Deadline Nears for Reporting Option That Applies to Many Large Estates

by Jackie Bedard on December 8, 2011

in Estate Planning,Estate Tax,Taxes

The following article originally appeared in an issue of The Daily Plan-It, a free newsletter provided courtesy of Carolina Family Estate Planning to Triangle-area financial professionals.  If you are a financial professional that would like to learn more, please click here to request a subscription.

For once, it seems that the IRS did something to be helpful for families that want to preserve wealth.

The Internal Revenue Service issued guidance back in August on the treatment of basis for certain estates of decedents who died in 2010.

This guidance assists executors who are making the choice to opt out of the estate tax and have the carryover basis rules apply.

The estate tax was automatically repealed for most of 2010, but lawmakers reinstated it in December to be retroactive back to January 2010, thus setting the estate tax at a rate of 35 percent with an exemption of $5 million per individual and $10 million for married couples.

If you had a wealthy client die last year and the executor wants to opt out of the estate tax for 2010, then there’s still time to act.

File by January 17, 2012

Form 8939, which can be downloaded from http://www.irs.gov/pub/irs-pdf/f8939.pdf, is the basis allocation form required to be filed by executors opting out of the estate tax. It is due by Jan. 17, 2012.

The instructions for filling out the form can be found at http://www.irs.gov/pub/irs-pdf/i8939.pdf.

Under the guidance issued, an executor must file Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, to opt out of the estate tax and have the new carryover basis rules apply.

Background Information

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010.

However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010.

This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carry-over basis provisions of the 2001 Act. This choice is to be made by filing Form 8939.

A Kinder, Gentler IRS?

And so, this recent move by our federal government to actually be helpful to taxpayers may have some advisors scratching their heads.

But to a degree it makes sense, given the IRS’s shift in recent years from being a hard-line enforcer to a “let’s-find-a-mutually-beneficial-solution” agency.

The IRS used to focus its efforts on making taxpayers be compliant. But when it reorganized in 1998, its mission changed. Today, the IRS calls taxpayers “customers” and it deleted references to enforcement of the tax laws from its mission statement in favor of a customer service ethic.

As always, I hope this article has helped you and your clients. If you have a specific case or concern you’d like to discuss, please contact our office.

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