Effective for any assets that were reported on an estate tax, Form 706, after July 31, 2015, the value of the asset reported on the estate tax return must be used for income tax purposes. This new requirement is meant to close a loophole that has existed for years. In an attempt to “work” the system certain filers were using a low basis value for assets when reporting them on an estate tax return in order to reduce the amount of estate tax due. Then when the asset was ultimately sold they used a higher basis to lower the amount of gain or increase the amount of loss for income tax purposes. The Internal Revue Service has now mandated that if an estate tax return is filed and the inclusion of the asset increases the estate tax due for the return the basis used for income tax purposes can’t be more than the basis reported on the estate tax return, or, if the return is subsequently examined, can’t be more than the value placed on the asset as a result of the IRS examination.
Along with this consistent basis requirement comes new information reporting for inherited property.
- Effective for property listed on an estate tax return filed after July 31, 2015, if the gross estate exceeds the basic exclusion amount, ($5,430,000 for 2015 and $5,450,000 for 2016), the executor is now required to furnish to the IRS and to each beneficiary a statement identifying the value of each interest in such property as reported in the estate tax return.
- The statements required to be filed with the IRS or furnished to a beneficiary have a current due date of March 31, 2016, however, the IRS is recommending that executors wait to prepare the statements until the Treasury Department and IRS issue further guidance. Eventually these statements will be due the earlier of 30 days after the return is filed or 30 days after the return is due.
- As of now there is no requirement for providing this information if an estate tax return is not required, however, the IRS has been authorized to issue regulations for reporting requirements for small estates that don’t require the filing of an estate tax return as well. As always, the IRS is able to assess penalties for failure to file information returns as well as penalizing taxpayers who report inconsistent estate and income tax basis for inherited assets.
For more information contact Sherry Radmore at 714.569.1000.
With over three decades in public accounting, Sherry’s area of expertise include individual and business taxation, estate gift and trust taxation, IRS and Franchise Tax Board representation, strategic growth strategies, tax planning, and wealth preservation. Sherry is responsible for our estate tax department as well, specializing in estate and trust planning and fiduciary accounting.
You can reach Sherry at 714-569-1000