We previously posted IRS Revises Due Date for Form 8971 For All Estates Filed After July, 2015 to June 30, 2016 where we discussed that for many years the IRS has had a problem verifying the basis of assets received by an heir from an estate. Within the last three or four years, the IRS has required brokerage houses and banks to supply it with the cost basis so that it could determine that the capital gain or loss on securities was correctly calculated.
The IRS has created a form 8971 along with the schedule A which requires anyone who must file a form 706 or form 706NA to compel the executor/personal representative/administrator to file this form 8971+ schedule A with the Internal Revenue Service. Each heir/beneficiary is to be supplied with a copy of schedule A to inform him of his basis in the assets inherited from the estate. This filing requirement is limited to estates which must file a 706 or 706NA.
The upshot of this is that estate tax returns filed merely to achieve portability are exempt from this filing requirement. Such filing had to be made within 30 days of the filing of the estate tax return or, in the case of estate tax returns filed subsequent to July, 2015, by March 30, 2016.
One of the major problem that the IRS has had over the years is determining the basis of property inherited from an estate. As those of us who operate in the estate arena know, Section 1014 of the IRC gives each heir a basis equal to the value reported and accepted (by the IRS) on the federal estate tax return, form 706 or form 706-NA.
In order to get a recordation of the basis, the IRS now requires, for 706/706-NA filings after July, 2015, that the executor of the estate file a form 8971 with the IRS within 30 days of the filing of the estate tax return. The form went through several revisions and the final requirement, as set forth in IRS Notice 2016-27, was that all estates filed since July, 2015, file the form 8971 retroactively as of June 30, 2016.
The basic form along with schedule A's must be filed with the Internal Revenue Service and copy of the schedule A's distributed to the proper heirs. To be sure, a 8971 is not required in every case but one should be careful about whether to file since there is a fine levied against estates which fail to comply with the time requirement.
The final analysis is that if you have
prepared and filed a 706/706-NA
since the end of July of last year,
you had best review the rules to determine
whether you need to file a form 8971
to comply with the statute?
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Robert S. Blumenfeld -
Estate Tax Counsel
Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.
Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.
While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.