulations clarifying the deductibility of certain expenses described in \u00a767(b) and (e) that are incurred by estates and non-grantor trusts. Notice 2018-61 was published on July 30, 2018 and proposed regulations were published on May 11, 2020.\u201d This item first appeared in the 2018-2019 Priority Guidance Plan.<\/p>\n\n\n\n

Notice 2018-61, 2018-31 I.R.B. 278, stated that \u201cthe Treasury Department and the IRS intend to issue regulations clarifying that estates and non-grantor trusts may continue to deduct expenses described in section 67(e)(1)\u201d despite the eight-year \u201csuspension\u201d of section 67(a) in the 2017 Tax Act by new section 67(g). The IRS received comments from the public agreeing with that statement and confirmed it in an amendment to Reg. \u00a71.67-4(a)(1) proposed in REG-113295-18, 85 Fed. Reg. 27693 (May 11, 2020), and finalized by T.D. 9918, 85 Fed. Reg. 66219 (Oct. 19, 2020).<\/p>\n\n\n\n

Deductibility, however, continues to be limited by the harsh treatment in Reg. \u00a71.67-4(b)(4) and (c)(2) of fees for investment advice, including the portion of a \u201cbundled\u201d fiduciary fee attributable to investment advice (which now will mean total disallowance, not just the application of a 2-percent floor). Reg. \u00a71.67-4(a)(1)(i)(A) & 4(a)(2). Notice 2018-61 had stated flatly that \u201cnothing in section 67(g) impacts the determination of what expenses are described in section 67(e)(1).\u201d In addition, the new regulations do not address the treatment of deductions for purposes of the alternative minimum tax, and the preambles to both the proposed and final regulations state that such treatment \u201cis outside the scope of these [proposed] regulations.\u201d<\/p>\n\n\n\n

Notice 2018-61 also indicated that regulations would address the availability of \u201cexcess deductions\u201d to individual beneficiaries under section 642(h)(2) on termination of a trust or estate, including the treatment of those deductions as miscellaneous itemized deductions (and therefore entirely nondeductible through 2025) as current Reg. \u00a71.642(h)-2 implies, and the Notice asked for comments on those issues. Public comments urged relief on those points, noting, as the preamble to the proposed regulations put it, \u201cthat the regulations under \u00a71.642(h)-2 were written before the concept of miscellaneous itemized deductions was added to the Code and need to be updated.\u201d The regulations affirm the availability to beneficiaries of such excess deductions and affirm, as comments recommended, that \u201ceach deduction comprising the excess deductions under section 642(h)(2) retains, in the hands of the beneficiary, its character (specifically, as allowable in arriving at adjusted gross income, as a non-miscellaneous itemized deduction, or as a miscellaneous itemized deduction) while in the estate or trust.\u201d Reg. \u00a71.642(h)-2(b)(1). The final regulations include helpful clarifications of the allocation of expenses among items of income, including the fiduciary\u2019s discretion to make those allocations, that had been recommended by public comments on the proposed regulations, including ACTEC\u2019s comments<\/strong><\/a> of June 22, 2020. The 2020 \u201cInstructions for Schedule K-1 (Form 1041) for a Beneficiary Filing Form 1040 or 1040-SR\u201d (released Oct. 21, 2020), citing the final regulations, clarify and elaborate previous versions in explanations titled \u201cBox 11, Code A\u2014Excess Deductions on Termination – Section 67(e) Expenses\u201d and \u201cBox 11, Code B\u2014Excess Deductions on Termination – Non-Miscellaneous Itemized Deductions.\u201d<\/p>\n\n\n\n

It is common for an estate or trust to have extra expenses related to its wind-up and final distributions in its final taxable year, as well as the catch-up payments of some expenses that have been deferred, at the same time the income of the estate or trust has declined because of its sales or distributions of income-producing assets. An eight-year suspension of the ability of fiduciaries to pass through those final-year excess deductions would have created pressure to artificially time the payment of expenses, the distribution of assets, and the termination of the trust or estate in ways that could be unfair and frustrating to both fiduciaries and beneficiaries. Thus, these regulations provide very important relief.<\/p>\n\n\n\n

Opportunity Zones and Grantor Trusts<\/strong><\/h3>\n\n\n\n

Item 33 of Part 1 is titled \u201cGuidance under \u00a7\u00a71400Z\u20131 and 1400Z\u20132 concerning Opportunity Zones, including census tract changes. Proposed regulations were published on October 29, 2018 and May 1, 2019. Final regulations were issued on January 13, 2020. Notice 2020-39 was published on June 22, 2020.\u201d<\/p>\n\n\n\n

Although not published in the Federal Register until January 2020, a relevant set of regulations regarding Opportunity Zones was originally released in December 2019 and thereby became recognized as development Number Ten in the Top Ten Estate Planning and Estate Tax Developments of 2019, Capital Letter Number 49<\/u><\/strong><\/a>. Among other things, as noted in Capital Letter Number 49, if the regulations are read carefully in context, they provide significant reinforcement for the proposition that the death of the grantor does not by itself cause the recognition of gain with respect to appreciated assets held in a grantor trust.<\/p>\n\n\n\n

BURDEN REDUCTIO<\/strong>N<\/strong><\/h2>\n\n\n\n

In response to Executive Order 13789 of April 21, 2017, which directed the identification of tax regulations issued after 2015 that impose an undue burden on taxpayers, Treasury and the IRS stated in the original 2017-2018 Priority Guidance Plan that \u201cPart 2 [now Part 3] of the plan describes certain projects that we have identified as burden reducing.\u201d Like Part 1, Part 3 of the 2020-2021 Plan contains two items of particular interest to estate planners.<\/p>\n\n\n\n

Basis Consistency<\/strong><\/h3>\n\n\n\n

Item 14 of Part 3 is titled \u201cFinal regulations under \u00a7\u00a71014(f) and 6035 regarding basis consistency between estate and person acquiring property from decedent. Proposed and temporary regulations were published on March 4, 2016.\u201d<\/p>\n\n\n\n

As noted in Capital Letter Number 44<\/u><\/strong><\/a>, the appearance of this subject under the heading of \u201cBurden Reduction\u201d offers hope that the final regulations would relax one or two or all of the following very burdensome requirements of the proposed regulations published in March 2016:<\/p>\n\n\n\n