It has been just over a year since Public Law 115-97, more informally known as the “Tax Cuts and Jobs Act” (“TCJA”), was enacted. With it came sweeping changes to our tax code, but it also left many issues for the regulators to resolve. One open item related to the potential for the so‑called “clawback” of the TCJA’s increased exclusion from the gift and estate tax. Taxpayers can take comfort that the Treasury Department issued proposed regulations in November under Internal Revenue Code § 2010 (the “Anti-Clawback Regulations”).

The TCJA doubled the “Basic Exclusion Amount” or “BEA” from $5 million to $10 million per taxpayer. The BEA is effectively the amount any taxpayer can transfer free of gift and estate tax to his or her beneficiaries (with the excess taxed at a current rate of 40 percent) and is adjusted for inflation from calendar year 2010. In 2019, the BEA is $11.4 million per taxpayer ($22.8 million for married couples). However, the provision doubling the BEA sunsets at the end of 2025, meaning the BEA is scheduled to return to $5 million (adjusted for inflation) beginning in 2026. As such, many practitioners have concerns about the potential for clawback—the idea that if a taxpayer currently utilizes the increased BEA, there could be adverse estate tax consequences if the taxpayer dies after the BEA is scheduled to decrease in 2026. These are not new concerns as the potential for a sharp decline in a prior version of the BEA existed at the end of calendar year 2012 only to be resolved by last minute Congressional action. However, the magnitude of the potential clawback is much greater this time around. In response, the Treasury Department proposed the Anti‑Clawback Regulations, which would prevent clawback. Thus, assuming the Anti‑Clawback Regulations are finalized, the question arises: should taxpayers act now?

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