2016 Estate, Gift and Fiduciary Update / Basis Consistency and Form 8971

June 30 Deadline (for Some) Form 8971s is Coming Like a Freight Train

Are You in the Train’s Path Now or Later?

Written and Instructed by Bradley Burnett, J.D., LL.M. (Taxation)

Meaningful estate, gift and fiduciary tax update:

• Recent court cases and IRS guidance potpourri
• Trends in recent IRS enforcement activity
• Proposed legislation hit list and odds of passage

Breaking News!! During tax season, IRS planted a couple of nuclear bombs in its newly issued Form 8971 Basis Consistency Regulations:

1. IRS’ all new ZERO BASIS rule: If tax matters are mishandled at the estate level, the beneficiary’s basis (for income tax purposes) in an inherited asset is zero!!

2. SUBSEQUENT TRANSFER rule: Any later transfer by a beneficiary (of an asset originally subject to Form 8971 reporting) itself must be reported on a newly generated Form 8971.

IRS Form 8971, of course, is the controversial brand new form IRS requires an estate to complete to report basis of inherited assets to (IRS and) beneficiaries.

The due date of Forms 8971 (that were otherwise due) has been put off by IRS until June 30, 2016. Penalties for non compliance can be financially disastrous.

Where is all of this coming from? The Highway Funding Bill (P.L. 114-41) created basis mania with 3 new statutes:

New IRC §1014(f) – Heirs must use the estate tax value of assets received from an estate as their income tax basis
New IRC §6035 – Executors must report estate tax value of assets to IRS and heirs
IRC §6501 – 6 year statute of limitations (on assessment) expanded to apply where overstatement of asset basis omits more than 25% of gross income stated on return

IRS issued Form 8971 and prop/temp regs in response. There’s a whole lot to it than meets the eye and some unanswered questions to boot.