Navigating the Complexities of Estate Tax Deferral, Irrevocable Grantor Trusts, and Charitable Gifts of Business Interests for CPAs

Certified public accountants (CPAs) serving business owners must stay informed about the latest developments in estate tax deferral, irrevocable grantor trusts, and charitable gifts of business interests. This article discusses recent changes in lien procedures, the effects of Revenue Ruling 2023-2 on basis step-up, and a groundbreaking case that addresses when a donor will be taxed on a charity's sale of a donated asset.

I. Code §6166: Qualification and Benefits of Deferral

Under Code §6166, business owners can defer estate tax payments on their business interests. However, most are unaware of the automatic secret liens that may interfere with their businesses' ability to retain and expand loans or fidelity bonds. The IRS recently updated its lien procedures, prompting CPAs to reevaluate strategies to protect their clients' interests.

II. Loss of Code §6166 Deferral: Planning for Irrevocable Grantor Trust Sales

Revenue Ruling 2023-2 confirmed that assets held in an irrevocable grantor trust do not receive a basis step-up merely because the deemed owner died. In cases of premature death, a sale to an irrevocable grantor trust may cost more than it saves. CPAs must carefully consider alternative structures, such as preferred partnerships, which can offer attractive income and estate tax benefits.

III. Estate Tax Liens: Effects and Navigation

Automatic secret liens can disrupt a business's financial stability, making it crucial for CPAs to understand and navigate these complexities. Strategies include proactive lien discharge, subordination, or withdrawal, ensuring that their clients' businesses remain unaffected by potential IRS claims.

IV. Basis Step-Up: Irrevocable Grantor Trusts and Real Estate

The lack of a basis step-up on the death of a grantor of an irrevocable grantor trust can significantly impact real estate holdings. CPAs must evaluate alternative strategies, such as transferring assets to a preferred partnership, to maximize tax efficiency and preserve clients' wealth.

V. Preferred Partnerships: Structure, Tax Issues, and Planning

Preferred partnerships can offer several advantages, including income splitting, asset protection, and a basis step-up for heirs. CPAs must understand the structure, income and estate tax issues, and planning techniques to provide comprehensive advice to their clients.

VI. Assignment of Income Rule and Completed Transfers

A recent case radically departed from precedent regarding when a donor will be taxed on a charity's sale of a donated asset. The case also addressed what constitutes "delivery" of stock. CPAs must consider the assignment of income rule and the criteria for determining when a transfer of a business interest is completed.

VII. Charitable Planning: Unique Issues for Business Interests

Donating a business interest poses several unique challenges for both the donor and the charity. CPAs must be aware of these issues and develop creative solutions to maximize the benefits of charitable giving while minimizing potential tax consequences.


CPAs must stay informed about the latest developments in estate tax deferral, irrevocable grantor trusts, and charitable gifts of business interests. By understanding and addressing the complexities of these areas, they can provide their clients with valuable advice and strategic planning to protect and preserve their wealth.

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