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Proposition 19 (Prop 19) was passed in California in 2021, and contains two relevant changes in California property tax assessments that may impact your estate planning. To ensure that you are not unaware of or adversely impacted by these changes, here is a summary of relevant planning information for your review.

Proposition 19 (Prop 19) was passed in California in 2021 and contains two relevant changes in California property tax assessments that may impact your estate planning. To ensure that you are not unaware of or adversely impacted by these changes, below is a summary of relevant planning information for your review.

Changes to the Transfer of Taxable Value for Certain Property Owners

Prop 19 expands the class of people who qualify for a transfer of their taxable value (i.e., property tax assessed value) from their current home to a new property.

Under prior law, only homeowners over 55 years of age or certain disabled persons could make use of this benefit one time during their lifetime. And they could do so only if (1) their new home is in the same county as their old home or in a few other select counties, (2) the value of their new home is less than or equal to the value of their old home, and (3) the sale and new purchase were done within a two year period.

The new law, which took effect on April 1, 2021:

• Expands the class of homeowners who are able to transfer their taxable value to include victims of wildfire or other natural disasters, regardless of age or disability status;
• Permits homeowners to take advantage of this provision three times during their lifetime.
• Removes the restriction that the replacement home must be in the same county as the old home. Now such replacements must simply be in the state of California.
• Allows homeowners to buy a replacement home that is worth more than their old home, provided, however, that the increase in value is added to the transferred taxable value of the old home. For example, assume a homeowner is over 55. Her house has a taxable value of $500,000. She sells it for $3,000,000. If she buys a new home anywhere in California for $3,000,000 or less, she can transfer her $500,000 taxable value to the new home, and it will become its taxable value. However, if she wants to upgrade to a $5,000,000 home, her new home's taxable value will be $2,500,000 – the taxable value of her old home transferred ($500,000) plus the upgrade value ($5,000,000 - $3,000,000.)

The new law keeps the two-year window requirement.

Changes to the Parent-Child Exclusion

Prop 19 limits the availability of the parent-child exclusion for purposes of real estate tax assessments. This aspect of Prop 19 took effect on February 16, 2021.

Under prior law, when a parent (or grandparent) transfers ownership of his or her principal residence to a child, the property's value for tax assessment purposes is not reassessed, regardless of how the child uses the residence. In California, transferring a parent's home to one or more children is permissible under current law without triggering reassessment, and the child or children could use it as a vacation home or a rental property.

Prop 19 changed this by requiring that the child or children use the residence as their own principal residence, or it will be reassessed. Furthermore, even if the child uses the residence as his or her own, there is a cap of $1,000,000 on the exclusion, as explained below. Technically, the new and old rules apply where a child transfers the residence to a parent, but this is much less common.

If your home has increased in value significantly from its taxable value, Prop 19 adds certain limitations that could result in an increased assessment. This new rule will apply to outright transfers and to transfers in trusts, such as the QPRT transfer illustrated below. If the increase in value is less than or equal to $1,000,000, no adjustment is made. If the increase in value is more than $1,000,000, the increase in value after the first $1,000,000 is added to the tax assessed value. For example, assume a parent's home has a taxable value of $500,000. Because the parent purchased the home many years ago, its value is now $5,000,000. In other words, it has increased by $4,500,000. The new reassessed value if the parent gifts the home to her child will be $3,500,000. There are inflation adjustments that apply to the $1,000,000 increase limitation for subsequent years.

This change to the parent-child exclusion may also affect many common estate planning trusts that were established several years (or even decades) ago. For example, a qualified personal residence trust (QPRT) allows the transfer of a residence to a trust while that residence can still be occupied for a fixed number of years. The parent(s) continue to live in the residence as their primary residence, and at the end of the fixed number of years, the residence transfers to someone else (typically their children or a trust for their benefit). Most parents who establish QPRTs want to continue living in the house after the fixed term ends. They may do so, but they need to pay rent to the trust or to their children, depending on who owns the residence at the end of the fixed term.

Under prior law, when the children become the owners they would qualify for the parent-child exclusion. Now, however, the children need to use the residence as their primary residence or trigger reassessment. They could not rent it back to the parent, and if siblings are entitled to the residence at the end of the fixed term, they would need to move in together and share a household to qualify for the exemption – which perhaps is not ideal for most adult children. If parents have QPRTs whose fixed term ends on or after February 16, 2021, the value of their home may be reassessed to its current value. This could lead to a massive property tax increase, though it may be possible to mitigate this. A review of your estate planning documents is recommended.

Full text of Proposition is available at https://vig.cdn.sos.ca.gov/2020/general/pdf/topl-prop19.pdf

The Internal Revenue Service is looking toward automated solutions to cover the recent workforce reductions implemented by the Trump Administration, Department of the Treasury Secretary Bessent told a House Appropriations subcommittee.

The Internal Revenue Service is looking toward automated solutions to cover the recent workforce reductions implemented by the Trump Administration, Department of the Treasury Secretary Bessent told a House Appropriations subcommittee.

During a May 6, 2025, oversight hearing of the House Appropriations Financial Services and General Government Subcommittee, Bessent framed the current employment level at the IRS as “bloated” and is using the workforce reduction as a means to partially justify the smaller budget the agency is looking for.

“We are just taking the IRS back to where it was before the IRA [Inflation Reduction Act] bill substantially bloated the personnel and the infrastructure,” he testified before the committee, adding that “a large number of employees” took the option for early retirement.

When pressed about how this could impact revenue collection activities, Bessent noted that the agency will be looking to use AI to help automate the process and maintain collection activities.

“I believe, through smarter IT, through this AI boom, that we can use that to enhance collections,” he said. “And I would expect that collections would continue to be very robust as they were this year.”

He also suggested that those hired from the supplemental funding from the IRA to enhance enforcement has not been effective as he pushed for more reliance on AI and other information technology resources.

There “is nothing that shows historically that by bringing in unseasoned collections agents … results in more collections or high-end collections,” Bessent said. “It would be like sending in a junior high school student to try to a college-level class.”

Another area he highlighted where automation will cover workforce reductions is in the processing of paper returns and other correspondence.

“Last year, the IRS spent approximately $450 million on paper processing, with nearly 6,500 full-time staff dedicated to the task,” he said. “Through policy changes and automation, Treasury aims to reduce this expense to under $20 million by the end of President Trump’s second term.”

Bessent’s testimony before the committee comes in the wake of a May 2, 2025, report from the Treasury Inspector General for Tax Administration that highlighted an 11-percent reduction in the IRS workforce as of February 2025. Of those who were separated from federal employment, 31 percent of revenue agents were separated, while 5 percent of information technology management are no longer with the agency.

When questioned about what the IRS will do to ensure an equitable distribution of enforcement action, Bessent stated that the agency is “reviewing the process of who is audited at the IRS. There’s a great deal of politicization of that, so we are trying to stop that, and we are also going to look at distribution of who is audited and why they are audited.”

Bessent also reiterated during the hearing his support of making the expiring provisions of the Tax Cuts and Jobs Act permanent.

By Gregory Twachtman, Washington News Editor

A taxpayer's passport may be denied or revoked for seriously deliquent tax debt only if the taxpayer's tax liability is legally enforceable. In a decision of first impression, the Tax Court held that its scope of review of the existence of seriously delinquent tax debt is de novo and the court may hear new evidence at trial in addition to the evidence in the IRS's administrative record.

A taxpayer's passport may be denied or revoked for seriously deliquent tax debt only if the taxpayer's tax liability is legally enforceable. In a decision of first impression, the Tax Court held that its scope of review of the existence of seriously delinquent tax debt is de novo and the court may hear new evidence at trial in addition to the evidence in the IRS's administrative record.

The IRS certified the taxpayer's tax liabilities as "seriously delinquent" in 2022. For a tax liability to be considered seriously delinquent, it must be legally enforceable under Code Sec. 7345(b).

The taxpayer's tax liabilities related to tax years 2005 through 2008 and were assessed between 2007 and 2010. The standard collection period for tax liabilities is ten years after assessment, meaning that the taxpayer's liabilities were uncollectible before 2022, unless an exception to the statute of limitations applied. The IRS asserted that the taxpayer's tax liabilities were reduced to judgment in a district court case in 2014, extending the collections period for 20 years from the date of the district court default judgment. The taxpayer maintained that he was never served in the district court case and the judgment in that suit was void.

The Tax Court held that its review of the IRS's certification of the taxpayer's tax debt is de novo, allowing for new evidence beyond the administrative record. A genuine issue of material fact existed whether the taxpayer was served in the district court suit. If not, his tax debts were not legally enforceable as of the 2022 certification, and the Tax Court would find the IRS's certification erroneous. The Tax Court therefore denied the IRS's motion for summary judgment and ordered a trial.

A. Garcia Jr., 164 TC No. 8, Dec. 62,658

The IRS has reminded taxpayers that disaster preparation season is kicking off soon with National Wildfire Awareness Month in May and National Hurricane Preparedness Week between May 4 and 10. Disasters impact individuals and businesses, making year-round preparation crucial. 

The IRS has reminded taxpayers that disaster preparation season is kicking off soon with National Wildfire Awareness Month in May and National Hurricane Preparedness Week between May 4 and 10. Disasters impact individuals and businesses, making year-round preparation crucial. In 2025, FEMA declared 12 major disasters across nine states due to storms, floods, and wildfires. Following are tips from the IRS to taxpayers to help ensure record protection:

• Store original documents like tax returns and birth certificates in a waterproof container;
• keep copies in a separate location or with someone trustworthy. Use flash drives for portable digital backups; and
• use a phone or other devices to record valuable items through photos or videos. This aids insurance or tax claims. IRS Publications 584 and 584-B help list personal or business property.

Further, reconstructing records after a disaster may be necessary for tax purposes, insurance or federal aid. Employers should ensure payroll providers have fiduciary bonds to protect against defaults, as disasters can affect timely federal tax deposits.

IR-2025-55

A decedent's estate was not allowed to deduct payments to his stepchildren as claims against the estate.

A decedent's estate was not allowed to deduct payments to his stepchildren as claims against the estate.

A prenuptial agreement between the decedent and his surviving spouse provided for, among other things, $3 million paid to the spouse's adult children in exchange for the spouse relinquishing other rights. Because the decedent did not amend his will to include the terms provided for in the agreement, the stepchildren sued the estate for payment. The tax court concluded that the payments to the stepchildren were not deductible claims against the estate because they were not "contracted bona fide" or "for an adequate and full consideration in money or money's worth" (R. Spizzirri Est., Dec. 62,171(M), TC Memo 2023-25).

The bona fide requirement prohibits the deduction of transfers that are testamentary in nature. The stepchildren were lineal descendants of the decedent's spouse and were considered family members. The payments were not contracted bona fide because the agreement did not occur in the ordinary course of business and was not free from donative intent. The decedent agreed to the payments to reduce the risk of a costly divorce. In addition, the decedent regularly gave money to at least one of his stepchildren during his life, which indicated his donative intent. The payments were related to the spouse's expectation of inheritance because they were contracted in exchange for her giving up her rights as a surviving spouse. As a results, the payments were not contracted bona fide under Reg. §20.2053-1(b)(2)(ii) and were not deductible as claims against the estate.

R.D. Spizzirri Est., CA-11

The IRS issued interim final regulations on user fees for the issuance of IRS Letter 627, also referred to as an estate tax closing letter. The text of the interim final regulations also serves as the text of proposed regulations.These regulations reduce the amount of the user fee imposed to $56.

The IRS issued interim final regulations on user fees for the issuance of IRS Letter 627, also referred to as an estate tax closing letter. The text of the interim final regulations also serves as the text of proposed regulations.These regulations reduce the amount of the user fee imposed to $56.

Background

In 2021, the Treasury and Service established a $67 user fee for issuing said estate tax closing letter. This figure was based on a 2019 cost model.

In 2023, the IRS conducted a biennial review on the same issue and determined the cost to be $56. The IRS calculates the overhead rate annually based on cost elements underlying the statement of net cost included in the IRS Annual Financial Statements, which are audited by the Government Accountability Office.

Current Rate

For this fee review, the fiscal year (FY) 2023 overhead rate, based on FY 2022 costs, 62.50 percent was used. The IRS determined that processing requests for estate tax closing letters required 9,250 staff hours annually. The average salary and benefits for both IR paybands conducting quality assurance reviews was multiplied by that IR payband’s percentage of processing time to arrive at the $95,460 total cost per FTE.

The Service stated that the $56 fee was not substantial enough to have a significant economic impact on any entities. This guidance does not include any federal mandate that may result in expenditures by state, local, or tribal governments, or by the private sector in excess of that threshold.

T.D. 10031

NPRM REG-107459-24

The Tax Court appropriately dismissed an individual's challenge to his seriously delinquent tax debt certification. The taxpayer argued that his passport was restricted because of that certification. However, the certification had been reversed months before the taxpayer filed this petition. Further, the State Department had not taken any action on the basis of the certification before the taxpayer filed his petition.

The Tax Court appropriately dismissed an individual's challenge to his seriously delinquent tax debt certification. The taxpayer argued that his passport was restricted because of that certification. However, the certification had been reversed months before the taxpayer filed this petition. Further, the State Department had not taken any action on the basis of the certification before the taxpayer filed his petition.

Additionally, the Tax Court correctly dismissed the taxpayer’s challenge to the notices of deficiency as untimely. The taxpayer filed his petition after the 90-day limitation under Code Sec. 6213(a) had passed. Finally, the taxpayer was liable for penalty under Code Sec. 6673(a)(1). The Tax Court did not abuse its discretion in concluding that the taxpayer presented classic tax protester rhetoric and submitted frivolous filings primarily for purposes of delay.

Affirming, per curiam, an unreported Tax Court opinion.

Z.H. Shaikh, CA-3