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Falbo Urges Lawmakers to Address Estate Tax ‘Cliff’

Colleen Lutolf
Published Date:
Feb 10, 2016

In an effort to drive home the “serious flaws” lawmakers created when they voted to amend the state’s estate tax law in 2014, NYSSCPA President Joseph M. Falbo Jr. told state legislators at a Feb. 3 budget hearing that CPAs will be forced to advise clients to move out of New York as a “valid wealth preservation strategy,” unless the law is corrected.

“While the changes made that year have been tremendously beneficial, the way in which [they were] ultimately implemented has left us with a few serious flaws,” Falbo said.

One of those flaws, Falbo said, is an estate tax “cliff” that will hit some New York-based estates with nearly a whopping 164 percent marginal estate tax rate.

“The tax cliff goes against any rational hope of making New York state a more favorable environment for its residents planning the later stages of their life,” he added.

Ironically, Gov. Andrew Cuomo’s aim, when he proposed to increase New York state’s estate tax exemption from $1 million to a little over $2 million in the 2014 budget, was to eliminate what he called “the ‘move to die tax,’ where people literally leave our state, and move to another state to do estate planning.”

Assemblyman Edward C. Braunstein, chair of the New York State Assembly Subcommittee on Trust and Estates agreed with Falbo that the tax cliff is a problem—but one the subcommittee wants to address.

“We found eliminating the cliff would be expensive,” he said. “And that’s where we had problems.”

Braunstein elaborated during the hearing that he would reach out to the NYSSCPA to get the Society’s help to “smooth it out,” since eliminating the tax code flaw is not tenable. That meeting was scheduled for Feb. 28.

Falbo’s testimony also led to a short discussion with the Senate Finance Committee’s Ranking Democrat, Sen. Liz Krueger, on residency issues.

“As a tax planner, you may be advising clients to move out of New York state, and I understand the tax upon death issue and the cliff issue,” she said. “As a tax professional, where you need to recommend to clients the lowest taxes for them, but as a New Yorker, who cares about New York, what can we do to recognize that people really are living here 50 percent of the time and they are often avoiding taxes that we need as a state?”

One potential opportunity, Falbo offered, is to apportion income for individuals similar to how it is apportioned for business—based on where the income is earned—but that further study and analysis would be needed before the state could apply this approach.

“We are a progressively mobile society, and income is earned in a specific location,” Falbo said. The “number of days” issue would become irrelevant using this approach, since there would be sourcing income from where the revenue was earned.

Krueger said she would like to continue the discussion after the hearing, which Falbo said he would welcome.

“This type of advocacy illustrates one of the core reasons why our Society exists in 2016,” Falbo stated. “As technical experts with unique skillsets in an array of accounting, tax and business arenas, it is imperative that we engage and, where appropriate, assume a thought leadership role.”

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