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Saturday December 4, 2021

Washington News

Washington Hotline

Millions of Economic Impact Payments in the Mail

On March 22, 2021, the IRS announced that 37 million Economic Impact Payments (EIP) are being distributed with a pay date of March 24. The second batch of payments increases the total number for the third round of stimulus payments to 127 million. The value of this round of Economic Impact Payments is $325 billion.

These new payments include 17 million direct deposits, 15 million paper checks and 5 million debit cards. The 37 million recipients are primarily individuals who filed a 2019 or 2020 tax return. Some individuals who used the Non-Filers tool on also will receive payments.

IRS Commissioner Chuck Rettig stated, "The IRS continues to send the third round of stimulus payments in record time. Since this new set of payments will include more mailed payments, we urge people to carefully watch their mail for a check or debit card in the coming weeks."

If you have not received a direct deposit, you may receive a paper check or an EIP card. The paper checks will be in an envelope from the U.S. Department of the Treasury. On the lower left section, the paper check will include a statement in the memo field that it is an "Economic Impact Payment."

EIP debit cards will be in envelopes that include the seal of the U.S. Department of the Treasury. The EIP card is a Visa Debit Card issued by MetaBank. There is information with the card that indicates it is an Economic Impact Payment.

Recipients who have received other EIP cards will not be able to reload funds on those cards. Each card has a separate debit value. The cards may be used to obtain cash from domestic ATMs or transfer funds to a checking account. All EIP cards are issued by the Bureau of the Fiscal Service.

EIP payments are often $1,400 for an individual, $2,800 for a couple and $1,400 for each dependent claimed on a tax return. The amount is based on the latest processed tax return from either 2019 or 2020.

Individuals who did not file a return but qualify for Social Security, Railroad Retirement, Supplemental Security Income or Veterans Affairs benefits may also receive an Economic Impact Payment.

Some individuals who are homeless did not receive a first or second Economic Impact Payment. These individuals will need to file a 2020 tax return to claim a Recovery Rebate Credit.

Bill to Increase the Estate Tax

On March 26, 2021, Senate Budget Committee Chairman Bernie Sanders (I-VT) introduced the "For the 99.5% Act." This bill is designed to address the wealth gap in America by increasing estate taxes.

Senator Sanders stated, "We are living in a country which has enormous needs - we have a very large deficit - and yet we have a tax code which enables the very, very richest people in America and the largest corporations to avoid paying their fair share of taxes. That has got to change."

In a press release, his office noted, "Since 1985, the bottom 90% of Americans have seen their share of our nation's wealth plummet from 34% to just 24% in 2019."

The press release also quoted a statement made by President Theodore Roosevelt in 1910. He noted, "The absence of effective state, and, especially, national restraint upon unfair money-getting has tended to create a small class of enormously wealthy and economically powerful men, whose chief object is to hold and increase their power." Roosevelt supported a "graduated inheritance tax on big fortunes, properly safeguarded against evasion and increasing rapidly in amount with the size of the estate."

The bill to increase estate taxes has multiple provisions. It would reduce the exemption, increase the estate tax rate for larger estates, reduce planning strategy options, limit use of the annual exclusion and reduce valuation discounts.
  1. Estate Exemption - The estate exemption would be reduced to $3.5 million ($7 million for married couples). This would result in the estate tax being applicable to 0.5% of Americans.
  2. Increased Estate Tax Rates - The estate tax rate would increase to 45% from $3.5 million up to $10 million, 50% from $10 million up to $50 million, 55% from $50 million up to $1 billion and 65% over $1 billion.
  3. Grantor Retained Annuity Trusts (GRATs) - GRATs would be required to last for 10 years. This may reduce the potential effectiveness of GRATs. Most current GRATs are for two years.
  4. Defective Grantor Trusts - Some individuals create an irrevocable trust that is not includable in the estate, but use a Sec. 675(4) power for a nonadverse party to acquire trust assets to make it a grantor trust. The grantor pays the income tax on earnings and therefore reduces his or her estate. This practice would no longer be permitted.
  5. Annual Exclusion - An unlimited annual exclusion is permitted on a per donor-per donee basis. Under the bill, it would be limited to two annual exclusion amounts per year.
  6. Valuation Discounts - The discounts used to reduce the value of transfers of partial interests would generally be eliminated.
  7. Farmland and Conservation Easements - The bill would protect farmland transfers and conservation easements by increasing the excluded value for certain estates to $3 million for farmland transfers and $2 million for conservation easements.
Editor's Note: Your editor and this organization take no specific position on the proposed estate tax bill. This information is offered as an educational service because it is of interest to the tax and financial community. Any final bill is likely to have multiple changes. However, some provisions of this bill may be included in future budget legislation.

Advocates for Higher Estate Taxes

Senator Sanders' office published multiple statements from individuals who are generally supportive of higher estate taxes. The advocates for higher taxes focus on fairness, funding of public needs and reducing the wealth gap.
  1. New Aristocracy - Former U.S. Department of Labor Secretary Robert Reich noted, "While millions of American families aren't sure how they will manage to meet their basic needs during the COVID-19 pandemic, the new aristocracy in America has seen its wealth continue to rapidly grow by the hundreds of billions of dollars in the last year. The pandemic has laid bare the stunning reality of wealth inequality in America and made it clear that we urgently need Congress to reverse the growth of the new aristocracy through progressive taxation."
  2. Fund Public Needs - Amy Hanauer is Executive Director of the Institute on Taxation and Economic Policy. She stated, "In our increasingly unequal economy, a tiny sliver of extraordinarily wealthy people own as much wealth as half of America combined. . . . Senator Sanders' estate tax bill provides a path forward, giving us resources to address major public needs, while chipping away at the extreme wealth gap in this country."
  3. Fair Tax System - Gabriel Zucman is Professor of Economics at the University of California, Berkeley. He noted, "Unfortunately, the estate tax has been severely weakened by tax avoidance over the last decades, so that despite the upsurge of wealth at the top, it collects less and less revenue. Sen. Sanders' bill would fix this major issue and is a crucial step toward greater tax justice in America."
  4. Reduce Wealth Gap - Chuck Collins of the Institute for Policy Studies noted, "Senator Sanders' 'For the 99.5% Act' estate tax reform would put a meaningful brake on the growth of inherited wealth dynasties. By adding graduated rates and plugging loopholes that the rich use to hide their wealth, the Sanders bill will raise substantial revenue from billionaires and reduce democracy-distorting amounts of wealth and power."
Editor's Note: These comments supporting the bill are offered as an educational service to our readers. Future notes may include a variety of other viewpoints on the estate tax.

Applicable Federal Rate of 1.0% for April - Rev. Rul. 2021-7; 2021-14 IRB 1 (15 March 2021)

The IRS has announced the Applicable Federal Rate (AFR) for April of 2021. The AFR under Section 7520 for the month of April is 1.0%. The rates for March of 0.8% or February of 0.6% also may be used. The highest AFR is beneficial for charitable deductions of remainder interests. The lowest AFR is best for lead trusts and life estate reserved agreements. With a gift annuity, if the annuitant desires greater tax-free payments the lowest AFR is preferable. During 2021, pooled income funds in existence less than three tax years must use a 2.2% deemed rate of return.

Published March 26, 2021
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