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Oct. 16 — The 2015 draft instructions for tax Form 1041's Schedule D include a reference to new basis consistency reporting that is likely to cause headaches for estate executors and others filing an estate tax return.
The draft 2015 instructions for Schedule D (Form 1041), Capital Gains and Losses, addresses the new requirement that estates and those acquiring property from a decedent report the same basis, and that estate executors give the Internal Revenue Service and beneficiaries a statement of those values.
“If the property increases the estate tax liability, the beneficiary must use a basis consistent with the estate tax value of the property to determine his or her gain or loss when the property is sold or deemed to be sold,” the IRS told filers in the Oct. 15 draft instructions.
Practitioners have said there are a number of problems with the new reporting regime—for example, at the time a federal estate tax return is filed, it isn't clear which of possibly several beneficiaries is to receive which assets from the estate. Estate distributions aren't made until a closing letter is issued by the IRS, they said.
Another question is whether estate tax returns—Form 706, United States Estate (and Generation-Skipping Transfer) Tax returns filed just to elect portability—are required to provide the IRS and beneficiaries with valuation statements.
Portability allows for the transfer of the unused estate and gift tax exemption from the deceased spouse to a surviving spouse (179 DTR G-1, 9/16/15) (186 DTR G-5, 9/25/15).
Due in 2015, Ready or Not
The new reporting requirement is the result of passage of the Surface Transportation and Veterans Health Care Choice Improvement Act (Pub. L. No. 114-41).
The immediate effective date of the law caught not only practitioners, but the IRS, by surprise. The value statements are required to be filed no later than the earlier of 30 days after the due date of the estate tax return, or 30 days after the return has actually been filed.
However, the IRS has given taxpayers a reprieve. Notice 2015-57 was designed to push the due dates back for any statements that would have been due by Feb. 29, 2016. the new reporting applies to anyone required to file an estate tax return after July 31, 2015.
The final forms and instructions aren't expected out until the first or second week of January. The draft Form 1041, U.S. Income Tax Return for Estates and Trusts, was released Aug. 28.
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