The estate tax is controversial to say the least because there seems to be little if any logic to support it. You work all your life and pay income tax and payroll or self-employment tax on all of your earnings. In the end you have a fraction of what you actually made left over after paying these taxes.
With this remainder you go about your business, but as you use it you are taxed again and again continually. You must pay sales tax on all of your purchases, and there are property taxes, capital gains tax, gasoline tax, alcohol and tobacco tax, hospitality tax and others.
While you are alive, whatever after-tax remainder you’re able to hang onto is not subject to any additional taxation because there is no premise. But when you die, your assets suddenly become taxable. This doesn’t make sense to a lot of people, and it is one of the reasons why people refer to the estate tax as the “death tax.”
Because of the fact that the estate tax is so maligned there are those who have been calling for a repeal. They kind of got their wish briefly in 2010 when the estate tax was repealed for much of the year due to provisions contained within the Economic Growth and Tax Relief Reconciliation Act of 2001.
Late in the year however a new measure was signed into law called the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Among other things, this act reinstated the estate tax retroactively to the beginning of 2010.
But in a convoluted twist the powers that be recognized that it may be unconstitutional to impose the estate tax retroactively when it was legally repealed for 2010. So executors of the estates of people who died in 2010 can opt out of the estate tax by filing IRS Form 8939.
The form was originally due on November 15th, but the final version of the form is still not available, so the deadline has been extended to January 17th.
So in 2010 we had a repeal and then the repeal was repealed, but you can get around the repealed repeal by filing Form 8939–if it is ever made available. If you have trouble following all that, you now know why we say that it is a good idea to retain the services of an estate planning attorney when you are making plans for the future.