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Reports from Heckerling 2017 - The Executor’s Job Gets Tougher: Basis Consistency and Selected Other Income Tax Issues Facing Executors

Jan 18, 2017

Continuing with our reports from the 2017 Heckerling Institute on Estate Planning 

Steve Akers (Bessemer Trust Company) discussed the new basis consistency and information reporting rules that are now being imposed on executors.  They apply to property reported on estate tax returns filed after July 31, 2015.

These new rules are as follows:

  1. Basis Consistency Rule: The basis of inherited property shall not exceed its estate tax value (subject to normal post-death basis adjustments).   However, this rule only applies to property that increased the decedent’s estate tax liability; therefore, it does not apply to property eligible for the marital or charitable estate tax deduction.  Furthermore, a harsh rule applies to any property discovered after the estate tax return is filed or that is otherwise omitted from that return: such property receives a zero basis unless it is reported on a supplemental estate tax return that is filed before the statute of limitations expires.
  2. Information Reporting Rule:  When an estate tax return must be filed because the decedent’s gross estate plus adjusted taxable gifts exceed the basic exclusion amount in effect at the decedent’s death, the executor must also file Form 8971 and Schedule(s) A with the IRS reporting the estate tax value of the property in the decedent’s estate as well as provide Schedule(s) A to the potential beneficiaries showing what they received or could receive from the estate.  Property not required to be reported includes the following (i) cash, (ii) income in respect of a decedent, (iii) tangible personal property not exceeding $3,000 in value, and (iv)property sold before the information reports are due.   This reporting rule applies to property eligible for the marital or charitable deduction even though such property is not subject to the basis consistency rule.  Form 8971 with attachments must be filed with the IRS and the Schedule(s) A of Form 8971 provided to the respective beneficiaries 30 days after the earlier of the due date of the estate tax return (including filing extensions) or the date the return is filed.  However, if the estate tax return is not timely filed, the deadline is extended to  30 days after the actual filing date. Estates filing solely to elect portability are not subject to either the basis consistency or information  reporting rules.  

Penalties for not complying with these rules can be steep. If a taxpayer reports a higher basis than the estate tax value, he will be subject to the accuracy-related penalties on underpayments.   Furthermore, the penalty if an executor fails to comply with the information reporting rules is generally $260 per failure, with a maximum penalty of $3,193,000 per year.  The penalty is generally lowered to $50 per failure, with a maximum penalty of $532,000 per year if the information reporting rules are met  within 30 days of the due date.

For more content stemming from the 2017 Heckerling Institute on Estate Planning, please click here.

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Karen L. Goldberg

Karen L. Goldberg Partner-in-Charge of the National Tax Trusts and Estates practice, within the Private Client Services Group. She specializes in estate planning for closely held business owners, senior corporate executives and other high net worth individuals.

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