As you know, the federal estate tax was repealed as of December 31st of last year and Congress has yet to do anything about it.

Now, however, there is movement afoot among Senate Republicans and Democrats to put an estate tax deal together in an effort to pass a bipartisan jobs bill. 

Here's the current thinking among Senate leaders.  Democrats want to pass a jobs bill but need at least one Republican vote.  Republicans don't want the estate tax to revert to pre-2001 levels that levied estates over $1 million with a 55% tax.  That would happen automatically beginning in 2011 if Congress fails to pass a new estate tax law before then.   Instead, Republicans would love to see a federal estate tax of 35% on amounts over $5 million.  However, they do appear to be willing to accept an estate tax similar to the one that expired last year; i.e., an estate tax of 45% on amounts over $3.5 million.

So, there's plenty of incentive for Republicans and Democrats to work together to accomplish what each wants.  Democrats want a jobs bill that would likely offer tax credits to employers for hiring unemployed workers.  It would also renew certain tax benefits that expired last year, including the research and development tax credit.

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The IRS has released its Statistics of Income (SOI) Bulletin for the fall of 2009.  While this Bulletin may not have great appeal to the average consumer, there are a couple of interesting facts regarding the impact of recent estate tax law changes.

First, the Bulletin shows that the total number of estate tax returns filed between 2001 and 2007 fell significantly - from 108,071 in 2001 to just 38,031 in 2007.  This drop in the number of estate tax returns filed is attributed primarily to the increases in the estate tax exemption occurring during those years.  For example, in 2001, the estate tax exemption was $60,000.  By 2007, the exemption grew to $2 million.  Although the Bulletin does not cover years after 2007, we can anticipate that the number of estate tax returns filed in 2008 and 2009 will continue to decline significantly simply because the exemption has continued to increase.  For 2009, the exemption amount is $3.5 million.

These statistics support the intended goal of Congress in enacting the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) of 2001.  In enacting EGTRRA, it was widely anticipated that less than one percent (1%) of the population would be subject to the estate tax.  It appears that the passage of that legislation has had the intended effect.

Second, while there has been a significant reduction in the number of estate tax returns being filed between 2001 and 2007, the number of returns filed for wealthy decedents - those with estates in excess of $3.5 million - increased significantly, from 9,440 in 2001 to 14,281 in 2007.  It is interesting to note, too, that the greatest percentage of increase occurred between 2005 and 2007 - 33.7%.

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You may recall that current federal estate tax laws provide for a $3.5 million exemption for any individual dying in 2009, with a maximum estate tax rate of 45% for any excess over that amount.  Then, for any individual dying in 2010, the estate tax is repealed.  So, anyone lucky(?) enough to die in 2010 would escape the estate tax all together - no matter how large the estate might be.  That tax break is short lived, however, because the federal estate tax returns for anyone dying in 2011 and beyond, with the exemption reduced to $1 million and the maximum rate for any excess increased to 55%.

That's if Congress doesn't act before the end of 2009.  Whether it will or not depends upon whether the Obama administration and Congress can reach a concensus on a course of action.  So far, there appears to be no consensus at all.  Some favor decreasing the exemption; some want it increased.  Some want to index the exemption for inflation; some don't.  Some want to lower the maximum tax rate; again, some don't.

With little more than 2 months before the end of the year, it seems likely that Congress will take the easy way out and simply extend the current exemption of $3.5 million and the maximum tax rate of 45% until sometime beyond 2010.  That will give the Obama administration and Congress more time to work out a consensus on what the estate tax law should be.  

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