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amounts, e.g., GRAT annuity pay- are significantly lower than prevailing allows real property used in a farm or
ments) result in the recognition of gain. market rates and are generally used in business to be valued for estate tax pur-
Treat payment of income tax by related-party transactions, which creates poses based on its actual use rather than
the grantor of a grantor trust as a the friction. Taxpayers who engage in on its best use.
gift: This provision would treat the pay- related-party loans charge the AFR to Extend automatic lien period:
ment of income tax on the income of a avoid Sec. 7872. However, when these This provision would also extend the
grantor trust as a gift occurring on Dec. notes are transferred or are part of a duration of the 10-year automatic lien
31 of the year in which the income tax taxpayer’s estate, they are valued using period “to continue during any deferral
is paid, unless the trust reimburses the FMV principles — which requires tak- or installment period for unpaid estate
deemed owner during the same year. ing into consideration prevailing market and gift taxes.”⁹ This extension would
Under Sec. 671, grantors of a grantor rates, not the AFR used when the note apply to 10-year liens currently in effect,
trust must include in their income was executed. This would cause the value as well as to future liens. This proposal
their grantor trust’s items of income, of the note to be significantly discounted would extend the general estate tax lien
deductions, and credits; therefore, the — a discounting that is not the result of that applies to all estate tax liabilities
tax on the income of the grantor trust normal market conditions. under Sec. 6324 to continue past the
is the grantor’s obligation and does not Expand the definition of execu- normal 10-year period until the expira-
constitute a gift from the grantor to tor: This provision would expand the tion of the deferral period the decedent’s
the beneficiaries of the trust. In Rev. definition of an executor, which it would estate has elected under Sec. 6166. This
Rul. 2004-64, the IRS confirmed that move from Sec. 2203 to Sec. 7701, proposal responds to the Tax Court’s
the grantor’s payment of his or her “expressly making it applicable for all holding in Estate of Roski¹⁰ that the IRS
grantor trust’s income tax liability is not tax purposes, and [authorizing] such had abused its discretion by requiring
a gift. This provision would invalidate an executor to do anything on behalf all estates electing to pay estate tax in
this position. of the decedent in connection with the installments under Sec. 6166 to provide
Requiring consistent valuation decedent’s pre-death tax liabilities or a bond or lien. The Tax Court held that
of promissory notes: This provision other tax obligations that the decedent Congress intended for the IRS to de-
would require consistency in the valua- could have done if still living.”⁸ Multiple termine on a case-by-case basis whether
tion of promissory notes. It would also parties could serve as executor, so the the government’s interest is at risk
require the interest rate and other terms proposal would authorize Treasury to before requiring security from an estate
of a promissory note connected with adopt rules to resolve potential conflicts making an election under Sec. 6166.
family loans and/or other transactions among multiple executors. The proposal Certain trust reporting: This
(e.g., the length of the note) to be con- would make the definition applicable provision would require certain trusts
sistently valued for federal estate and gift for all tax purposes, not just estate tax administered in the United States,
tax purposes. It is designed to eliminate purposes. Currently, it is not clear that whether domestic or foreign, to annually
the friction created between the Sec. an executor can handle tax matters that report certain information to the IRS
7872 rules (regarding below-market may have arisen before the death of the “to facilitate the appropriate analysis of
loans) and generally accepted valuation taxpayer — e.g., an income tax audit or tax data, the development of appropriate
principles. The Sec. 7872 rules were final income/gift tax return. tax policies, and the administration of
enacted as the result of the Supreme Increase cap on qualified real the tax system.”¹¹ This new reporting re-
Court’s decision in Dickman,⁷ holding property: This provision would increase quirement would apply to any trust with
that the interest-free use of money is a the cap to $11.7 million on the maxi- (1) an estimated total value exceeding
gift. To prevent the application of Sec. mum valuation decrease for qualified $300,000 on the last day of the tax year
7872, taxpayers must charge a minimum real property that may be treated as or (2) gross income exceeding $10,000
interest rate (depending on the length of special-use property, noting that this for the tax year. The reporting would be
the loan) for loans between certain tax- property generally includes real property done on the trust’s annual income tax
payers. The interest rate is based on the used in family farms, ranches, timber- return or as otherwise provided by Trea-
applicable federal rates (AFRs), which land, and similar property. This amount sury. The trust would have to provide
the IRS publishes monthly. These rates is currently $1.23 million. Sec. 2032A general information, including the name,

7. Dickman, 466 U.S. 330 (1984). 10. Estate of Roski, 128 T.C. 113 (2007).
8. Greenbook, p. 47. 11. Greenbook, p. 47.
9. Id.

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