Thomson Reuters has released a special report, Consistent Basis Reporting Rules for Property Acquired by Decedent, providing an overview of the IRS’ recently issued regulations under Code Section 1014(a) and highlighting notable issues.
On July 31, 2015, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 enacted new provisions requiring consistency between the basis of inherited property and the value of that property for US federal estate tax purposes. The purpose of the consistent basis reporting rules is to deal with perceived abuse when a decedent's estate reports the value of property included in the gross estate as being discounted to generate a lower US federal estate tax, and the recipient of the property reports their basis in the same property as being higher pursuant to Code Section 1014(a) in an effort to reduce any US federal income tax on a later disposition of the property.
“The proposed regulations provide much needed guidance on how to operate under the consistent basis reporting rules,” said Jennifer Wioncek, an estate planning attorney in Miami and coauthor of the report. “Understanding rules 1014(f) and Code Section 6035 is vital for estate and inheritance tax professionals to avoid costly penalties.”
“The proposed regulations include controversial provisions, especially those related to ‘zero basis’ rules and the rules requiring recipients of property to be subject to the same reporting rules if the property is subsequently transferred in certain ‘carryover’ basis transactions,” said Rodney Read, an associate with Baker & McKenzie in Houston and coauthor of the report.
The report highlights the general rules, applications, scope, limitations, and non-compliance penalties of the new regulations. The report also provides in-depth analysis and explanations for different filing requirements associated with Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, which will be used to set the final value of properties in the decedent’s estate, as well as the applications of Code Section 6035, including:
Treatment of individual and non-individual beneficiaries.
Requests for new process.
Requirements for supplemental reporting.
Reporting requirements for subsequent transfers.
Making adjustments and the required supplemental information, the use of Schedule A Statements.
“It is anticipated that these specific rules will attract several comments and possible changes before becoming final,” noted Ceci Hassan, an associate of Baker & McKenzie in Miami and coauthor of the report.
“This report makes it easier to plan and advise clients on how to stay in compliance with the new rules,” added Lyubomir Georgiev, a partner with Baker & McKenzie in Zurich and coauthor of the report.