Title: Estate Basis Consistency and Reporting: What Practitioners Need to Know; Understand These Potentially Far-Reaching New Requirements
Abstract: [ILLUSTRATION OMITTED] In the juggling act that CPAs already perform in preparing estate tax returns and/or income tax returns of estate beneficiaries, Congress has thrown another ball to keep in the air--the new consistency and reporting requirements for basis of property acquired from a decedent. At first glance, the requirements might seem limited in their application, but what might not be immediately apparent are difficulties in completing reporting statements for estates that are affected and the costliness of a misstep. Therefore, it behooves CPAs, especially those with high-wealth clients, to be familiar with the new law and its ramifications. THE OBLIGATION OF BASIS CONSISTENCY Section 2004 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, headed Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent, was enacted on July 31, 2015, as one of the Transportation Act's several revenue provisions. (The Joint Committee on Taxation estimates in Rep't No. JCX-105-15 that it will generate $1.54 billion over the next 10 years.) The act added Sec. 1014(f) and new Sec. 6035 to the Code, providing the consistency requirement and a related reporting requirement, respectively. The requirements became effective for estate tax returns filed after the date of enactment; however, Notices 2015-57,2016-19, and 2016-27 successively extended until June 30,2016, the deadline for fifing required reporting statements with the IRS and furnishing them to persons acquiring property from a decedent whose estate tax return was filed after July 31,2015, to give executors and other interested parties a chance to review proposed reliance regulations, which were issued on March 4,2016 (REG-127923-15). Background Sec. 1014(a) lays down the general rule that the basis of property in the hands of a person inheriting or acquiring that property from a decedent (hereinafter or beneficiary) and held by that person after the decedent's death is its fair market value (FMV) on the date of the decedent's death. Sec. 2031 defines the value of a decedent's gross estate for purposes of estate tax as the value at the time of the decedent's death of all the decedent's property. Sec. 2032 provides an election by which the value of a decedent's gross estate may instead be determined by reference to an alternate valuation date within six months after the decedent's death. Regs. Sec. 1.1014-3(a) provides that the FMV of the property at the date of the decedent's death or the alternate valuation date is deemed to be its value on these dates as appraised for estate tax purposes. Therefore, disregarding the elections applicable to certain real property used in farming or other trades or businesses (Sec. 2032A) and qualified conservation easements (Sec. 2031(c)), the Sec. 1014(a) general rule means that the valuation of property for estate tax purposes and its initial basis in the hands of an inheritor or acquirer should generally be the same, since they are both determined by FMV on the date of death (or alternate valuation date). However, for property not subject to the new law, except where the inheritor is estopped from claiming otherwise by his or her previous actions or statements, there is only a rebuttable presumption that the initial basis of property in the hands of the inheritor is the value of the property for estate tax purposes (see Rev. Rul. 54-97 and Technical Advice Memorandum 199933001). APPLICABILITY OF THE NEW CONSISTENCY REQUIREMENT New Sec. 1014(f)(1) provides that the basis of any property to which Sec. 1014(a) applies may not exceed its final value as determined for estate tax purposes. Where no final value for estate tax purposes has been determined, the basis is the property's value as identified on a statement furnished under new Sec. 6035(a), if such a statement has been furnished. …
Publication Year: 2016
Publication Date: 2016-06-01
Language: en
Type: article
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