As a further update to my post below dated September 2, the Internal Revenue Service on September 13 extended the due dates of certain forms for estates of decedents who died in calendar year 2010. Because of late 2010 enactment of changes to the estate, gift, and generation-skipping tax system for taxpayers dying in 2010, and the length of time required for the Service to implement the legislative changes and to issue new forms with related instructions, the Service finally concluded that the executor of a 2010 estate may not have sufficient time to make an informed decision as to whether or not to make a decision to elect out of the estate tax and to complete the required filings. Estate tax professionals came to this conclusion a long time ago.
Form 8939
Under previous guidance, Form 8939 (Allocation of Increase in Basis for Property Acquired From a Decedent) was due to be filed not later than November 15, 2011. That date has now been extended until Tuesday, January 17, 2012. Recall that filing Form 8939 is an election out of the estate tax system for 2010, in addition to effecting a limited step-up in basis to assets acquired from a decedent dying in 2010. Because this is a change in the specified due date rather than an extension, an executor does not need to file any statement or to have this new due date apply.
In addition, a previously filed Form 8939 may be amended or revoked on or before January 17, 2012. Generally, no further extensions to file this form, amend, or revoke this form will be granted. Furthermore, the penalty for failure to file information with respect to certain transfers at death and gifts does not apply to the executor of a 2010 estate solely because the Form 8939 is filed after November 15, 2011, but on or before January 17, 2012. Similarly, the same penalty does not apply to the executor of a 2010 estate solely because a statement required to be furnished to beneficiaries is provided after December 15, 2011, but on or before February 17, 2012. Keep in mind, also, that a final Form 8939 and the related instructions still have not been released, but are expected to be released “this fall.”
Form 706
Under previous guidance, for estates greater than $5 million of decedents dying after December 31, 2009 and before December 17, 2010 and not electing out of the estate tax, Form 706 (United States Estate and Generation-Skipping Transfer Tax Return) was due no earlier than Monday, September 17, 2011. The due date for filing an estate tax return for a decedent who died after December 16, 2010, is nine months after the date of the decedent’s death. In addition, any estate or generation-skipping tax was due to be paid on the original due date of the return, without regard to extensions.
Under the new guidance, the Treasury Department and IRS grant the executor of a 2010 estate who files a Form 4768 (Application for Extension of Time to File a Return and/or Pay U.S. Estate and Generation-Skipping Transfer Taxes) by the due date for filing Form 706 both an automatic six-month extension of time to file Form 706 and a six-month extension of time to pay the estate tax. The executor of a 2010 estate is not required to substantiate on the Form 4768 the reason for requesting an extension of time for payment of the estate tax to receive the six-month extension of time to pay the estate tax due. However, interest will accrue on the estate tax liability from the due date of the return, excluding extensions.
The above guidance means that the Service will not impose late filing and late payment penalties on estates of decedents who died after December 31, 2009, and before December 17, 2010, if the estate timely files Form 4768 and then files Form 706 and pays the estate tax by March 19, 2012. In addition, the Service will not impose late filing or late payment penalties on estates of decedents who died after December 16, 2010, and before January 1, 2011, if the estate timely files Form 4768 and then files Form 706 and pays the estate tax within 15 months after the decedent’s date of death.
Generation-Skipping Transfer (GST) Tax
If an executor files Form 8939 on or before January 17, 2012 and allocates the decedent’s available GST exemption (or makes an election under the GST tax) on an attached Schedule R or R-1, the allocation or election will be considered timely and effective as of the decedent’s date of death. Alternatively, automatic allocation rules will apply if the executor timely files Form 8939 without attaching a Schedule R or R-1. If the executor does not file, or timely revokes, Form 8939 the automatic allocation rules will apply unless the executor timely files Form 706 with the Schedule R or R-1attached.
Income Tax Penalty Relief
The new guidance provides special penalty relief to many individuals, estates and trusts that have already filed a 2010 federal income tax return, or obtained an extension and plan to file by the October 17, 2011 extended due date. Late-payment and negligence penalty relief applies to persons inheriting property from a decedent dying in 2010, who then sells the property in 2010 but improperly reports gain or loss because they did not know whether the estate made the carryover basis election.
Caveat
I continue to caution that before taking any action with regard to these filing requirements, the reader must consult with knowledgeable tax counsel or refer to the full, new, Notice 2011-76. The information above is provided to acquaint the reader with this additional guidance from the Internal Revenue Service. I will continue to follow developments in this area and will report release of Form 8939 and the related instructions once the Service makes them available. If you have additional questions concerning filing requirements for 2010 lifetime gifts or testamentary transfers, contact me at 214.957.3366 or via email at response@phdcpa.com.
Ronnie
Copyright 2011, Ronnie C. McClure, PhD, CPA
