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IRS Audits Estate Trust Gift Tax Returns trust news performance banks A.M. Publishing Bernard Garbo Decedent’s Estate Owes Additional $20 Million, GRAT Problems Blamed on Financial Crisis

(Sept. 17, 2014 --Chicago, IL) -- Additional taxes owed in 2013 following IRS audits of trust, estate, and gift tax returns spiked by more than 200 percent, to $4.7 billion, even though fewer returns were audited than in prior years. The recent audit of the Estate of George H. Reese, former chief executive officer of First State Financial, Pineville, Kentucky, gives some insight.

The IRS in May of this year assessed an additional $211,890 in gift taxes and $15,568,673 in estate taxes against Reese’s estate, along with penalties of just under $4 million. The additional taxes were owed, according to the IRS, after a series of estate planning transactions, which transferred Reese’s bank stock holdings into various trusts, were determined to be includable in his gross estate. Reese died 14 months after the estate planning transactions were initiated.

In a petition filed with the U.S. Tax Court in August, the estate argues that as a result of the financial crisis and prohibitions imposed by Dodd- Frank a granter retained annuity trust (GRAT) established by the decedent was unable to make required annual payments. The GRAT was funded with bank stock.

Large estates, those valued at more than $10 million, are paying an ever-increasing proportion of additional taxes owed, even though the number of returns has been declining since 2011. The percentage of total additional taxes paid by large estates following an audit had been declining since 2008, but reversed course sharply in 2012. In 2011, additional taxes owed by large estates accounted for 40 percent of additional taxes owed by all audited estates; in 2012, the rate nearly doubled to 78 percent. In 2013, large estates accounted for nearly 94 percent of additional estate taxes.

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