New Law Imposes Immediate Estate Basis and Reporting Requirements

One tax law change recently made by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, P.L. 114-41, affects practitioners right away. Section 2004 of the act requires consistent reporting of basis between an estate and anyone acquiring property from the decedent and imposes new reporting requirements. The provision became effective on the date of enactment, which was July 31, 2015. The new reporting rules require statements to be furnished to the IRS and to beneficiaries within 30 days of the estate tax return’s due date, so for estates that had returns due Aug. 1, the statements are due by this Aug. 31.

Consistent Basis

The act makes a couple of changes to the code. First, it amends Sec. 1014 to require that the basis of property acquired from a decedent be consistent with the basis reported on the estate tax return. In the case of property for which the final value has been determined for estate tax purposes, the acquirer’s basis cannot exceed that final value for estate tax purposes.

For property for which the final value has not been determined for estate tax purposes but for which basis has been reported under new Sec. 6035 to the person acquiring the property, the acquirer’s basis cannot exceed that reported value.

The Sec. 1014 amendment only applies to property where the inclusion of the property in the decedent’s estate increased the estate tax.

If basis is reported inconsistently between an estate tax return and a beneficiary’s return, taxpayers may be subject to the Sec. 6662 accuracy-related penalty on underpayments.

Basis Reporting

The act also creates a new Sec. 6035, imposing reporting requirements on the executor of any estate required to file an estate tax return under Sec. 6018(a). Under the new requirements, the executor must furnish a statement to the IRS and to each person acquiring an interest in property included in the decedent’s gross estate. The statement must identify the value of each property interest as reported on the estate tax return and any other information the IRS may require. (So far, the IRS has not issued guidance on what this other information might be.)

Beneficiaries who are required to file returns under Sec. 6018(b) have the same requirement imposed on them.

The statements must be furnished within the earlier of 30 days after the estate tax return was due (including extensions) or 30 days after the return was actually filed. The IRS is granted authority to set earlier due dates.

If adjustments must be made to a statement, the supplemental statement is due no later than 30 days after the adjustment is made.

These new statements are added to the definition of “information return” and “payee statement” under Sec. 6724(d), making failure to furnish them subject to penalty under Secs. 6721 and 6722.