Posted tagged ‘Unites States Estate Tax Return’

Executors Must Act Soon to Guarantee Spousal Portability of Gift and Estate Tax Exemptions for Estates of Decedents Dying in 2011

October 20, 2011

 By Rose Drupiewski

Beginning in 2011, there is portability of the gift and estate exemption amounts for spouses. The portability feature provides that if a spouse dies after 2010 without using all of his or her gift and estate tax exemption amount (currently $5 million), the unused gift and estate tax exemption amount may be carried over to the surviving spouse and used by the surviving spouse in addition to the surviving spouse’s available exemption amount. The unused exemption amount that can be carried over to the surviving spouse is limited to the basic exemption amount available at the time of the surviving spouse’s death. The purpose of the portability feature is to relieve spouses from the burden and expense of having to retitle assets or create trusts in order to obtain use of both spouses’ gift and estate tax exemptions.

In IRS Notice 2011-82, the Internal Revenue Service recently reminded taxpayers that in order to take advantage of the new portability feature, the executor of the deceased spouse must file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. Filing the return is the only requirement to make the portability election, as the Service does not require that any affirmative statement be made, box checked, or other special action be taken on the return to obtain portability. The estate tax return must be timely filed for the predeceased spouse for the election to be valid. Because estate tax returns are due nine months after the date of death, the first estate tax returns being filed for portability purposes are due beginning in October, though estates may request an automatic filing extension of six months by filing Form 4768.

Because of the uncertainty regarding future changes to estate and gift taxes and applicable exemption amounts, executors of decedents dying in 2011 will most likely want to file an estate tax return to allow portability even if there is otherwise no obligation to file an estate tax return. The portability feature may provide a substantial benefit to the surviving spouse’s estate in the event the estate tax exemption amount drops to $1 million, as it is currently scheduled to do in 2013.

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