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Coalition Urges Retention of Stepped-up Basis

SEP. 9, 2021

Coalition Urges Retention of Stepped-up Basis

DATED SEP. 9, 2021
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September 9, 2021

The Honorable Richard Neal
Chairman
Committee on Ways & Means
U.S. House of Representatives
Washington, DC 20515

The Honorable Kevin Brady
Ranking Member
Committee on Ways & Means
U.S. House of Representatives
Washington, DC 20515

Dear Chairman Neal and Ranking Member Brady:

We, the undersigned associations, write to state our unequivocal support for the continuation of stepped-up basis. Stepped-up basis prevents family-owned businesses and farms from being hit with two significant and damaging tax bills when a family member passes away — the capital gains tax on any appreciated assets and the estate tax on whatever is left. The FBETC opposes any changes to stepped-up basis that would impose this double death tax and increase taxes on family-owned businesses and farms — including administratively unworkable “protections” that simply delay destructive tax hikes.

On April 29, 2021, President Biden unveiled the American Families Plan, which proposed making death a taxable event for inherited assets and eliminating stepped-up basis, along with unspecified protections for family-owned businesses and farms. It remains unclear how and if these protections would shield future generations from substantial tax increases — but we know that current law already provides effective protections for families seeking to pass a business on to the next generation.

Ineffective protections for family businesses have been tried before. For example, in 1997, Congress enacted the Qualified Family-Owned Business Interest (QFOBI) deduction, also known as “family business carve-out,” as part of the Taxpayer Relief Act of 1997. This “carve-out” was repealed just four years later by the Economic Growth and Tax Relief Reconciliation Act of 2001 because it was complex and administratively unworkable, it placed a burden on the next generation, and in practice it excluded most family-owned businesses.

Some have proposed “protecting” family-owned businesses and farms by allowing them to defer realizing any capital gains until the business or farms are sold. While this carryover basis regime delays payment of tax until inherited assets are sold, the total tax bill will be the same as if the gains were taxed at death. Carryover basis is simply stepped-up basis repeal by another name — it represents a significant tax increase for family-owned businesses and farms, and it is an administrative nightmare.

A previous attempt to implement carryover basis, the Tax Reform Act of 1976, was initially postponed three years by the Revenue Act of 1978 and ultimately repealed by the Crude Oil Windfall Profit Tax Act of 1980 before it was implemented. Prior to repeal, tax practitioners noted significant difficulties in attempting to determine the basis of inherited assets. The Joint Committee on Taxation's report, General Explanation of the Crude Oil Windfall Profit Tax Act of 1980, states:

A number of administrative problems concerning the carryover basis provisions have been brought to the attention of the Congress. Administrators of estates have testified that compliance with the carryover basis provisions has caused a significant increase in the time required to administer an estate and has resulted in raising the overall cost of administration. Congress believed that the carryover basis provisions are unduly complicated and should be repealed.1

Finally, repealing stepped-up basis will hurt the economy at a critical time. A recent EY report forecasts that 40,000 jobs would be lost every year in the first 10 years after enactment and GDP would decrease by $50 billion over 10 years if stepped-up basis were repealed via carryover basis.2 Carryover basis is not an effective exemption from stepped-up basis repeal for family-owned businesses and farms, and the FBETC opposes any such misguided “protections.”

We respectfully urge you to protect family-owned businesses and farms from tax increases by defending stepped-up basis and opposing any changes to current law.

Sincerely,

Amcot

American Bakers Association

American Bankers Association

American Beverage Licensees

American Building Materials Alliance

American Cotton Producers

American Farm Bureau Federation

American Foundry Society

American Horse Council

American Hotel and Lodging Association

American International Automobile Dealers Association

American Lighting Association

American Mold Builders Association

American National CattleWomen, Inc.

American Rental Association

American Seed Trade Association

American Sheep Industry Association

American Soybean Association

American Subcontractors Association

American Supply Association

American Trucking Associations

American Veterinary Medical Association

AmericanHort

AMT — The Association For Manufacturing Technology

Associated Builders and Contractors

Associated Equipment Distributors

Associated General Contractors of America

Auto Care Association

Cellulose Insulation Manufacturers Association

Ceramic Tile Distributors Association

Construction Industry Round Table

Convenience Distribution Association (CDA)

Cotton Growers Warehouse Association

Decorative Hardwoods Association

Distribution Contractors Association

Energy Marketers of America

Equipment Marketing & Distribution Association (EMDA)

Executives' Association of Greater Miami

Family Enterprise USA

FCA International

FMI —  the Food Industry Association

Foodservice Equipment Distributors Association

Forest Resources Association

Foundry Association of Michigan

Illinois Corn Growers Association

Independent Bakers Association

Independent Community Bankers of America

Independent Electrical Contractors

Independent Insurance Agents and Brokers of America

Independent Office Products & Furniture Dealers Association

Indiana Cast Metals Association

Indiana Corn Growers Association

Indiana Hardwood Lumbermen's Association

Indiana Soybean Alliance

Industrial Fasteners Institute

International Association of Plastics Distribution

International Dairy Foods Association

International Foodservice Distributors Association

International Franchise Association

International Warehouse Logistics Association

Iowa Corn Growers Association

Kansas Corn Growers Association

Kentucky Corn Growers Association

Main Street Employers Coalition

Manufactured Housing Institute

Maryland Grain Producers Association

Material Handling Equipment Distributors Association

Metalcasters of Minnesota

Metals Service Center Institute

Miami Marine Council

Minnesota Corn Growers Association

Missouri Forest Products Association

Mortgage Bankers Association

NACS

National Apartment Association

National Association of Electrical Distributors

National Association of Home Builders

National Association of Manufacturers

National Association of Music Merchants

National Association of Professional Insurance Agents

National Association of Sporting Goods Wholesalers

National Association of Wholesaler-Distributors

National Association of Women Business Owners

National Automobile Dealers Association

National Beer Wholesalers Association

National Cattlemen's Beef Association

National Community Pharmacists Association

National Confectioners Association

National Corn Growers Association

National Cotton Council

National Cotton Ginners Association

National Council of Agricultural Employers

National Electrical Contractors Association

National Federation of Independent Business

National Grange

National Grocers Association

National Hardwood Lumber Association

National Lumber & Building Material Dealers Association

National Marine Distributors Association

National Multifamily Housing Council

National Office Products Alliance

National Peach Council

National Pork Producers Council

National Ready Mixed Concrete Association

National Restaurant Association

National Roofing Contractors Association

National RV Dealers Assoc. (RVDA)

National Small Business Association

National Stone, Sand & Gravel Association

National Tooling and Machining Association

National Utility Contractors Association

National Waste & Recycling Association

National Wood Flooring Association

National Woodland Owners Association

New York Corn & Soybean Growers Association

North American Die Casting Association

North American Meat Institute

North American Renderers Association

North Carolina Forestry Association

North Dakota Corn Growers Association

Office Furniture Dealers Alliance

Ohio Cast Metals Association

Ohio Corn & Wheat Growers Association

Outdoor Power Equipment and Engine Service Association

Pennsylvania Forest Products Association

Pet Industry Distributors Association

Petroleum Equipment Institute (PEI)

Plastics Industry Association

Plumbing-Heating-Cooling Contractors — National Association

Policy and Taxation Group

Power and Communication Contractors Association

Precision Machined Products Association

Precision Metalforming Association

PRINTING United Alliance

Private Investor Coalition

Small Business & Entrepreneurship Council

Society of American Florists

South Carolina Corn and Soybean Association

Southeastern Lumber Manufacturers Association

Spray Polyurethane Foam Alliance

Subchapter S Bank Association

Texas Cast Metals Association

The Hardwood Federation

The National Grange

The Real Estate Roundtable

The Transportation Alliance

Tile Roofing Industry Alliance

Truck Renting and Leasing Association

U.S. Chamber of Commerce

U.S. Superyacht Association

US Sweet Potato Council

USA Rice

Virginia Forestry Association

Virginia Grain Producers Association

Virginia Small Business Partnership

West Virginia Forestry Association

Western Hardwood Association

Western Pallet Association

WF&FSA, The Wholesale Florist and Florist Supplier Association

Wine & Spirits Wholesalers of America

Wine Institute

Wisconsin Corn Growers Association

FOOTNOTES

1Joint Committee on Taxation, General explanation of the Crude Oil Windfall Profit Tax Act of 1980, (H.R. 3919, 96th Congress, Public Law 96-223), https://www.jct.gov/publications/1981/jcs-1-81/.

2EY, Repealing step-up of basis on inherited assets: Macroeconomic impacts and effects on illustrative family businesses, https://www.fb.org/files/FBETC_Stepped-Up_Basis_Report_2021.

END FOOTNOTES

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