Colorado Probate Blog - Wade Ash Woods Hill & Farley, P.C.

Late Portability Election

“Portability” allows a surviving spouse to add a deceased spouse’s unused estate tax exemption onto his or her own exemption. Each spouse has an estate tax exemption amount of $5 million, which is indexed for inflation after 2011. In 2017, the exemption is $5,490,000. To elect portability, a client must timely file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, which is due 9 months after the decedent’s date of death, but the due date can be extended for six months if a request for extension is timely filed.

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IRS Delays Basis Reporting for the Third Time

In Notice 2016-27, 2016-15 IRB 1, the IRS again delayed until June 30, 2016 the due date for filing new Form 8971 by an estate to report basis in a decedent's estate both to the IRS and to the beneficiaries.  As noted in earlier blogs, the "Highway Bill" signed into law on July 31, 2015 requires executors of estates filing U.S. Estate Tax Returns (Form 706) on or after that date to file a statement with the IRS within 30 days, and to report the fair market value of assets on the return to the beneficiaries.  The 2015 Form 1041 (U.S. Fiduciary Income Tax Return) includes provisions requiring consistent basis reporting.  The IRS had delayed the due date for new Form 8971 until February 29, 2016, then to March 31, 2016, and now to June 30, 2016.  The Form and Instructions are posted on the IRS website and proposed regulations have been released, but numerous questions have been raised.  The requirement to file Form 8971 does not apply to "portability returns" (those filed for estates with gross value less than the filing threshold solely to increase a surviving spouse's exemption), nor to assets that qualify for the charitable or marital deductions.  Basis must only be reported to beneficiaries who may receive property from an estate where those assets increased the federal estate tax.

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IRS Delays Basis Reporting Again

In Notice 2016-19, 2016-9 IRB, the IRS again delayed the due date for filing the new Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, reporting the basis in a decedent's estate both to the IRS and to the beneficiaries. The 2015 Form 1041 (U.S. Fiduciary Income Tax Return) includes provisions requiring consistent basis reporting. As noted in earlier blogs, the "Highway Bill" signed into law on July 31, 2015, requires executors of estates and certain heirs filing U.S. Estate Tax Returns (Form 706) on or after that date to file a statement with the IRS, and to report the fair market value of assets on the return to the beneficiaries within 30 days of filing the Form 706. The IRS had delayed the due date for new Form 8971 until February 29, 2016, and has now extended that date again to March 31, 2016. The Form and Instructions are now posted on the IRS website, but numerous questions have been raised, resulting in not only another delayed due date, but a "suggestion" by the IRS that taxpayers wait until proposed regulations are issued to file the return. Proposed regulations are expected "shortly."

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Draft Instructions to 1041 Include Basis Reporting

As noted in a post last summer, the "Highway Bill" signed into law on July 31, 2015 requires executors of estates filing U.S. Estate Tax Returns (Form 706) on or after that date to file a statement with the IRS within 30 days, and to report the fair market value of assets on the return to the beneficiaries. These values must be used by the estate on its Form 1041, and the beneficiaries for basis-reporting purposes, but only if the estate was taxable. In Notice 2015-57, 2015-36 IRB, the IRS delayed the due date for both the information return and the statement until February 29, 2016. The draft instructions to the 2015 Form 1041 that were just released also require consistent basis reporting. The instructions to Schedule D include the statement: "The beneficiary must use a basis consistent with the estate tax value of the property to determine his or her gain or loss when the property is sold or deemed sold."

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IRS Delays Basis Reporting Due Date

As noted in an earlier blog, the "Highway Bill" signed into law on July 31, 2015 requires executors of estates filing U.S. Estate Tax Returns (Form 706) on or after that date to file a statement with the IRS within 30 days, and to report the fair market value of assets on the return to the beneficiaries. In Notice 2015-57, 2015-36 IRB, the IRS has delayed the due date for both the information return and the statement until February 29, 2016.

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Don't Forget Portability!

I have met with two surviving spouses so far this year who did not file a federal estate tax return in their deceased spouse's estate. The deceased spouse did not have sufficient assets to require the filing of a return, but an opportunity was nevertheless lost. The deceased spouse's unused estate tax exemption is only "portable" to the surviving spouse's own exemption (added on to it) if the Form 706 is timely filed (within 9 months after date of death, or 6 months after that if an extension request is timely filed). Treasury granted a one-time extension until December 31, 2014 for couples who had failed to file, but that was because with the federal recognition of same-sex marriage, a lot of couples who did not think they could have portability, now could after the Supreme Court's Windsor decision. Whether Treasury will grant another similar extension in the future is unknown. But remember that in order to possibly double the surviving spouse's estate tax exemption through portability, an estate tax return must be filed.

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December 31, 2014 Deadline for Portability Return

Rev. Proc. 2014-18 gives surviving spouses an extended deadline for filing a U.S. Estate Tax Return (Form 706) in order to add the deceased spouse's unused exclusion amount to his or her own estate tax exemption. However, such a return must be filed by December 31, 2014. Ordinarily, a "portability" return must be filed by the due date of the return: nine months after date of death, or, if an extension is requested, 15 months after date of death. This extended deadline only applies to estates of decedents with gross estates less than the filing threshold: $5,340,000 for decedents dying in 2014.

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Portability of Unused Estate Tax Exemption

As we have reported in the past, the 2010 Tax Act created a new concept: the "portability" of a deceased spouse’s unused estate tax exemption to the surviving spouse’s exemption.  This means that the exemption of the first spouse to die can be added on to the exemption of the surviving spouse (perhaps doubling it).  The current estate tax exemption is $5,340,000 for decedents dying in 2014.  The deceased spouse’s unused exemption (DSUEA) can only be added onto the surviving spouse’s exemption by timely filing a U.S. Estate Tax return (Form 706) that is due 9 months after the decedent’s death, or if an application for exemption is timely filed, 15 months after date of death.  Ordinarily, a Form 706 is only required to be filed if the gross estate exceeds the applicable exemption ($5 million as indexed for inflation after 2011).  But as we have noted in prior newsletters and blogs, even if the first spouse’s estate does not exceed the exemption, a surviving spouse should consider filing a Form 706 to increase the surviving spouse’s exemption through portability.  Many people have not filed such a return, and those in same-sex marriages would not have known that they could have filed such a return until the decision by the U.S. Supreme Court in U.S. v. Windsor last June. 

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