Consistent Estate Basis Reporting Rules

On March 4, 2016, the IRS issued proposed and temporary regulations regarding the basis of property acquired from a decedent. The purpose of the regulations is to ensure that a recipient's basis in certain property acquired from a decedent is consistent with the value of the property as ultimately determined for federal estate tax purposes.

The proposed regulations provide guidance on Internal Revenue Code Sections 1014(f) and 6035 that were added to the tax code on July 31, 2015. The regulations provide rules regarding the consistent basis reporting requirement and the statement that must be provided to the IRS and beneficiaries, and exempt from the reporting requirement estates that file an estate tax return simply to claim portability of a deceased spouse's estate tax exemption or a generation-skipping transfer tax election.

In the preamble to the proposed regulations, the IRS expressed concern that taxpayers may be able to circumvent the purpose of the rules. To prevent this from occurring, the proposed regulations require additional information reporting by certain subsequent transferors in specific circumstances.

Section 1014 generally provides that the basis of property received from a decedent is the fair market value of the property at the decedent's date of death, or at the alternate valuation date, if elected.
This is known as stepped-up or stepped-down basis, depending on whether there is an upward or downward adjustment. Newly enacted Section 1014(f) now requires that there is consistency between the basis of that acquired property and its final value as determined for federal estate tax purposes. The consistent basis requirement of Section 1014(f)(1) applies only to property for which the inclusion of that property in the decedent's gross estate for federal estate tax purposes increases the estate tax liability.

Section 6035 imposes a reporting regime for Section 1014(f) that generally requires that the executor of the estate report to both the IRS and the beneficiary the value of property included on a required federal estate tax return within 30 days of the filing of that return. According to the IRS, if no final value has been determined when the taxpayer's basis in the property becomes relevant for federal tax purposes, the taxpayer should use the value reported on the statement, or the fair market value, to determine the taxpayer's basis for federal tax purposes.

The proposed regulations also provide four exceptions to the Section 6035 reporting requirements: cash other than coins or paper bills with numismatic value; items of income in respect of a decedent that do not receive a step-up basis; tangible property for which an appraisal is not required; and property that the estate sold, exchanged, or otherwise disposed of in a transaction in which capital gain or loss is recognized.


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