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IRS Proposes Rules for Consistent Basis Reporting

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Mar 24th 2016
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The IRS earlier this month issued proposed rules that govern recent legislative changes requiring consistency between a beneficiary’s basis in property acquired from an estate and the value of that property as stated for federal estate taxes.

The rules include provisions for consistent basis reporting and the required statement that must be given to the IRS and beneficiaries. Estates that file a tax return to claim portability of a deceased spouse’s estate tax exemption are exempt from the reporting requirement.

The proposal is posted on the Federal Register, and written or electronic comments and requests for a public hearing must be received by June 2. Comments are being accepted at regulations.gov.

Here’s a quick overview.

The rules pertain to changes under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, a short-term highway bill signed into law on July 31. Section 2004 of the law enacts sections 1014(f), 6035, 6662(b)(8), 6662(k), 6724(d)(1)(D), and 6724(d)(2)(II) of the Internal Revenue Code.

The proposed rules for estate basis consistency are in amendments to 26 CFR parts 1 and 301 under the tax code. The proposal also refers to an extension of the due date for the statement required under Section 6035 of the law, from the original Aug. 31, 2015 to Feb. 29, 2016 in Notice 2015-57 and now March 31 per Notice 2016-19.

The American Institute of CPAs has asked the IRS to delay the March 31 deadline to May 31 because the new reporting requirements weren’t issued until March 2, citing inadequate time for taxpayers and preparers to assimilate the proposal and implement it during busy season.

The following summarizes the proposed rules for sections 1014 and 6035.

Section 1014

  • 1014(f) requires consistency between the basis of inherited property and the value of the property for federal estate tax purposes.
  • 1014(f)(1) provides that the basis of the inherited property can’t be more than the property’s final value for federal estate tax purposes or, if the value hasn’t been determined, the value reported on a statement required by Section 6035(a).
  • 1014(f)(2) states that Section 1014(f)(1) only applies to property that, when included in the decedent’s gross estate, increased the estate’s federal estate tax liability (reduced by allowable credits).
  • 1014(f)(3) provides that the basis of the property has been determined for federal estate taxes if the property value is shown on a return under Section 6018 and the value isn’t contested by the IRS before the tax assessment period expires; or if the IRS specifies the value and the value isn’t contested by the estate executor; or the value is determined by a court judgment or settlement with the IRS.

Section 6035

  • 6035 requires that the property value on the required federal estate tax return be reported to the IRS and the beneficiary.
  • 6035(a)(1) requires that the estate executor who files a return under Section 6018(a) must provide to the IRS and the person acquiring an interest in the estate’s property a statement indicating the value of each interest in the property as reported.
  • 6035(a)(2) provides that anyone required to file a return under Section 6018(b) must give the IRS and each person who has a legal or beneficial interest in the property a statement that identifies the information in Section 6035(a)(1).
  • 6035(a)(3)(A) requires that the statement is due by the earlier of 30 days after the due date of the return under Section 6018 (including any extensions) or 30 days after the return’s filing date.
  • 6035(a)(3)(B) requires, if there’s an adjustment to the information required on the statement, that the executor or other person required to file the statement provide a supplemental statement to the IRS and each beneficiary within 30 days after the adjustment is made.
  • 6035(b) authorizes the IRS to issue rules to carry out Section 6035, including the application of the section to property for which no federal estate tax return is required and situations where the surviving joint tenant or other recipient may have better information than the executor about the basis or fair market value of the property.

Related articles:

IRS Delays Basis Reporting Due Date for Estates
IRS Again Extends Estate Basis Reporting Deadline

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