IRS To Halve Estate Tax Compliance Personnel

by Leroy Baker, Tax-News.com, New York

26 July 2006

The Internal Revenue Service is planning substantial cuts in the number of estate tax lawyers and audit staff it employs, as a result of the Bush administration's efforts to reduce the number of people liable for estate tax.

Under plans seen by the New York Times, the IRS will cut the jobs of 157 of the agency’s 345 estate tax lawyers, plus 17 support personnel, in little more than two months.

According to the Times, Kevin Brown, IRS Deputy Commissioner, explained that the cuts have been brought about because there are now far fewer taxpayers subject to estate tax.

Currently, estates worth more than $2 million for singles and $4 million for couples are taxed at a maximum 46% rate. Under tax legislation passed in 2001, the exemption level will rise to $3.5 million (and $7 million for couples) in 2009, while rates are set to decline to 45% in that year, before being repealed for one year. However, the tax will then be resurrected at the pre-2001 rate of 55%.

House Ways and Means Committee Chairman Rep. Bill Thomas (R - Calif), claims that compromise legislation that he has drafted would permanently eliminate the estate tax for 99.7% of all Americans by increasing the exemption amount to $5 million per person, taxing estates worth between $5 million and $25 million at a rate equal to the capital gains tax rate (currently 15%), and taxing estates worth over $25 million at a rate equal to double the capital gains rate.

Some tax lawyers affected by the staff cuts have suggested that the staff cutbacks in the area of estate tax and gift tax are less to do with saving money and more to do with protecting wealthy individuals with political links to the Bush administration from answering awkward questions about their tax affairs. According to the Times, these lawyers have claimed that the agency has become increasingly reluctant to pursue cases involving the use of complex schemes to understate the value of assets.

Another tax lawyer suggested to the paper that the move is an effort by the Bush administration to bypass Congress and eliminate the estate tax by the back door.

However, according to Brown, the IRS has no intention of letting its guard down where wealthy taxpayers are concerned, and he told the Times that the money saved by reducing the estate and gift tax compliance department will be used to hire extra staff to audit the tax returns of those with annual earnings of more than $1 million.

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