Skip to main content

Site Navigation

Site Search

global Tax

IRS Issues Proposal to Amend Estate and Gift Tax Basic Exclusion Regulations

May 19, 2022

Attention taxpayers…you will want to read up on a new exception to estate and gift tax basic exclusion regulations. Here’s a look at what could change.

The IRS recently issued proposed regulations which introduce an exception to the special rule for certain transfers that are includible or treated as includible in the gross estate.


The Tax Cuts and Jobs Act doubled the gift and estate tax exclusion amount from $5 million to $10 million for estates of deceased decedents, and gifts made from January 2018 through December 31, 2025, as adjusted for inflation. However, the current law will “sunset” on December 31, 2025 and the gift, estate and GST exemptions will revert back to $5,000,000, adjusted for inflation. There was concern that lifetime gifts above $5,000,000 would be includable in the taxable estate of the donor and be subject to a 40% federal estate and GST tax.

However, a “special rule” issued in 2019 stipulated that any gifts which were sheltered due to the use of the increased gift and GST tax exemptions will NOT be included or “Clawed Back” into the estate of the donor at his or her death.

These regulations did not address how taxpayers, for purposes of the special rule, would handle gifts that are not true lifetime transfers, but are includible in the decedent’s gross estate. This question is addressed in the recently proposed amendments.

What are the proposed amendments?

The proposed regulations provide that the increase in the basic exclusion amount would not apply to transfers includible in the gross estate. This includes:

  • Gifts subject to a retained life estate or subject to other powers or interests
  • Gifts made by enforceable promise, if they remain unfulfilled as of the date of death;
  • Transfers of certain applicable retained interests in corporations or partnerships or trusts
  • Transfers that would fall under the preceding three bullets, but for the transfer, relinquishment, or elimination of an interest, power, or property, effectuated within 18 months of the date of the decedent's death, by the decedent in conjunction with any other person, or by any other person.

Other things to note:

  • Transfers includible in the decedent’s gross estate (where the taxable amount is 5% or less of the total amount of the transfer) would be eligible for the special rule.
  • The proposed regulations would apply to the estates of decedents passing away on or after the date they are finalized.

Questions on the proposed regulations? Reach out to us. We’ll keep you posted as things develop.

Stay informed. Get all the latest news delivered straight to your inbox.

Also in Tax Blog

up arrow Scroll to Top