IRS Issues Final Regulations on Consistent-Basis and Basis-Reporting Rules
The IRS recently issued final regulations T.D. 9991 on the statutory requirement that the basis of property acquired from a decedent be consistent with the basis reported on the estate tax return, finalizing regulations proposed eight years ago (REG-127923-15).
The final regulations dealing with the statutory consistent-basis requirement impact recipients of property acquired from a decedent if the inclusion of the value of the property in the decedent's gross estate increases federal estate tax liability. The final regulations dealing with the statutory basis-reporting requirements impact executors and other persons required to file an estate tax return based on the value of the decedent's gross estate and the amount of the decedent's lifetime adjusted taxable gifts, as well as trustees making in-kind distributions of property initially acquired from a decedent that was subject to the statutory basis-reporting requirements.
A significant change the final regulations make is eliminating the zero-basis rule for unreported property. The proposed regulations provided that, for property discovered after the filing of an estate tax return or property otherwise omitted from an estate tax return, where that property is not reported before the expiration of the limitation period for assessing estate tax, the final value of the property would be zero (Prop. Regs. Sec. 1.1014-10(c)(3)(i)(B)). The preamble to the final regulations states the IRS has recognized that this rule would mainly impact recipients of unreported property, who may not know of or be involved in the failure to report the property for estate tax purposes.
In three additional substantial changes to the proposed regulations, the final regulations:
- Adopt a suggested interpretation of the term "acquiring" for purposes of Sec. 6035(a)(1)
- Eliminate the subsequent transfer reporting requirement for all beneficiaries other than trustees
- Except additional types of property interests from the consistent-basis requirements and the reporting requirements under Sec. 6035
The final regulations go into effect upon their publication in the Federal Register.