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2015 Surface Transportation Act: Basis of Property Acquired from a Decedent
The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (2015 Surface Transportation Act) requires that the basis of property acquired by reason of a decedent's death in the hands of a beneficiary not be greater than the value of the property used for estate tax purposes. In addition, the executor of a decedent's estate is required to provide the necessary valuation and basis information to the recipient of property and the IRS. A penalty is imposed for inconsistent estate basis and the statement is subject to the information return and payee statement penalties.
Background
Generally, under the stepped-up basis rules, the income tax basis of property acquired from a decedent is the value of the property on the date of the decedent's death. If the executor of a decedent's estate makes the fair market alternate valuation date election, the basis of the property is its fair market value on the alternate valuation date (generally six months after the date of death). Similarly, the value of property includible in the decedent's gross estate is generally the fair market value on the date of the decedent's death or the alternate valuation date. However, recipients of property are not required to use the same value reported for estate tax purposes as the property's basis.
Because there is no requirement that a recipient's basis be the same value as reported for estate tax purposes, there is a possibility that a recipient of property from a decedent could argue that the estate tax value of the property was not its fair market value on the estate tax valuation date. In addition, the recipient might suggest that the fair market value should have been higher than the estate tax value. As a result, the recipient may report a smaller gain on the sale or disposition of the property than they would otherwise.
Consistent basis reporting required for estate and income tax purposes.
Therefore, for property to which an estate tax return is filed after July 31, 2015, the basis of property received by reason of a decedent's death must be consistent with the value for estate tax purposes. The basis of any property to which the stepped-up basis rules apply is the lesser of:
- the estate tax value; or
- the value reported on a statement, provided by an executor, for a property that is not finally determined for estate tax purposes
The consistency in reporting is only applicable to property that was includible in the decedent's gross estate and resulted in increased estate tax liability (reduced by applicable credits) on the estate.
Reporting to persons acquiring property. The executor of the decedent's estate is in the best position to provide information to the recipient of property that would be necessary to accurately determine the recipient's basis in the property. Therefore, the executor (or under certain circumstances, the beneficiary), of an estate that is required to file a federal estate tax return must provide to the IRS, and to each person acquiring an interest in property that was included in the decedent's gross estate, a statement that identifies the value of each interest in property as it was reported on the estate tax return. The executor (or beneficiary) must also provide any other information as directed by the IRS.
The statement providing the value of the property must be furnished to the IRS no later than the earlier of:
- 30 days after the due date of the federal estate tax return (including extensions); or
- 30 days after the date the estate tax return is filed.
If an adjustment is required to be made to the information provided to the recipients of property and the IRS after the original statement has been provided, a supplemental statement must be filed within 30 days after the adjustment is made.
The IRS is expected to issue regulations relating to: (1) the application of the reporting requirements when no estate tax return is required to be filed and (2) situations in which a surviving joint tenant or other beneficiary has better information than the executor on the property's fair market value or basis.
Penalties. An accuracy-related penalty will be imposed for inconsistent estate basis reporting which is defined as claiming basis on a return that exceeds the basis of property as determined under the requirements of the 2015 Surface Transportation Act.
If you have any questions regarding the new rules related to the basis of property acquired from a decedent, please contact us at 516-938-5219 or via email at st@st-cpas.com. We are here to assist you.
To learn more about Sanders Thaler Viola & Katz, LLP,
visit www.st-cpas.com.
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