BASIS REPORTING FOR ESTATE TAX RETURNS

In 2015, Sec. 1014(f) and Sec. 6035 of the Internal Revenue Code became law which added additional requirements to fiduciaries (trustees and executors) required to file an estate tax return. An estate tax return is filed when the gross estate exceeds the basic exclusion amount ($5,450,000 in 2016) or $60,000, in the case of a nonresident's gross estate or portion that is situated in the United States.

The new law requires that the fiduciary file form 8971, “Information Regarding Beneficiaries Acquiring Property from a Decedent,” which reports to the IRS the identities of the beneficiaries and the value of those assets. The purpose is to limit current abuses of basis reporting where a fiduciary reports a low basis to avoid estate tax and the beneficiary turns around and reports a high basis to avoid income tax. The fiduciary must file form 8971 with the IRS and provide a “Schedule A” to each beneficiary. Schedule A should be unique to each beneficiary and include the basis value of the assets that will be received by that beneficiary only. Cash assets are not listed on the schedule and not reported on form 8971.

According to IRS statistics, 11,931 estate tax returns were filed in 2014 and only 5,158 of those were taxable estates. That in comparison to an estimated 2.6 million deaths per year. Despite the relatively few number of filed estate tax returns, the Joint Committee on Taxation estimates that the basis reporting requirement will generate $1.54 billion over the next 10 years.

Regardless of whether you will have a taxable estate, you should consult an estate planning attorney about planning for the future. Please contact the Law Office of Stephanie Macuiba for an estate planning consultation.