Date: 2004-05-11
Speaker: BILL FRIST (republican)
Chamber: S

MD. Memphis. TN DEAR DR. FRIST: As you are surely aware. the Internal Revenue Code has a provision taxing unearned income of children under age 14 at their parents upper tax rates. This regulation is often referred to as the "Kiddie Tax." Obviously. the whole theory behind this law is to stop investments from being transferred to the children at. a lower tax rate by the parents or maybe grandparents. Fair enough. However. the law as interpreted in a court case in 1992. said that it did not matter what the source or the purpose of those assets were. This is a court ruling that needs to be overturned by legislation. If the "Kiddie Tax" is suppose to be a tax on assets transferred from relatives. then it should be administered in that way but not applied to all unearned income owned by children. My quadriplegic daughter. who can not speak and will always be dependent on full time. care. Is subject to the "Kiddie Tax" law. My wife and I would be considered to have above average income. both earned and unearned. Therefore my daughters unearned income is taxed at a much higher tax rate than if she was the child of lower income parents. My daughters assets are in a trust administered by an independent third party trust department of an investment firm. These assets were awarded to my daughter by a court of law. My daughters assets were never mine or under the control of relatives. I probably need not mention that the federal trust tax rates are even higher so there is no benefit to these assets being taxed instead in a trust tax return. In my case. the assets in my daughters trust are to provide her income after she should have been able to move into the work force under normal circumstances. They will pay for her medical care. personal caregiver services. and other expenses that most people do not have to endure until late in life but certainly not for their entire life. My wife and I rarely request reimbursement of expenses from these assets for the extra care that our daughter requires. Our plan is to financially provide for our daughter until she is at least 21 years old. Yet my daughters assets are not allowed to grow based on their own tax level. They are instead subjected to usurious tax rates rather than progressively higher tax rates as the income increases. The State of Tennessee has had an exemption to state income tax since the mid 1990s on unearned income derived from assets for a quadriplegic person. Apparently. the state recognized that people that are disabled and incapable of ever working. need a tax break in order not to be more dependent on govern-. ment and its agencies. It is my understanding that Congress is now considering extending the age for the "Kiddie Tax Law" until age 18. Enough is enough. I have waited patiently for my daughter to reach the age of 14. She will be 14 this year and will no longer be subject to being taxed at a rate higher than her income level. That is. unless Congress changes the laws. In my case. leaving the "Kiddie Tax" regulations alone would solve my problem. but that would avoid collecting the extra tax dollars for four more years on families that have transferred wealth to their children. My problem can also be solved by removing the "Kiddie Tax" in the case of quadriplegics and other people that will never be able to work and support themselves. The federal tax laws need to consider the Tennessee tax regulations and provide exemptions where needed. I have no doubt that if my daughter could. she would gladly give away herinvest- ments in exchange for a normal life. Instead the government is subjecting her investment income to highest taxes just because of her parents. Correcting this injustice will not gain many votes politically. but I am sure you can see that it is the right thing to do.- I am more thanwilling to discuss this by telephone with anyone who wishes more specific information. Being a Tennessee resident and senator. I am sure you can obtain copies of the exemption regulations for the state. It is item 3. under the exemption section in the rules mailed with the Tennessee tax forms. Also the exemption box is clearly shown on the first page of the Tennessee Tax Return. Sincerely.