Way back on June 2 I wrote about a seminar that I attended at the end of May titled "Federal Legislative Expectations in 2009-10" given by Emory law school professor Jeffrey N. Pennell: Estate Tax Repeal Update - Predictions About the New Law. At the seminar Professor Pennell suggested among other things that Congress may do nothing in 2009 about the impending repeal of the federal estate tax scheduled to take place on January 1, 2010, and instead act to reinstate the tax right before the first federal estate tax return for 2010 is due, which is on or before October 1, 2010.
Quite frankly back then I thought the idea was absurd because after that there was much speculation about Congress at the very least enacting a one year patch that would extend the current $3,500,000 estate tax exemption and 45% tax rate into 2010, thereby repealing the repeal of the tax. But on October 22 I wrote about a comment that I received in response to my June 2 post which stated that a retroactive law as predicted by Professor Pennell "would be an invalid ex post facto law as to the estates of persons dying earlier in the year": Update on Predictions About the New Federal Estate Tax Law. In that post I quoted from an article written by Kay Bell titled R.I.P. estate tax ... maybe for Bankrate.com:
"The big issue remains, however, as to when the estate tax repeal will be stopped. Congress is notorious for letting tax laws lapse and then reinstating them retroactively. Many argue that dealing with estate tax issues in that way would be difficult and possibly unconstitutional.
Not so, says Jeffrey N. Pennell, professor at Emory University Law School in Atlanta, Ga. A specialist in income tax, wealth transfer tax, trusts and estates and estate planning, Pennell's treatise on the subject examines a unanimous 1994 Supreme Court decision that held a retroactive change to the estate tax was constitutional.
As for practical issues, an estate tax return generally is due nine months after the date of death. So, notes Pennell, that gives lawmakers until October 2010, the first filing due date for estates of those who pass away next January."
Well at last it appears that Professor Pennell's prediction that I heard all the way back in May and thought was absolutely crazy is about to come true, since according to John McKinnon and Martin Vaughan for The Wall Street Journal in their article titled Effort to Extend Estate Tax Fails: "Senate Democratic leaders Wednesday [Dec. 16] failed in a last-ditch effort to pass a short-term extension to override the [estate] tax's expiration, a process put into motion during the Bush administration. That virtually ensures that the [estate] tax will disappear Jan. 1."
Boy will my job as an estate planning attorney become extremely interesting in 2010 because even if Congress acts to reinstate the estate tax there will be considerable debate over whether the law can really be made retroactive. In fact, for the heirs of a wealthy person who dies during the time period when the tax is repealed, they will have nothing to lose and everything to gain in challenging the retroactive application of the law.