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Financial Planning > Tax Planning > Tax Reform

The Scope of the Problem

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Speaking at the Schwab Impact 2009 conference in San Diego in mid-September, tax and estate planning attorney John Scroggin first poked fun at his profession, defining a tax attorney as “someone who solves a problem you didn’t know you had in a way you don’t understand.” He then laid out in stark terms the scope of the tax and estate planning changes that are likely on their way as the Bush-era federal tax cuts sunset and as the Obama Administration looks for ways to pay for its programs.

To begin, Roswell, Georgia-based Scroggin ( presented an estimate that nearly 8,000 estates, or 0.3% of 2.3 million decedents, will incur the federal estate tax in 2009. An unexpected consequence of that reduced number of estate returns, he warned, is that the audit risk has increased to nearly 100%. Another estimate of the scope of the issue is that by the end of 2010, he said, $4.0 trillion in tax provisions will expire. Scroggin is also quite skeptical that Obama can pay for new entitlements like healthcare reform by only taxing incomes of $250,000 or more.

Scroggin believes there are three possible paths on the estate tax–permanent larger exemptions, a return to the 2001 exemption and rates, or even that Congress punts on the issue. Regardless of what Congress does, or doesn’t, do, Scroggins argues that because of changes in federal exemptions, state estate taxes, retirement plans, and income taxes, virtually every estate plan will need to be reexamined within the next two years.

He suspects that by 2011 there will be top federal income tax rates of 36% and 39.6%, that the 15% dividend tax break will disappear in 2011, and that there will be higher capital gains rates to 20%, 25%, 28%, or even higher. Moreover, the budget shortfalls being seen in nearly every state makes it likely that state taxes will increase as well.

Finally, Scroggin expects “more rigorous” IRS enforcement actions that will take the form of more audits on taxpayers with incomes over $100,000, overseas bank accounts, the use of S corporations to avoid Social Security taxes, stricter rules on independent contractors, increased attacks on discounting techniques, and more 1099 reporting.


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