Effective for any assets that were reported to the Internal Revenue Service on an estate tax return filed after July 31, 2015, the value of any asset reported on the estate tax return must also 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 tax basis to lower the amount of gain or increase the amount of loss for income tax purposes.
The Internal Revenue Service has now mandated that if an estate tax return is required to be filed and the inclusion of the asset increases the estate tax due on 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 on the estate tax return.
The deadline for providing the statements required to be filed with the IRS and furnished to a beneficiary has been extended several times and now has a current due date of June 30, 2016. Eventually these statements will be due the earlier of 30 days after the estate tax return is filed or 30 days after the estate tax return is due.
As of now, there is no requirement for providing this information if an estate tax return is not required, including estate tax returns filed only to claim portability, 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 on your estate tax and income tax basis contact your LSL Advisor.
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