Estate Can't Amend Form 8939 for Incorrect Allocations by Tax Professional.
(Parker Tax Publishing May 15, 2014)

Because a mistake made by a tax professional who filed an estate's Form 8939 did not fall within the exceptions noted in Notice 2011-66, the estate could not amend its Form 8939. PLR 201418002 (5/5/14).

The facts in PLR 201418002 indicate that a taxpayer died in 2010 and, at his death, the decedent owned all of the interests in a closely held company. The executrix of the decedent's estate hired a tax professional to help her timely file Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent. On the Form 8939, the tax professional reported that the decedent owned only a percentage of the interests in the company, rather than the entire company.

On the Form 8939, the estate reported that the decedent had unrealized losses from his interests in the company and allocated these losses as additional basis to other property reported on the Form 8939. However, since the tax professional believed the decedent owned only a percentage (instead of all) of the interests in the company, he allocated only that percentage of the losses to the other properties reported on the Form 8939. After the form was filed, the executrix discovered the error. The executrix requested relief under Reg. Sec. 301.9100-3 to supplement the Form 8939 to allocate the unrealized losses from the decedent's interests in the company that were not allocated on the timely filed Form 8939.

Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was scheduled to be repealed for estates of decedents dying after 2009. In December 2010, Congress reinstated a modified version of the estate tax, effective for decedents dying after 2009. However, in the case of a decedent who died during 2010, the executor of the decedent's estate could elect to apply the law as if the 2010 estate tax changes had not been enacted. In other words, instead of applying the modified, reinstated estate tax rules, the executor could elect not to have the estate tax apply to the decedent's estate, but rather to have the carryover basis rules in Code Sec. 1022 apply to property transferred as a result of the decedent's death. In general, if the executor made this "Section 1022 election," the estate would not be subject to estate tax.

If an estate made an election under repealed Code Sec. 1022, property acquired from a decedent dying in calendar year 2010 is treated as transferred by gift, and the basis of the property is the lesser of the decedent's adjusted basis or the fair market value of the property at the date of the decedent's death. Under Code Sec. 1022(b)(1), the basis of property under Code Sec. 1022(a) is increased by basis increase that is allocated to the property.

The basis of the property is increased (i.e., basis increase) by the portion of the aggregate basis increase that is allocated to the property and is increased by certain unused built-in losses and loss carryovers. Generally, under Code Sec. 1022(b)(2)(A), that basis increase is the portion of the aggregate basis increase that is allocated to the property. Code Sec. 1022(b)(2)(B) and (C) provide that the aggregate basis increase is $1,300,000; and that the aggregate basis increase is increased by (1) the sum of the amount of any capital loss carryover, and the amount of any net operating loss carryover that would (but for the decedent's death) be carried from the decedent's last tax year to a later tax year of the decedent, plus (2) the sum of the amount of any losses that would have been allowable under Code Sec. 1022(b) or (c) only if the property was owned by the decedent at the time of death.

Notice 2011-66 provides that the IRS will not grant extensions of time to file a Form 8939 and will not accept a Form 8939 filed after the due date except in certain circumstances, as provided for in Notice 2011-66. One exception allows an executor to apply for relief to supplement a timely filed Form 8939 to allocate a basis increase that has not previously been validly allocated. However, relief may be granted only if after filing the Form 8939, the executor discovers additional property to which the remaining basis increase could be allocated.

The IRS denied the request to supplement the original Form 8939. In this case, the IRS said, the tax professional incorrectly reported that the decedent owned a lesser percentage of the interests in the company that he did own. However, the exception provided in Notice 2011-66 does not apply to situations such as the instant case and, thus, relief could not be granted.

For a discussion of the election under Code Sec. 1022 for decedents dying in 2010, see Parker Tax ¶224,301. (Staff Editor Parker Tax Publishing)

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