News Letter 14 - March 1998

Unified Credit and Tax Tables Change for 1998

The unified credit changes for estates with a date of death after 1997. The tax tables for large estates also change after 1997. If you plan to use Inter-Est for computations with a date of death after 1997, you must get an update if you have not already received an update since August, 1997.

We are Moving ! ! !

We are moving to a new location this spring. Our physical location will change from 107A Westmeadow Drive, Cleburne, TX 76031 to 1300 Linda Court, Cleburne, TX 76031.

Our mailing address will change from 107A Westmeadow Drive, Cleburne, TX 76031 to P.O.Box 725, Cleburne, TX 76033.

Current Changes since the last Newsletter

When we sent out our last newsletter, Ver. 3.00 was in Release 18 and Version 2.00 was in Release 51. The current release of Version 3.00 is 26. The changes that have been made since Release 18 are:

The election flag to elect the 2% interest rate for 6166 did not work correctly where the election was to be effective as of the due date. This has been corrected.

If the new law applies, when the flag is set to have all qualified amounts draw the regular rate, 45% of the regular rate will be used, not 100%. If this is not satisfactory, please let me know.

Using the new law, Inter-Est now allows a deduction for the non-qualified interest drawing the regular interest rate and only denies the interest deduction for interest accrued at the special rates (either 2% or 45% of the regular rate).

When computing the interest deduction using the new 6166 method, where an election was made to deduct only interest that is both paid and accrued, the computation of "Accrued Interest Not Paid" was not correct. This has been corrected.

When both restricted interest and the limit to SDTC were selected, the amount drawing restricted interest was based upon the maximum SDTC instead of the allowable SDTC. This error did not appear in Ver. 2.00.

Computation of the ratio used to compute the indeterminate fraction and the All But fraction in the Complex mode was adjusted so it could go over 100%.

Computation of New York tax changed where the decedent is a non-resident. The computed state gross is now based upon the federal gross estate less out-of-state property instead of the state adjusted gross estate less out of state property.

One of our computations did not finish before Inter-Est reached the limit set to the number of trials. The error tolerance has been increased so that Inter-Est can terminate if the answer is close. The tolerance is $1.00 or $0.01 for fewer than 30 trials and slowly builds until it is $25.00 or $0.25 after 1,000 trials.

An error was found in the computation of interest where there was a Sec. 6166 election and an Interest Free Period (where the IRS billed late after a waiver was signed). This has been corrected.

The provision for the computation of Louisiana inheritance tax has been modified to allow for the phase-out of the inheritance tax and conversion to a pick-up tax.

The New Law and IRS Service Center Positions

We believe that our support for the provision of the new law passed last summer is complete, but in the event the IRS takes a different position, we will try to support any position one of the service centers takes on the new law. If you are working with a Service Center or any other IRS official and Inter-Est does not suport the position they take, contact us and we will try to provide support as soon as we can.

Some comments about the
election to change an existing §6166 election from 4% to 2%

A number of people have called and asked about switching an existing §6166 election from the old 4% interest method which allows the estate to deduct interest to the new 2% interest method which does not allow the estate to deduct interest.

While the facts of these cases differ, there are some general points that apply to most cases.

1. If you cannot get a refund from the state to get the estate’s overpaid state inheritance tax back as the federal tax and state death tax credit goes down, an election to switch to 2% would probably be attractive.

2. If the due date of the estate is recent, the election to switch to the 2% election would probably be attractive if
   the future cash flow is valued by the estate at over 8.5%.

3. If the due date of the estate was around four years ago, the election to switch to the 2% election would probably be attractive if the future cash flow is valued by the estate at over 12.5 %.

4. If the due date of the estate was over 8 years ago, it would probably not be attractive to many estates to switch to the 2% election.

Most of the benefit of electing the 2% interest rate appears to occur in the four years of interest-only payments.

If the estate is small, the estate could save some administrative expenses by switching to the 2% method. This would offset the loss of the deduction.

Maintenance and Support

If you are having trouble with a computation using Inter-Est, please call us. We provide support to all of our users.

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