The following was posed in Crescendo eNotes January 18, 2010, and I though it would be of interest to readers of this blog:

As the first decedents pass away in 2010, executors and their advisors are now
faced with great uncertainty. IRS Form 706 Estate Tax Returns will be due in
nine months, although nearly all executors request an automatic extension of
six months. Therefore, for individuals who pass away in January of 2010, estate
tax returns are likely to be filed in April of 2011.

Attorney Conrad Teitell testified before the Senate Finance Committee on estate
taxes on November 14, 2007. He explained that there are extraordinary
differences in the level of estate taxation for the years 2008, 2009, 2010 and
2011. Estate taxes for taxable estates would be moderate in 2008, lower in
2009, zero in 2010 and very high in 2011.

On January 12, 2010, Mr. Teitell again wrote a letter to Chairman Max Baucus
(D-MT) and Ranking Member Charles Grassley (R-IA). He noted, "Estate
planning is serious business and not a game. Yet a retroactive change in the
2010 estate rules would literally make estate planning a role of the dice."
To read the Conrad Teitell letter click here.

Mr. Teitell proposed two actions. First, he suggests that "the carryover
basis rules be repealed retroactively." Second, he recommended that
changes in estate tax laws be prospective. If the existing law is unchanged,
2010 estates will not be subject to estate tax, but also will not benefit from
carryover basis. There is a $1,300,000 exclusion for each decedent and a
$3,000,000 exclusion for a surviving spouse, but most assets in excess of these
amounts will have a carry-forward basis.

Mitchell Gans is a respected estate commentator and teaches at Hofstra
University School of Law. He published an article this week that discusses the
constitutionality of a retroactive estate tax law. Mr. Gans "would favor a
retroactive approach."

However, he is concerned that under United States v. Carlton, 512 U.S.
26 (1994), the retroactive estate tax compromise may not be upheld. While
Carlton is a precedent for allowing retroactivity (similar to the Sec. 2057
rule that was imposed and upheld in Carlton), Professor Gans suggests that a
retroactive estate tax could be determined to be a "new" tax. If so,
the court may distinguish Carlton and determine that the new tax can not be
retroactively imposed.

Professor Gans suggests that Congress should pass a contingent income tax that
will be effective for 2010 if a retroactive estate tax is not upheld. He
advocates that if "the estate [tax] were determined to be
unconstitutional," a legatee would then be required to pay income tax on
the inheritance.

Editor's Note: As estates now are entering the probate process during 2010,
the situation becomes even less clear. As was discovered by executors in 1976
when there was another attempt to eliminate carryover basis, most estates will
have great problems in establishing or proving basis for many assets (after a
great outcry from executors and estate planners, the 1976 carryover basis law
was repealed retroactively in 1980). But with two or three Democratic Senators
dramatically behind in the polls and thus unwilling to vote for an estate tax
compromise, it seems unlikely that Sen. Baucus and Sen. Reid will be able to
gather the 60 votes necessary to pass an extension of the 2009 estate exemption
and tax rate. As a result, the whole picture may remain unclear for most or all
of 2010.