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Attorney Forwards to Treasury an Article on Proposed Regs That Address Trust Severance, GST Tax

FEB. 25, 2008

Attorney Forwards to Treasury an Article on Proposed Regs That Address Trust Severance, GST Tax

DATED FEB. 25, 2008
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From: Kwon, Julie [JKwon@mwe.com]

 

Sent: Monday, February 25, 2008 2:41 PM

 

To: Hughes, Catherine

 

Subject: FW: Comments: Proposed Qualified Severance Regs

 

 

Attachments: CHI99_4946853_1.PDF

Hi, my original message was rejected -- I'm trying again!

Julie K. Kwon

 

McDermott Will & Emery LLP

 

Chicago, Illinois

 

From: Kwon, Julie

 

Sent: Monday, February 25, 2008 12:06 PM

 

To: 'catherine.hughes@do.treas.gov'

 

Cc: 'Plaine, Lloyd'; Harrington, Carol;

 

carlyn.mccaffrey@weil.com; pschneider@gsw-llp.com

 

Subject: Comments: Proposed Qualified Severance Regs

 

 

Hello Cathy,

As we discussed this morning, Carol Harrington, Carlyn McCaffrey, Lloyd Leva Plaine, Pam Schneider and I wrote an article summarizing our comments regarding the proposed qualified severance GST tax regulations which appeared in the December, 2007, issue of Journal of Taxation.

I have attached the article for your reference as it includes comments that may be helpful to the drafters of the final regulations. In particular, we illustrate how the rule denying valuation discounts in funding could prejudice the government in certain instances and we offer an alternative valuation rule that may be more consistent with the statutory terms of section 2642 while addressing the Treasury Department's concerns. In addition, we noted areas of potential confusion in the coordination of the regulations under Section 2642 and Section 2654 that may require clarification.

We apologize for not submitting this before the expiration of the time period for official comments to the Treasury Department regarding these proposed qualified severance regulations. However, we hope that our discussion in this article provides useful input to the drafters of the final regulations. We sincerely appreciate your consideration.

Thank you, and please feel free to call me with any questions.

Julie K. Kwon

 

McDermott Will & Emery LLP

 

Chicago, Illinois

 

ESTATES, TRUSTS, & GIFTS

Breaking Up May Get Even Easier to Do -- Proposed GST Tax Severance Regulations

Author: By Carol A. Harrington, Julie K. Kwon, Carlyn S. McCaffrey, Lloyd Leva Plaine, and Pam H. Schneider

 

CAROL A. HARRINGTON and JULIE K. KWON are partners in the law firm of McDermott, Will & Emery LLP, resident in its Chicago office. CARLYN S. MCCAFFREY is a partner in the law firm of Weil, Gotshal & Manges LLP in New York City. LLOYD LEVA PLAINE is a partner in the law firm of Sutherland, Asbill & Brennan LLP, in Washington, D.C. PAM H. SCHNEIDER is a partner in the law firm of Gadsden Schneider & Woodward LLP, in King of Prussia, Pennsylvania. All the authors have previously written for The Journal in this area. Ms. Harrington and Ms. Plaine are co-authors, with Howard M. Zaritsky, of Generation-Skipping Transfer Tax, Second Edition (Warren, Gorham & Lamont, 2001).

Copyright © 2007, Carol A. Harrington, Julie K. Kwon, Carlyn S. McCaffrey, Lloyd Leva Plaine, and Pam H. Schneider.

A package of Proposed Regulations amending the GST tax rules for trust severances would provide a great deal of planning flexibility currently unavailable. The proposals are not without flaws, however, some of which are puzzling. And one aspect of the Proposed Regulations -- a troubling new valuation rule that ignores discounts or premiums -- may violate the statute.

 

EDITED BY JOHN B. HUFFAKER, LL.B., AND MICHAEL D. MULLIGAN, J.D.

Section 2642(a)(3) was enacted under EGTRRA to permit "qualified severances" to be recognized for generation-skipping transfer tax ("GST tax") purposes. Recent final Regulations (TD 9348, 8/2/07) addressing severances of trusts for GST tax and income tax purposes make important changes to the 2004 Proposed Regulations on these topics. The authors discussed the impact of the final qualified severance Regulations in last month's issue of The Journal.1 On the same day that final Regulations were issued, the IRS also issued new Proposed Regulations regarding severances (REG-128843-05, 8/2/07, corrected on 8/22/07) to address additional changes meriting further consideration. A number of these changes were made in response to comments Treasury and the IRS received with respect to the 2004 Proposed Regulations. This second article discusses the effect of the new Proposed Regulations, which will be effective for severances occurring after the date when they are published as final Regulations.

The new Proposed Regulations recognize for GST tax purposes all severances recognized under local

 

[Treasury withheld the remaining contents of this article for copyright reasons.]
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