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TAX CLINIC

The main point of the

proposed regulation
is to affirmatively
deny the benefit of the

anti-clawback rule to

‘includible’ gifts
deemed transferred
at death.

of actuarial tables for valuing annuities, the special rule for completed gifts, under whether gifts that are effective at death
life estates, remainder interests, etc. Prop. Regs. Sec. 20.2010-1(c)(3). The and included in the gross estate should
Background section of the proposed be excepted from the special rule and
Limitation on the special rule regulations’ preamble states that the reserved Regs. Sec. 20.2010-1(c)(3) for
The law known as the Tax Cuts and Jobs basic concept of the special rule under future guidance. There is significant
Act (TCJA), P.L. 115-97, amended Sec. Regs. Sec. 20.2010-1(c) is that it “en- additional discussion in the proposed
2010(c)(3), increasing the basic exclusion sures that the estate of a donor is not regulations’ preamble regarding the two
amount (BEA) from $5 million to $10 taxed on completed gifts that, as a result classes of transfers and how they are
million (adjusted for inflation) for dece- of the increased BEA, were free of gift treated differently for estate and gift
dents dying or making gifts after Dec. 31, tax when made.” tax purposes, but the main point of the
2017, and before Jan. 1, 2026 (the “TCJA The preamble further points out that proposed regulation is to affirmatively
period”). In 2019, Treasury issued final while the Internal Revenue Code and deny the benefit of the anti-clawback
regulations to address situations where the regulations do make a distinction, rule to “includible” gifts deemed
the BEA allowable on the date of a gift the special rule does not address the dif- transferred at death.
exceeds the BEA on the date of death. ference in treatment between: The proposed regulations list the
These provisions, included in Regs. Sec. several exceptions to the special rule for
20.2010-1(c), are commonly referred to (i) completed gifts that are treated transfers that are treated as testamen-
as the anti-clawback special rule. as adjusted taxable gifts for estate tary transfers for estate tax purposes
As an example of the special rule: tax purposes and that … are not and thus are “includible” in the donor’s
included in the donor’s estate; and gross estate at death (Prop. Regs.
Example: In 2022, individual B gifts (ii) completed gifts that are treated as Secs. 2010-1(c)(3)(i)(A) through (D),
$12 million to his children when the testamentary transfers for estate tax and examples under Prop. Regs. Secs.
BEA is at $12.06 million. B then dies purposes and are included in the donor’s 20.2010-1(c)(3)(iii)(A) through (G),
in 2026, when the BEA has dropped gross estate. [emphasis added] Examples 1 through 7):
back down to $6.8 million. The full (A) Gifts subject to a retained life estate
$12 million of BEA consumed at The preamble spells out that the or subject to other powers or inter-
the time of the gift would be avail- proposed regulations would generally ests as described in Secs. 2035–2038
able to offset the gross estate on the “deny the benefit of the special rule to and 2042, regardless of whether the
Form 706, United States Estate (and includible gifts” to address the lack of transfer was deductible pursuant to
Generation-Skipping Transfer) Tax guidance on this point and sync up with Sec. 2522 (charitable and similar IMAGE BY WILLIAM WHITEHURST/GETTY IMAGES
Return, filed by B’s executor. the rest of the Code that does make gifts) or 2523 (gift to spouse) (Ex-
this delineation. Earlier, the preamble amples 4–7).
On April 27, 2022, the IRS issued reminds the reader that the preamble (B) Gifts made by enforceable promise
proposed regulations (REG-118913-21) to the 2019 final regulations noted that that are unsatisfied as of the date of
that would provide certain exceptions to further consideration should be given to death and therefore included in the

12 August 2022 The Tax Adviser