Senate Tax Reform Proposal- lifetime gifts

Take-Away: One of the bigger surprises in the Senate’s tax reform proposal is that a taxpayer must use a ‘first in, first out’ [FIFO] method when selling or gifting ‘lots’ of publically traded stock. This rule, if passed, results in a major change in the stock basis ordering rules, and would prevent the ‘cherry-picking’ that some taxpayers use when they sell or gift lots of stock owned by them. Presumably this new ordering rule would be effective 1/1/18.

Implications: As you counsel clients with regard to end-of-the-calendar-year gifts, you will want to keep this possible FIFO rule change in mind. Several strategies might be considered by taxpayers if this rule change appears likely to be implemented. Some of those planning strategies that could be implemented before the end of this calendar year include the following:

• Gift the low basis stock to a charity, donor advised fund, private operating foundation, or private foundation;
• Harvest all losses from multi-lot portfolio stock positions;
• Sell high basis stock before year-end;
• Gift stock to a spouse and file separate income tax returns;
• Gift stock to a charitable remainder trust;
• Gift stock to a non-grantor charitable lead trust; and
• Gift stock to a partnership that is owned by the taxpayer and his/her family members.

While it is also possible this this ordering rule will not become part of a tax reform proposal it would be wise to at least mention it to clients who are good candidates for end-of-the-year gifting.