Eileen Y. Lee Breger, of Bowditch & Dewey, has writing about the basis consistency rules. Her article begins as follows:
On July 31, 2015, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 introduced new tax law that affects executors who are required to file a federal estate tax return and beneficiaries receiving assets from such an estate. The new legislation provides for consistent reporting between the value of assets reported on estate tax return and the income tax basis reported by beneficiaries inheriting property.
Estates that are required to file a Form 706 or Form 706-NA under section 6018(a) must file a supplemental Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent, which identifies the value of each interest in property as reported on the return and furnish Schedule A of Form 8971 to each person acquiring any interest property included in the decedent’s gross estate. Under the new section 1014(f), a taxpayer’s initial basis in a property acquired from decedent cannot exceed the property’s “final value” for estate tax purposes or, if a final value has not been determined, the valued reported on the Form 8971. Taxpayers may be subject to a 20% accuracy-related penalty for inconsistent basis reporting.
As far as applicability and timing, estates that file a federal estate tax return after July 31, 2015 are subject to the new basis consistency law. Form 8971 is required to be filed no later than 30 days after the date the estate return is required to be filed or is actually filed. Additionally, Form 8971 may not be required in certain instances, such as when the estate plus adjustable taxable gifts is less than the exemption, when the return is filed solely to allocate generation-skipping transfer tax or when a return is solely filed to elect portability of the deceased spousal exclusion amount (DSUE).
Practitioners have been confused and have questioned several aspects of the new law. There are two major sources of confusion. First, some practitioners have noted the harshness of the zero basis rule. This rule provides that if an executor discovers omitted property that would have generated an estate tax liability and the statute of limitations for the assessment period has passed, the final value of the property will be zero and thus, the beneficiary’s basis in the inherited property will be zero.
Posted by Lewis J. Saret, Co-General Editor, Wealth Strategies Journal.