President Obama’s Fiscal Year 2014 Revenue Proposals: Proposals Relating to Individuals, Retirement Plans, and Estate and Gift Taxation

Sullivan & Cromwell LLP - April 15, 2013

On April 10, 2013, the Obama Administration (the “Administration”) released the General Explanations of the Administration’s Fiscal Year 2014 Revenue Proposals (commonly known as the “Green Book”). Although the Green Book does not include proposed statutory language, the Green Book contains significant detail about the fiscal year 2014 revenue proposals. Many of these proposals were made previously by the Administration but were not enacted into law. This memorandum discusses key aspects of the Green Book relating to (1) individual income taxation, (2) the taxation of qualified retirement plans, and (3) estate and gift taxation. We will be distributing separate memoranda addressing Green Book proposals relating to (1) corporate and partnership taxation and (2) international taxation, both of which may be obtained by following the instructions at the end of this memorandum.

The Green Book proposals affecting the U.S. Federal income taxation of individuals include:

  • reducing the value of exclusions and deductions for higher-income taxpayers to 28 percent;
  • implementing the “Buffet Rule,” or new minimum tax, on high-income taxpayers;
  • requiring the current inclusion in income for market discount accrued on debt instruments; and
  • requiring the use of an average basis method in determining the basis of stock sold.

The Green Book proposals affecting the U.S. Federal income taxation of qualified retirement plans include:

  • limiting the total benefits in tax-favored retirement accounts;
  • imposing new time limits on distributions to non-spouse beneficiaries of tax-favored retirement plans and IRAs; and
  • requiring small employers to offer an automatic IRA option to employees, and expanding the small employer tax credit for employers required to do so.

The Green Book proposals affecting the U.S. Federal taxation of estates and gifts include:

  • restoring the estate, gift and generation-skipping transfer (“GST”) tax rates and exclusion amounts to 2009 levels, beginning in 2018;
  • requiring a minimum term of 10 years for a grantor retained annuity trust (“GRAT”), requiring the initial value of the remainder interest in a GRAT be greater than zero, and prohibiting any decrease in the stated annuity amount payable during the GRAT term;
  • imposing certain transfer taxes on grantor trusts receiving property in a sale, exchange or comparable transaction;
  • limiting the duration of the GST tax exemption allocated to a trust to 90 years;
  • requiring consistency in valuations for transfer tax and income tax purposes;
  • clarifying that distributions from health and education exclusion trusts are not exempt as medical care and tuition expenses;
  • extending the time period for estate tax liens; and
  • disallowing the deductions for certain contributions of conservation easements.