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AICPA Pushes for Changes to IRS Estate Tax Form

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Feb 2nd 2016
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In a Jan. 29 letter to the IRS and the US Treasury Department, the American Institute of CPAs (AICPA) recommended several changes to IRS draft Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent, and draft instructions.

In addition, the AICPA sent a separate letter to the IRS and the Treasury on Jan. 29 calling for more consistent guidance on basis reporting between estates and persons acquiring property from a decedent.

Form 8971 tells estate executors and others required to file a Form 706, US Estate (and Generation-Skipping Transfer) Tax Return, how to report the final estate tax value of a property to the IRS and beneficiaries receiving the property from the estate, according to a Bloomberg BNA article.

In the first letter, the AICPA made the following eight recommendations for draft Form 8971 and instructions:

  1. Clarify that if Form 706 is filed only for electing portability, then Form 8971 is not required.
  2. The executor should include the date provided and filing date of Form 706.
  3. Instructions indicate that an answer of “unknown” will mean the form is considered incomplete. But “unknown” may be appropriate. The IRS should require an explanation and, if it is provided, should consider the form complete and process it.
  4. The IRS should ask if the estate tax value is used for income tax purposes.
  5. The executor should list the trust as the beneficiary required to receive a Schedule A. The IRS should require a supplemental filing when assets pass to trust beneficiaries if the trust will terminate at the close of administration.
  6. The form should include the date of the previous filing.
  7. The instructions should include guidance on post-Form 706 filing information that is needed by beneficiaries for determining basis.
  8. Instructions should allow “Unknown” or “Unknown-Foreign” as the tax identification number (TIN) for foreign beneficiaries. Draft Form 8971 requires each beneficiary's TIN.

The recommendations contained in the other AICPA letter would expand the guidance provided by the IRS in Notice 2015-57, which was issued to implement Section 2004 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015.

Those recommendations include:

  • Providing penalty relief if an executor acts in good faith and provides reasonable cause penalty relief.
  • Clarifying the time period an executor has to continue responsibilities after providing the original statement.
  • Treating trusts as the beneficiary.
  • Providing a de minimis exemption to information reporting rules for assets or groups of assets not publicly traded that are of de minimis value, such as $3,000.
  • Providing an exemption or at least a de minimis threshold and use of estimates for small estates, which aren't required to file an estate tax return. Specific recommendations include that the information statement requirement of Internal Revenue Code Section 6035 not apply to any estate not required to file an estate tax return, including those that file only to elect portability; if the IRS and Treasury don't agree to that, a provision should be provided to exempt states with a gross value below a certain threshold and for any estate that doesn't have to file a return and doesn't file to elect portability; and the IRS should continue to allow small estates that elect portability to use estimates and not require more reporting for transfers qualifying for marital or charitable deductions.
  • Guiding and clarifying other issues.

Such issues include:

  • The absence of a known beneficiary at the date of death.
  • Clarification that the executor is still required to provide spouses and charities the final determined value of assets.
  • Consideration of possible problems with reporting and actual taxable terminations for the purposes of generation-skipping transfer tax.
  • The executor's responsibility to report the basis associated with interest in an asset.
  • How the IRS will apply a penalty.
  • Possible improvements to the new law if rules are to ensure proper future reporting of beneficiaries' gains.
  • Exclusion of certain property covered by Code Section 1014(f) and adjustments to basis during estate administration under that section.
  • Whether certain exempt beneficiaries should not have to receive an estate statement.
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