The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 became effective on July 31, 2015. With it came two new significant estate tax provisions.
The first provision requires consistent basis reporting between the estate tax and income tax worlds. When a person dies and his/her property is given to a beneficiary, that property may get a step-up in basis. Both the estate tax and income tax provisions require the stepped up basis to be the fair market value (FMV) of the property on the date of death. However, the law never explicitly required the estate tax FMV to equal the income tax FMV. Now, for all estate tax returns filed after July 31, 2015, the law requires a consistent basis be used for both estate and income tax purposes. The basis used on the estate tax return must be used for income tax purposes when the property is later sold.
The second provision requires new information reporting requirements to ensure the consistent basis reporting described above. The executor of an estate that files an estate return is required to provide a statement to the IRS and each beneficiary. The statement must identify the value of each property interest as it is reported on the estate tax return. In other words, the statement needs to list the property and basis of the property consistent with the estate tax return. The statement must be furnished within thirty days of the estate tax return being filed. If an adjustment is made to the property value on the estate tax return, then a supplemental statement must be filed thirty days after the adjustment is made.
Both provisions subject a taxpayer to penalties if not followed correctly. If you have any questions regarding this new estate tax law please contact Sherry Radmore at 714.569.1000.
By: Suzanne N. Lieber, Esq.