Alternate Mechanism Urged for Estate Basis Reporting

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By Diane Freda

Dec. 31 — Instead of the requirement to file a so-called basis 1099 no later than 30 days after the filing of an estate tax return, Commerce Trust Co. suggested an alternative reporting mechanism to address consistency in basis reporting for estates.

In a comment letter to the IRS released Dec. 30, the company said the Internal Revenue Service should require that an equivalent to the reporting requirements in the highway bill (Pub. L. No. 114-94)—which it dubbed basis 1099—be required as an attachment or supplemental schedule to a Schedule K-1 (Form 1041), Beneficiary’s Share of Income, Deductions, Credits, etc. 

The attachment or supplemental schedule should be used whenever property is distributed from an estate to a beneficiary, whether that be another individual or another trust, it said.

More Accurate, Less Burdensome

That mechanism of reporting would be more accurate and less burdensome, the company said.

Meanwhile, the IRS on Dec. 18 released a draft of the new form it will require for basis reporting—Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent.

According to another commenter, Tener, Van Kirk, Wolf & Moore, P.C., there are questions about the form which will hopefully be resolved when the instructions come out.

Among them is whether the new form can be filed with the Form 706; how to handle the form's requirement that items be identified by schedule and number; and if there are shortcuts to compiling the assets that are being reported. It also questioned what to do about beneficiaries who are acquiring partial interests in property.

Initial Submission

The Surface Transportation and Veterans Health Care Choice Improvement Act (Pub. L. No. 114-41), enacted July 31, required consistent basis reporting between estates and individuals acquiring property from decedents, and also imposed new reporting requirements.

The IRS responded with Notice 2015-57, telling trustees and other estate representatives not to try to file statements telling the IRS and beneficiaries what the final values of estates are until the agency releases additional guidance and comes up with a form for that purpose (163 DTR G-3, 8/24/15)

Commerce Trust Co. said the responsibility to provide the basis 1099 information should end with the initial submission of the document.

“Our concern is that the Basis 1099 may have to be submitted in order to meet the filing deadline, even though there are outstanding issues, such as that the beneficiaries and valuations are uncertain,” its letter said.

Tracking the open issues and submitting modifications to the basis 1099 would be a burden on the preparer and the beneficiaries, it said.

Thirty Days Not Enough

Its other concerns related to time frames for statements to be furnished to the IRS and beneficiaries. The current requirement is that the statements have to be furnished to the IRS and to beneficiaries within 30 days of the estate tax return's due date.

However, it said that 30-day statutory period doesn't take into account that, at that point in time, most of the assets in a complex trust won't have been distributed to anyone and will still be held in an interim or administrative trust.

Another problem the company and others have pointed out is that trustees for many complex estates haven't yet identified the beneficiary or beneficiaries who will be receiving distributions from the estate by the end of the 30-day statutory period.

Trustees would be compelled to issue a basis 1099 at the statutory deadline and then an amended or corrected information return at subsequent dates when the beneficiaries have been identified. The company argued for an extension of time to provide the form, and automatic reasonable penalty relief.

For More Information

The Commerce Trust Co. letter is in TaxCore. 

The draft Form 8971 is at