Federal Tax Update: Proposed Regulations.

• Author: Josephs, Stuart R.

Last month's Fed Tax Column, Page 24, discusses transfer tax exemptions. Additional information on the discussd, proposed regulations follows.

The special rule explained at the end of the column does not distinguish between completed gifts trekl;ated as:

* Adjusted taxable gifts for estate tax purposes, but excluded from the donor's gross estate; and

* Testamentary transfers for estate tax purposes and included in the donor's gross estate (includible gifts).

Prop. Regs Sec. 20.2010-l(c)(3) [REG-118913-21, Apr. 27, 2022] deals with this matter by generally denying the special rule's benefit to includible gifts. This proposal would apply to estates of decedents dying after Apr. 26, 2022. Therefore, the special rules would not apply to:

1. Transfers includable in the gross estate under IRC Sees 2035, 2036, 2037, 2038 or 2042, regardless of whether any part of the transfer was a deductible charitable or marital gift;

2. Transfers made by an enforceable promise to the extent unsatisfied at the date of death;

3. Transfers of a Sec. 2701 interest described in Regs. Sec. 25.2701-5(a)(4). A Sec. 2701 interest is an applicable retained interest in a corporation or partnership valued under Sec. 2701's special valuation rules at the time of the initial transfer.

4. Transfers of retained trust interests described in Regs. Sec. 25.2702-6(a) (1), previously valued under the special valuation rules of Sec. 2702 and Regs. Sec...