Estate Advisers Say 90-Day Window for Filing Form 8939 Needed

By Diane Freda

The main complaint on the minds of estate advisers Aug. 15 was that while the Internal Revenue Service has finally issued guidance on carryover basis, the final form for making that election out of the estate tax regime has not yet been published and IRS is allowing no wiggle room for its filing going forward.

Notice 2011-66, issued Aug. 5, requires the form to be filed by Nov. 15, with few exceptions, leaving executors short of the 90 days promised unless the form materializes immediately.

“Until fiduciaries have the actual Form 8939 and instructions, they won't be able to focus as meaningfully on what they need to do,” Ron Aucutt, a partner with McGuireWoods, told BNA Aug. 8. However, Aucutt does not believe IRS will wait until early fall to issue the form—which allocates increase in basis for property acquired from a decedent—as it said in its most recent guidance.

“I wouldn't be surprised to see the form released in a week or two, and then it will still not be due for about 90 days, like the IRS has said in the past,” Aucutt said.

Originally, IRS had posted a notice saying it wasn't going to make the due date for the Form 8939 earlier than 90 days after the form was issued, Fran Schafer, executive director of Grant Thornton's Washington National Tax Office, pointed out. “They are certainly not giving us the 90 days and there is no extension of time people can get. It's a Nov. 15 drop dead due date,” she said.
Property Woes

The Economic Growth and Tax Relief Reconciliation Act of 2001 gave estates of individuals dying in 2010 a choice between paying estate tax on property transferred to a beneficiary, or having the modified carryover basis rules apply.

Under that law, a decedent's executor is allowed to allocate a $1.3 million increase in basis to certain appreciated property passing to any person and an additional $3 million increase in basis to property that goes to the decedent's spouse.

Beyond concerns raised over the form not being out, Aucutt said the most important takeaway from the Aug. 5 guidance is the reassurance to executors that they can sell or distribute assets and still allocate basis increase to those assets.

That issue haunted practitioners who were uncertain how assets would be treated if they were sold prior to the filing of the Form 8939 if the executor tried to allocate basis adjustment to them.

Schafer said she remains concerned about another aspect of the property rules in Revenue Procedure 2011-41 that there apparently is no finality for the values and basis that executors will be giving to the beneficiaries. “The IRS can challenge the basis at any time if the property is subsequently sold or disposed of by the beneficiary,” she said.
Multiple Forms 8939

If there are multiple Forms 8939 or a Form 706, Instructions for Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, and a Form 8939 for the same estate, IRS said it will notify the beneficiaries by letter that it has received multiple forms. The parties will have 30 days to come together and file one form, agreeing on which assets get the increase in basis, or IRS will decide for them. This also had its detractors.

“If there is an executor, the IRS shouldn't be picking at all,” said Albert Isacks, a certified public accountant with Malin, Berguist & Co. in Erie, Pa. The executor is the one who has the legal authority to bind everybody, he said. If there is no executor, then a trustee or someone else must decide. “But in those situations, I would much rather have it be the local courts than the IRS,” he said, adding that it is unlikely IRS will allow the local courts to decide.

In addition, because an increase in basis is involved, IRS is asking for appraisals to be attached to the form to prove the fair market value of the property in question. The question is how detailed the appraisals need to be, Isacks said. “If you have an estate that is well above the $1.3 million or if there is a surviving spouse, $4.3 million, should it have to go through a large expense to get appraisals that really are kind of meaningless?” he asked.

The complete text of this article can be found in the BNA Daily Tax Report, August 16, 2011.