Estate and Succession Planning
Dean Mead’s Estate and Succession Planning Department is one of the largest and most respected groups of estate planning attorneys in Florida. We are frequently…
On January 31, 2011, the Real Property, Trust & Estate Law Section of the ABA submitted comments to the IRS on the draft Form 8939 released by the IRS on December 16, 2011. Robert Chapman of the IRS Forms Desk responded a week later. Here are a few highlights from the IRS response.
1. Due date for Form 8939. The IRS responded that the deadline will be clarified either on the form itself or in soon-to-be-released guidance. The IRS did not commit to an official position, but hinted that the due date is the same as the decedent’s final income tax return, unless the IRS decides to extend the due date, which it is permitted to do under Section 6075(a). Note that since responding to the ABA comments, the IRS has released additional guidance on its website stating that Form 8939 should not be filed with the decedent’s final income tax return, which indicates the IRS will exercise its authority to postpone the due date.
2. Disclosures required with Form 8939. The IRS responded that it will provide guidance on whether appraisals are required to be attached to Form 8939 and whether de minimis rules will be allowed.
3. Community Property. The IRS acknowledged that there was no obvious place on Form 8939 to report community property and that it wanted to study how carryover basis affected community property further before determining how it should be reported.
4. Undistributed Property. The IRS stated that any property that is either sold during administration or undistributed by the deadline for filing the Form 8939 should be entered on a separate Schedule B – Property Acquired by Person Other than Surviving Spouse – listing the estate as the recipient (note: a separate Schedule B is required to be completed for each beneficiary who receives assets of the estate. By requiring undistributed assets to be listed on a Schedule B for the estate, the IRS appears more concerned about the status of the assets as of the date of filing Form 8939, and not who will eventually receive such assets).
5. Allocation of $3 million spousal basis increase to property sold by the estate during administration. The IRS stated that it would like to allow the spousal basis increase to be allocated to assets sold during administration if the proceeds are thereafter distributed to the surviving spouse, but it was constrained by statute, which allows the spousal basis increase to be allocated only to outright spousal transfers or QTIP property transferred to spouse. Property sold during administration does not fit this criteria.
6. Extensions of time for filing Form 8939. The IRS said instructions will be included in soon-to-be-released guidance.
7. Amending Form 8939. The IRS stated that guidance will be released soon on amending Form 8939. However, the IRS noted that the purpose of Form 8939 is to disclose the recipient of the decedent’s property as of the date of filing. The recipient of undistributed property as of the filing of Form 8939 would be the estate. Therefore, an amendment may not be required to report subsequent transfers or distributions.
8. Guidance on estates with multiple fiduciaries. The IRS stated that guidance will be issued soon. However, the IRS stated that it is likely the executor will be charged with the responsibility for allocating basis increase and making the election out of the estate tax, regardless of the property under his control or the existence of other fiduciaries (i.e., trustee).
9. Allocation of GST exemption. The IRS plans to include a place on Form 8939 to allocate the decedent’s GST exemption.
10. Election out of estate tax. The IRS prefers to make the act of filing Form 8939 constitute an affirmative election out of the estate tax rather than including a box to check on Form 8939.
11. Reporting of acquisition date and character of loss property. The IRS agrees that the date of acquisition and character of property are irrelevant where the property’s basis is greater than fair market value. However, the IRS included these entries on Form 8939 because the language of Section 1022 requires it to be reported. The IRS may discuss this further in the instructions for Form 8939.
12. Time table for further guidance. The IRS said that further guidance would be issued very soon, after which we can expect the final draft of Form 8939 with instructions, and then Publication 4895. All of these should be released by May 2011.
13. Protective election out of estate tax to guard against IRS adjustment on audit. The IRS did not commit to a position, but indicated that it would probably be disinclined to do so.
14. Life Estates. The IRS stated that split-interest property resulting in a life estate to spouse and remainder to others should be reported at its full basis on both Schedule A and B since basis cannot be assigned under Sections 1001 and 1014 until the life or remainder interest is disposed of. Additionally, there is a box on Schedule B labeled “check if included on Schedule A” which should be marked.
We will certainly post updates as further guidance and the final Form 8939 and instructions are issued by the IRS.
