Pascrell Praises Treasury Action to Close Billionaire Bonanza Tax Loophole

Issued guidance follows repeated Pascrell calls for action

WASHINGTON, DC – U.S. Rep. Bill Pascrell, Jr. (D-NJ-09), a member of the tax-writing House Ways and Means Committee, this afternoon praised fresh action by the U.S. Treasury Department and Internal Revenue Service to curb abuse of arguably the worst loophole in the entire federal tax code, so-called stepped-up basis. This action follows prodding by Pascrell to issue this guidance.

“Stepped-up basis might be the worst loophole in the entire federal tax code because it lets some of the richest people on earth pass along their inheritances without paying a dime,” said Rep. Pascrell. “The abuses of this billionaires’ bonanza loophole cost taxpayers billions every year. For over a year, I have been calling for guidance to eliminate one of the most egregious maneuvers employed by wealthy tax cheats: claiming stepped-up basis for assets in irrevocable grantor trusts. Aggressive tax avoiders will be stopped in their tracks thanks to Secretary Yellen and Commissioner Werfel cracking down on these abuses. This a win in the fight for fairer tax administration. Congress should take this opportunity to finally pass my legislation to close this crummy loophole for good.”

The guidance (Rev. Rul. 2023-2) clarifies that assets outside of a taxpayers’ estate in an irrevocable grantor trust generally do not qualify for stepped-up basis treatment under IRC Section 1014. A common estate planning technique used by wealthy individuals is to transfer assets to an irrevocable grantor trust while the individual is still alive.  The trust’s property will generally not be included in the individual’s gross estate at death, thereby avoiding the estate tax. Some taxpayers have pursued strategies to aggressively avoid paying their fair share by taking the position that the termination of an irrevocable grantor trust at the death of the grantor should also enable the assets to qualify for stepped-up basis treatment under Section 1014. Today’s guidance puts an end to these abuses.

As Chairman of the Ways and Means Subcommittee on Oversight, Pascrell convened an oversight hearing on how wealthy families increasingly transfer property for generations to avoid ever paying taxes on vast fortunes on December 7, 2021. The hearing shed new light on how Americans are using states likes South Dakota and Wyoming over Switzerland and the Cayman Islands as favored tax havens to hide their money right within U.S. borders.

On March 8, 2022, Rep. Pascrell wrote to Treasury Secretary Yellen calling on her to issue regulations on irrevocable grantor trusts to limit rampant exploitation of the tax code. “[I]t is imperative that wealthy individuals’ exploitation of the stepped-up basis loophole in the tax code be shut down where it can be, by prompt and aggressive regulatory action where there is a firm basis in law to do so,” he wrote Yellen.

On June 8, 2022, Pascrell pressed Secretary Yellen during her testimony before the Ways and Means Committee, seeking an update on when this guidance would be enacted. On November 7, 2022, Pascrell welcomed the IRS including guidance limiting irrevocable grantor trust abuse in its 2022-2023 Priority Tax Guidance Plan and called for swift implementation.

Pascrell is the longtime sponsor of legislation to close the stepped-up basis loophole. He plans to reintroduce this bill soon.