1993 TAX ACT'S RETROACTIVE INCREASE OF ESTATE
AND GIFT TAXES HELD VALID BY DISTRICT COURT

The Omnibus Budget Reconciliation Act of 1993 (OBRA) retroactively increased estate and gift tax rates. Two taxpayers challenged the tax increase: the estate of someone who died after the tax increase's effective date and the date OBRA became law and a taxpayer who made a taxable gift during the same period.

One argument was that the tax increase was an ex post facto law, which is forbidden by the Constitution. The court noted that only laws imposing criminal penalties are forbidden by the ex post facto law prohibition but that violation of a tax law could constitute such a criminal violation. Nevertheless, the taxpayer's argument failed because the ex post facto law prohibition applies only if the criminal conduct occurred before the law was passed. In this instance, if the taxpayers failed to pay the higher tax imposed by OBRA the criminal act could only have occurred after the law's passage.

The taxpayers also argued that the retroactive tax increase violated one of several other constitutional requirements --that direct taxes be apportioned among the states, the due process clauses, and the requirement that citizens be compensated for any "taking" by the government. All these arguments were also tossed out by the court. The end result: OBRA's
retroactive estate and gift tax rate increases were
constitutional. *

Source: Quarty v. U.S., __ F.Supp. __, No. Civ 96-2472_PHX-RGS (D.C. Ariz. 1997).