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Annual Report: Facts From The IRS About Estate and Gift Taxes

Every year, the IRS issues its “Statistics of Income” and “Data Book.” These publications present excellent opportunities for us to explore the wonderful world of federal taxes, including income, excise, estate and gift taxes. Readers can follow the data and trends and see tax policy at work.

Number of returns down, taxes collected down

The number of estate tax returns filed with the Internal Revenue Service declined 84% from 2003 to 2015, and 76% from 2006 to 2015. In 2003, when the exemption was $1 million, over 73,000 estate tax returns were filed. By 2006, when the exemption had risen to $2 million, about 49,000 estate tax returns were filed. In 2015, when the exemption was $5.43 million, only about 12,000 estate tax returns were filed. Over half of the returns filed in 2015 required no federal estate tax payment (many were undoubtedly filed to take advantage of portability of unused exclusion to the surviving spouse). Most filings in 2015 were for taxable estates of under $10 million, but 398 returns reported taxable estates of $50 million or more. Over 1,300 of the 12,000 federal estate tax returns filed in 2015 were on behalf of Massachusetts decedents.

The amount of federal estate taxes collected in 2015, over $17 billion, was not much higher than the amounts collected in the mid-1990s, without any adjustment for inflation. This is because of the increased exemption amount. The highest amount of estate taxes collected was almost $25 billion, in 2006. Just for contrast, the IRS collected over $1.8 trillion in personal income taxes in 2015, and $1.2 trillion in 2006.

Estimates are that with our current gift and estate exemption ($5.49 million in 2017) only 0.2% of Americans who die each year will owe any federal estate tax (or about 2 out of every 1,000 people who die).

What about audits?

Of the 268,000 gift tax returns filed, only 2,500, or .9%, were examined. Two-thirds were changed as a result and the average tax adjustment was $113,000. Of the 35,600 estate tax and generation-skipping transfer tax returns filed in fiscal year 2015, 2,770 were audited. The greater the size of the estate, the greater the chance of audit. For estates of under $5 million, 2.1% were audited. For estates between $5 and $10 million, 16.2% were audited and for estates of $10 million or more, 31.67% were audited. About 13% resulted in an assessment of additional tax and the average tax adjustment was $154,000.

IRS staff reductions

The total number of staff at the IRS was reduced by 15.6% between 2010 and 2015 and the agency is currently at its lowest funding level since 2008. As one might expect, data confirms that IRS examiners focus on auditing tax returns that are most likely to result in the largest tax increases.

Information taken from the Internal Revenue Service Data Book, 2015 and Statistics of Income.