Determining an Asset's Tax Basis in the Absence of A Meaningful Transfer Tax Regime

23 Pages Posted: 7 May 2019

See all articles by Jay A. Soled

Jay A. Soled

Rutgers University

Richard Schmalbeck

Duke University School of Law

Date Written: December 1, 2018

Abstract

In yesteryear, at death, taxpayers confronted a Janus-faced tax system: on the one hand, they had to endure a harsh transfer tax regime that could significantly deplete the size of their estates; on the other hand, they could take solace in the fact that the income tax system erased their taxable gains vis-à-vis a rule that the tax basis of their assets would equal fair market value. For close to a century, as taxpayers sought to diminish their transfer tax burden, for estate tax reporting purposes, they minimized their asset values; this strategy negated the possibility that the basis equal to fair market rule might be exploited.

But this is no longer the case. For all intents and purposes, through the introduction of significant exemptions and lower tax rates, Congress has emasculated the nation’s transfer tax system. What remains is a transfer tax system teetering on oblivion and unable to keep the basis equal to fair market value rule in check. This has opened the door for taxpayers and their executors and administrators to take measures which result in asset basis maximization, and the IRS lacks the tools and resources to stop them. Congress must therefore institute reforms or risk a severe narrowing of the tax base.

Keywords: Tax, Tax Basis, Estate Tax

JEL Classification: K34

Suggested Citation

Soled, Jay and Schmalbeck, Richard L., Determining an Asset's Tax Basis in the Absence of A Meaningful Transfer Tax Regime (December 1, 2018). 10 Colum J. Tax L 49, 2018, Duke Law School Public Law & Legal Theory Series No. 2019-34, Available at SSRN: https://ssrn.com/abstract=3368343

Jay Soled (Contact Author)

Rutgers University ( email )

1 Washington Park
Newark, NJ 07901-1825
United States
(973) 353-1727 (Phone)

Richard L. Schmalbeck

Duke University School of Law ( email )

210 Science Drive
Box 90362
Durham, NC 27708
United States
919-613-7078 (Phone)
919-613-7231 (Fax)

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