Tax Law and Business Organization Strategy

EGTRRA Effect on Federal Estate Tax Returns

An article in the summer 2007 issue of the Statistics of Income Bulletin shows how recent changes in the estate tax exemption level have significantly reduced filings of estate tax returns. Remember, the current estate tax scheme introduced by Congress under the Economic Growth and Tax Relief Reconciliation Act of 2001 ( EGTRRA) gradually increased the federal estate tax exemption ($1,500,000 for 2004-2005 and $2,000,000 for 2006-2008) and decreased the highest federal estate tax rate (48% in 2004, 47% in 2005, 46% in 2006, and 45% in 2007-2009).  This article highlights the changes from 2001 to 2005 in the number of federal estate tax returns filed, the total value of the assets reported on these returns, and the federal estate taxes paid on these returns.  Specifically:

  • the total number of estate tax returns filed fell by 58% to about 45,000 in 2005 from about 108,000 in 2001;
  • the total amount of assets represented by these returns fell by 14% to $185 billion in 2005 from $216 billion in 2001;
  • however, net estate taxes reported on these returns declined by only 8%.

It is interesting that the number of returns filed fell by 58% but the amount of tax paid only fell by 8%.  Because the article just examined the differences in the numbers from 2001 to 2005 and we have since entered into another higher level of federal estate tax exemption and a lower federal estate tax rate, I wonder what the numbers will reflect in the next report.  Stay tuned for more to come.

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