IRS Finalizes New Form 8971 for Reporting Estate Distributions; Delays Filing Deadline to March 31.

(Parker Tax Publishing February 12, 2016)

The IRS has finalized Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, which is used to fulfill new reporting requirements when filing Forms 706. While Notice 2015-57 initially delayed until February 29, 2016, the time for filing Form 8971 where the form was due before February 29, the IRS has now delayed the due date another month, until March 31, 2016. Notice 2016-19.

Background

In 2015, the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (Pub. L. 114-41, 7/31/15) enacted Code Sec. 1014(f) and Code Sec. 6035, imposing two new estate tax reporting requirements.

Under Code Sec. 1014(f), the basis of certain property acquired from a decedent may not exceed the value of that property as finally determined for federal estate tax purposes, or if not finally determined, the value of that property as reported on a statement made under Code Sec. 6035. Code Sec. 6035 imposes reporting requirements with respect to the value of property included in a decedent's gross estate for federal estate tax purposes. These new provisions are effective for estate tax returns filed after July 31, 2015.

Under Code Sec. 6035, the executor of any estate required to file an estate tax return under Code Sec. 6018(a) must provide both the IRS and the person acquiring any interest in property included in the decedent's gross estate for federal estate tax purposes, with a statement identifying the value of each interest in such property as reported on any Forms 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and any other information that the IRS requires. If a beneficiary is required to file Form 706 under Code Sec. 6018(b), he or she must provide the IRS and each other person holding an interest in the inherited property with a statement identifying the value of each interest in the property, as reported on any Forms 706.

The requirements under Code Sec. 6035 are met by filing Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, and Schedule A, Information Regarding Beneficiaries Acquiring Property From a Decedent, which is part of Form 8971.

IRS Finalizes Form 8971 and Delays Filing Deadline

On January 29, 2016, the IRS released the final version of Form 8971. Form 8971 and Schedule A must be filed by the executor or beneficiary no later than the earlier of: (1) 30 days after the day Form 706 was required to be filed (including extensions), or (2) 30 days after the Form 706 was actually filed.

In Notice 2016-19, the IRS delayed until March 31, 2016, the due date for: (1) all Forms 8971 (including the attached Schedule(s) A) required to be filed with the IRS after July 31, 2015, and before March 31, 2016, and (2) all Schedules A required to be provided to beneficiaries after July 31, 2015, and before March 31, 2016.

OBSERVATION: Previously, in Notice 2015-57, the IRS made February 29, 2016, the due date for (1) all Forms 8971 (including the attached Schedule(s) A) required to be filed with the IRS after July 31, 2015, and before February 29, 2016; and (2) all Schedules A required to be provided to beneficiaries after July 31, 2015, and before February 29, 2016.

If there is an adjustment to the value of the inherited property after Form 8971 has been filed, a supplemental statement must be filed no later than 30 days after the adjustment is made.

Compliance Tip: An executor is required to file an estate tax return where the gross estate at the decedent's death exceeds the basic exclusion amount in effect under Code Sec. 2010(c) for the calendar year which includes the date of death ($5,430,000 for 2015). Otherwise, no estate tax return is required. Any applicable exclusion amount that remains unused as of the death of a spouse (the deceased spousal unused exclusion or DSUE amount) generally is available for use by the surviving spouse, as an addition to the surviving spouse's applicable exclusion amount. To elect portability of the DSUE, a Form 706 must be filed even though it is not otherwise required.

As part of the new law enacted in 2015, Congress instructed the IRS to issue regulations relating to the application of these rules to property with regard to which no estate tax return is required to be filed, and to situations in which the surviving joint tenant or other recipient may have better information than the executor regarding the basis or fair market value of the property. In Notice 2016-19, the IRS advised that it expects to issue proposed regulations under Code Sec. 1014(f) and Code Sec. 6035 shortly. As of press time, no such regulations have been issued. However, the instructions to Form 8971 provide that the filing requirement of Form 8971 does not apply to an executor of an estate that is not required to file a Form 706 because the gross estate plus adjusted taxable gifts are less than the basic exclusion amount, but who does so for the sole purpose of making an allocation or election with respect to the generation-skipping transfer tax.

The instructions do not address whether Form 8971 is required when a Form 706 is filed solely to elect portability of the deceased spousal unused exclusion (DSUE) amount under Code Sec. 2010(c)(5)(A). Informal conversations with the IRS have indicated that Form 8971 is not required in such cases. However, at press time, no formal guidance on this point has been issued.

Caution: The instructions to Form 8971 and Schedule A provide that a form or schedule filed with the IRS without entries in each field will not be processed. A form with an answer of "unknown" will not be considered a complete return.

The AICPA has pointed out in a comment letter to the IRS on the draft Form 8971, Form 8971 and Schedule A require taxpayer identification numbers, but foreign persons may not possess an existing individual tax identification number (ITIN). Obtaining an ITIN can often take several months, and the IRS may not have the authority to request the ITIN information of foreign persons under existing regulations. Reg. Sec. 301.6109-1(b)(2) and (c) provides the rules for when a return can be filed with another person's identifying information and provides limited circumstances where a foreign person must obtain an ITIN. These limited circumstances, the AICPA noted, do not provide for basis reporting. The AICPA suggested that the IRS allow "unknown" or "unknown - foreign" for the TIN of foreign beneficiaries on Form 8971 or Schedule A.

The AICPA also noted that in many cases, "unknown" may be the correct answer to the question in Part II of Form 8971: "How many beneficiaries received (or are expected to receive) property from the estate?" because an executor may not complete the search for heirs by the date Form 706 is filed. The AICPA suggested that the IRS require the executor to attach an explanation if the executor cannot furnish a specific number, and further suggested that if an explanation is provided, the IRS consider the Form 8971 as complete and process the Form.

For a discussion new reporting requirement under Code Sec. 6035, see Parker Tax ¶228,925. (Staff Editor Parker Tax Publishing)

Disclaimer: This publication does not, and is not intended to, provide legal, tax or accounting advice, and readers should consult their tax advisors concerning the application of tax laws to their particular situations. This analysis is not tax advice and is not intended or written to be used, and cannot be used, for purposes of avoiding tax penalties that may be imposed on any taxpayer. The information contained herein is general in nature and based on authorities that are subject to change. Parker Tax Publishing guarantees neither the accuracy nor completeness of any information and is not responsible for any errors or omissions, or for results obtained by others as a result of reliance upon such information. Parker Tax Publishing assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect information contained herein.

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