Two major requirements under the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015:
1. The estate executor or others required to file an estate tax return Form 706 after July 31, 2015, should provide Form 8971 and Schedule A to the IRS to report the final estate tax value of the property distributed or to be distributed from the estate. A copy of the Schedule A should also be provided to the beneficiary who receives or is to receive property from the estate. An executor or others who files an estate tax return only in order to make an election regarding the generation-skipping transfer tax or portability of the deceased spousal unused exclusion or DSUE could not be required to provide statements.
2. The beneficiary should use a basis consistent with the final estate tax value of the property as initial basis in that property. The calculated basis should be consistent with the final estate tax value such as reported value followed with allowed adjustments. This reporting consistency requirement pertains to property in the decedent’s gross estate and resulted in to an increased estate tax liability.
Other factors you may want to consider:
1. Regardless whether the estate value exceeds the statutory limit and the taxpayer died after 2010, make an election on portability feature on Form 706 by filing timely to pass the unused estate tax exemption to the surviving spouse. Most taxpayers with small estate do not want to pay the additional cost of processing Form 706. No one knows what holds in the future i.e. receipt of sizable inheritance, Congress decision to reduce the estate tax exemption, etc. TAX TIP: File Form 706 anyway for the portability election features irrespective of the size of the estate.
2. Form 8971 may not be required to be filed if Filing of Form 706 is merely to preserve the decedent’s spouse unused exclusion for the surviving spouse.
3. In general, beneficiaries should treat estate items the same way as they are treated on the estate’s return when reported on beneficiaries’ personal returns.
4. Tax duties of an estate administrator are: 1) File income tax returns for the decedent Form 1040 for the year of death and for prior years for which a return was not filed and income was above the filing requirement; 2) File income tax returns for the estate Form 1041. An estate is required to file an income tax return under its own employer identification number or EIN if assets of the estate generate more than $600 in annual income; and 3) file an estate tax return Form 706 for transfer of assets from decedent to heirs and beneficiaries.
5. Filing status is not automatic joint on the final return of the taxpayer who was married at the time of death. The estate executor other than the surviving spouse and the surviving spouse should agree to the joint filing.
6. The executor can revoke the joint return election within one year from when the original return is due or it’s extended due date.
7. If the surviving spouse remarries during the decedent’s year of death, a joint return should not be filed under Reg.1.6013-1(d) (5).
In the next issue we will discuss other filing requirements like transfer certificate for U.S. Citizens and Non-U.S. citizens.
Disclaimer: Any accounting, business or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
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Sy Al-os Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies. The firm celebrates its 38th anniversary in 2015.
