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Temporary, proposed regs cover consistent basis requirement for inherited property

TD 9757 – Consistent Basis Reporting Between Estate And Person Acquiring Property From Decedent.

Proposed regs – Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent.

IRS has issued temporary regs that confirm the recently-delayed due date for providing statements to IRS and to beneficiaries under the rules requiring consistent basis reporting for estate tax and income tax purposes. It also has issued proposed regs that detail the rules for those statements and for determining the basis of inherited property.

Background. The executor or administrator of a decedent’s estate must file the estate tax return. (Code Sec. 6018(a))

If the executor or administrator is unable to make a complete return with respect to any part of the gross estate, he must include in his return all the information he has, including a description of such part and the name and address of every person holding a legal or beneficial interest in such part. If they are notified by IRS, such legal or beneficial owners must then file returns as to their parts of the estate. (Code Sec. 6018(b))

On July 31, 2015, President Obama signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41; the Act). Section 2004 of the Act enacted Code Sec. 1014(f) and Code Sec. 6035 . (See Weekly Alert ¶  2  08/06/2015 for more details.)

Under the Act, effective for property with respect to which an estate tax return is filed after July 31, 2015, the basis of any property to which Code Sec. 1014(a) (i.e., the rules for determining basis of property acquired from a decedent) applies can’t exceed:

A. In the case of property, the final value of which has been determined for purposes of the estate tax on the estate of the decedent, such value.
B. In the case of property not described in (A), above, and with respect to which a statement has been furnished under new Code Sec. 6035(a) (see below) identifying the value of such property, such value. (Code Sec. 1014(f)(1))

Code Sec. 6035 imposes new reporting requirements with regard to the value of property included in a decedent’s gross estate for federal estate tax purposes.

Code Sec. 6035(a)(1) provides that the executor of any estate required to file an estate tax return under Code Sec. 6018(a) must furnish, both to IRS and the person acquiring any interest in property included in the decedent’s gross estate for federal estate tax purposes, a statement identifying the value of each interest in such property as reported on such return and such other information with respect to that interest as IRS may prescribe.

Under Code Sec. 6035(a)(2), each person required to file a return under Code Sec. 6018(b) must furnish, both to IRS and each other person who holds a legal or beneficial interest in the property to which such return relates, a statement identifying the information described in Code Sec. 6035(a)(1).

Code Sec. 6035(a)(3)(A) provides that each statement required to be furnished under Code Sec. 6035(a)(1) or Code Sec. 6035(a)(2) must be furnished at such time as IRS may prescribe, but in no case at a time later than the earlier of: (i) the date which is 30 days after the date on which the return under Code Sec. 6018 was required to be filed (including extensions, if any); or (ii) the date which is 30 days after the date such return is filed.

Code Sec. 6035(b) authorizes IRS to prescribe such regs as necessary to carry out Code Sec. 6035.

Notice 2015-57, 2015-36 IRB 294 provided that, for statements required under Code Sec. 6035(a)(1) and Code Sec. 6035(a)(2) to be filed with IRS or furnished to a beneficiary before Feb. 29, 2016, the due date under Code Sec. 6035(a)(3) was delayed to Feb. 29, 2016. (See Weekly Alert ¶  33  08/27/2015.)

In Notice 2016-19, 2016-9 IRB 362, IRS again delayed the due date for providing statements to IRS and to beneficiaries, under the rules requiring consistent basis reporting for estate tax and income tax purposes, this time until Mar. 31, 2016. IRS has also noted that it expected to issue proposed regs on the statements very shortly and suggested that persons required to provide those statements wait to prepare them until the proposed regs are issued. (See Weekly Alert ¶  32  02/18/2016.)

Temporary and proposed regs issued. IRS has now issued temporary regs that include the new Mar. 31, 2016 date contained in Notice 2016-19. In addition, it has issued proposed regs that provide guidance regarding the requirement that a recipient’s basis in certain property acquired from a decedent be consistent with the value of the property as finally determined for Federal estate tax purposes. And, the proposed regs provide guidance on the reporting requirements for executors or other persons required to file Federal estate tax returns.

Additional information regarding the regs will be included in future articles.

References: For returns and statements for inherited property, see FTC 2d/FIN ¶  S-2309; United States Tax Reporter ¶  60,354; TaxDesk ¶  783,519; TG ¶  41806. For rules limiting basis of property acquired from decedents, see FTC 2d/FIN ¶  P-4022; United States Tax Reporter ¶  10,144.03; TaxDesk ¶  215,506.5  ; TG ¶  11583.

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