Congress recently passed the Surface Transportation and Veterans Health Care Choice Improvement Act (the “Act”) which includes a number of changes to the Internal Revenue Code. One of these changes adds a brand new information form, known as a “Basis Statement.” The Basis Statement, which has not yet been finalized by the IRS, would require the executor of an Estate to determine the value of “any interest in property included in the decedent’s gross estate for Federal tax purposes,” and report such amount to the IRS and to beneficiaries. See 26 U.S.C. §§1014(f) and 6035. The purpose of this new requirement appears to be to notify beneficiaries of the “stepped-up” basis at which they receive property from an estate, but also serves to prevent the beneficiaries from arguing for a higher basis before the IRS. The information reported on a Basis Statement primarily duplicates information already on the Form 706 Estate Tax Return, but may result in a burden to the executor, especially given the inflexibility of the IRS form.
The Basis Statement is required to be filed by the executor or beneficiary who is required to prepare and file the decedent’s Estate Tax Return. What isn’t clear is whether the IRS will require basis statements in cases where an estate is not required to file an Estate Tax Return. Since the estate tax exemption equivalent is currently $5.45 million (for 2016), most estates will not need to file an Estate Tax Return. It is possible that, when the IRS issues regulations on this topic, the IRS may require a Basis Statement to be filed even in cases where an Estate Tax Return is not required.
Moreover, the new filing requirement comes with repercussions: information return penalties for failing to timely file Basis Statements (likely $250 per Basis Statement). The new Basis Statements will be due for filing the earlier of: (i) 30 days after the federal estate tax return is filed, or (ii) 30 days after the federal estate tax return is due (including extensions). Moreover, if basis information changes, the executor or beneficiary is required to file a “supplemental” Basis Statement within 30 days after any adjustment to the reported information.
The Basis Statement requirement went into effect for estate tax returns filed after July 31, 2015, although the IRS has delayed the Basis Statement filing date until February 29, 2016. See IRS Notice 2015-57. This major change will require the IRS to issue other areas of tax guidance such as Publication 559, Survivors, Executors, and Administrators. Although the IRS has published a draft of the new Basis Statement as Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent (draft available here https://www.irs.gov/pub/irs-dft/f8971–dft.pdf), the final version of the form is not yet available.
As a result of this new requirement, it will be important for executors and beneficiaries of decedents’ estates to work closely with a tax professional, such as an attorney, in order to ensure all legal requirements are met.
By: Sandra D. Mertens, Esq.