The IRS issued guidance that once again delays the initial due date for filing a new Form 8971, “Information Regarding Beneficiaries Acquiring Property From a Decedent.” The due date now has been changed from March 31, 2016, to June 30, 2016. The information reporting requirement was imposed by the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015. The purpose of the form is to notify the IRS and the estate’s beneficiaries (both direct and indirect recipients) of the tax basis of inherited property.
Form 8971 is required for estates that file Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return,” after July 31, 2015, regardless of the decedent’s date of death, if the total of the estate’s assets and the decedent’s lifetime taxable gifts exceeds the estate tax exclusion ($5.43 million for individuals who died during 2015). A copy of Schedule A, “Information Regarding Beneficiaries Acquiring Property From a Decedent,” must be provided to any beneficiary who receives, or is expected to receive, distributions from the estate. Form 8971 is due 30 days after Form 706 is filed, although under the notice no filing will be due before June 30, 2016.
The information reporting rules are complex and present a number of traps for the unwary, including a new 20 percent penalty for beneficiaries who use a basis inconsistent with the basis reported on the estate tax return. The IRS also released proposed regulations that, if finalized in their current form, would create additional complexity for taxpayers. Changes in the proposed regulations include:
- Establishing a Form 8971 filing requirement when a beneficiary subsequently transfers property to a related transferee, which includes transfers to a trust (apparently even a revocable trust). The beneficiary must file a separate Form 8971 reporting the transfer by the later of June 30, 2016, or 30 days after the transfer.
- Setting basis equal to zero for undiscovered or omitted assets not included in a timely filed original or amended estate tax return.
Executors and beneficiaries of affected estates should monitor the status of the proposed regulations to make certain the estates are in compliance when the regulations are finalized.