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Update: Basis Reporting Deadline Extended Until March 31, 2016


2/16/16

Synopsis

We recently alerted you to changes made by the enactment of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 which imposed new basis reporting rules under §6035 for any estate actually filing or required to file a federal estate tax return Form 706 after July 31, 2015. 

Under the new rules, estates required to file a federal estate tax return are now also required to file with the IRS a supplemental report delineating each asset in the estate, providing its value as set forth on Form 706, and identifying the beneficiary to whom such asset has been or is intended to be distributed. Additionally, each beneficiary must receive a separate schedule listing the assets actually distributed or intended to be distributed by the estate to such beneficiary.  

The due date for these reports is the earlier of: 

(i) 30 days after the date which Form 706 is required to be filed (including extensions, if any); or

(ii) 30 days after the date Form 706 is actually filed – even though property distributions may not yet have been made. 

To the extent the inclusion of the asset in the estate caused an increase in the overall estate tax, such value will establish the basis of the property to the recipient beneficiary.   

Compliance Obligation Extended Until March 31, 2016

As we previously advised, the Service had postponed until February 29, 2016 the reporting due dates for any estate required to submit information under the new rules between August 30, 2015 and February 29, 2016. The initial extended due date of February 29, 2016 has now been extended to March 31, 2016. This date could change again due to certain conflicting issues addressed by the professional advisor community. 

Because the statute imposes severe penalties for noncompliance, we believe we must move ahead and meet the now adjusted deadline.

Though the IRS had issued new Form 8971 and Schedule A to enable estates to satisfy the new basis reporting requirements, we agreed with many commentators that the Service would again delay the filing date requirement so that it could answer many puzzling questions about the compliance obligations.

Late on February 11, 2016, the Service extended the deadline until March 31, 2016 for the basis reporting statements required under §§6035(a)(1) and (a)(2) to be filed with the IRS and furnished to a beneficiary before March 31, 2016. 

In Notice 2016-19, the “Treasury Department and IRS recommend that executors and other persons [] wait to prepare the [required] statements … until the issuance of proposed regulations…” Treasury indicated in the Notice that it expects “to issue proposed regulations under section 1014(f) and 6035 very shortly.” 

What Does CohnReznick Think?

When new form 8971 was issued, it failed to address so many open questions including our biggest concern of all - that actual distributions made from an estate to beneficiaries are not tied to the statutory due date of the basis reporting requirements.  

We are hopeful that the new regulations forecasted by Notice 2016-19 will address this logistical disconnect by providing guidance to executors who may not be able to identify which assets ought to be distributed to which beneficiaries within the strict time constraints established by the statute.   

For now, we recommend that representatives of the following estates continue to gather information necessary to file the required report on or before March 31, 2016:

  • Estates required to file or which actually filed a Form 706 after July 31, 2015
  • Any estate owing federal estate tax with a due date after July 31, 2015
     

We expect there to be many developments in the coming weeks on this issue and we will keep you posted.  

Contact

For additional information, please contact Ira Herman, Partner, at ira.herman@cohnreznick.com or 973-618-6245, or Joy Matak, Director, at joy.matak@cohnreznick.com or 862-245-5081.


Any advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues. Nor is it sufficient to avoid tax-related penalties. This has been prepared for information purposes and general guidance only and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is made as to the accuracy or completeness of the information contained in this publication, and CohnReznick LLP, its members, employees and agents accept no liability, and disclaim all responsibility, for the consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. 

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