Posted tagged ‘2010 Tax Relief’

Updates on the 2010 Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act

November 1, 2011

 By Ashley Alderman

On October 20, 2011, the IRS announced in a news release (IR-2011-104) that the estate tax basic exclusion will increase from $5 million to $5.12 million in 2012 because of inflation adjustments that were included in the 2010 Tax Relief Act. The 2010 Tax Relief Act included these annual inflation adjustments, which was an addition to any prior estate tax laws that were not indexed to inflation. Although the estate tax basic exclusion is increased due to inflation, the annual exclusion forgifts will remain at $13,000.

In addition, IRS Notice 2011-82, released at the end of September 2011, had requested comments for the proposed regulations to section 2010(c).

On October 21, 2011, The New York State Society of Certified Public Accountants filed its comments on IRS Notice 2011-82. The New York CPAs stated that their “primary objective is to propose solutions to eliminate the significant degree of uncertainty that a surviving spouse would otherwise face concerning the use of the [Deceased Spousal Unused Exclusion Amount] if he or she were to remarry after the executor of the deceased spouse’s estate has made a portability election under section 2010(c)(5)(A)(a “portability election”).” In particular, the New York CPAs proposed four situations that required clarification in the proposed regulations:

1. Guidance is Required Where the Wife Remarries After the Death of Husband 1 (For Whom a Portability Election Has Been Made), and Husband 2 Then Dies Without a Portability Election Being Made for Husband 2

2. The Surviving Spouse Should Be Treated as Using Her Deceased Spousal Unused Exclusion Amount First Before Using Her Basic Exclusion Amount

3. Guidance is Needed to Clarify That Neither Estate Tax Nor Gift Tax Can Result Through a “Clawback” of the Deceased Spousal Unused Exclusion Amount

4. The Proposed Regulations Should Clarify that the Scope of the Service’s Examination of the Estate Tax Return of the First Spouse to Die Is Limited to Determining the Amount of the Deceased Spousal Unused Exclusion Amount

On October 21, the same day that the New York CPAs responded to IRS Notice 2011-82 with their comments for the proposed regulations to section 2010(c), Catherine Hughes, attorney-adviser in Treasury’s Office of Tax Legislative Counsel stated that Treasury would like to release proposed regulations on the portability of the estate tax exclusion under section 2010(c) in the 2010 Tax Relief Act by the end of 2011. Until the proposed regulations are released several areas remain uncertain, and executors of decedents dying in 2011 should seek advise when deciding whether and how to complete an estate tax return.

IRS Issues Guidance on 2010 Estate Tax Return Filing Requirements and Deadlines

September 14, 2011

 By Ashley Alderman

On September 8, 2011, the IRS released the updated Form 706, “United States Estate (and Generation-Skipping Transfer) Tax Return” for decedents dying in 2010.  A link to the Form 706 and the accompanying instructions appears below.  The Form incorporates the changes made to the Estate and Generation-Skipping Transfer Taxes in the 2010 Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act.  According to the Instructions for the Form 706, estates of decedents who died in 2010 with a gross estate (including adjusted taxable gifts and specific exemptions) in excess of $5,000,000 must file a Form 706, unless the Executor of the Estate makes an election to apply the modified carryover basis treatment.

The deadline for filing the Form 706 is September 19, 2011, but the Executor may apply for an automatic six-month extension by filing Form 4768, “Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.”  A link to this form is also included below.  The automatic extension extends the deadline for filing the Form 706 and paying the tax to March 19, 2012.

If the Executor elects to apply the modified carryover basis treatment, then Form 706 does not have to be filed, but the Executor must file a Form 8939, “Allocation of Increase in Basis for Property Acquired from a Decedent” instead.  This Form 8939 has not been finalized by the IRS.  The Form 8939 was originally due on November 15, 2011, but pursuant to Notice 2011-76 issued on September 13, 2011, the deadline is now January 17, 2012.  In accordance with earlier guidance in Rev. Proc. 2011-41 and Notice 2011-66, in Notice 2011-76, the IRS stated that it would not allow extensions for time to file this Form 8939, to make a carryover basis election or to amend or revoke such election except under certain specific exceptions.  We will update the Blawg when that final form becomes available on the IRS website.

Because a Form 8939 will not have another extension period, it is important that Practitioners and Executors quickly determine whether it is beneficial for the estate to elect the modified carryover basis treatment (and file such election by January 17, 2012) or file an extension to file the Form 706 by September 19, 2011 and then proceed with the filing of a Form 706 prior to the final deadline of March 19, 2012.  This determination may be more complex in situations where the estate is over the $5,000,000 exemption amount, but due to very low basis assets in the estate it may be beneficial for the Estate to pay some estate tax in order to receive a stepped-up basis rather than elect into the carryover basis treatment and eliminate any estate tax due.

 Resources: Forms

Form 706: United States Estate (and Generation-Skipping Transfer) Tax Return

Instructions for Form 706

Form 4768: Application for Extension of Time To File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes

Instructions for Form 4768