Gradual increases in the level of the federal estate-tax exemption in several recent years apparently did not cause wealthy people to change the shares of their estates that they left to charity, according to a new report from the Internal Revenue Service.
But the increases in the exemption level appear to have resulted in a “slight downward trend” in the percentage of wealthy people who made charitable bequests, the IRS said.
The tax agency’s report comes as Congress is wrangling over what to do about the future of the estate tax.
In 2001 Congress passed the current estate-tax law, which gradually phased out the tax through 2009 and repealed it for 2010. However, in 2011 the current law is set to expire and estate-tax levels that applied years earlier are scheduled to go back into effect.
The House of Representatives has passed a bill that would eliminate the 2010 repeal and permanently keep the estate tax at levels that were in effect in 2009. But the Senate has not yet voted on estate-tax legislation.
In 2001, estates were exempt from paying tax on their first $675,000 of value; they owed a tax of up to 55 percent on amounts above that level. By 2009, heirs could exempt $3.5-million from taxes ($7-million for couples), with amounts above that taxed at 45 percent.
While current law repeals the estate tax for 2010, estate-tax levels for 2011 would carry an exemption of $1-million and a top tax rate of 55 percent.
In its report, which covers estate-tax returns filed from 2001 through 2007, the IRS noted that “charitable contributions reported on estate-tax returns have long been a subject of interest in the research community, as some research suggests that estate-tax law influences the amount that individuals leave to charity, because increases in the estate-tax exemption level reduce the amount of wealthy decedents’ estates subject to taxation.”
The tax agency said that “there does not appear to have been a significant downward trend” in the shares of estates left to charity by wealthy people—those with $3.5-million or more in gross estates—in contrast to “a slight downward trend in the percentage of wealthy decedents leaving charitable bequests.”
The IRS concluded: “These facts suggest that, while increases in the estate-tax exemption level may have influenced the propensity of wealthy decedents to make charitable bequests at death, such increases did not appear to affect the amount left to charity who made such bequests.”
