2018 Inflation Adjustments

The IRS recently released the 2018 inflation adjustments for several tax provisions in Rev. Proc. 2017-58, 2017-45 I.R.B. __. There appear to be no surprises here, as the revenue procedure confirmed the projections made by Bloomberg BNA in its annual special report. The adjustments apply to tax years beginning in 2018 and transactions or events occurring during the 2018 calendar year.

For the estate planner, here are some 2018 amounts to keep in mind:

Income Tax of Trusts and Estates

The taxable income thresholds on trusts and estates under §1(e) are:

If Taxable Income is:

The Tax is:

Not over $ 2,600

15% of the taxable income

Over $ 2,600 but not over $ 6,100

$ 390.00 plus 25% of excess over $ 2,600

Over $ 6,100 but not over $ 9,300

$1,265.00 plus 28% of excess over $ 6,100

Over $ 9,300 but not over $12,700

$2,161.00 plus 33% of excess over $ 9,300

Over $12,700

$3,283.00 plus 39.6% of excess over $12,700

The alternative minimum tax exemption amount for estates and trusts under (§55(d)(1)(D)) is:

Filing Status

Exemption Amount

Estates and Trusts ((§55(d)(1)(D))

$24,600

The phaseout amounts of alternative minimum tax for estates and trusts under (§55(d)(3)(C)) are:

Filing Status

Threshold Phaseout

Completed Phaseout

Estates and Trusts ((§55(d)(3)(C))

$82,050

$180,450

Estate and Gift Tax

For decedents dying and gifts and generation-skipping transfers made in 2018, the basic exclusion amount, for purposes of determining the §2010 credit against estate tax, is $5,600,000.

The calculated credit generated by the §2010 or §2505 inflation-adjusted basic exclusion amount is $2,185,800 for 2018 decedents or gifts.

The §2503(b) annual gift tax exclusion for gifts of current interest in property made in 2018 is $15,000 per donee.

For gifts of current interest in property made to a non-citizen spouse in 2018, the annual gift tax exclusion under §2523(i)(2) is $152,000.

Additionally, donees of gifts from certain foreign persons may be required to report these gifts under §6039F if the aggregate value of the gifts received in 2018 exceeds $16,111.

For estates of decedents dying in 2018 that elect to use the §2032A special valuation method for qualified property, the aggregate decrease in value must not exceed $1,140,000.

For estates of decedents dying in 2018 that elect to extend the payment of estate tax under §6166, the 2% portion for determining the interest rate under §6601(j) is $1,520,000.

Expatriation

For individuals losing U.S. citizenship in 2018, an average annual net income tax of more than $165,000 for the five previous tax years is a covered expatriate for purposes of §877A(g)(1).

For 2018, the amount that would be includible in the gross income of a covered expatriate under §877A(a) is reduced (but not below zero) by $713,000.

For exempt organizations, here are some 2018 amounts to keep in mind:

For the §6033(e)(3) reporting exception for certain exempt organizations with nondeductible lobbying expenditures, the annual per person, family, or entity dues threshold is $115 or less.

For §501(c)(5) agricultural and horticultural organizations, the §512(d)(1)limitation for exemption of annual dues required to be paid by a member is $166.

The unrelated business income of certain exempt organizations under §513(h)(2) does not include a low cost article of $10.90 or less.

For organizations receiving fully deductible charitable contributions under §170 where the donor received insubstantial benefits in return, the inflation-adjusted guidelines of Rev. Proc. 90-12, 1990-1 C.B. 471, §3 are $10.90, $54.50, and $109.

Here are some of the 2019 penalty amounts to keep in mind:

In the case of failure to file a return, the addition to tax under §6651(a)(1) is not less than the lesser of $215 or 100% of the amount required to be shown on the return.

The penalties under §6652(c) for certain exempt organizations and trusts failing to file returns, disclosures, etc., which are required to be filed in calendar year 2019, are:

  • Returns Under §6033(a)(1) or §6012(a)(6)

Scenario

Penalty Per Failure Per Day

Maximum Penalty Per Return

Penalty on Organization (§6652(c)(1)(A))

$20

Lesser of (i) $10,000 or (ii) 5% of gross receipts for year

Penalty on Organization with Gross Receipts Greater than $1,049,000(§6652(c)(1)(A))

$100

$52,000

Penalty on Managers (§6652(c)(1)(B)(ii))

$10

$5,000

Public Inspection of Annual Returns and Reports (§6652(c)(1)(C))

$20

$10,000

Public Inspection of Applications for Exemption and Notice of Status (§6652(c)(1)(D))

$20

No limit

  • Returns Under §6034 or §6043(b)

Scenario

Penalty Per Failure Per Day

Maximum Penalty Per Return

Penalty on Organization or Trust (§6652(c)(1)(A))

$10

$5,000

Penalty on Managers (§6652(c)(2)(B))

$10

$5,000

Penalty on Split Interest Trust (§6652(c)(2)(C))

$20

$10,000

Split Interest Trust with Gross Income Greater than $262,000 (§6652(c)(2)(C)(ii))

$100

$52,000

  • Disclosure Under §6033(a)(2)

Scenario

Penalty Per Failure Per Day

Maximum Penalty Per Return

Penalty on Tax-Exempt Entity (§6652(c)(3)(A))

$100

$52,000

Failure to Comply with Demand (6652(c)(3)(B)(ii))

$100

$10,000

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