Rule2024-20429
Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
September 17, 2024
Effective
September 17, 2024
Issuing agencies
Treasury DepartmentInternal Revenue Service
Abstract
This document contains final regulations that provide guidance on the statutory requirement that a recipient's basis in certain property acquired from a decedent be consistent with the value of the property as finally determined for Federal estate tax purposes. In addition, the final regulations provide guidance on the statutory requirements that executors and other persons provide basis information to the IRS and to the recipients of certain property. The final regulations regarding the statutory consistent basis requirement affect recipients of property acquired from a decedent if the inclusion of the value of the property in the decedent's gross estate increases the Federal estate tax liability. The final regulations regarding the statutory basis reporting requirements affect 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 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.
Full Text
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<title>Federal Register, Volume 89 Issue 180 (Tuesday, September 17, 2024)</title>
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[Federal Register Volume 89, Number 180 (Tuesday, September 17, 2024)]
[Rules and Regulations]
[Pages 76356-76387]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2024-20429]
[[Page 76355]]
Vol. 89
Tuesday,
No. 180
September 17, 2024
Part VI
Department of the Treasury
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Internal Revenue Service
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26 CFR Parts 1 and 301
Consistent Basis Reporting Between Estate and Person Acquiring Property
From Decedent; Final Rule
Federal Register / Vol. 89, No. 180 / Tuesday, September 17, 2024 /
Rules and Regulations
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DEPARTMENT OF THE TREASURY
Internal Revenue Service
26 CFR Parts 1 and 301
[TD 9991]
RIN 1545-BM97
Consistent Basis Reporting Between Estate and Person Acquiring
Property From Decedent
AGENCY: Internal Revenue Service (IRS), Treasury.
ACTION: Final rule.
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SUMMARY: This document contains final regulations that provide guidance
on the statutory requirement that a recipient's basis in certain
property acquired from a decedent be consistent with the value of the
property as finally determined for Federal estate tax purposes. In
addition, the final regulations provide guidance on the statutory
requirements that executors and other persons provide basis information
to the IRS and to the recipients of certain property. The final
regulations regarding the statutory consistent basis requirement affect
recipients of property acquired from a decedent if the inclusion of the
value of the property in the decedent's gross estate increases the
Federal estate tax liability. The final regulations regarding the
statutory basis reporting requirements affect 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 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.
DATES: Effective date: These regulations are effective on September 17,
2024.
Applicability dates: For dates of applicability, see Sec. Sec.
1.1014-1(d), 1.1014-10(f), 1.6035-1(j), and 1.6662-9(c).
FOR FURTHER INFORMATION CONTACT: Concerning section 1014(f), Donna
Douglas at 202-317-6859; concerning section 6035, Karen Wozniak at 202-
317-6844 (not toll-free numbers).
SUPPLEMENTARY INFORMATION:
Background
This document contains amendments to the Income Tax Regulations (26
CFR part 1) under sections 1014(f) and 6035 of the Internal Revenue
Code (Code) relating to the statutory consistent basis requirement and
basis reporting requirements, and amendments to the Procedure and
Administration Regulations (26 CFR part 301) under sections 6721 and
6722 of the Code relating to the applicable penalties for failure to
comply with the statutory basis reporting requirements.
1. General Statutory Background and Enactment of the 2015 Act
Section 2004 of the Surface Transportation and Veterans Health Care
Choice Improvement Act of 2015 (2015 Act), Public Law 114-41, 129 Stat.
443, 454 (July 31, 2015), enacted sections 1014(f), 6035, 6662(b)(8),
6662(k), 6724(d)(1)(D), and 6724(d)(2)(II) of the Code to require
consistency between a recipient's basis in certain property acquired
from a decedent and the value of the property as finally determined for
Federal estate tax purposes. Section 1014(f) sets forth the consistent
basis requirement, while the procedural rules in sections 6035, 6662,
and 6724 set forth the applicable reporting requirements, penalties,
and definitions. On March 23, 2018, section 104 of Division U of the
Consolidated Appropriations Act, 2018, Public Law 115-141, 132 Stat.
348, 1170, made a technical correction to the definition of the term
inconsistent estate basis under section 6662(k) of the Code,
retroactive to the original date of enactment of the 2015 Act. The
technical correction modified the definition to take into account, for
purposes of the accuracy-related penalty imposed under section 6662 of
the Code, that the basis of property determined under section 1014(f)
is only the initial basis of such property. Thus, nothing in section
1014(f) prevents post-death basis adjustments pursuant to other
sections of the Code.
2. Existing Regulatory and Administrative Guidance Under Sections
1014(f) & 6035
On March 4, 2016, the Department of the Treasury (Treasury
Department) and the IRS published in the Federal Register (81 FR 11486)
a notice of proposed rulemaking and notice of proposed rulemaking by
cross-reference to temporary regulations (REG-127923-15). The proposed
regulations would provide guidance on the consistent basis requirement
under section 1014(f) applicable to recipients of certain property from
a decedent and the reporting requirements under section 6035 applicable
to executors and other persons required to file an estate tax return.
Section 1.6035-2 of the proposed regulations (proposed Sec. 1.6035-2)
cross-references temporary regulations under Sec. 1.6035-2T (TD 9757),
published in the Federal Register (81 FR 11431) on the same day, which
provide transitional relief on the due date for filing the information
return required by section 6035 (Information Return) and furnishing the
statement(s) required by section 6035 (Statement(s)). Specifically, the
temporary regulations extended the due date for filing and furnishing
the required Information Return and Statement(s) to March 31, 2016.\1\
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\1\ Prior extensions of the due dates to file and furnish the
required Information Return and Statement(s) were set forth in
Notice 2015-57, 2015-36 IRB 24, and Notice 2016-19, 2016-09 IRB 362.
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On March 23, 2016, in response to requests from the public for an
additional extension of time for filing and furnishing the required
Information Return and Statement(s), the Treasury Department and the
IRS issued Notice 2016-27, 2016-15 IRB 576, extending the due date for
both to June 30, 2016. On December 2, 2016, the Treasury Department and
the IRS published in the Federal Register (81 FR 86953) final
regulations (TD 9797) confirming the extension until June 30, 2016, to
file and furnish the required Information Return and Statement(s).
3. Public Hearing and Comments
On June 27, 2016, the Treasury Department and the IRS held a public
hearing on the proposed regulations. In addition to the comments
received at the hearing, the Treasury Department and the IRS received
approximately thirty written comments on the proposed regulations. The
written comments are available for public inspection at <a href="https://www.regulations.gov">https://www.regulations.gov</a> or upon request.
After consideration of all of the comments, the Treasury Department
and the IRS are adopting the proposed regulations with certain
revisions. These revisions substantially reduce the burden on both the
IRS and taxpayers and increase administrability of the proposed rules.
The revisions include (1) removing the zero basis rule for unreported
property; (2) adopting a suggested interpretation of the term acquiring
for purposes of section 6035(a)(1) and thereby modifying the reporting
requirements applicable in the case of property not acquired by a
beneficiary before the estate tax return due date; (3) eliminating the
subsequent transfer reporting requirement for all beneficiaries other
than trustees; and (4) excepting additional types of property interests
from the consistent basis requirements and the reporting requirements
under section 6035. In addition, a number of requested technical
changes have been made to
[[Page 76357]]
the proposed regulations. Besides the changes made in response to
comments, non-substantive revisions have been made to clarify the
language and improve the organization of the proposed regulations. The
public comments and revisions are discussed in the Summary of Comments
and Explanation of Revisions section of this preamble.
Summary of Comments and Explanation of Revisions
1. Section 1014(f)--Consistent Basis Requirement
A. Proposed Sec. 1.1014-10(a)(1): Consistent Basis Requirement--In
General
Section 1014(f)(1) provides that the basis of certain property
acquired from a decedent cannot exceed that property's final value for
purposes of the Federal estate tax imposed on the estate of the
decedent, or, if the final value has not been determined, the value
reported on a required Statement. This statutory rule is referred to as
the consistent basis requirement. Section 1.1014-10 of the proposed
regulations (proposed Sec. 1.1014-10) includes proposed rules that
would implement the consistent basis requirement.
Proposed Sec. 1.1014-10(a)(1) provides that a taxpayer's initial
basis in certain property acquired from a decedent may not exceed the
property's final value for estate tax purposes within the meaning of
proposed Sec. 1.1014-10(c). Proposed Sec. 1.1014-10(a)(1)
additionally provides that the consistent basis requirement applies
whenever the taxpayer reports a taxable event to the IRS with respect
to the property and continues to apply until the entire property is
sold, exchanged, or otherwise disposed of in one or more transactions
that result in the recognition of gain or loss for Federal income tax
purposes, regardless of whether the owner on the date of the sale,
exchange, or disposition is the same taxpayer who acquired the property
from the decedent or as a result of the decedent's death.
The final regulations retain the rule in proposed Sec. 1.1014-
10(a)(1) incorporating the consistent basis requirement as it applies
if a final value has been determined. However, proposed Sec. 1.1014-
10(a)(1) is revised in the final regulations to incorporate the
consistent basis requirement as it applies if no final value has been
determined (previously addressed in proposed Sec. 1.1014-10(c)(2)).
Proposed Sec. 1.1014-10(a)(1) additionally is revised in the final
regulations to explain that the property subject to the consistent
basis requirement is referred to as consistent basis property, which
now is described in Sec. 1.1014-10(c)(1) of the final regulations.
A commenter inquired whether the judicial doctrine of the duty of
consistency continues to apply if the consistent basis requirement
applies to property. For a discussion of the judicial doctrine of the
duty of consistency, see Van Alen v. Commissioner, T.C. Memo, 2013-235
(Oct. 2013) and Janis v. Commissioner, 461 F.3d 1080 (9th Cir. 2006).
The final regulations do not limit the arguments that may be applicable
under case law, including the judicial doctrine of the duty of
consistency in appropriate cases.
With regard to the rule describing the duration of the consistent
basis requirement in proposed Sec. 1.1014-10(a)(1), several comments
were received. Commenters asserted, and the Treasury Department and the
IRS agree, that the consistent basis requirement should not continue to
apply to property that is sold at a price that is equal to its basis
because this sale is a recognition event even though no gain or loss is
recognized. Other commenters asserted, and the Treasury Department and
the IRS agree, that the consistent basis requirement should not
continue to apply to property once that property is included in the
gross estate of another decedent. Finally, commenters questioned
whether substituted property obtained in an exchange under section 1031
of the Code (that is, a like-kind exchange) is subject to the
consistent basis requirement.
Accordingly, the rule in proposed Sec. 1.1014-10(a)(1) describing
the duration of the consistent basis requirement, which is moved to
Sec. 1.1014-10(a)(3) of the final regulations, is revised to clarify
that the consistent basis requirement applies until the entire property
is sold, exchanged, or otherwise disposed of in a recognition
transaction for income tax purposes (whether or not any amount of gain
or loss is actually recognized) or the property becomes includible in
another decedent's gross estate. Under this rule, because a like-kind
exchange is not a recognition event for income tax purposes,
substituted property obtained in such a transaction is subject to the
consistent basis requirement until the owner's basis in every portion
of the substituted property no longer is related, in whole or in part,
to the final value of the property that was acquired from the decedent.
B. Proposed Sec. 1.1014-10(a)(2): Subsequent Basis Adjustments
Proposed Sec. 1.1014-10(a)(2) provides that the final value of
consistent basis property is the taxpayer's initial basis in the
property. Proposed Sec. 1.1014-10(a)(2) further confirms that, in
computing the taxpayer's basis in property acquired from the decedent
or as a result of the decedent's death, the taxpayer's initial basis in
that property may be adjusted due to the operation of other Code
provisions that govern basis without violating the consistent basis
requirement. Proposed Sec. 1.1014-10(a)(2) also gives examples of such
adjustments, such as gain recognized by the decedent's estate or trust
upon distribution of the property, post-death capital improvements and
depreciation, and post-death adjustments to the basis of an interest in
a partnership or an S corporation (as defined in section 1361(a)(1) of
the Code). Proposed Sec. 1.1014-10(a)(2) states that the existence of
recourse or non-recourse debt secured by property at the time of the
decedent's death does not affect the property's basis, whether the
gross value of the property and the outstanding debt are reported
separately on the estate tax return or the net value of the property is
reported. Therefore, the proposed regulations state that post-death
payments on recourse or non-recourse debt secured by property do not
result in an adjustment to the property's basis.
Section 1.1014-10(a)(2) of the final regulations maintains the rule
identifying the initial basis of consistent basis property if a final
value has been determined, as well as the rule and examples regarding
acceptable adjustments to initial basis. However, proposed Sec.
1.1014-10(a)(2) is revised in the final regulations by identifying the
initial basis of consistent basis property during the period before the
final value of such property is determined and by moving the rule
regarding recourse and non-recourse debt secured by property to Sec.
1.1014-10(b)(3)(i) of the final regulations.
The rule regarding recourse and non-recourse debt secured by
property is addressed separately in the final regulations in order to
address more specifically, in response to comments, the effect of
recourse and non-recourse debt on the initial basis of consistent basis
property. A commenter requested that the final regulations clarify
that, if the decedent's estate includes property subject to non-
recourse debt and the executor reports the value of the property on the
decedent's estate tax return as the value of the property less the debt
(the net value or equity of redemption value), then the final value of
the property is nevertheless the gross value of the property
undiminished by the debt. The Treasury Department and the IRS adopt
this suggestion in
[[Page 76358]]
Sec. 1.1014-10(b)(3)(i) of the final regulations, which provides that
the final value or, if applicable, the reported value, of property
subject to recourse or non-recourse debt is determined based on the
gross value of that property undiminished by debt, regardless of
whether the estate tax return reports the net value (equity of
redemption value) of the property or separately reports the gross value
of the property and claims an estate tax deduction for the outstanding
debt.
Another commenter requested that the final regulations clarify
whether the existence of recourse or non-recourse debt on partnership
property reduces the final value of a partnership interest includible
in the decedent's gross estate. The existence of recourse or non-
recourse debt on partnership property relates to the value of the
partnership and the gross value of a decedent's partnership interest,
determinations of which are outside the scope of these final
regulations. Accordingly, this request is not adopted. However, the
Treasury Department and the IRS note that, with respect to a deceased
partner having a loan secured by a partnership interest, the same rule
in Sec. 1.1014-10(b)(3)(i) of the final regulations will apply so that
the final value of the partnership interest is the gross value of the
partnership interest undiminished by the debt, regardless of whether
the estate tax return reports the net value (equity of redemption
value) of the partnership interest or separately reports the gross
value of the partnership interest and claims an estate tax deduction
for the outstanding debt.
C. Proposed Sec. 1.1014-10(b)(1): Property Subject to Consistency
Requirement--In General
Section 1014(f)(2) provides that the consistent basis requirement
applies only to property whose inclusion in the decedent's gross estate
increased the estate tax liability. Based on this rule, proposed Sec.
1.1014-10(b)(1) provides that the property subject to the consistent
basis requirement is any property includible in the decedent's gross
estate under section 2031 of the Code, any property subject to tax
under section 2106 of the Code, and any other property the basis of
which is determined in whole or in part by reference to the basis of
such property (for example, as the result of a like-kind exchange or an
involuntary conversion) that generates an estate tax liability in
excess of allowable credits, except for the credit for prepayment of
estate tax.
This rule is maintained in Sec. 1.1014-10(c)(1)(i) of the final
regulations with certain modifications in response to comments. First,
the final regulations, in Sec. 1.1014-10(c)(1)(i)(A), include the
preliminary criterion for the applicability of the consistent basis
requirement in section 1014(f)(1) that only property to which section
1014(a) applies is consistent basis property. Second, the Treasury
Department and the IRS have corrected the final regulations to reflect
that section 2103 of the Code, not section 2106, defines the gross
estate for purposes of the estate tax on the estate of a nonresident
non-citizen. The correction is found in the definition of the term
included property in Sec. 1.1014-10(d)(4) of the final regulations,
which term is referenced in Sec. 1.1014-10(c)(1)(i)(B) of the final
regulations. Finally, the Treasury Department and the IRS have
corrected the final regulations in Sec. Sec. 1.1014-10(c)(1)(i)(C) and
1.1014-10(d)(5) to remove the reference to the prepayment of estate tax
as a credit, because an estate tax prepayment is not an identified
credit but instead is a payment of estate tax.
Commenters inquired whether the allowable credits referenced in
proposed Sec. 1.1014-10(b)(1) include credits provided under treaties.
One commenter inquired whether, in order to treat the prorated unified
credit under section 2102(b)(3) of the Code as an allowable credit, the
executor is required to attach a Form 8833, Treaty-Based Return
Position Disclosure Under Section 6114 or 7701(b), to the nonresident
non-citizen decedent's Form 706-NA, United States Estate (and
Generation-Skipping Transfer) Tax Return, Estate of nonresident not a
citizen of the United States. In response to these comments, Sec.
1.1014-10(d)(5) of the final regulations defines the term allowable
credits to include both credits against the estate tax allowable by any
section of the Code and credits against the estate tax allowable by any
treaty obligation of the United States, provided that the estate
qualifies for the credit and complies with all applicable rules for
claiming the credit, including filing all necessary forms or
statements.
With regard to the applicability date of the consistent basis
requirement to property, commenters requested clarification on whether
the filing after July 31, 2015, of an estate tax return supplementing
an estate tax return filed on or before that date would subject any of
the assets in the decedent's gross estate to the consistent basis
requirement. Other commenters requested clarification on whether the
filing on or before July 31, 2015, of an estate tax return that was due
after July 31, 2015, would subject any of the assets in the decedent's
gross estate to the consistent basis requirement. In response to these
comments, Sec. 1.1014-10(c)(1)(ii) of the final regulations clarifies
that neither the supplementing of an estate tax return after July 31,
2015, nor a due date of an estate tax return after July 31, 2015,
causes property to be subject to the consistent basis requirement if an
estate tax return was filed on or before July 31, 2015.
D. Proposed Sec. 1.1014-10(b)(2): Exclusions
Proposed Sec. 1.1014-10(b)(2) provides that property that
qualifies for an estate tax charitable or marital deduction under
section 2055, 2056, or 2056A of the Code does not generate a tax
liability under chapter 11 of the Code (chapter 11) and therefore is
excluded from the property subject to the consistent basis requirement.
Proposed Sec. 1.1014-10(b)(2) further provides that tangible personal
property for which an appraisal is not required under Sec. 20.2031-
6(b) of the Estate Tax Regulations (26 CFR part 20) is deemed not to
generate a tax liability under chapter 11 and therefore also is
excluded from the property subject to the consistent basis requirement.
With regard to the exclusion for property qualifying for an estate
tax charitable or marital deduction under section 2055, 2056, or 2056A,
multiple commenters sought clarification on whether property qualifying
for only a partial marital or charitable deduction is subject to the
consistent basis requirement. In the case of property qualifying for
only a partial marital or charitable deduction, the property increases
the estate tax liability to the extent that it does not qualify for a
marital or charitable deduction and, therefore, the property is subject
to the consistent basis requirement. In such a case, applying the
consistent basis requirement only to the partial interest not
qualifying for a deduction is impractical and incompatible with the
uniform basis rules under Sec. 1.1014-4 of the Income Tax Regulations.
Accordingly, Sec. 1.1014-10(c)(2)(xi) of the final regulations
identifies only wholly deductible property, under any of sections 2055,
2056, 2056A, 2106(a)(2) and (3), as property not subject to the
consistent basis requirement. Partially deductible property (property
that qualifies for only a partial marital or charitable deduction) is
outside the scope of this rule and, therefore, is consistent basis
property subject to the consistent basis requirement. Some examples of
property qualifying for only a partial marital or charitable deduction,
and, therefore, not excepted from the consistent basis requirement,
are: (1) a charitable remainder trust, a charitable
[[Page 76359]]
lead trust, or a pooled income fund; (2) a trust subject only to a
partial QTIP election under section 2056(b)(7); and (3) property
divided between the decedent's surviving spouse and a charity if the
sum of the deductions for the two interests given to those recipients
is less than the value of the property included in the value of the
gross estate.
With regard to the exclusion for tangible personal property, Sec.
1.1014-10(c)(2)(ix) of the final regulations retains as an exception to
the consistent basis requirement tangible personal property for which
an appraisal is not required under Sec. 20.2031-6(b). However, in
response to a comment, these items are described in the final
regulations as household and personal effects, rather than as tangible
personal property, to conform more closely with Sec. 20.2031-6(b).
Multiple commenters advocated for additional exclusions from the
consistent basis requirement either because certain property is not
subject to the consistent basis requirement under the plain language of
the statute or because certain property, in the commenters' views,
should be excepted from the consistent basis requirement by the
exercise of regulatory authority. In response, Sec. 1.1014-10(c)(2) of
the final regulations provides a list of property that is identified as
property excepted from or not subject to the consistent basis
requirement. A particular property may be described in more than one
item on that list.
One commenter suggested that the final regulations confirm that the
consistent basis requirement applies only to property to which section
1014(a)(1) through (3) applies, as only such property has a basis that
is adjusted to the property's Federal estate tax value as a result of
the decedent's death. Specifically, the commenter requested that the
final regulations provide that, if the basis of property is not
determined under section 1014(a)(1) through (3), then the property is
not subject to the consistent basis requirement. Under such a
provision, the commenter concluded that the following property would be
excluded from the consistent basis requirement: (1) property subject to
a conservation easement resulting from the section 2031(c) election
(the subject of section 1014(a)(4)); (2) income in respect of a
decedent (IRD) (the subject of section 1014(c)); (3) DISC stock (the
subject of section 1014(d)); (4) pre-death gifts of appreciated
property (the subject of section 1014(e)); (5) stock in a passive
foreign investment company (PFIC) by reason of section 1291(e)(1); and
(6) annuities subject to section 72 (the subject of section
1014(b)(9)(A)). Section 1014(f)(1) applies the consistent basis
requirement to all property to which section 1014(a) applies. The
Treasury Department and the IRS agree that section 1014(b)(9)(A), (c),
and (e) describes property not subject to section 1014(a), and
therefore property that does not acquire a new basis based in any way
on the Federal estate tax value of that property. Stock of a PFIC
subject to section 1296(i) also is property not subject to section
1014(a), but only if the basis of such stock is its adjusted basis in
the hands of the decedent immediately before the decedent's death.
Accordingly, Sec. 1.1014-10(c)(2)(x) of the final regulations
clarifies that such interests are not subject to the consistent basis
requirement.
However, the adjustments to the basis of property to be made
pursuant to section 1014(a)(4) and (d) and otherwise under section
1291(e)(1), do not make section 1014(a), and therefore section 1014(f),
inapplicable to the property described in those sections. In each of
these cases, the property's Federal estate tax value is a factor used
in determining the property's basis under these sections. Thus, the
consistent basis requirement applies to the property described in these
sections, even though the basis of the property may differ from the
Federal estate tax value of the property.
Several commenters requested confirmation that certain property is
not subject to the consistent basis requirement because the value of
that property is not included in the decedent's gross estate for
Federal estate tax purposes. For instance, a commenter requested
confirmation that the consistent basis requirement does not apply to
property the basis of which is adjusted in a manner similar to section
1014(a) on the occurrence of a taxable termination that occurs on a
person's death pursuant to section 2654(a)(2). Such property generally
becomes subject to the generation-skipping transfer tax on the death of
a trust beneficiary and, as long as the property is not includible in a
person's gross estate for Federal estate tax purposes, it is not
property to which section 1014(a) applies. Other commenters requested
confirmation that the consistent basis requirement does not apply to a
surviving spouse's interest in community property to which section
1014(b)(6) applies because, although this property is deemed to have
been acquired from the decedent and thus is subject to section 1014(a),
such property is not includible in the decedent's gross estate for
estate tax purposes. The Treasury Department and the IRS agree with the
commenters that, in both cases, the property is not subject to the
consistent basis requirement because it is not property includible in
the gross estate. Accordingly, Sec. 1.1014-10(c)(2)(xii) and (xiii) of
the final regulations clarify that such interests are not subject to
the consistent basis requirement.
Finally, in addition, Sec. 1.1014-10(c)(2) of the final
regulations excepts certain types of property whose basis generally
does not differ from the property's face value, such as United States
dollars and certain equivalents.
E. Proposed Sec. 1.1014-10(b)(3): Application
Proposed Sec. 1.1014-10(b)(3) provides that, if an estate tax
liability is payable after the application of all available credits
(other than a credit for a prepayment of estate tax), the consistent
basis requirement applies to the entire gross estate (other than
property excluded by proposed Sec. 1.1014-10(b)(2)) because all such
property contributes to the estate tax liability and therefore is
treated as generating an estate tax liability. Proposed Sec. 1.1014-
10(b)(3) clarifies that if, after the application of all such available
credits, no tax under chapter 11 is payable, the entire gross estate is
excluded from the application of the consistency requirement. The final
regulations in Sec. 1.1014-10(c)(1)(ii) adopt the substance of this
proposed rule with minor language changes.
F. Proposed Sec. 1.1014-10(c)(1): Final Value--Finality of Estate Tax
Value
Proposed Sec. 1.1014-10(c)(1) provides that the final value of
property reported on an estate tax return is its value as finally
determined for purposes of the estate tax. Proposed Sec. 1.1014-
10(c)(1) further provides that the finally determined value is (i) the
value reported on a return filed with the IRS pursuant to section 6018
of the Code once the period of limitations for assessment of the estate
tax has expired without that value having been timely adjusted or
contested by the IRS, (ii) if the preceding rule in (i) does not apply,
the value determined or specified by the IRS once the periods of
limitations for assessment and for claim for refund or credit of the
estate tax have expired without that value having been timely
contested, (iii) if the preceding rules in (i) and (ii) do not apply,
the value determined in an agreement, once that agreement is final and
binding on all parties, or (iv) if the preceding rules in (i), (ii), or
(iii) do not apply, the value determined by a court, once the court's
determination is final.
[[Page 76360]]
The rules in proposed Sec. 1.1014-10(c)(1) are adopted in
redesignated Sec. 1.1014-10(b)(1) of the final regulations, with
certain clarifications and other changes. First, Sec. 1.1014-
10(b)(1)(ii) of the final regulations omits the reference to the period
of limitations on credit or refund, which makes the rules defining the
``final value'' of consistent basis property in the final regulations
more consistent with the rules defining a final determination for gift
tax purposes. This is appropriate because both regulatory definitions
are based on similar statutory language. Second, the final regulations
in Sec. 1.1014-10(d)(1) add a definition of the term contested to
clarify that an executor cannot contest the IRS's determination of
value with only a ``protective'' statement generally contesting the
IRS's determination of value. The challenge must be specific to a
particular item of property, rather than a general objection that would
provide no meaningful information respecting the value of the property
at issue. Thus, the challenge must put at issue the value of property
by providing to the IRS a written statement that identifies the
specific property, states that the executor does not accept as correct
the value determined or specified by the IRS, and provides the
executor's claimed value for the property as determined in accordance
with the requirements of section 2031, the regulations thereunder, and
other applicable guidance. In cases in which the value of property is
contested, the final value will be determined either by agreement
between the executor and the IRS, as described in Sec. 1.1014-
10(b)(1)(iii) of the final regulations, or by litigation, as described
in Sec. 1.1014-10(b)(1)(iv) of the final regulations.
G. Proposed Sec. 1.1014-10(c)(2): No Finality of Estate Tax Value
Proposed Sec. 1.1014-10(c)(2) of the proposed regulations provides
that, prior to the determination of the final value of property subject
to the consistent basis requirement, the recipient of that property may
not claim an initial basis in excess of the value reported on the
required Statement. Proposed Sec. 1.1014-10(c)(2) further provides
that, if the final value of the property subsequently is determined
(under proposed Sec. 1.1014-10(c)(1)) and that value differs from the
value reported on the required Statement, then the taxpayer may not
rely on the required Statement initially furnished for the value of the
property and the taxpayer may have a deficiency and underpayment
resulting from this difference. The Treasury Department and the IRS
received several comments on these proposed rules.
One commenter opined that the proposed regulations unfairly hold a
beneficiary responsible for not using the final value to determine
initial basis if the beneficiary sells property before its final value
is determined. The commenter asserted that, in any event, if the final
value of property is determined after its sale, any accuracy-related
penalty imposed under section 6662 should be waived if the beneficiary
acted in good faith. Similarly, commenters requested confirmation that
no income tax deficiency would result if the final value of the
property is determined after the expiration of the period of
limitations on assessment applicable to the beneficiary's income tax
return.
If a beneficiary uses the value reported on the required Statement
to calculate gain or loss on the sale of property, the beneficiary is
using the value reported on the estate tax return. This may or may not
be the final value of the consistent basis property as determined under
section 1014(f)(3). Nevertheless, section 1014(f)(1)(A) provides
specifically that, in the case of property the final value of which has
been determined, the beneficiary's initial basis is limited to that
final value. It would be inconsistent with the language of the statute
to fail to provide that an income tax deficiency and underpayment may
result if a value exceeding the final value is used to determine
initial basis.
Accordingly, the final regulations, in redesignated Sec. 1.1014-
10(b)(2), maintain the rules in proposed Sec. 1.1014-10(c)(2), and add
several clarifying provisions. Section 1.1014-10(b)(2)(i) of the final
regulations clarifies that the reported value is the value reported on
the Statement required under Sec. 1.6035-1 or, if supplemented, on the
most recent supplement to that Statement. That section further
clarifies that the value from any Statement that reports either a value
from an estate tax return filed after the expiration of the period of
limitations on assessment applicable to that return, or a value for
property not reported on the estate tax return, is not a reported
value. In effect, before a final value is determined, the value
reported on the estate tax return controls. This rule recognizes that
section 1014(f)(3) requires an assessment process to determine the
final value of property. The IRS cannot assess tax on property reported
only on the required Information Return or required Statement(s)
because these constitute only information returns and payee statements
as defined in section 6724(d)(1)(D) and (d)(2)(II), respectively.
Section 1.1014-10(b)(2)(ii) of the final regulations clarifies that an
income tax deficiency can result if the final value of property is
determined before the expiration of the period of limitations on
assessment for an income tax return that reports a taxable event with
regard to the property. Section 1.1014-10(b)(2)(ii) of the final
regulations also includes a reference to section 6664 and the
regulations thereunder for rules relating to waivers of penalties for
certain failures due to reasonable cause.
H. Proposed Sec. 1.1014-10(c)(3): After-Discovered or Omitted Property
Proposed Sec. 1.1014-10(c)(3) provides basis rules for property
that is discovered after the filing of the estate tax return or
otherwise is omitted from the estate tax return. Proposed Sec. 1.1014-
10(c)(3)(i)(A) provides that, if the executor reports the after-
discovered or omitted (unreported) property on an estate tax return
filed before the expiration of the period of limitations on assessment
of the estate tax, the final value of the property is determined under
proposed Sec. 1.1014-10(c)(1) or (2). Alternatively, proposed Sec.
1.1014-10(c)(3)(i)(B) provides that, if the unreported property is not
reported before the period of limitations on assessment expires, the
final value of that property is zero. Finally, to address situations in
which no estate tax return was filed, proposed Sec. 1.1014-
10(c)(3)(ii) provides that the final value of all property includible
in the gross estate subject to the consistent basis requirement is zero
until the final value is determined under proposed Sec. 1.1014-
10(c)(1) or (2). Because the application of proposed Sec. 1.1014-
10(c)(3)(i)(B) or Sec. 1.1014-10(c)(3)(ii) results in the beneficiary
having an initial basis of zero in unreported property, these proposed
provisions are collectively referred to as the zero basis rule.
Comments received on the zero basis rule generally fall into two
categories: those relating to the statutory interpretation of section
1014(f) and the authority to impose the zero basis rule; and those
relating to the practical effects of the zero basis rule. With respect
to the former, many commenters contended that section 1014(f), by its
terms, applies only to property that is reported on an estate tax
return. Therefore, the commenters concluded that the basis of
unreported property, as determined under section 1014(a), is not
limited by the consistent basis requirement in section 1014(f).
Commenters further contended that section 1014(f)(4) limits the
regulatory authority of the Treasury Department
[[Page 76361]]
and the IRS to providing exceptions to the application of the
consistent basis requirement, and that expanding the consistent basis
requirement to address unreported property is beyond the scope of this
regulatory authority. Some commenters contended that the Code does not
support a regulatory interpretation that denies at least a carryover
basis for an inherited asset.
Commenters commenting on the practical effects of the zero basis
rule contended that the rule is onerous, unduly harsh, and unfair.
Commenters noted that a beneficiary receiving unreported property in
many cases will not be the executor or other person having the
responsibility to report the property and the beneficiary may have no
ability to compel the executor to report the property on the return.
Yet, under the zero basis rule, the beneficiary receiving unreported
property will have an increased tax burden due to the denial of basis,
whether determined under section 1014(a) (fair market value on the
decedent's date of death) or, in the alternative, a carry-over basis of
the decedent's adjusted basis in the property. Commenters noted that
unreported property is more likely to arise by inadvertent omission
from the estate tax return or as a result of being undiscovered, rather
than willful omission. Therefore, except in the case of willful
omission by a beneficiary who is the executor or other person
responsible to report the property, commenters contended that the zero
basis rule is unduly harsh and unfair because it creates a 100 percent
taxable gain on the sale of the property by the beneficiary.
The Treasury Department and the IRS do not agree that providing a
zero basis rule for unreported property is beyond its regulatory
authority for implementing the congressional mandate of section
1014(f). See section 7805(a) and, more specifically, section
1014(f)(3)(B) (referencing the ability of the IRS to specify the value
of property not reported on a return required by section 6018).
However, the Treasury Department and the IRS recognize that such a rule
primarily impacts the recipients of unreported property, who may have
had no knowledge of or involvement in the failure to report the
property for Federal estate tax purposes, but, nevertheless, have an
increased tax burden under the rule.
The Treasury Department and the IRS additionally recognize that,
under applicable State law, an executor is personally accountable to
discharge its fiduciary duty to seek out and collect every asset and to
acquire possession of the property of the decedent. See 31 a.m. Jur. 2d
Executors and Administrators Sec. 369 (2018); Eger v. Eger, 314 NE2d
394 (Ohio App. 1974); Matter of Deutsch, 114 A.D.2d 413, 493 N.Y.S 884
(2d Dep't 1985). Further, the Treasury Department and the IRS recognize
that, in the absence of a zero basis rule for unreported property,
existing Federal tax enforcement mechanisms under subtitle F of the
Code, including criminal liability, serve to deter willful nonreporting
of property on the estate tax return. See, e.g., section 6651(a)(3) of
the Code for a potential addition to tax; sections 6662(a), (g), and
(h), 6663, 6721, and 6722 of the Code for potential accuracy-related,
fraud, and other penalties; section 6501(c)(1) and (2), and (e)(2) of
the Code for potential exceptions to the general three-year period of
limitations on assessment; and sections 7203, 7206, and 7207 of the
Code for potential criminal liability and penalties.
In view of these considerations, the final regulations do not
include the zero basis rule. Instead, Sec. 1.1014-10(c)(1)(i) of the
final regulations clarifies that the consistent basis requirement
applies only to included property, a term that is defined in Sec.
1.1014-10(d)(4) of the final regulations to refer to property, the
value of which is included in the value of the decedent's gross estate,
as defined in section 2031 or 2103. Section 1.1014-10(d)(4) of the
final regulations explains that this refers to property whose value is
reported on an estate tax return or otherwise is included in the total
value of the gross estate so that a final value is or will be
determined for that property under chapter 11. Consequently, the basis
of property acquired or passed from a decedent that is not reported on
an estate tax return and not otherwise included in the gross estate
generally is determined under section 1014(a), without regard to the
rules of section 1014(f). The rule identifying property subject to the
consistent basis requirement in Sec. 1.1014-10(c)(1)(i) of the final
regulations, together with the definition of the term included property
in Sec. 1.1014-10(d)(4) of the final regulations, is sufficient to
clarify the scope of the consistent basis requirement, and therefore
these final regulations do not include a specific rule on the basis of
unreported property.
I. Proposed Sec. 1.1014-10(d): Executor
Proposed Sec. 1.1014-10(d) provides that, for purposes of proposed
Sec. 1.1014-10, the term executor has the same meaning as in section
2203 of the Code and includes any other person required under section
6018(b) to file a return. In response to comments or as needed for
clarity, proposed Sec. 1.1014-10(d) is expanded in the final
regulations to define several additional terms for purposes of Sec.
1.1014-10, including the terms contested, estate tax liability,
included property, allowable credits, and United States dollars.
J. Proposed Sec. 1.1014-10(e): Examples
Proposed Sec. 1.1014-10(e) provides four examples to illustrate
the application of proposed Sec. 1.1014-10. In general, the examples
illustrate rules applicable to the final value of property, subsequent
basis adjustments, and reliance on a required Statement. In particular,
one example illustrates the application of the zero basis rule on the
final value of unreported property.
Section 1.1014-10(e) is revised in the final regulations by
reordering the examples and adding headings to provide clarity. Because
the zero basis rule from proposed Sec. 1.1014-10(c)(3) is not included
in the final regulations, Sec. 1.1014-10(e) is further revised in the
final regulations by removing the example illustrating the zero basis
rule. Finally, Sec. 1.1014-10(e) is revised in the final regulations
by adding examples to illustrate rules regarding the duration of the
consistent basis requirement, the meaning of included property that is
subject to the consistent basis requirement, and the treatment of
partially deductible property that is subject to the consistent basis
requirement.
K. Applicability Date
Proposed Sec. 1.1014-10(f) provides that, upon publication of the
Treasury Decision adopting these rules as final in the Federal
Register, Sec. 1.1014-10(f) of the final regulations will apply to
property acquired from a decedent or by reason of the death of a
decedent whose estate tax return is filed after July 31, 2015. The
final regulations revise the applicability date of Sec. 1.1014-10(f)
of the proposed regulation consistent with section 7805(b)(1).
Accordingly, Sec. 1.1014-10(f) of the final regulations does not
reference the July 31, 2015, effective date of section 1014(f), and
provides instead that Sec. 1.1014-10 of the final regulations applies
to property described in Sec. 1.1014-10(c)(1) of the final regulations
that is acquired from a decedent or by reason of the death of a
decedent if the decedent's estate tax return is filed after the date of
publication of these final regulations in the Federal Register.
[[Page 76362]]
L. Comments Requesting New Process for Beneficiary To Challenge Value
Several commenters expressed concern that beneficiaries have no
input in the determination of final value even if they believe the
estate tax return reports an incorrect or understated value. These
commenters posited that binding a beneficiary's initial basis to the
final value may deprive the beneficiary of due process. Consequently,
they requested a procedure through which a beneficiary may challenge
the determination of final value. Some commenters suggested that the
procedure allow the beneficiary an opportunity to provide evidence of a
different date-of-death value at the time of examination by the IRS of
the beneficiary's income tax return (on which a taxable event with
respect to the property is reported).
The Treasury Department and the IRS considered and briefly
responded to a request to create a new process for challenging the
value reported by the executor in part 16 of the Summary of Comments on
Notice 2015-57 and Explanation of Provisions section of the preamble of
the proposed regulations. In the proposed regulations, the Treasury
Department and the IRS declined to create a new Federal process for
challenging the value reported by the executor. Administrability and
other concerns weigh against creating a new Federal process for
challenging the value reported by the executor. Specifically, this
would leave the IRS in the same position it held prior to the enactment
of section 1014(f). During that time, the IRS was forced to litigate
valuation issues with a beneficiary, often years after relevant market
information had ceased to be available, and/or after having previously
litigated the same valuation issue with the estate. In addition,
regarding the suggestion to create a procedure to allow the beneficiary
to provide evidence of value at the time of examination by the IRS of
the beneficiary's income tax return, such a procedure would be contrary
to the statutory rule in section 1014(f)(1) limiting the basis of
property within its scope to the property's final value for Federal
estate tax purposes or, otherwise, to the value reported on a required
Statement.
In response to the commenters' concerns, however, the Treasury
Department and the IRS are considering issuing guidance in the future
that grants a beneficiary of property subject to the consistent basis
requirement the opportunity to provide certain credible evidence of
value. Out of administrability concerns, the Treasury Department and
the IRS further anticipate such an opportunity might be available only
during some limited period of time and only if the credible evidence of
value indicates that the reported value represents a substantial
understatement of value.
2. Section 6035--Required Information Return(s) and Statement(s)
Section 1.6035-1 of the proposed regulations (proposed Sec.
1.6035-1) includes proposed rules that would address the statutory
basis reporting requirements under section 6035 applicable to executors
and other persons required to file an estate tax return. As noted in
part 3 of the Background section of this preamble, the Treasury
Department and the IRS made amendments to the proposed rules that
substantially reduce burden and increase administrability for both
taxpayers and the IRS. In particular, the final regulations (1) adopt a
suggested interpretation of the term acquiring in section 6035(a)(1),
thereby modifying the reporting requirements applicable in the case of
property not acquired by a beneficiary before the estate tax return due
date, (2) eliminate the subsequent transfer reporting requirement for
all beneficiaries other than trustees, and (3) except additional types
of property interests from the reporting requirements under section
6035. These and other amendments to proposed Sec. 1.6035-1 are laid
out in a reorganized final regulation.
A. Overview of Reporting Requirements
The final regulations under section 6035 add an overview paragraph
in Sec. 1.6035-1(a) to clarify the relationship between the reporting
requirements under section 6035 and the consistent basis requirement
applicable to certain beneficiaries under section 1014(f).
B. Applicability of Section 6035 Reporting Requirements
In order to provide greater clarity, the final regulations set
forth in separate paragraphs the provisions governing the applicability
of the section 6035 reporting requirements and the rule for the
identification of the persons included as executors who are subject to
them.
i. General Rules Regarding Applicability of Section 6035 Reporting
Requirements
Section 1.6035-1(b)(1) sets forth the rule in section 6035(a)(1)
and proposed Sec. 1.6035-1(a)(2) that only executors of an estate who
are required to file an estate tax return (referred to as a required
estate tax return) under section 6018 are subject to the reporting
requirements under section 6035. In addition, Sec. 1.6035-1(b)(1) sets
forth the rule that the reporting requirements apply only in the case
of a required estate tax return that is filed after July 31, 2015, and
sets forth the rule in proposed Sec. 1.6035-1(a)(2) that the reporting
requirements do not apply if no estate tax return is required to be
filed under section 6018 even if the executor files an estate tax
return for other purposes, including without limitation to make a
generation-skipping transfer tax exemption allocation or election, a
portability election, or a protective filing to avoid a penalty if an
asset value is later determined to cause a return to be required or
otherwise.
Section 1.6035-1(b)(1) of the final regulations also clarifies that
whether an estate tax return is a required estate tax return depends on
the date of death value of property includible in the decedent's gross
estate, the amount of adjusted taxable gifts, and the applicable filing
threshold under section 6018(a), so that an election made under section
2032 or 2032A of the Code to determine the value of property includible
in the gross estate in accordance with either of those respective
provisions is not relevant to the determination of whether a return is
a required estate tax return. See section 6018(a) and Sec. 20.6018-
1(a).
Some commenters inquired whether the reporting requirements apply
in the event estate tax returns are filed before August 1, 2015, if
either the due date for the return is after July 31, 2015, or the
executor files a supplement to the return after July 31, 2015. Section
1.6035-1(b)(1) of the final regulations provides that the reporting
requirements do not apply if a required estate tax return is filed on
or before July 31, 2015, even if the due date of the return is after
July 31, 2015, or if one or more supplements to that return are filed
with the IRS after July 31, 2015.
ii. Executors Subject to the Section 6035 Reporting Requirements
Section 1.6035-1(b)(2) of the final regulations defines the term
executor consistent with the definition of that term in proposed Sec.
1.6035-1(g)(1), but includes further explanation in response to
comments. One commenter noted the possibility that more than one person
may be considered an executor for purposes of section 2203(a) and Sec.
20.2203-1 and asked for clarification of the filing requirements in
that situation. The commenter posited a scenario in which an executor
who is appointed, qualified, and acting on behalf of the estate (an
appointed executor) files an estate tax return, but
[[Page 76363]]
is unable to make a complete return as to a trust the value of which is
includible in the gross estate of the decedent. In that case, the
trustee of that trust, upon notice from the IRS, is required to file a
return reporting the trust property and the value thereof. See section
6018(b) and Sec. 20.6018-2. In response, the final regulations provide
that each person required to file a return is subject to the section
6035 reporting requirements, but only with regard to the property
reported or required to be reported on the estate tax return required
to be filed by that person. The commenter also suggested clarifying the
application of the section 6035 reporting requirements if no executor
is appointed but multiple persons are in actual or constructive
possession of property of the decedent. Under the final regulations,
each person in actual or constructive possession of property of the
decedent is an executor and is subject to the section 6035 reporting
requirements, but only with regard to the property reported or required
to be reported on the estate tax return required to be filed by that
executor. Finally, the commenter suggested clarifying the application
of the reporting requirements in the case of successor or co-executors.
While all co-executors are responsible for the reporting, it is
sufficient for only one of the co-executors to file the Information
Return and to furnish the Statement(s).
Commenters questioned who is required to comply with the reporting
requirements if a qualified revocable trust makes a section 645
election and there is a probate estate. Under section 645, the trustee
of a qualified revocable trust and an appointed executor (if any) may
elect to treat the trust as part of the estate for income tax purposes.
The section 645 election relates only to the income tax liability of a
qualified revocable trust. Therefore, the section 645 election, by
itself, does not affect whether the trustee of a qualified revocable
trust is an executor within the meaning of Sec. 1.6035-1(b)(2). The
expanded definition of the term executor in Sec. 1.6035-1(b)(2) of the
final regulations adequately clarifies who is subject to the reporting
requirements.
C. Required Information Return and Statements
Section 1.6035-1(c) of the final regulations incorporates
modifications to the rules applicable to an executor's duty to file the
required Information Return (defined in Sec. 1.6035-1(c)(1) of the
final regulations) and furnish each required Statement (defined in
Sec. 1.6035-1(c)(2) of the final regulations) and the due dates for
the satisfaction of those duties. The modifications reflect the
adoption of comments relating to an executor's duty to furnish
Statements to beneficiaries who have not acquired property before the
due date (or earlier filing date) of the estate tax return.
i. Furnishing Statements to Beneficiaries Reporting Property the
Beneficiaries Have Not Yet Acquired
Section 6035(a)(1) requires the executor to furnish Statements to
each person acquiring any interest in property included in the
decedent's gross estate for Federal estate tax purposes. Section
1.6035-1(c)(2) of the final regulations defines Statement consistent
with proposed Sec. 1.6035-1(g)(3) and requires an executor to furnish
a Statement to each beneficiary who acquires certain property. Section
1.6035-1(c)(2) of the final regulations clarifies that the value the
executor reports on that Statement is the value of the property as
reported on the estate tax return required to be filed with the IRS.
Proposed Sec. 1.6035-1(d)(1), relying on the language of section
6035(a)(3)(A), requires that Statements be provided to all
beneficiaries on or before the earlier of the date that is 30 days
after the due date of the estate tax return or the date that is 30 days
after the date the estate tax return is filed with the IRS. If, by this
due date, the executor has not determined what property will be used to
satisfy the interest of each beneficiary, proposed Sec. 1.6035-1(c)(3)
requires executors to report on the Statement for each beneficiary all
of the property that the executor could use to satisfy that
beneficiary's interest. Proposed Sec. 1.6035-1(c)(3) further provides
that, once the exact distribution has been determined, the executor
may, but is not required to, file and furnish a supplemental
Information Return and Statement.
The Treasury Department and the IRS received numerous comments
objecting to this proposed rule. Commenters noted, and the Treasury
Department and the IRS agree, that proposed Sec. 1.6035-1(c)(3) would
result in duplicate reporting because a single item of property (or
interest in the property) would be reported on the Statement of several
beneficiaries, even though some of these beneficiaries will never
receive an interest or a partial interest in that property. According
to commenters, this duplicate reporting may confuse beneficiaries by
leading them to expect to receive all of the property reported on the
Statements furnished to them. In addition, commenters have contended
that this duplicate reporting is burdensome and may violate a
decedent's or beneficiary's right to privacy, possibly resulting in
conflicts and litigation among beneficiaries with competing interests
in the estate.
Commenters offered various suggestions for revising the rule for
property not acquired before the due date of the required reporting
under section 6035. One commenter suggested that, in lieu of the rule
requiring an executor to identify specific property the beneficiary may
receive from the estate, the final regulations should permit executors
to furnish Statements indicating that a beneficiary is to receive
either (1) a certain percentage of the estate's property or (2)
property valued at a certain dollar amount. Under this suggested
alternative, the executor then would be required to file a supplemental
Information Return and furnish a supplemental Statement within 30 days
after the executor distributes the property to the beneficiary.
Most commenters requested that the IRS extend the time for
furnishing Statements to beneficiaries to allow executors more time to
distribute property or to determine which property will go to which
beneficiary. One commenter suggested that the proper interpretation of
the language in section 6035(a)(1) requiring an executor to furnish a
Statement ``to each person acquiring any interest in property included
in the decedent's gross estate for Federal estate tax purposes'' is
that it does not include beneficiaries until they have received an
interest in particular property. The commenter supported this
recommendation by pointing out that the meaning of the word
``acquiring'' in the Code generally means already received. The
commenter identified sixty-four other sections of the Code in which the
word ``acquiring'' appears and noted that, in only two of those
sections, does ``acquiring'' refer to an event that has not yet
occurred. The commenter also pointed to the description of earlier
legislative proposals using identical language in which the
descriptions refer to the beneficiary ``receiving'' the property or the
``recipients'' of an interest. The commenter reasoned that section
6035(a) requires the reporting of the value (as reported on the estate
tax return) to the beneficiary acquiring that property, which assumes
that the property has already been identified by having been received
by the beneficiary. In addition, the commenter suggested, in effect,
that this interpretation of the statutory language would not violate
the statute's prohibition of any delay in reporting to a recipient
beyond the determination of that value because
[[Page 76364]]
reporting triggered by the beneficiary's receipt of the property would
still provide the required valuation notice to the recipient as soon as
the recipient would have reason to use that information. The commenter
also noted that section 6035(b) authorizes the Secretary to prescribe
regulations as necessary to carry out section 6035, and stated the
commenter's belief that this authority is sufficient to allow the
creation of a due date for Statements based on the date property is
acquired by a beneficiary.
The commenter suggested two alternatives for the due date for
furnishing Statements reporting the value of property that has not been
acquired or received by the beneficiary by the due date of the
Information Return: 30 days after distribution of the property to the
beneficiary or January 31 of the year following the year of
distribution of the property to the beneficiary. The commenter
acknowledged that the first alternative appears to be consistent with
the 30-day concepts found in section 6035(a)(3) (due on or before 30
days after the estate tax return due date or 30 days after the estate
tax return is filed, if filed before the due date, and, in the case of
an adjustment, 30 days after the adjustment is made), but the potential
of multiple due dates during a single year would be burdensome on both
taxpayers and the IRS. The commenter suggested that a due date of
January 31 of the year following distribution would minimize those
burdens while nevertheless ensuring that every beneficiary acquiring
property from the decedent would have the information necessary for
filing a timely income tax return reporting a sale or other relevant
event regarding this property.
One commenter requested that, if the final regulations create a due
date for furnishing Statements that is based on the date property is
acquired by a beneficiary, then executors nevertheless have the option
of furnishing all required Statements with the Information Return.
Under this suggestion, if an executor determines that it would be less
burdensome, an executor would have the option to furnish a Statement to
a beneficiary even if the beneficiary has not yet acquired the
property.
The Treasury Department and the IRS are sympathetic to the various
concerns raised by the commenters. Many estates subject to the section
6035 reporting requirements are complex and will require a period of
time well beyond the estate tax return filing due date to determine the
appropriate distributions of property to beneficiaries. In light of
these concerns, the final regulations adopt a suggested interpretation
of the term acquiring in section 6035(a)(1) that modifies, and reduces
the burden of, the reporting requirements applicable in the case of
property not acquired by a beneficiary before the estate tax return due
date (or earlier filing date). With regard to property the
beneficiaries acquire after the estate tax return due date, the
Treasury Department and the IRS agree with the commenters that a due
date for furnishing Statements to such beneficiaries that is after the
acquisition of property would have several benefits. It would eliminate
the potential confusion and lack of privacy that could result from
giving each beneficiary a Statement showing all of the property that
could be used to satisfy their respective bequests. It also would be
consistent with the understanding of the Treasury Department and the
IRS of the intent of section 6035 to provide accurate, timely, and
useful information to beneficiaries and the IRS. After consideration of
the comments, the Treasury Department and the IRS conclude that it is
appropriate to interpret the term acquiring consistent with its most
common meaning and consistent with the discretionary authority granted
in section 6035(b) to provide a due date, which is after the
acquisition of property, for furnishing Statements to beneficiaries who
acquire property after the due date (or earlier filing date) of the
decedent's estate tax return.
With regard to what the due date for Statements with regard to this
property should be, the Treasury Department and the IRS conclude that a
due date of January 31 of the year following acquisition by the
beneficiary of this property is the most administrable and least
burdensome alternative. This alternative is the most administrable and
least burdensome because a January 31 due date would allow an executor
to file the supplemental Information Return on an annual basis with
copies of all Statements furnished to beneficiaries acquiring property
in any given year, rather than having to file multiple supplemental
Information Returns each year on a Statement-by-Statement basis as each
Statement is furnished to a beneficiary within 30 days of acquisition.
Accordingly, Sec. 1.6035-1(c)(3) of the final regulations provides
that the due date for furnishing a Statement to a beneficiary who
acquired property on or before the due date or earlier filing of the
estate tax return is 30 days after the due date or earlier filing of
the estate tax return. The due date for furnishing a Statement to a
beneficiary who acquires property at a later date is January 31 of the
calendar year following the year of acquisition. Section 1.6035-1(c)(4)
of the final regulations provides that a beneficiary acquires property
when title vests in the beneficiary or when the beneficiary otherwise
has sufficient control over or connection with the property that the
beneficiary is able to take action related to the property for which
basis is relevant for Federal income tax purposes. Depending upon the
particular property and how it was titled at the decedent's death, this
could occur at the moment of death, or upon distribution by the
executor or a trustee.
The Treasury Department and the IRS further agree that providing
executors the option of furnishing all Statements within 30 days of
filing the estate tax return, regardless of whether all assets by then
have been acquired by the beneficiaries, may reduce the burden
associated with these reporting requirements and is reasonable if an
executor has cause to believe that a beneficiary will acquire certain
property. However, in the event that a different beneficiary acquires
that property, requiring supplemental reporting ensures that
beneficiaries receive the information they need to satisfy the
consistent basis requirement of section 1014(f) and otherwise.
Accordingly, Sec. 1.6035-1(c)(5) of the final regulations provides an
option to furnish Statement(s) prior to the acquisition of property by
a beneficiary. Under this rule, an executor may satisfy the requirement
to furnish a Statement to a beneficiary acquiring property from the
decedent or by reason of the death of the decedent by furnishing the
Statement prior to the beneficiary's acquisition of the property, but
only if the executor has reason to believe that the beneficiary in fact
will acquire the property. The Statement must identify the property the
beneficiary is expected to acquire as well as the value of that
property and other information prescribed by the Statement and the
instructions. A Statement described in this paragraph also must include
information with respect to property that has been acquired by that
beneficiary as required under Sec. 1.6035-1(c)(2) of the final
regulations. Also, under the rule in Sec. 1.6035-1(c)(5) executors are
required to update the beneficiary information on a supplemental
Information Return and Statement if, after satisfying the requirements
for this optional reporting, the property is acquired by a different
beneficiary.
[[Page 76365]]
ii. Explanation of Provisions Regarding the Required Information Return
and Statement(s)
In light of the due date set forth in the final regulations for the
furnishing of Statements with regard to property acquired by a
beneficiary after the due date or earlier filing of the estate tax
return, Sec. 1.6035-1(c) of the final regulations makes coordinating
changes in the description of the Information Return and the due dates
of that return and of any required supplements to the Information
Return.
In particular, Sec. 1.6035-1(c)(1) of the final regulations
defines Information Return consistent with proposed Sec. 1.6035-
1(g)(2), with one exception, and requires an executor to file the
Information Return by the due date set forth in Sec. 1.6035-1(c)(3) of
the final regulations. The one change is that the required attachments
to the Information Return include only a copy of each Statement
reporting the value of property acquired by a beneficiary on or before
the due date or earlier filing of the Federal estate tax return, and a
copy of each Statement (if any) reporting the value of property that
has not by then been acquired by a beneficiary as described in Sec.
1.6035-1(c)(5) of the final regulations (the option to furnish
Statement(s) prior to the acquisition of property by a beneficiary).
The Information Return must be timely filed even if there are no
Statements (as described in the preceding sentence) required to be
attached to that return.
As discussed in part 2.C.i. of this Summary of Comments and
Explanation of Revisions, a Statement reporting the value of property
acquired by a beneficiary subsequent to the due date or earlier filing
date of the estate tax return must be furnished to the beneficiary on
or before January 31 of the calendar year following the date of that
acquisition. Under Sec. 1.6035-1(c)(3)(ii) of the final regulations, a
copy of each Statement due by that January 31, along with a copy of
each Statement (if any) provided to beneficiaries in advance of their
receipt of property as permitted under Sec. 1.6035-1(c)(5) of the
final regulations, must be attached to a supplemental Information
Return filed with the IRS on or before that same January 31. Section
1.6035-1(c)(3)(iii) of the final regulations confirms the transition
rule in proposed Sec. 1.6035-1(d)(2), with an updated reference to
Sec. 1.6035-2 of the final regulations. Finally, Sec. 1.6035-1(c)(6)
of the final regulations includes an example illustrating the
application of Sec. 1.6035-1(c) of the final regulations.
Several commenters requested that a six-month extension of time
(distinct from the automatic six-month extension of time for filing the
estate tax return) be permitted for filing and furnishing the
Information Return and Statements in order to allow the executor
sufficient time to accurately determine which assets will be used to
satisfy the interests of the various beneficiaries. The due date set
forth in the final regulations for furnishing Statements to
beneficiaries with regard to property they acquire after the estate tax
return due date adequately addresses the concern identified by the
commenters. Therefore, this suggestion is not adopted.
D. Duty To Supplement
i. Duty To Supplement and Changes Requiring Supplemental Reporting
Section 1.6035-1(d)(1) of the final regulations sets forth the
rules in proposed Sec. 1.6035-1(e)(1) that impose a supplemental
reporting obligation (both to the IRS and to the beneficiary) on an
executor if a change to the information required to be reported on the
Information Return or Statement (or supplement to either) causes the
information as reported to be incorrect or incomplete. Several examples
of adjustments requiring supplemental reporting are identified in
proposed Sec. 1.6035-1(e)(2), and several comments were received with
regard to these examples. In response to these comments, some of the
examples listed in Sec. 1.6035-1(d)(2) of the final regulations differ
from those proposed, and the final regulations clarify some of the
other examples of adjustments.
Section 1.6035-1(d)(2)(i) of the final regulations sets forth the
rule in proposed Sec. 1.6035-1(e)(2) imposing a duty to supplement
upon the executor's receipt, discovery, or acquisition of information
that changes the beneficiary to whom the property is to be distributed
(pursuant to a death, disclaimer, bankruptcy, or otherwise). However,
the rule is clarified in the final regulations to provide more detail
in response to comments. Commenters asked how an executor is to comply
with the reporting requirements under section 6035 if all of the
required beneficiary information is not available to the executor, for
instance, if the beneficiary cannot be located or the beneficiary is a
trust not as yet established. The final regulations describe the
requirements in these circumstances and include the requirement to
supplement the required reporting to update the beneficiary information
when it becomes available to an executor. See Sec. 1.6035-1(d) and (g)
of the final regulations. Accordingly, Sec. 1.6035-1(d)(2)(i) of the
final regulations includes, as a change requiring supplemental
reporting, the discovery of any information that corrects or completes
other beneficiary information originally reported.
In response to comments, Sec. 1.6035-1(d)(2)(ii) of the final
regulations clarifies the rule in proposed Sec. 1.6035-1(e)(2)
providing that a change in the value of property pursuant to an
examination or litigation is a change requiring supplemental reporting.
One commenter asked for clarification as to whether supplemental
reporting is required if, during examination or litigation, a
settlement with the IRS increases the estate tax liability but the
increase is not related to a particular property. Another commenter
requested confirmation that only an adjustment in value that represents
the final value for Federal estate tax purposes gives rise to a duty to
supplement. With respect to the first comment, the Treasury Department
and the IRS observe that a settlement of estate tax liability typically
is related to an adjustment to the value of particular, identified
property includible in the gross estate, a claimed deduction or credit,
gift tax paid within three years before death, adjusted taxable gifts,
or gift tax paid and/or payable. If a settlement does not change the
value of particular, identified property, the settlement does not
impact the final value of the estate's property and is not a change
requiring supplemental reporting with respect to that specific
property. With respect to the second comment, an adjustment
representing the final value for estate tax purposes undoubtedly gives
rise to the statutory duty to supplement. In addition, an adjustment to
value on a supplemental estate tax return becomes the reported value
for purposes of section 6035(a)(1) and Sec. 1.1014-10(b)(2) of the
final regulations. Therefore, reporting a different value on a
supplemental estate tax return also comes within the scope of an
executor's duty to supplement. In response to these comments, Sec.
1.6035-1(d)(2)(ii) of the final regulations clarifies that both a final
determination of value of property for Federal estate tax purposes that
differs from the value identified on a Statement or supplement to a
Statement and an executor's reporting of a change in value on a
supplemental estate tax return give rise to a duty to supplement.
Commenters objected to the rule in proposed Sec. 1.6035-1(e)(2)
providing that the discovery of unreported property is a change
requiring supplemental reporting; they suggested that this is an
[[Page 76366]]
impermissible broadening of the estate tax filing requirement. In
response, the final regulations instead provide that it is only the
supplementing of an estate tax return, to report the value of
previously unreported property, that triggers a duty to supplement the
reporting under section 6035, and not the mere discovery of unreported
property. Consistent with the definition of included property in
Sec. Sec. 1.1014-10(d)(4) and 1.6035-1(e)(1) of the final regulations,
Sec. 1.6035-1(d)(2)(iii) of the final regulations sets forth the rule
that property that is included in a decedent's gross estate, either by
the filing of an estate tax return, a supplemental estate tax return,
or pursuant to an examination by the IRS or otherwise, will give rise
to a duty to supplement if the fair market value of that property was
not previously reported on the estate tax return or is changed.
The rule in proposed Sec. 1.6035-1(e)(2) relating to a change in
the property to be acquired by a beneficiary is updated in the final
regulations to conform with the reporting requirements in the final
regulations for property not acquired by a beneficiary before the due
date or earlier filing date of the estate tax return. Section 1.6035-
1(d)(2)(iv) of the final regulations provides that a change requiring
supplemental reporting includes an executor's disposition of property
in a transaction in which the basis of new property received by the
estate is determined in whole or in part by reference to the final
value of property acquired from the decedent or as a result of the
death of the decedent (for example, as the result of a like-kind
exchange or involuntary conversion). However, Sec. 1.6035-1(d)(2)(iv)
of the final regulations also imposes a duty to supplement if an
executor furnishes a Statement to a beneficiary prior to the
beneficiary's acquisition of property pursuant to the optional
reporting afforded under Sec. 1.6035-1(c)(5) of the final regulations
and the beneficiary ultimately acquires property different than that
identified on that Statement.
ii. Changes Not Requiring Supplemental Reporting
Section 1.6035-1(d)(3)(i) of the final regulations adopts the rule
in proposed Sec. 1.6035-1(e)(3)(i)(A) excluding from the duty to
supplement changes to correct an inconsequential error or omission.
However, the rule in proposed Sec. 1.6035-1(e)(3)(i)(B) excluding from
the duty to supplement a change in the distribution of property from
that previously reported is omitted from the final regulations because
it relates only to the proposed reporting requirements for property not
acquired by a beneficiary before the estate tax return due date. The
reporting requirements for such property have been modified in the
final regulations.
Section Sec. 1.6035-1(d)(3)(ii) of the final regulations provides
an exception to the duty to supplement for a change in value as the
result of an event described in section 2032A(c)(1) that triggers an
additional estate tax liability with regard to property for which a
special use election was made, including a beneficiary's election to
increase the beneficiary's basis in that property under section 1016(c)
in response to that event. Although such an election by a beneficiary
does result in a change in value under the rule in Sec. 1.1014-
10(b)(3)(ii), the qualified heir is in a better position than the
executor to know this information, so no supplemental reporting is
required of the executor. A commenter requested an example illustrating
the adjustment to basis if there is a disposition of property subject
to section 2032A under section 2032A(c)(1). Because an example would
serve the purpose of illustrating the workings of section 1016(c),
rather than the reporting requirements under section 6035, the Treasury
Department and the IRS decline to include such an example in these
regulations under section 6035.
Section 1.6035-1(d)(3)(iii) of the final regulations adopts the
suggestion of a commenter by excepting from the duty to supplement any
post-death or other adjustment to the basis of property made pursuant
to sections of the Code other than section 1014(f). The executor
generally is required to provide only supplemental Statements that show
a change in the identification, value, or recipient of property as
reported on the estate tax return. Therefore, section 6035 does not
require the reporting of adjustments in basis attributable to the
operation of Code sections other than section 1014(f). That commenter
also suggested that the final regulations provide a uniform method for
reporting post-death adjustments to the beneficiary if the executor
chooses to do so. The Treasury Department and the IRS understand that
an executor may choose to furnish a beneficiary information regarding
changes to basis that occur pursuant to Code sections other than
section 1014(f). If the executor does so, and if the executor chooses
to use the Statement to provide that information, that information must
be shown separately from the information required to be reported on the
beneficiary's Statement.
Finally, Sec. 1.6035-1(d)(3)(iv) of the final regulations provides
an exception to the duty to supplement for any other change that is
identified as requiring no supplemental reporting under this section in
guidance published in the future in the Federal Register or in the
Internal Revenue Bulletin.
iii. Due Date of Supplemental Reporting
The rules in proposed Sec. 1.6035-1(e)(4)(i) relating to the due
date for supplemental reporting are updated in the final regulations to
align with the modified reporting requirements in the final
regulations. Section 1.6035-1(d)(4) of the final regulations provides
that supplemental reporting is due on or before 30 days after the date
on which information becomes available to the executor from which the
executor can conclude that a change to the earlier reporting is
required to be supplemented in accordance with these final regulations.
Section 1.6035-1(d)(4) of the final regulations clarifies that, for
changes occurring as a result of supplementing the estate tax return,
the date on which that information becomes available to the executor is
the filing date of the supplement to that return and, for changes
occurring as a result of a determination of final value, that date is
the date a value becomes the final value under Sec. 1.1014-10(b)(1) of
the final regulations. In the case of property not acquired by a
beneficiary before the due date or earlier filing date of the estate
tax return, Sec. 1.6035-1(d)(4) of the final regulations provides
that, for property for which a Statement has not been provided to the
beneficiary pursuant to the option to furnish Statements prior to the
acquisition of property by a beneficiary in Sec. 1.6035-1(c)(5) of the
final regulations, the due date of any required supplemental reporting
may be delayed until the due date for supplemental reporting for
subsequently-acquired property in Sec. 1.6035-1(c)(3)(ii) of the final
regulations.
iv. Duration of Duty To Supplement
Commenters inquired whether the executor's duty to file
supplemental Information Returns and furnish supplemental Statements is
limited in time. In response, Sec. 1.6035-1(d)(5) of the final
regulations is added to provide, in effect, that the duty to supplement
is limited to changes that occur on or before the later of a
beneficiary's acquisition of the property or the determination of the
final value of the property under Sec. 1.1014-10(b)(1) of the final
regulations.
v. Illustration of Duty To Supplement
Section 1.6035-1(d)(6) was added to the final regulations to
provide examples to illustrate the application of
[[Page 76367]]
the rules regarding the duty to supplement as provided in Sec. 1.6035-
1(d) of the final regulations.
E. Property for Which Reporting Is Required
Proposed Sec. 1.6035-1(b)(1) provides in part that the property to
which the section 6035 reporting requirements apply is all property
reported or required to be reported on an estate tax return required
under section 6018. The reporting requirements also apply to any other
property the basis of which is determined in whole or in part by
reference to the property described in the preceding sentence (for
example, as the result of a like-kind exchange or an involuntary
conversion).
As discussed in part 1.H of this Summary of Comments and
Explanation of Revisions, the final regulations do not include the
proposed zero basis rule for unreported property to which numerous
commenters objected. Therefore, the final regulations narrow the scope
of property for which reporting is required as compared to the rule in
proposed Sec. 1.6035-1(b)(1) that would have subjected all property
reported or required to be reported on an estate tax return under
section 6018. Section 1.6035-1(e)(1) of the final regulations provides
that only property whose value is included in the value of a decedent's
gross estate for Federal estate tax purposes (and any other property
the basis of which is determined, in whole or in part, by reference to
the basis of such included property) is subject to the section 6035
reporting requirements. Section 1.6035-1(e)(1) of the final regulations
defines the term included property consistently with the definition of
that term in Sec. 1.1014-10(d)(4) of the final regulations to mean
property the value of which is included in the value of the decedent's
gross estate as defined in section 2031 or 2103. Section 1.6035-1(e)(1)
of the final regulations further clarifies that included property does
not include property whose value is not reported on an estate tax
return and whose value is not otherwise included in the value of the
decedent's gross estate as finally determined for Federal estate tax
purposes.
Some commenters suggested that property subject to reporting should
be limited to property to which the consistent basis requirement of
section 1014(f) applies. While both sections 6035 and 1014(f) apply
with respect to property includible in a decedent's gross estate only
if an executor is required to file an estate tax return under section
6018, section 1014(f)(2) limits the application of the consistent basis
requirement to property whose inclusion in the gross estate increases
the estate tax liability for the estate. Section 6035 includes no
similar limitation and, therefore, applies to a broader universe of
property than section 1014(f), and it applies whether or not any estate
tax must be paid. Therefore, this comment is not adopted.
Another commenter sought clarification as to whether property for
which a marital or charitable deduction is claimed is property for
which reporting is required. Property that qualifies, in whole or in
part, for a marital or charitable deduction for which a deduction is
claimed is included property as that term is defined in Sec. 1.6035-
1(e)(1) of the final regulations. Accordingly, as Sec. 1.6035-1(e)(1)
of the final regulations also clarifies, such property is subject to
reporting. Consequently, the executor is required to file an
Information Return and to furnish Statements if the value of the estate
is sufficient to require the filing of an estate tax return, even if no
estate tax is due as a result of a charitable and/or marital deduction.
Some commenters had questions about the application of the
reporting requirements to community property. Proposed Sec. 1.6035-
1(b)(1) provides that the reporting requirements are limited to only
the decedent's one-half interest in community property. Commenters
asked for confirmation that the reporting requirements do not apply to
the surviving spouse's one-half interest in community property that is
subject to section 1014(b)(6). Under section 1014(b)(6), the spouse's
interest also is deemed to have been acquired from the decedent and
thus is subject to the basis adjustment under section 1014(a). However,
section 1014(a) and section 6035 are different. The spouse's interest
is not includible in the decedent's gross estate and thus is not
required to be reported on the estate tax return. Accordingly, Sec.
1.6035-1(e)(1) of the final regulations sets forth the rule that the
reporting requirements do not apply to the surviving spouse's interest
in community property.
Some commenters asked whether there is a reporting requirement if
the executor makes a non pro rata division and distribution of
community property authorized by applicable State law. See, for
example, West's Ann. Cal. Prob. Code sections 100(b) and 101(b). Under
applicable State law, an executor may distribute the surviving spouse's
interest in community property (property belonging to the surviving
spouse, in which the decedent has no interest includible under section
2033) to a beneficiary other than the surviving spouse to satisfy a
bequest. In lieu of the surviving spouse's interest in the community
property, the executor may distribute to the surviving spouse all or
any part of decedent's interest in other property includible in the
gross estate. The executor's distribution does not convert property
included in the gross estate into property not included in the estate
and, therefore, does not eliminate the applicability of the reporting
requirements with regard to the property distributed to the surviving
spouse. Accordingly, Sec. 1.6035-1(e)(1) of the final regulations
identifies, as property subject to reporting, property included in the
decedent's gross estate that is distributed to a decedent's surviving
spouse in lieu of the surviving spouse's interest in community property
pursuant to State law.
Section 1.6035-1(e)(2) of the final regulations adds two examples
to illustrate property subject to reporting under section 6035.
F. Excepted Property Requiring Only Limited Reporting
The proposed regulations under Sec. 1.6035-1(b)(1) list four types
of property proposed to be excepted from the reporting requirements:
(i) cash (other than a coin collection or other bills or coins with
numismatic value); (ii) income in respect of a decedent (as defined in
section 691); (iii) tangible personal property for which an appraisal
is not required under Sec. 20.2031-6(b); and (iv) property sold,
exchanged, or otherwise disposed of (and therefore not distributed to a
beneficiary) by the estate in a transaction in which capital gain or
loss is recognized.
Many commenters suggested additions or modifications to this list
of exceptions. In response, the list in proposed Sec. 1.6035-1(b)(1)
is expanded in redesignated Sec. 1.6035-1(f)(2) of the final
regulations. A particular property included in the decedent's gross
estate may qualify under more than one of these exceptions. In
addition, Sec. 1.6035-1(f)(1) of the final regulations explains the
reporting requirements applicable to property described in Sec.
1.6035-1(f)(2) of the final regulations, referred to as excepted
property, and Sec. 1.6035-1(f)(4) of the final regulations provides
examples of excepted property and illustrates the reporting
requirements applicable to this property. A discussion of the comments
and responses to the comments follows.
i. Limited Reporting of Excepted Property
Some commenters noted that it is unclear whether an executor is
subject to any reporting requirements under
[[Page 76368]]
section 6035 if all distributions from the estate are of property
excepted from the reporting requirements by proposed Sec. 1.6035-
1(b)(1). For example, commenters questioned whether an executor is
subject to any reporting requirements under section 6035 if the
executor has liquidated (or will liquidate) the estate so that all
distributions will be made in cash. In response, Sec. 1.6035-1(f)(1)
of the final regulations clarifies that included property is subject to
more limited reporting if the property is excepted property (as
identified in Sec. 1.6035-1(f)(2)(i) through (xiv) of the final
regulations). Specifically, the requirement to file an Information
Return with the IRS pursuant to Sec. 1.6035-1(c)(1) of the final
regulations remains the same even if all property is excepted property.
However, in the case of excepted property, an executor is required only
to disclose on the Information Return that some or all of the property
included in the decedent's gross estate is excepted from the full
reporting requirements pursuant to Sec. 1.6035-1(f)(2) of the final
regulations; an executor is not required to identify the excepted
property or to provide a Statement to a beneficiary with regard to
excepted property.
ii. Exceptions for Cash and Other Property
Proposed 1.6035-1(b)(1)(i) excepts cash (other than a coin
collection or other bills or coins with numismatic value) from the
reporting requirements under section 6035. To provide more precision
and clarity, Sec. 1.6035-1(f)(2)(i) of the final regulations replaces
the exclusion for cash with an exclusion for United States dollars.
United States dollars are defined in Sec. 1.6035-1(f)(3) of the final
regulations as the official currency of the United States. For purposes
of section 6035, the term United States dollars includes physical bills
and coins if the value of each bill or coin is equivalent to the face
amount of that bill or coin. This definition does not include other
physical United States bills or coins with numismatic value because
these bills or coins typically do not have a value equal to their face
value.
Many commenters requested that the exception for cash in the
proposed regulations be expanded to include cash equivalents. In
response to these comments, Sec. 1.6035-1(f)(2) of the final
regulations expands the list of excepted property to include property
the value of which is equal to its face value and that either is
expressed in United States dollars or will be paid in United States
dollars. This excepted property includes: (1) United States dollar-
denominated demand deposits; (2) Cash collateral denominated in United
States dollars held by a third party to secure a liability (such as a
deposit of purchase money or a security deposit); (3) Life insurance
proceeds on the life of the decedent payable in a lump sum in United
States dollars; and (4) Federal, State, and local tax refunds and other
refunds payable in United States dollars. Certificates of deposit are
excepted property because their Federal estate tax value generally
equals their face value plus interest accrued to the date of death.
Similarly, shares in money market funds are excepted property under the
final regulations.
A commenter suggested that notes having a Federal estate tax value
equal to the outstanding principal balance of the note should be
considered a cash equivalent. Another commenter suggested that such
notes should be excepted because the disposition of such property will
never be a recognition event. The Treasury Department and the IRS
decline to adopt these suggestions because notes have basis and the
face value of the note may not always equal the final value of the note
for Federal estate tax purposes. See Sec. 20.2031-4. However, if a
note is forgiven in full by the decedent at death, the underlying
indebtedness is discharged and no property having basis remains for
distribution to a beneficiary. Accordingly, excepted property also
includes notes that are forgiven in full by the decedent at death,
whether or not denominated in United States dollars.
In further response to the aforementioned comments as well as
additional comments received regarding property qualifying for limited
reporting under the cash exception, the Treasury Department and the IRS
note that the following items do not fall within the list of excepted
property in Sec. 1.6035-1(f)(2) of the final regulations: (1) currency
other than in United States dollars; (2) any payments not made in
United States dollars; (3) life insurance policies not paid in United
States dollars, and life insurance policies payable to a beneficiary in
United States dollars annually or at some other interval for a period
of time after the decedent's death; (4) notes (other than an
installment obligation subject to section 453) that the decedent did
not forgive in full upon the decedent's death, whether or not expressed
in United States dollars; (5) U.S. Savings bonds; and (6) accounts
receivable (unless such property consists entirely of the right to
receive an item of income in respect of a decedent as defined in
section 691 (IRD)). This property generally has basis, its value
generally may not equal its face value and, accordingly, this property
is not excepted from the reporting requirements in the final
regulations. For the same reasons, digital assets as defined in section
6045(g)(3)(D), including virtual currency \2\ or cryptocurrency, do not
fall within the list of excepted property set forth in Sec. 1.6035-
1(f)(2) of the final regulations. Consistent with all of the above, the
list of excepted property is expanded and clarified in Sec. 1.6035-
1(f)(2) of the final regulations. With respect to future modifications
to property qualifying as excepted property, Sec. 1.6035-1(f)(2)(xiv)
of the final regulations provides that excepted property will include
any other property that is identified as excepted property in published
guidance in the Federal Register or in the Internal Revenue Bulletin.
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\2\ Virtual currency is defined for Federal income tax purposes
as a digital representation of value that functions as a medium of
exchange, a unit of account, or a store of value other than the
United States dollar or a foreign currency. See Notice 2014-21,
2014-16 I.R.B. 938; Rev. Rul. 2019-24, 2019-44 I.R.B. 1004. Some
digital assets are referred to as virtual currency or
cryptocurrency.
---------------------------------------------------------------------------
The Treasury Department and the IRS note that certain beneficiaries
in receipt of included property may have a basis in that property
different from the value of that property as expressed in United States
dollars, and therefore may have to convert the final value of that
property into a currency other than United States dollars in order to
determine their initial basis in that property. Such a beneficiary
includes a qualified business unit (within the meaning of section 989)
of a person that has a functional currency other than the United States
dollar. See sections 985 through 989 for rules regarding the functional
currency of a qualified business unit.
iii. Exception for Household and Personal Effects
Proposed 1.6035-1(b)(1)(iii) excepts from the reporting
requirements tangible personal property for which an appraisal is not
required under Sec. 20.2031-6(b). Section 20.2031-6(b) requires an
appraisal if the decedent's household and personal effects include
articles having marked artistic or intrinsic value with a total value
in excess of $3,000. In response to a comment, these items are
described in the final regulations as household and personal effects,
rather than as tangible personal property, to conform more closely with
Sec. 20.2031-6(b).
Commenters asked whether the $3,000 threshold applies to each
article
[[Page 76369]]
or to the collective value of all the tangible personal property
includible in the gross estate. In addition, one commenter asked how to
allocate the final value of articles of household and personal effects
appraised as a single set or group if the estate distributes parts of
that set or group among different beneficiaries (for example, the gross
estate includes a 24-piece silver flatware set with a final value of
$4,000, and the set is divided between two beneficiaries). The
commenter suggested that the executor be given the authority to use any
reasonable method to allocate the final value (and thus the basis) of
the parts of the set or group among the beneficiaries. Finally,
commenters noted that the $3,000 threshold amount found in Sec.
20.2031-6(b) has remained static since 1958 and asked that it be
increased.
The Treasury Department and the IRS understand the need for clarity
on how to apply the exception in the proposed regulations for tangible
personal property. However, addressing this issue in the final
regulations necessarily would impact determinations of whether an
appraisal is required under Sec. 20.2031-6(b) and how to allocate the
value of estate property among beneficiaries. These issues, including
any change to the threshold amount under Sec. 20.2031-6(b), are more
appropriately addressed in guidance under section 2031 related to the
valuation of household and personal effects. Accordingly, Sec. 1.6035-
1(f)(2)(ix) of the final regulations preserves the exception and does
not address the commenters' questions.
iv. Exceptions for Property Whose Basis Is Unrelated to the Federal
Estate Tax Value of the Property
Because section 1014(a) does not apply to the right to income in
respect of a decedent as defined in section 691 (IRD), the Federal
estate tax value of IRD does not affect its basis in the hands of the
beneficiary acquiring that property. Accordingly, proposed Sec.
1.6035-1(b)(1)(ii) excepts IRD from the reporting requirements. The
Treasury Department and the IRS deem it appropriate in the final
regulations to more generally except from full section 6035 reporting
requirements property having a basis that is determined without
reference to the property's Federal estate tax value, including IRD. A
beneficiary receiving such property has no need to receive a Statement
providing the Federal estate tax value of such property. Several types
of IRD are listed separately in the regulations. These assets, such as
individual retirement accounts (IRAs), may have an IRD component and a
non-IRD component of basis. The following paragraphs discuss comments
relating to reporting exceptions or suggested exceptions for property
having a basis that is determined without reference to the property's
Federal estate tax value.
Multiple commenters sought clarification on whether certain IRD
property having a basis component is excepted from the full section
6035 reporting requirements, particularly in the case of certain
retirement plans, annuities, installment obligations, and interests in
passthrough entities holding an item of IRD.
With regard to annuity contracts subject to section 72 and
installment obligations subject to section 453, commenters suggested
that the final regulations clarify that, despite having a basis
component, such property be excepted because no basis adjustment occurs
with respect to such property at the decedent's death. The Treasury
Department and the IRS agree and, accordingly, such property is
identified in Sec. 1.6035-1(f)(2)(xi) of the final regulations as
examples of property having a basis that is determined without
reference to the property's Federal estate tax value. For the same
reason, Sec. 1.6035-1(f)(2)(xi) of the final regulations also
includes, as an example of such excepted property, any amounts received
under an annuity contract, such as a lump sum payment paid to terminate
an annuity contract or a death benefit paid under an annuity contract.
Multiple commenters sought clarification as to whether IRAs and
other retirement plans and deferred compensation plans come within the
IRD exception in the proposed regulations. Commenters noted that, in
certain scenarios, a decedent will have basis in such an account or
plan, in addition to IRD. One commenter asserted that the reporting
typically required for these accounts or plans outside of the section
6035 reporting requirements is sufficient and suggested adding an
exception to the final regulations so that the section 6035 reporting
requirements will not apply to property in or distributions from
retirement plans (whether or not tax-deferred). Such property, when
acquired from a decedent, generally has a basis that is determined
without reference to the property's Federal estate tax value.
Therefore, distributions from retirement plans and deferred
compensation plans, including individual retirement arrangements as
defined in sections 408 and 408A, are included as examples of property
coming within the exception from full reporting in Sec. 1.6035-
1(f)(2)(xi) of the final regulations.
In other instances in which property consists only in part of a
right to receive IRD, such as an interest in a passthrough entity that
holds an interest constituting IRD, commenters sought clarification on
the scope of the IRD exception to section 6035 reporting. In most
cases, the basis of such property is determined under section 1014(a),
even though the basis under section 1014(a) may be adjusted to account
for the items of IRD. Because the Federal estate tax value of such
property is relevant to the determination of the recipient's basis in
the property, such property does not come within the exception for
property having a basis determined without reference to the property's
Federal estate tax value in Sec. 1.6035-1(f)(2)(xi) of the final
regulations. That exception is limited to property that consists
entirely of IRD.
Finally, in response to other requests for clarification,
appreciated property described in section 1014(e) that is acquired by a
decedent within 1 year of death, for which basis is not adjusted under
section 1014(a), also is included as an example of property coming
within the exception from full reporting in Sec. 1.6035-1(f)(2)(xi) of
the final regulations.
v. Exceptions for Property Sold, Exchanged, or Disposed of Prior to
Distribution
Proposed Sec. 1.6035-1(b)(1)(iv) excepts property sold, exchanged,
or otherwise disposed of (and therefore not distributed to a
beneficiary) by the estate in a transaction in which capital gain or
loss is recognized. Commenters asserted that this exception as proposed
suggests that the reporting requirements would continue to apply to
property sold, exchanged, or otherwise disposed of by the estate if no
gain or loss is recognized because the sales price equals the estate's
basis in the property. Commenters suggested, and the Treasury
Department and the IRS agree, that the reporting requirements should
not apply to property disposed of in a recognition transaction for the
estate for income tax purposes, whether or not gain or loss is
recognized, because the basis of this property is no longer related to
the property's Federal estate tax value. The Treasury Department and
the IRS also agree with commenters that, for purposes of the reporting
required under section 6035, it is irrelevant whether any gain or loss
the estate recognizes is capital or ordinary. The final regulations
under Sec. 1.6035-1(f)(2)(x) include these clarifying changes. In
addition, in response to requests for additional clarification, Sec.
1.6035-1(f)(2)(x)(A) through (E) of the
[[Page 76370]]
final regulations include examples of excepted property pursuant to
this rule as follows: (1) property distributed in satisfaction of a
pecuniary bequest on which the estate recognizes any gain or loss
pursuant to Sec. 1.661(a)-2(f); (2) property for which an election
under section 643(e)(3) has been made for the estate to recognize any
gain or loss; (3) interests in business entities that are redeemed for
United States dollars prior to distribution to a beneficiary; (4)
property disposed of in a transaction described in section 267(a) and
(b)(13), which disallows a loss from the sale or exchange of property,
directly or indirectly, between the executor and the beneficiary of the
estate, except in a sale or exchange in satisfaction of a pecuniary
bequest; and (5) property subject to the mark to market accounting
method at the time of distribution from the estate or from the
decedent's revocable trust.
Similarly, Sec. 1.6035-1(f)(2)(xii) of the final regulations
excepts bonds to the extent that they are redeemed by the issuer for
United States dollars prior to being distributed to a beneficiary so
that any gain or loss is recognized by the estate.
vi. Exception for Property Included in the Gross Estate of a
Beneficiary
A commenter suggested that an exception to the reporting
requirements should apply if the beneficiary of property acquired from
a decedent dies shortly after that decedent and that property then is
included in the deceased beneficiary's gross estate. In this case, the
deceased beneficiary does not need a Statement identifying the value of
that property because the basis of that property will be determined as
of the beneficiary's date of death, thus independently of the
determination of the final value of that property in the decedent's
estate. Accordingly, Sec. 1.6035-1(f)(2)(xiii) of the final
regulations identifies property included in the gross estate of a
beneficiary who died before the due date of the Information Return as
excepted property subject to only limited reporting.
vii. Publicly Traded Securities
Two commenters suggested that publicly traded securities should be
excepted from the reporting requirements, both to reduce burden and
because Sec. 1.6045A-1(b)(8) already requires basis reporting for
certain publicly traded securities. This suggestion is not adopted in
the final regulations because, while Sec. 1.6045A-1(b)(8) requires
basis reporting between brokers if certain securities are transferred,
it does not always require reporting to the IRS and the beneficiary. It
would be burdensome for both taxpayers and the IRS to distinguish
between those covered securities and others, including shares held in
certificate form, for purposes of complying with these reporting
requirements. Further, the information to be transferred between
brokers might not always be the final value of the security for Federal
estate tax purposes. Additional detailed information regarding the
reporting of securities requested by commenters may be provided in
forms and instructions.
viii. Other
One commenter requested a reporting exception for property
transferred to a charity or nonresident who is not a citizen of the
U.S. (nonresident noncitizen) based on the assumption that charities
and nonresident noncitizens have no need for basis information. Basis
information for such property is relevant in certain circumstances,
such as for the computation of the excise tax on a private foundation,
and, therefore, this suggestion is not adopted.
G. Identification of Beneficiaries
The proposed regulations under Sec. 1.6035-1(c)(1) describe the
reporting requirements as they apply to different beneficiaries,
including a beneficiary who is also an executor, a beneficiary of a
life estate, a beneficiary of a remainder interest and a beneficiary of
a contingent interest. Proposed Sec. 1.6035-1(c)(2) describes the
reporting requirements as they apply to a beneficiary that is a trust,
estate, or other entity. Proposed Sec. 1.6035-1(c)(3) describes the
reporting requirements applicable if the beneficiary of particular
included property has not been identified by the due date of the
required reporting. Finally, proposed Sec. 1.6035-1(c)(4) describes
the reporting requirements applicable if a beneficiary cannot be
located by the executor.
As discussed in part 2.C.i. of this Summary of Comments and
Explanation of Revisions, many commenters objected to the proposed
reporting requirements under Sec. 1.6035-1(c)(3) that would have
applied in the case of an executor who has not determined what property
will be used to satisfy the interest of each beneficiary by the due
date of the Information Return. The section 6035 reporting requirements
have been modified in Sec. 1.6035-1(c) of the final regulations to
address the concerns of the commenters. However, additional comments
were received on the other beneficiary provisions in proposed Sec.
1.6035-1(c). A discussion of these comments and responses to these
comments, as well as a discussion of certain clarifying changes made in
Sec. 1.6035-1(g) of the final regulations, follows.
i. Definition of Beneficiaries
Section 1.6035-1(g)(1) of the final regulations defines the term
beneficiary to refer to a person who acquires (or will acquire)
property subject to reporting described in Sec. 1.6035-1(e) of the
final regulations. A beneficiary may be an individual (including one
who is the executor as well as a beneficiary), the estate of a deceased
individual who survived the decedent, a trust (referred to as a
beneficiary trust), or an entity other than a trust, including without
limitation a business entity or an organization described in section
501(c).
ii. Beneficiary Trust
Proposed Sec. 1.6035-1(c)(2) directs that, if the beneficiary is a
trust, estate, or other entity, the executor is to furnish the
beneficiary's Statement to the trustee of the trust or similar
representative of the estate or other entity, rather than to the
beneficiaries or other owners of that trust or other entity. This
provision generated several comments. Some commenters questioned
whether the Statement should be given to the trustee or to the trust's
beneficiary. They noted that, because there are many different types of
trusts and varying circumstances, an inflexible rule is not necessarily
appropriate in this context. For instance, some trusts terminate at
death or shortly thereafter and the trustee distributes the trust
property in kind, while other trusts continue in existence for many
generations. In some cases, it may be unclear when a trust terminates
because an existing trust may be decanted or divided into several trust
shares or different trusts. Some trusts are for the benefit of only one
beneficiary, such as a marital trust, but other trusts may be for a
class of different beneficiaries. In addition, sometimes, the executor
may not be able to get information about the provisions or
beneficiaries of an inter vivos trust, although the trust property is
includible in the decedent's gross estate for Federal estate tax
purposes.
After consideration of the comments, the Treasury Department and
the IRS agree that there are circumstances under which it would be
appropriate for an executor to furnish the Statement to the trustee of
a beneficiary trust and different circumstances warranting the
furnishing of the Statement directly to the trust beneficiary(s).
Section 6035 contemplates that the Statement will be
[[Page 76371]]
received by a person or entity that is likely to engage in an income
tax recognition event with respect to the property. A trust that
terminates at the death of the decedent or shortly thereafter is
unlikely to have such an event, unlike a trust that continues for many
years. Any rule attempting to distinguish between these different
circumstances would be both complex and likely to fail to address the
entire universe of possibilities.
Accordingly, in order to respond to the comments, and to avoid
undue complexity in regulations, the Treasury Department and the IRS
conclude that it is appropriate to adopt a flexible rule for
identifying the beneficiary to whom the executor must furnish the
Statement in the case of a beneficiary trust. Section 1.6035-1(g)(2)(i)
of the final regulations provides that the executor must furnish the
Statement to the trustee, rather than to the beneficiaries of the
trust, but allows the executor instead to furnish the Statement
directly to the beneficiaries of the trust, with a copy to the trustee,
if the executor reasonably believes that it is unlikely that the trust
will depreciate, sell, or otherwise dispose of the property in a
recognition event for income tax purposes. For this purpose, a trust's
beneficiaries include all potential current income beneficiaries and
each remainderman who would have had a current interest in the trust if
one or more of the income beneficiaries had died immediately before the
decedent.
Commenters also requested clarification of the executor's
obligation to furnish a Statement regarding the property of an inter
vivos trust included in the decedent's gross estate for Federal estate
tax purposes. In this situation, the executor is not distributing the
trust property to the trustee and, assuming the executor reported the
trust on the estate tax return, the trustee is not the executor
required to file that estate tax return. If the trust property is
reported on the estate tax return filed by the executor of the estate,
that executor is subject to the reporting requirements as described in
this section with regard to the trust property. Except for the
reporting required under Sec. 1.6035-1(h) of the final regulations, it
is only in the situations described in Sec. 1.6035-1(b)(2) of the
final regulations, in which a trustee of a trust might be an executor
required to file an estate tax return with regard to trust property,
that the trustee would be required to file the Information Return and
Statement(s) with regard to the trust property reported on the estate
tax return filed by that trustee.
Commenters requested guidance on how to comply with the reporting
requirements to a beneficiary trust if that trust is not yet
established by the due date of the Information Return. In response,
Sec. 1.6035-1(g)(2)(ii) of the final regulations provides that, if by
the due date of the Information Return, a beneficiary trust does not
have at least one trustee and a tax identification number from the IRS,
an executor must report on the Information Return that the beneficiary
trust is not yet established in accordance with the instructions.
Supplemental reporting is required once the beneficiary trust is
established.
iii. Furnishing Statement to Beneficiary of Split Interest in Property,
Not in Trust
Section 1.6035-1(g)(3) of the final regulations retains and
clarifies certain aspects of the rules in proposed Sec. 1.6035-1(c)(1)
applicable to beneficiaries of split interests in property not in
trust. Under Sec. 1.6035-1(g)(3) of the final regulations, the
beneficiary of a life estate not in trust is the life tenant, and the
beneficiary of a remainder interest not in trust is each remainderman,
identified as if the life tenant were to die immediately after the
decedent. For purposes of determining the due date for furnishing
Statements to such beneficiaries under Sec. 1.6035-1(c)(3) of the
final regulations, each beneficiary will be deemed to have acquired the
property subject to reporting on the date of the decedent's death.
Section 1.6035-1(g)(3) of the final regulations further provides that
the beneficiary of a contingent interest not in trust is a beneficiary
only if the contingency occurs before the end of the period during
which the executor has an obligation to supplement the reporting as
provided in Sec. 1.6035-1(d)(5) of the final regulations. If the
contingency occurs during this period, Sec. 1.6035-1(g)(3) of the
final regulations provides that the executor must update the
beneficiary information on the Information Return and furnish a
Statement to that beneficiary pursuant to the executor's duty to
supplement to report a change in beneficiary information as described
in Sec. 1.6035-1(d) of the final regulations. Section 1.6035-1(g)(3)
of the final regulations clarifies that usufruct interests are treated
in the same manner.
Several commenters requested confirmation that, for purposes of
complying with the reporting requirements of section 6035(a), the
executor is not required to determine the allocation of uniform basis
among the beneficiaries with interests in an asset for different
periods of time. The Treasury Department and the IRS agree that nothing
in section 6035(a) requires the executor to report to a beneficiary of
such an interest that beneficiary's share of uniform basis as of the
decedent's date of death. It is only the value of the entire property
that is the subject of the required reporting. Therefore, Sec. 1.6035-
1(c)(2) of the final regulations provides that an executor is required
to identify the property acquired by the beneficiaries, the value of
the property as reported on the estate tax return filed with the IRS,
and such other information prescribed by the Statement and the
instructions.
iv. Reporting for a Missing Beneficiary
In response to comments, Sec. 1.6035-1(g)(4) of the final
regulations modifies the rule in proposed Sec. 1.6035-1(c)(4) with
regard to the applicable reporting requirements if the executor cannot
locate a beneficiary. The proposed rule provides that an executor must
use reasonable due diligence to identify and locate all beneficiaries
and, if the executor is unable to locate a beneficiary by the due date
of the Information Return, the executor must so report on the
Information Return and explain the efforts the executor has taken to
locate the beneficiary and to satisfy the obligation of reasonable due
diligence. Commenters requested an explanation or definition of
``reasonable due diligence'' for this purpose. In referencing
``reasonable due diligence'' in the proposed regulations, the Treasury
Department and the IRS intended only to reference an executor's
responsibility as a fiduciary under local law to identify and locate
all beneficiaries and did not intend to create a new standard.
Therefore, the requirement of due diligence is removed in the final
regulations. Instead, Sec. 1.6035-1(g)(4) of the final regulations
provides that, if the executor is unable to locate a beneficiary by the
date required for filing the Information Return with the IRS, then the
executor must report on the Information Return the failure to locate
the beneficiary and the efforts the executor has made to locate the
beneficiary. The final regulations retain the requirement to supplement
the Information Return and to furnish the required Statement to the
beneficiary once the beneficiary has been located or, if the
beneficiary is not located, to report the distribution of the property
to a different beneficiary.
H. Subsequent Transfers of Property Subject to Reporting
Proposed Sec. 1.6035-1(f) would impose a reporting requirement
with regard to
[[Page 76372]]
certain subsequent transfers of property previously reported (or
required to be reported) on a Statement. Specifically, it would require
the recipient of property to which section 6035 applies to file with
the IRS a supplemental Information Return, and to furnish to a
transferee of the property a Statement, if the recipient (who becomes
the transferor) distributes or transfers all or any portion of that
property in a transaction in which the transferee determines its basis,
in whole or in part, by reference to the transferor's basis.
Commenters asserted that section 6035 imposes reporting
requirements on executors, but not on subsequent transferees and,
therefore, the Treasury Department and the IRS lack authority to
require reporting under section 6035 by beneficiaries who subsequently
transfer property acquired from a decedent. Commenters also noted that
this reporting requirement could continue for generations, and thus be
impossible for the IRS to monitor and enforce, especially with respect
to nonresident non-citizen beneficiaries if the property is no longer
in the United States. Commenters also noted that this subsequent
reporting requirement creates uncertainty for executors, estate tax
return preparers, and beneficiaries as to whether supplemental
reporting is required, and that the failure to comply with the
reporting requirement is subject to penalties. They contended this
requirement is particularly unfair with respect to unsophisticated
individual recipients who are likely to be unaware of the reporting
requirements and, as a result, are more likely to become subject to
noncompliance penalties. Finally, commenters noted that, in many cases,
the obligation to report the basis of property transferred is
duplicative of other required filings.
The Treasury Department and the IRS carefully have reconsidered the
benefits and burdens of the proposed subsequent reporting requirement
in light of these comments. The enactment of section 1014(f) created
the consistent basis requirement, and the enactment of section 6035
gave the IRS the ability to enforce the provisions of section 1014(f)
and the related penalty under section 6662(k) for use of an
inconsistent estate basis for income tax purposes. Without this
proposed reporting requirement, subsequent ownership changes made
through nonrealization events would erode the ability of the IRS to
enforce the consistent basis requirement under section 1014(f) and the
penalty under section 6662(k) for violations of that requirement.
Nevertheless, the Treasury Department and the IRS conclude that the
burden of the proposed subsequent reporting requirement, including the
potential penalties for noncompliance, is too heavy a burden to impose
on individual beneficiaries who, as a practical matter, may have no way
of knowing of the existence of, or of how to comply with, this
subsequent reporting requirement. The Treasury Department and the IRS,
however, also conclude that trustees of trusts are one class of
beneficiaries for whom the subsequent reporting requirement would not
be sufficiently burdensome to outweigh the needs of, and benefits to,
the IRS and trust beneficiaries. Generally, the trustee of a trust is
likely to be aware of applicable tax requirements and to be both able
and motivated to comply with these requirements. In addition, in
discharging the trustee's fiduciary obligations to the trust
beneficiaries, a trustee is likely (even without a supplemental
reporting requirement) to provide certain relevant information (such as
basis) to the beneficiary to whom the trustee is distributing a trust
asset.
Accordingly, the final regulations retain a reporting requirement
for subsequent transfers, but this requirement is narrowed
significantly. Under Sec. 1.6035-1(h)(1) of the final regulations,
reporting requirements are imposed on trustees of beneficiary trusts
making a distribution of property that was reported on a Statement
furnished to those trustees, or of any other property the basis of
which is determined, in whole or in part, by reference to the basis of
this property. Such a trust distribution includes, for example, a
transfer of trust property pursuant to the exercise or lapse of a
person's power of appointment (whether general or limited). That
section further provides that trustees of trusts that receive a
distribution of such property, whether from a beneficiary trust or from
any other trust that has received such property, either directly or
indirectly, also are subject to these reporting requirements when
making a distribution of that property. This reporting obligation
imposed on trustees continues to apply for each subsequent transfer or
distribution until the property is distributed to a beneficiary not in
trust. However, these reporting requirements do not apply if property
is disposed of by the trustee in a transaction that is a recognition
event for income tax purposes (whether or not resulting in a gain or
loss) that results in the entire property having a basis that no longer
is related, in whole or in part, to the property's final value or, if
applicable, reported value (within the meaning of Sec. 1.1014-10(b)(1)
or (2) of the final regulations, respectively).
By imposing a reporting obligation on trustees of beneficiary
trusts and certain other recipient trusts, the final regulations ensure
that an individual or entity likely to incur an income tax realization
event with respect to the trust property has the necessary information
to determine the correct initial basis. This facilitates the proper
reporting of basis and compliance with the consistent basis requirement
if it is applicable.
Finally, to reduce burden and improve administrability, Sec.
1.6035-1(h)(2) of the final regulations adopts the same due date for
the filing of the Information Return and the furnishing of the
Statement with regard to distributions of property by trustees as is
required under Sec. 1.6035-1(c)(3)(ii) of the final regulations, which
is January 31 of the year following the distribution. Section 1.6035-
1(h)(3) of the final regulations adds an example illustrating the
application of the reporting requirements applicable to trustees making
subsequent transfers of property if the property is subject to
reporting under Sec. 1.6035-1(e) of the final regulations.
I. Penalties
Section 1.6035-1(i) of the final regulations provides a cross-
reference to sections 6721 through 6724 and the regulations in part 301
under sections 6721 through 6724 that impose penalties on the failure
to timely file a correct Information Return and the failure to timely
furnish a correct Statement as required by section 6035. Sections
301.6721-1(h)(2)(xii) and 301.6722-1(e)(2)(xxxv) of these final
regulations clarify that the penalties under those sections also apply
to the failure to report as required by section 6035. A penalty applies
separately to each initial or supplemental Information Return that the
executor is required to file with the IRS, and to each initial or
supplemental Statement that the executor is required to furnish to a
beneficiary. Accordingly, only one penalty under section 6721 may be
imposed for filing an incorrect Information Return, even if copies of
multiple required Statements are not attached to the Information
Return, but multiple penalties under section 6722 may be imposed for
furnishing multiple incorrect Statements, even if the Statements were
filed with the IRS as attachments to a single Information Return.
Section 1.6035-1(i) of the final
[[Page 76373]]
regulations also refers to section 6724 and the regulations in part 301
under section 6724 for rules relating to waivers of these penalties if
it is shown that the failure was due to reasonable cause and not to
willful neglect.
For purposes of applying these penalties, commenters inquired
whether an appointed executor is relieved of the reporting requirements
if a successor executor is appointed. The issue of an executor's
continuing liability under the Code if a successor executor is
appointed is not limited to the section 6035 reporting requirements and
may depend on varying factors, including local law. Accordingly, this
issue is outside the scope of these regulations and is not addressed in
these final regulations.
Multiple commenters inquired about how to complete the Information
Return and Statements in various scenarios, such as cases in which a
nonresident noncitizen is a beneficiary and has no tax identification
number, a partnership is a beneficiary, an executor reports bulk assets
and brokerage accounts on an estate tax return, and others. To the
extent not otherwise addressed in the final regulations or this
preamble, these comments are best considered in contemplation of
necessary or appropriate revisions to the Information Return and its
instructions.
J. Applicability Date
Proposed Sec. 1.6035-1(i) provides that, upon publication of the
Treasury Decision adopting these rules as final in the Federal
Register, Sec. 1.6035-1 of the final regulations will apply to
property acquired from a decedent or by reason of the death of a
decedent whose estate tax return is filed after July 31, 2015. The
final regulations revise the applicability date of Sec. 1.6035-1(i) of
the proposed regulation consistent with section 7805(b)(1).
Accordingly, Sec. 1.6035-1(j) of the final regulations does not
reference the July 31, 2015, effective date of section 6035, and
provides instead that Sec. 1.6035-1 of the final regulations applies
to executors of a decedent's estate who are required to file an estate
tax return under section 6018 if that return is filed after the date of
publication of these final regulations in the Federal Register, and to
trustees receiving certain property included in the gross estate of
such a decedent.
3. Section 6662--Inconsistent Estate Basis Reporting
Section 6662(a) and (b)(8) impose an accuracy-related penalty on
the portion of any underpayment of tax relating to property subject to
the consistent basis requirement that is attributable to an
inconsistent estate basis. Proposed Sec. 1.6662-8(b) provides that
there is an inconsistent estate basis to the extent that a taxpayer
claims a basis, without regard to the adjustments described in proposed
Sec. 1.1014-10(a)(2), in property described in proposed Sec. 1.6662-
8(c) that exceeds that property's final value as determined under
proposed Sec. 1.1014-10(c). Proposed Sec. 1.6662-8(c) provides that
proposed Sec. 1.6662-8(b) applies to property described in proposed
Sec. 1.1014-10(b) that is reported or required to be reported on an
estate tax return filed after July 31, 2015.
One commenter noted that the phrase ``without regard to the
adjustments described in Sec. 1.1014-10(a),'' as used in proposed
Sec. 1.6662-8(b), eliminates adjustments that correctly may be made by
other sections of the Code on or after the decedent's date of death.
The commenter's concern was that this language would void the effects
of, or disallow the adjustments available under, other sections of the
Code.
Section 1.6662-9(b) of the final regulations clarifies that there
is an inconsistent estate basis to the extent that a taxpayer claims a
basis that was determined by using an initial basis as defined in Sec.
1.1014-10(a)(2) of the final regulations that exceeds the property's
final value as determined under Sec. 1.1014-10(b)(1) of the final
regulations. The property to which this section applies is property
described in Sec. 1.1014-10(c)(1) of the final regulations. In
addition, Sec. 1.1014-10(a)(2) of the final regulations confirms that
the taxpayer may compute basis at any time by adjusting the property's
initial basis due to the operation of other provisions of the Code
without violating the consistent basis requirement. Section 1.6662-
9(b)(2) of the final regulations provides an example illustrating the
provisions of Sec. 1.6662-9(b) of the final regulations. The
provisions regarding the reasonable cause exception to the penalty are
contained in section 6664 and the regulations in part 1 under section
6664.
In the final regulations, proposed Sec. 1.6662-8 has been
redesignated as Sec. 1.6662-9. Section 1.6662-8 is being reserved for
future regulations to address other provisions under section 6662.
Special Analyses
1. Regulatory Planning and Review
Pursuant to the Memorandum of Agreement, Review of Treasury
Regulations under Executive Order 12866 (June 9, 2023), tax regulatory
actions issued by the IRS are not subject to the requirements of
section 6 of Executive Order 12866, as amended. Therefore, a regulatory
impact assessment is not required.
2. Paperwork Reduction Act
The collection of information contained in these final regulations
has been approved by the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3507(d))
under control number 1545-2264. On March 4, 2016, proposed regulations
(REG-127923-15) were published in the Federal Register (81 FR 11486).
The proposed regulations proposed amendments to the Income Tax
Regulations (26 CFR part 1) and the Procedure and Administration
Regulations (26 CFR part 301). Comments were specifically requested
concerning (1) whether the proposed collection of information is
necessary for the proper performance of the functions of the IRS,
including whether the information will have practical utility; (2) the
accuracy of the estimated burden associated with the proposed
collection of information; (3) how the quality, utility, and clarity of
the information to be collected may be enhanced; (4) how the burden of
complying with the proposed collection of information may be minimized,
including through the application of automated collection techniques or
other forms of information technology; and (5) estimates of capital or
start-up costs and costs of operation, maintenance, and purchase of
service to provide information.
During the comment period, the IRS received 5 comments on the
collection of information. With respect to the necessity and utility of
the proposed collection of information, a commenter contended that the
reporting requirements in section 6035 are intended solely to implement
and enforce the basis consistency requirement under section 1014(f)
and, therefore, reporting should be limited to property subject to
section 1014(f). The Treasury Department and the IRS did not accept
this recommendation because this comment appears to be based on a
budget proposal rather than on section 6035 as enacted and its history.
See U.S. Dept. of the Treasury, General Explanations of the
Administration's Fiscal Year 2015 Revenue Proposals, 160-161 (2014).
Based on the language of section 6035(a)(1) and (2), Congress mandated
that reporting apply to a larger universe of property than the universe
of property subject to the consistent basis requirement under section
1014.
[[Page 76374]]
Regarding the accuracy of the estimated burden associated with the
collection of information, commenters indicated that the IRS estimate
of the total annual reporting burden per respondent of 5.31 hours was
too low. Commenters estimated that the total annual reporting burden
per respondent should be 20 to 50 hours. Taking into account the input
from the commenters regarding the number of hours needed to comply, as
well as new rules in the final regulations that reduce certain
reporting burdens, the Treasury Department and the IRS increased the
estimated total annual reporting burden per respondent from 5.31 hours
to 20 hours.
With respect to how the burden of complying with the proposed
collection of information may be minimized, a commenter suggested that
the IRS could minimize the burden of complying with the proposed
collection of information by accepting Form 706, United States Estate
(and Generation-Skipping Transfer) Tax Return, and Form 709, United
States Gift (and Generation-Skipping Transfer) Tax Return, along with a
statement identifying the beneficiaries, rather than requiring
duplicative reporting on the 6035 Information Return (currently, Form
8971, Information Regarding Beneficiaries Acquiring Property From a
Decedent). Another commenter suggested that, if the executor is the
only beneficiary required to receive the Statement, the IRS could
reduce the cost of compliance by allowing the executor to check a box
on Form 706 certifying that fact. This commenter also suggested that
the reporting requirements could be satisfied by giving beneficiaries
an appropriately redacted copy of the filed Form 706.
The Treasury Department and the IRS did not accept this
recommendation because the filing of Form 709 does not trigger a
section 6035 filing requirement of Form 8971 and Schedule A. Further,
through its amendment of section 6724(d)(1) and (2) and the enactment
of section 6035, both pursuant to section 2004 of the 2015 Act,
Congress identified the statement required by section 6035(a)(1) and
(2) to be filed with the IRS as an information return, and the
statement required by section 6035(a)(2) to be furnished to a
beneficiary as a payee statement. The Treasury Department and the IRS
conclude that replacing the information return and payee statement
identified in section 6724 with a beneficiary statement attached to the
Form 706, a redacted Form 706, or the checking of a box on the Form 706
would be contrary to legislative intent and the statutory language of
section 6724(d)(1)(D) and (d)(2)(II).
A commenter suggested that the optional ability to electronically
file returns, including Forms 706 and 709, would facilitate compliance
with the section 6035 reporting requirements and enhance efficiency.
The Treasury Department and the IRS concur that the ability to
electronically file not only Forms 706 and 709, but also Form 8971 and
Schedule A, would facilitate compliance with the section 6035 reporting
requirements and enhance efficiency. At this time, however, taxpayers
are unable to electronically file Forms 706 and 709.
Several comments were received with substantive recommendations
that relate to whether the collection of information will have
practical utility and how the burden of compliance could be minimized
(including specific recommendations to expand the exceptions to the
section 6035 reporting requirements, modify the reporting requirements
in certain circumstances, and limit or eliminate the subsequent
transfer reporting requirement). These comments are addressed in the
Summary of Comments and Explanation of Revisions section of this
preamble.
The collection of information in these final regulations is in
Sec. 1.6035-1(c)(1) and (2), (d)(1) and (2), and (h)(1) and (2). The
collection of information is necessary to comply with the reporting
requirements under section 6035(a). The likely respondents are
executors and other persons required to file an estate tax return under
section 6018 and trustees making in-kind distributions of property that
was subject to reporting under section 6035 when initially acquired by
the trustee.
Estimated number of respondents: 10,000.
Estimated average annual burden per respondent: 20 hours.
Estimated total annual reporting burden: 200,000 hours.
An agency may not conduct or sponsor, and a person is not required
to respond to, a collection of information unless the collection of
information displays a valid control number assigned by the OMB.
3. Regulatory Flexibility Act
It is hereby certified that the collection of information in these
regulations will not have a significant economic impact on a
substantial number of small entities. This certification is based on
the fact that this rule primarily affects individuals (or their
estates) and trusts, which are not small entities as defined by the
Regulatory Flexibility Act (5 U.S.C. 601). Although it is anticipated
that there may be an incremental economic impact on executors that are
small entities, including entities that provide tax and legal services
that assist individuals in preparing tax returns, any impact would not
be significant and would not affect a substantial number of small
entities. Therefore, a Regulatory Flexibility Analysis under the
Regulatory Flexibility Act (5 U.S.C. chapter 6) is not required.
Pursuant to section 7805(f) of the Code, the notice of proposed
rulemaking preceding this regulation was submitted to the Chief Counsel
for the Office of Advocacy of the Small Business Administration for
comment on its impact on small business. No comments were received from
the Chief Counsel for the Office of Advocacy of the Small Business
Administration.
4. Unfunded Mandates Reform Act
Section 202 of the Unfunded Mandates Reform Act of 1995 (UMRA)
requires that agencies assess anticipated costs and benefits and take
certain other actions before issuing a final rule that includes any
Federal mandate that may result in expenditures in any one year by a
State, local, or Tribal government, in the aggregate, or by the private
sector, of $100 million in 1995 dollars, updated annually for
inflation. The final regulations do not include any Federal mandate
that may result in expenditures by State, local, or Tribal governments,
or by the private sector in excess of that threshold.
5. Executive Order 13132: Federalism
Executive Order 13132 (Federalism) prohibits an agency from
publishing any rule that has federalism implications if the rule either
imposes substantial, direct compliance costs on State and local
governments, and is not required by statute, or preempts State law,
unless the agency meets the consultation and funding requirements of
section 6 of the Executive order. These proposed regulations do not
have federalism implications and do not impose substantial direct
compliance costs on State and local governments or preempt State law
within the meaning of the Executive order.
Statement of Availability of IRS Documents
IRS Revenue Procedures, Revenue Rulings, Notices and other guidance
cited in this preamble are published in the Internal Revenue Bulletin
(or Cumulative Bulletin) and are available from the Superintendent of
Documents, U.S. Government Publishing Office,
[[Page 76375]]
Washington, DC 20402, or by visiting the IRS website at <a href="https://www.irs.gov">https://www.irs.gov</a>.
Drafting Information
The principal authors of these final regulations are Donna Douglas,
Melissa Liquerman, and Karlene Lesho of the Office of Associate Chief
Counsel (Passthroughs and Special Industries). However, other personnel
from the Treasury Department and the IRS participated in their
development.
List of Subjects
26 CFR Part 1
Income taxes, Reporting and recordkeeping requirements.
Employment taxes, Estate taxes, Excise taxes, Gift taxes, Income
taxes, Penalties, Reporting and recordkeeping requirements.
Adoption of Amendments to the Regulations
Accordingly, the Treasury Department and the IRS are amending 26
CFR parts 1 and 301 as follows:
PART 1--INCOME TAXES
0
Paragraph 1. The authority citation for part 1 is amended by revising
entries for Sec. Sec. 1.1014-1 and 1.1014-2, and adding entries for
Sec. Sec. 1.1014-10, and 1.6035-1 in numerical order to read as
follows:
Authority: 26 U.S.C. 7805 * * *
Section 1.1014-1 also issued under 26 U.S.C. 1014(f).
Section 1.1014-2 also issued under 26 U.S.C. 1014(f).
Section 1.1014-10 also issued under 26 U.S.C. 1014(f).
* * * * *
Section 1.6035-1 also issued under 26 U.S.C. 6035.
* * * * *
0
Par 2. Add Sec. 1.1014-0 to read as follows:
Sec. 1.1014-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.1014-1
through 1.1014-10.
Sec. 1.1014-1 Basis of property acquired from a decedent.
(a) General rule.
(b) Scope and application.
(c) Property to which section 1014 does not apply.
(d) Applicability date.
Sec. 1.1014-2 Property acquired from a decedent.
(a) In general.
(b) Property acquired from a decedent dying after December 31,
1953.
(1) In general.
(2) Rules for the application of paragraph (b)(1) of this
section.
(3) Exceptions to application of this paragraph.
(c) Special basis rules with respect to certain property
acquired from a decedent.
(1) Stock or securities of a foreign personal holding company.
(2) Spouse's interest in community property of decedent dying
after October 21, 1942, and on or before December 31, 1947.
Sec. 1.1014-3 Other basis rules.
(a) Fair market value.
(b) Property acquired from a decedent dying before March 1,
1913.
(c) Reinvestments by a fiduciary.
(d) Reinvestments of property transferred during life.
(e) Alternate valuation dates.
Sec. 1.1014-4 Uniformity of basis; adjustment to basis.
(a) In general.
(b) Multiple interests.
(c) Records.
(d) Effective/applicability date.
Sec. 1.1014-5 Gain or loss.
(a) Sale or other disposition of a life interest, remainder
interest, or other interest in property acquired from a decedent.
(b) Sale or other disposition of certain term interests.
(1) In general.
(2) Effective/applicability date.
(c) Sale or other disposition of a term interest in a tax-exempt
trust.
(1) In general.
(2) Tax-exempt trust defined.
(3) Taxable beneficiary defined.
(4) Effective/applicability date.
(d) Illustrations.
Sec. 1.1014-6 Special rule for adjustments to basis where property
is acquired from a decedent prior to his death.
(a) In general.
(b) Multiple interests in property described in section
1014(b)(9) and acquired from a decedent prior to his death.
(c) Adjustments for deductions allowed prior to the decedent's
death.
Sec. 1.1014-7 Example applying rules Sec. Sec. 1.1014-4 through
1.1014-6 to case involving multiple interests.
Sec. 1.1014-8 Bequest, devise, or inheritance of a remainder
interest.
Sec. 1.1014-9 Special rule with respect to DISC stock.
(a) In general.
(b) Portion of property acquired from decedent before his death
included in decedent's gross estate.
(1) In general.
(2) Example.
(c) Estate tax valuation date.
(d) Examples.
Sec. 1.1014-10 Basis of property acquired from a decedent must be
consistent with property's Federal estate tax value.
(a) Consistent basis requirement.
(1) General rule.
(2) Initial basis in consistent basis property and effect of
basis adjustments.
(3) Duration of consistent basis requirement.
(b) Final value and reported value.
(1) Final value.
(2) Reported value if no final value yet determined.
(3) Special rules.
(c) Consistent basis property.
(1) Property subject to the consistent basis requirement.
(2) Property excepted from or not subject to the consistent
basis requirement.
(d) Definitions.
(e) Examples.
(f) Applicability date.
0
Par. 3. Section 1.1014-1 is amended by:
0
1. Adding two sentences after the fourth sentence of paragraph (a).
0
2. Revising the last sentence and adding two sentences after the last
sentence of paragraph (b).
0
3. Revising paragraphs (c) and (d).
The addition and revisions read as follows:
Sec. 1.1014-1 Basis of property acquired from a decedent.
(a) * * *For certain property acquired from a decedent, the initial
basis of the property must not exceed the property's final value for
Federal estate tax purposes. See section 1014(f) and Sec. 1.1014-10
for rules relating to the consistent basis requirement. * * *
(b) * * *In Sec. Sec. 1.1014-1 to 1.1014-6, inclusive, and Sec.
1.1014-10, whenever the words property acquired from a decedent are
used, they also mean property passed from a decedent, and the phrase
person who acquired it from the decedent includes the person to whom it
passed from the decedent. The consistent basis rules in Sec. 1.1014-10
apply to property subject to the consistent basis requirement, as
described in Sec. 1.1014-10(c)(1). For property subject to the
consistent basis requirement, the rules in Sec. 1.1014-10 modify the
rules set forth in paragraphs (a) and (c) of this section and in
Sec. Sec. 1.1014-2 through 1.1014-9.
(c) Property to which section 1014 does not apply. Section 1014 has
no application to property that constitutes a right to receive an item
of income in respect of a decedent under section 691.
(d) Applicability date. This section applies after September 17,
2024. For rules on and before September 17, 2024, see Sec. 1.1014-1 as
contained in 26 CFR part 1 revised as of January 19, 2017.
0
Par. 4. Section 1.1014-2 is amended by revising the second sentence of
paragraph (b)(2) as follows:
Sec. 1.1014-2 Property acquired from a decedent.
* * * * *
(b) * * *
(2) * * * Except as provided in Sec. 1.1014-10, it is not
necessary for the application of this paragraph (b)(2) that an estate
tax return be required to be
[[Page 76376]]
filed for the estate of the decedent or that an estate tax be payable.
* * *
* * * * *
0
Par. 5. Section 1.1014-10 is added to read as follows:
Sec. 1.1014-10 Basis of property acquired from a decedent must be
consistent with property's Federal estate tax value.
(a) Consistent basis requirement--(1) General rule. The consistent
basis requirement is the requirement that the initial basis in certain
property be equal to or less than the property's final value as
determined under paragraph (b)(1) of this section or, if no final value
has yet been determined, the property's reported value for Federal
estate tax purposes as described in paragraph (b)(2) of this section.
The property subject to the consistent basis requirement is referred to
in this section as consistent basis property and is described in
paragraph (c)(1) of this section.
(2) Initial basis in consistent basis property and effect of basis
adjustments. The initial basis in consistent basis property is the
final value of the property, as determined under paragraph (b)(1) of
this section, and, until the final value of this property is
determined, the property's initial basis is the reported value, as
described in paragraph (b)(2) of this section. The initial basis in
consistent basis property may be adjusted pursuant to the operation of
section 1014 or other provisions of the Internal Revenue Code (Code)
governing basis, as applicable, and those adjustments will not violate
the consistent basis requirement in paragraph (a)(1) of this section.
For example, the initial basis in consistent basis property may be
adjusted for gain recognized by the estate upon distribution of the
property and for post-death capital improvements and depreciation. It
also may be adjusted in the manner provided in section 1014(d) in the
case of DISC stock and in the manner provided under subchapter K or S
of chapter 1 of the Code, respectively, in the case of an interest in a
partnership or S corporation.
(3) Duration of consistent basis requirement. The consistent basis
requirement applies as long as the initial basis in consistent basis
property is related, in whole or in part, to the property's final
value, as determined under paragraph (b)(1) of this section, or, if
applicable, the property's reported value, as determined under
paragraph (b)(2) of this section. Therefore, regardless of the number
of successive owners, the consistent basis requirement continues to
apply until the entire property is sold, exchanged, or otherwise
disposed of in one or more transactions that result in a recognition
event for income tax purposes (whether or not resulting in a gain or
loss) or until the entire property becomes includible in another
decedent's gross estate. The consistent basis requirement applies
whenever there is a taxable event with respect to the property, such
as, but not limited to, a sale or exchange, depreciation, or
amortization of the property. The expiration of the period of
limitations on assessment for an income tax return that uses an
incorrect basis in reporting a taxable event with respect to consistent
basis property has no effect on the duty to determine basis under the
rules of this section for purposes of reporting any subsequent taxable
event with respect to the property if the consistent basis requirement
continues to apply under the rule of this paragraph (a)(3).
(b) Final value and reported value--(1) Final value. The final
value of consistent basis property is its fair market value as finally
determined for Federal estate tax purposes. That value is--
(i) The value reported on an estate tax return filed with the IRS,
once the period of limitations on assessment (see section 6501) of
estate tax has expired without that value having been timely adjusted
by the IRS; or
(ii) The value determined or specified by the IRS that differs from
the value reported on an estate tax return filed with the IRS and the
value specified by the IRS for other included property, as defined in
paragraph (d)(4) of this section, once the period of limitations on
assessment applicable to the estate tax has expired without that value
having been timely contested by the executor, as defined in paragraphs
(d)(1) and (2) of this section, respectively; or
(iii) The value determined in a written agreement with the IRS,
(whether entered into in the course of the administrative proceedings
between the estate and the IRS or after the commencement of
litigation), once that written agreement has been executed by both the
executor and the IRS and is binding on all parties (including, but not
limited to, the executor, the IRS, and the beneficiaries); or
(iv) The value determined by a court for the purpose of determining
the estate tax liability of the estate, as defined in paragraph (d)(3)
of this section, once the court's determination no longer can be
appealed to any court.
(2) Reported value if no final value yet determined--(i) In
general. Prior to the determination of the final value in accordance
with paragraph (b)(1) of this section, a taxpayer may not claim an
initial basis in consistent basis property in excess of the property's
value as reported on the Statement described in Sec. 1.6035-1(c)(2)
and required under Sec. 1.6035-1 (as supplemented). This value is
referred to in this section as the reported value. A value reported on
a Statement (or a supplement to the Statement) that either reports a
value from an estate tax return filed after the expiration of the
period of limitations on assessment applicable to that return, or a
value reported for property not reported on the estate tax return, is
not a reported value for purposes of this section. See Sec. 1.6035-
1(d) regarding an executor's duty to supplement the Statement.
(ii) Limit on reliance on Statement not reporting final value. If
the final value of consistent basis property is determined (as
described in paragraph (b)(1) of this section) before the expiration of
the period of limitations on assessment for a taxpayer's income tax
return that reports a taxable event with regard to the property, the
taxpayer's reliance on a Statement (or a supplement to the Statement)
that does not report the final value of the property may result in an
income tax deficiency and underpayment. See, however, section 6664 and
the corresponding regulations for rules relating to waivers of
penalties for certain failures due to reasonable cause.
(3) Special rules--(i) Property subject to debt. The final value
or, if applicable, the reported value of property subject to recourse
or non-recourse debt is determined based on the gross value of that
property undiminished by the debt, regardless of whether the estate tax
return reports the net value (equity of redemption value) of the
property or separately reports the gross value of the property and the
outstanding debt.
(ii) Special use property. The final value or, if applicable, the
reported value of special use property with regard to which a recapture
event (described in section 2032A(c)(1)) has occurred is increased as
provided in section 1016(c) if the qualified heir makes the election
under section 1016(c) and pays the amounts required under that section.
(c) Consistent basis property--(1) Property subject to the
consistent basis requirement--(i) In general. Except as provided in
paragraph (c)(2) of this section, consistent basis property is any
property--
(A) To which section 1014(a) applies;
(B) That is included property, as defined in paragraph (d)(4) of
this section, if the decedent's Federal estate tax return is filed
after July 31, 2015, and any other property the basis of
[[Page 76377]]
which is determined, in whole or in part, by reference to the basis of
included property (for example, property acquired in a like-kind
exchange or an involuntary conversion); and
(C) Whose value increases the estate tax liability, as defined in
paragraph (d)(3) of this section, that is payable after the application
of allowable credits, as defined in paragraph (d)(5) of this section.
(ii) Application. If the decedent's Federal estate tax return is
filed on or before July 31, 2015, no included property and no other
property described in paragraph (c)(1)(i) of this section is subject to
the consistent basis requirement, even if the due date of that return
is after July 31, 2015, or if one or more supplements to that return
are filed with the IRS after July 31, 2015. If an estate tax liability
is payable after the application of allowable credits, all property
described in paragraphs (c)(1)(i)(A) and (B) of this section is
considered property whose value increases the estate tax liability for
purposes of paragraph (c)(1)(i)(C) of this section and, therefore, is
subject to the consistent basis requirement, except as provided in
paragraph (c)(2) of this section. If, after the application of
allowable credits, no estate tax liability is payable, no such property
is subject to the consistent basis requirement.
(2) Property excepted from or not subject to the consistent basis
requirement. Notwithstanding paragraph (c)(1) of this section, the
following property either is excepted from or is not subject to the
consistent basis requirement--
(i) United States dollars (as defined in paragraph (d)(6) of this
section).
(ii) United States dollar-denominated demand deposits.
(iii) Certificates of deposit denominated in United States dollars.
(iv) Cash collateral denominated in United States dollars held by a
third party to secure a liability (such as a deposit of purchase money
or a security deposit).
(v) Shares of a registered investment company priced in United
States dollars that is a money market fund under Rule 2a-7 under the
Investment Company Act of 1940 (17 CFR 270.2).
(vi) Life insurance proceeds on the life of the decedent payable in
a lump sum in United States dollars.
(vii) Federal, State, and local tax refunds and other refunds
payable entirely in United States dollars.
(viii) Notes that are forgiven in full by the decedent upon death,
whether or not denominated in United States dollars.
(ix) Household and personal effects for which an appraisal is not
required under Sec. 20.2031-6(b) of this chapter.
(x) Property the initial basis of which is not in any way
determined with regard to or derived from the property's final value as
determined under paragraph (b)(1) of this section or its reported value
as determined under paragraph (b)(2) of this section, if applicable.
Such property includes but is not limited to--
(A) Annuity contracts subject to section 72 and amounts received as
an annuity subject to section 72;
(B) An interest in property that consists entirely of the right to
receive an item of income in respect of a decedent as defined in
section 691;
(C) Amounts received under installment obligations arising from a
transaction for which the installment method for determining gain under
section 453 applies;
(D) Appreciated property described in section 1014(e) that is
acquired by the decedent within 1 year of death;
(E) Stock of a passive foreign investment company subject to
section 1296(i), but only if the basis of such stock is the adjusted
basis in the hands of the decedent immediately before the decedent's
death; and
(F) Interests in and distributions from retirement plans and
deferred compensation plans, including individual retirement
arrangements as defined in sections 408 and 408A, that are expressed
entirely in United States dollars.
(xi) Any interest in property that qualified for an estate tax
marital deduction under section 2056, 2056A, or 2106(a)(3) for which
such a deduction was properly claimed, and/or any interest in property
that qualified for an estate tax charitable deduction under section
2055 or 2106(a)(2) for which such a deduction was properly claimed,
provided that the value of the decedent's entire interest in the
included property is wholly deductible and equal to the total amount
qualifying for those deductions.
(xii) Property that represents the surviving spouse's one-half
share of community property to which section 1014(b)(6) applies,
regardless of whether this property is included property as defined in
paragraph (d)(4) of this section.
(xiii) Property the basis of which is adjusted in a manner similar
to section 1014(a) on the occurrence of a taxable termination that
occurs on the death of a trust beneficiary pursuant to section
2654(a)(2) (to the extent the property is not then includible in the
gross estate of any person).
(xiv) Any other property that is not described in paragraph
(c)(1)(i) of this section or that is identified as excepted property in
published guidance in the Federal Register or in the Internal Revenue
Bulletin (see Sec. 601.601(d)(2)(ii)(b) of this chapter).
(d) Definitions. The following definitions apply for purposes of
this section--
(1) Contested. The term contested means to put at issue the value
of property in a written communication to the IRS that identifies the
specific property, states that the executor does not accept as correct
the value of that property as determined or specified by the IRS, and
provides the executor's claimed value for that property as determined
in accordance with the requirements of section 2031, the corresponding
regulations, and other applicable guidance. An issue cannot be
contested by a general statement or written communication that does not
include each of these specified elements.
(2) Executor. The term executor includes any person described in
section 2203, as expanded to include all persons required under section
6018(b) to file an estate tax return.
(3) Estate tax liability. The term estate tax liability means the
amount of tax imposed under chapter 11 of the Code (chapter 11).
(4) Included property. The term included property means property
the value of which is included in the value of the decedent's gross
estate as defined in section 2031 or 2103. Generally, this refers to
property whose value is reported on an estate tax return, but it also
refers to property whose value otherwise is included in the total value
of the gross estate (for example, during examination by the IRS) so
that a final value is or will be determined for that property under
chapter 11. However, solely for purposes of this section, included
property does not refer to unreported property whose value is not
reported on an estate tax return and whose value is not otherwise
included in the value of the decedent's gross estate as finally
determined for Federal estate tax purposes.
(5) Allowable credits. The term allowable credits includes any
credit against the estate tax liability allowable by any section of the
Code or by reason of any treaty obligation of the United States,
provided the estate qualifies for and properly claims the credit by
complying with all applicable rules for claiming the credit. For
instance, the prorated unified credit under section 2102(b)(3) is an
allowable credit for qualifying estates if the estate files all
[[Page 76378]]
necessary forms or statements required by the IRS to claim that credit.
(6) United States dollars. The term United States dollars means the
official currency of the United States. The term United States dollars
includes physical bills and coins for which the value of each bill or
coin is equivalent to the face amount of that bill or coin. This
definition does not include other physical United States bills or coins
with numismatic value because these bills and coins typically do not
have a value equal to their face value.
(e) Examples. The following examples illustrate the application of
this section. In each case, the decedent D was a citizen of the United
States, the estate does not elect the alternate valuation method under
section 2032, and an estate tax liability is payable after the
application of all allowable credits.
(1) Example 1--(i) Final value determined by value on estate tax
return. At D's death, D owned (among other assets) a private residence
not subject to any debt. D's sole beneficiary is D's child C. The value
of the residence is reported on the estate tax return at $300,000. The
IRS accepts the return as filed and the period of limitations on
assessment of estate tax expires. For purposes of the consistent basis
requirement applicable to C, the final value of D's residence is
$300,000, and therefore, C's initial basis in the residence is
$300,000. See paragraphs (a)(2) and (b)(1)(i) of this section.
(ii) Adjustment of initial basis pursuant to other Code provisions.
Several years later, C adds a master suite to the private residence at
a cost of $45,000. Pursuant to section 1016(a), C's basis in the
residence is increased by $45,000 to $345,000. Subsequently, C sells
the residence to an unrelated third party for $450,000. C claims a
basis in the residence of $345,000 and reports a gain of $105,000
($450,000 less $345,000). C has complied with the consistent basis
requirement, and C's adjustment to C's initial basis does not violate
the consistent basis requirement. See paragraphs (a)(1) and (2) of this
section.
(2) Example 2--(i) Final value determined on examination. The facts
are the same as in paragraph (e)(1)(i) of this section (Example 1)
except that, on examination, the IRS adjusts the value of the residence
to $290,000 and that value is not contested before the period of
limitations on assessment of estate tax expires. For purposes of the
consistent basis requirement applicable to C, the final value of the
residence is $290,000, and therefore, C's initial basis in the
residence, before taking into account C's subsequent renovations, is
$290,000. See paragraphs (a)(2) and (b)(1)(ii) of this section.
(ii) Reported value if no final value yet determined and reliance
on Statement required under Sec. 1.6035-1. Prior to the determination
of final value, C sells the residence for $375,000. C reports a gain of
$75,000 on C's income tax return, relying on the reported value in a
Statement required under Sec. 1.6035-1 and claiming an initial basis
of $300,000. C has complied with the consistent basis requirement
because C did not claim an initial basis in the residence in excess of
its reported value before the final value was determined. However,
because C claimed an initial basis in the residence that exceeds the
final value, C may have an income tax deficiency and underpayment for
the year of the sale if the applicable period of limitations on
assessment for C's income tax return has not expired when the final
value is determined. See paragraphs (b)(2)(i) and (ii) of this section.
(3) Example 3--(i) Final value determined by agreement. At D's
death, D owned 50% of Partnership P, whose sole asset was a rental
building with a fair market value of $10 million subject to non-
recourse debt of $2 million. D's sole beneficiary is D's child C. The
value of D's interest in Partnership P is reported on the estate tax
return at $4 million (50% of ($10 million less $2 million)). On
examination, the IRS timely adjusts the value of the partnership
interest to $5.25 million and the executor of D's estate timely
contests that value before the period of limitations on assessment of
estate tax expires. Subsequently, the IRS and the executor of D's
estate enter into a settlement agreement that provides that the value
of D's interest in Partnership P for purposes of the estate tax is $4.5
million. For purposes of the consistent basis requirement applicable to
C, the final value of the partnership interest is $4.5 million, and
therefore, C's initial basis in the partnership interest is $4.5
million. See paragraphs (a)(2) and (b)(1)(iii) of this section.
(ii) Adjustment of initial basis pursuant to other Code provisions.
C's share of Partnership P's liabilities at the date of D's death is $1
million. Under section 742 of the Internal Revenue Code and Sec.
1.742-1 of this part, C's basis in the partnership interest is $5.5
million ($4.5 million initial basis plus C's $1 million share of
Partnership P's debt). C later sells the partnership interest for $5
million at a time when C's basis has not changed and C's share of the
debt remains $1 million. Under section 752(d), C's amount realized on
the sale includes $1 million for the reduction in C's share of
partnership liabilities. Therefore, C's total amount realized is $6
million. C reports taxable gain of $0.5 million ($6 million amount
realized less $5.5 million basis). C has complied with the consistent
basis requirement because C did not claim an initial basis in the
partnership interest that exceeds the final value of the interest, as
determined under paragraph (b)(1) of this section, and C's adjustment
of the initial basis in the partnership interest as reported does not
violate the consistent basis requirement. See paragraphs (a)(1) and (2)
of this section.
(4) Example 4--(i) Final value determined by court decision. At D's
death, D owned (among other assets) a rental property. D's sole
beneficiary is D's child C. The value of the rental property is
reported on the estate tax return at $1 million. On examination, the
IRS determines the value of the rental property to be $1.5 million. A
court subsequently determines that the fair market value of the rental
property for purposes of the estate tax is $1.3 million and the court's
decision becomes final. For purposes of the consistent basis
requirement, the final value of the rental property is $1.3 million,
and therefore, C's initial basis is $1.3 million. See paragraphs (a)(2)
and (b)(1)(iv) of this section.
(ii) Reliance on Statement required under Sec. 1.6035-1 and
duration of consistent basis requirement. After the estate tax return
is filed and before the final value is determined, C receives a
Statement required under Sec. 1.6035-1 showing a reported value of $1
million for the rental property. C claims a depreciation deduction on
the first income tax return C files after acquiring the property,
relying on the reported value in the Statement required under Sec.
1.6035-1. C has complied with the consistent basis requirement on that
return because C did not claim an initial basis in the rental property
in excess of its reported value before the final value was determined.
C may claim a credit or refund of income tax that may result from the
increased depreciation deduction based on the final value of the rental
property, but only if the period of limitations for a claim for a
credit or refund of income tax for that year has not expired. C must
use the final value of $1.3 million to determine C's unadjusted basis
in the rental property for all open taxable years. In this case and
pursuant to section 1016(a)(2), C's adjusted basis is determined by
reducing the rental property's final value of $1.3 million by the
greater of the depreciation deductions allowed or allowable based on
the final value of $1.3 million for all
[[Page 76379]]
prior tax years (open and closed). See paragraphs (a)(3), (b)(2)(i) and
(ii) of this section.
(5) Example 5--Final value for property subject to debt. At D's
death, D's gross estate includes a yacht valued at $750,000, subject to
$150,000 non-recourse debt. D's sole beneficiary is D's child C.
Pursuant to the rule in Sec. 20.2053-7 of this chapter, the executor
of D's estate reports the $600,000 net value of the yacht on the estate
tax return ($750,000 less $150,000 debt) and claims no other deduction
for the debt. The IRS accepts the return as filed and the period of
limitations on assessment of estate tax expires. For purposes of the
consistent basis requirement applicable to C, the final value of the
yacht is $750,000, and therefore, C's initial basis in the yacht is
$750,000. See paragraph (b)(3) of this section.
(6) Example 6--Included property subject to the consistent basis
requirement. After exercising due diligence to discover estate assets,
the executor of D's estate reports the value of all known property
includible in D's gross estate on a timely filed estate tax return and
pays the estate tax liability. During examination of the return, the
IRS becomes aware of a piece of artwork in the possession of D's child
C, the value of which is includible in D's gross estate but is not
reported on the estate tax return. The value of the artwork for Federal
estate tax purposes is $500,000. Pursuant to the examination, the IRS
includes the value of the artwork in the value of D's gross estate,
which causes an increase in D's estate tax liability. Neither the
inclusion of the artwork in D's gross estate nor the value at which the
artwork is included in D's estate is contested by the executor of D's
estate before the period of limitation on assessment of estate tax
expires. The artwork is subject to the consistent basis requirement and
the final value of the artwork is $500,000. Therefore, C's initial
basis in the artwork is $500,000. See paragraphs (a)(2) and (c)(1)(i)
of this section.
(7) Example 7--(i) Partially deductible property subject to the
consistent basis requirement. Pursuant to a bequest in D's will, Trust
is established and funded with certain property, the value of which is
includible in the gross estate under section 2031. Trust is a
charitable remainder annuity trust described in section 664(d)(1).
Trust provides that, in each taxable year during the lifetime of D's
surviving child C, the trustee must pay to C an annuity of 5% of the
initial net fair market value of all property passing to Trust as
finally determined for Federal estate tax purposes. Upon the death of
C, the trustee must distribute all of the then principal and income of
Trust to organizations described in sections 170(c), 2055(a), and
2522(a) of the Code as the trustee selects, in the trustee's sole
discretion. Although the executor of D's estate properly claims an
estate tax charitable deduction under section 2055(e)(2)(A) for the
value of the remainder interest in Trust, D's estate has an estate tax
liability after application of all allowable credits. The property
passing to Trust is subject to the consistent basis requirement because
the value of the property is included in D's gross estate, an estate
tax liability is payable after the application of all allowable
credits, and the property is not described in paragraph (c)(2) of this
section (in particular, the property is not wholly deductible property
within the meaning of paragraph (c)(2)(xi) of this section).
(ii) Wholly deductible property not subject to the consistent basis
requirement. The facts are the same as in paragraph (e)(7)(i) of this
section (Example 7), except that the sole annuity beneficiary of Trust
is D's surviving spouse S, and the executor of D's estate properly
claims a deduction under section 2056(b)(8) for the value of S's
annuity interest. Because the value of D's entire interest in the
property passing to Trust qualified for either a charitable deduction
under section 2055(e)(2) or a marital deduction under section
2056(b)(8), none of the property passing to Trust will be subject to
the consistent basis requirement. See paragraph (c)(2)(xi) of this
section.
(iii) Property not wholly deductible property if the sum of marital
and charitable deductions allowed for that property is less than the
value of the decedent's entire interest in the property. At the time of
D's death, D owned 80 shares of voting stock in a closely-held
corporation that has 100 shares of voting stock outstanding. D's will
directed the executor of D's estate to distribute 40 shares of D's
stock to a marital trust and 40 shares of D's stock to a charitable
trust. D's executor included the value of D's 80 shares of stock in D's
gross estate at $8,000,000 for purposes of the estate tax. Because of
discounts applicable in valuing each of the two blocks of only 40
shares of the stock, D's executor correctly claimed a charitable
deduction under section 2055(e)(2) of only $3,000,000, and correctly
claimed a marital deduction under section 2056(b)(7) of only
$3,000,000. D's executor determined that an estate tax was due on D's
estate after the application of all allowable credits. The IRS accepted
the return as filed and the period of limitations on assessment of
estate tax expired. The 40 shares of stock owned by charitable trust
and the 40 shares of stock owned by marital trust are not wholly
deductible property within the meaning of paragraph (c)(2)(xi) of this
section and are subject to the consistent basis requirement.
(f) Applicability date. This section applies to property described
in paragraph (c)(1) of this section that is acquired from a decedent or
by reason of the death of a decedent if the decedent's Federal estate
tax return is filed after September 17, 2024.
0
Par. 6. Add Sec. 1.6035-0 to read as follows:
Sec. 1.6035-0 Table of contents.
This section lists the captions contained in Sec. Sec. 1.6035-1
and 1.6035-2.
Sec. 1.6035-1 Basis information to persons acquiring property from
decedent.
(a) Overview.
(b) Applicability of section 6035 reporting requirements.
(1) In general.
(2) Executor(s) subject to section 6035 reporting requirements.
(3) Examples.
(c) Required Information Return and Statement(s).
(1) Required Information Return.
(2) Required Statement(s).
(3) Due dates.
(4) Acquiring an interest in property.
(5) Option to furnish Statement(s) prior to the acquisition of
property by a beneficiary.
(6) Example.
(d) Duty to supplement.
(1) Duty to supplement to report changes to the information
reported on the Information Return or Statement(s).
(2) Changes requiring supplemental reporting.
(3) Exceptions; no duty to supplement despite certain changes.
(4) Due date of supplemental reporting.
(5) Duration of duty to supplement.
(6) Examples.
(e) Property for which reporting is required.
(1) In general.
(2) Examples.
(f) Excepted property requiring only limited reporting.
(1) Excepted property.
(2) List of excepted property.
(3) United States dollars defined.
(4) Examples.
(g) Beneficiaries.
(1) In general.
(2) Required Statement to beneficiary trust.
(3) Required Statement to the holder of a split interest in
property, not in trust.
(4) Reporting for a missing beneficiary.
(h) Reporting requirements applicable to trustees.
(1) Circumstances under which trustees of beneficiary trusts and
other trusts are subject to reporting.
(2) Required reporting.
(3) Example.
(i) Penalties.
[[Page 76380]]
(j) Applicability date.
Sec. 1.6035-2 Transitional relief.
(a) Statements due before June 30, 2016.
(b) Applicability date.
0
Par. 7. Revise Sec. 1.6305-1 to read as follows:
Sec. 1.6035-1 Basis information to persons acquiring property from
decedent.
(a) Overview. This section implements the reporting requirements
under section 6035 of the Internal Revenue Code (Code) applicable to
executors and certain trustees. In general, the reporting requirements
of this section require providing information to the IRS on the
identity of persons acquiring property from a decedent and providing
basis information to persons acquiring that property from the decedent.
Basis information is needed by certain persons acquiring property from
a decedent in order to comply with the consistent basis requirement of
section 1014(f) of the Code. See Sec. 1.1014-10 for rules applicable
to the consistent basis requirement.
(b) Applicability of section 6035 reporting requirements--(1) In
general. The reporting requirements under section 6035 of the Code
apply only in the case of an estate in which the executor is required
to file an estate tax return under section 6018 of the Code (determined
without regard to Sec. 20.2010-2(a)(1) of this chapter) (required
estate tax return) and the executor files that return after July 31,
2015. The requirements do not apply in the case of an estate whose
required estate tax return is filed on or before July 31, 2015, even if
the due date of the return is after July 31, 2015, or if one or more
supplements to that return are filed with the IRS after July 31, 2015.
Whether an estate tax return is a required estate tax return depends on
the relevant factors identified in section 6018 and the corresponding
regulations, including the date of death value of property includible
in the decedent's gross estate, the amount of adjusted taxable gifts,
and the applicable filing threshold. An election under section 2032 or
2032A of the Code to determine the value of the gross estate in
accordance with those respective provisions is not relevant to whether
an executor is required to file an estate tax return under section
6018. If an estate tax return is not required to be filed under section
6018 based on the relevant factors identified in section 6018, then an
estate tax return filed for another purpose (such as to make a
portability election under section 2010(c)(5) of the Code, an
allocation or election under section 2632 of the Code with regard to a
decedent's generation-skipping transfer tax exemption, or a protective
filing to avoid a penalty or satisfy a State law requirement) is not a
required estate tax return for purposes of this section.
(2) Executor(s) subject to section 6035 reporting requirements. For
purposes of this section, the term executor has the same meaning as in
section 2203 of the Code, as expanded to include all persons required
under section 6018(b) to file an estate tax return. Thus, more than one
person may be subject to the reporting requirements for the same
decedent's estate. If one executor is unable to file a complete estate
tax return (for example, if the executor has insufficient information
about property in the decedent's gross estate that is not in the
possession of that executor), each person required to file a return is
subject to the reporting requirements of this section only with regard
to the property reported (or required to be reported) on the estate tax
return required to be filed by that person. Similarly, if no executor
is appointed by a court, each person in actual or constructive
possession of any property of the decedent is an executor for purposes
of this section and is subject to the reporting requirements of this
section, but only with regard to the property reported or required to
be reported on the estate tax return required to be filed by that
executor under section 6018(b).
(3) Examples. The following examples, in which the decedent D was a
United States citizen at the time of the decedent's death, illustrates
the application of this paragraph (b).
(i) Example 1--Executor required to file a return under section
6018. The value at death of property includible in D's gross estate
exceeds the basic exclusion amount in effect for the year of D's death
under section 2010(c). On the timely-filed estate tax return, D's
executor makes a valid alternate valuation election under section 2032
to value the property of D's gross estate as of a date subsequent to
the date of death. As a result, the value of property includible in D's
gross estate is decreased to a value that is less than the basic
exclusion amount in effect for the year of D's death. Because D's
executor is required to file an estate tax return under section 6018,
D's executor also is subject to the reporting requirements of section
6035. This is true even though no estate tax liability was incurred,
and the requirements of section 1014(f) do not apply to any property
includible in D's gross estate. See Sec. 1.1014-10(c)(1).
(ii) Example 2--Executor not required to file a return under
section 6018. The value at death of property includible in D's gross
estate does not exceed the basic exclusion amount in effect for the
year of D's death under section 2010(c) of the Code. In accordance with
the terms of D's will, D's executor distributes D's entire estate to
D's only child. D's executor files an estate tax return solely for the
purpose of making a portability election under section 2010(c)(5).
Because D's executor is not required to file an estate tax return under
section 6018, D's executor is not subject to the reporting requirements
of section 6035.
(iii) Example 3--No executor appointed. The value at death of
property includible in D's gross estate exceeds the basic exclusion
amount in effect for the year of D's death under section 2010(c) and
consists entirely of D's interests in Property A and Property B that D
owned with Nephew A and Nephew B, respectively, as joint tenants with
rights of survivorship. Pursuant to local law, Nephew A becomes the
sole owner of Property A and Nephew B becomes the sole owner of
Property B upon D's death. No executor or administrator is appointed,
qualified, or acting within the United States for D's estate on the due
date of D's estate tax return. Because Nephew A has actual or
constructive possession of Property A, Nephew A is an executor
described in paragraph (b)(2) of this section with regard to D's
interest in Property A. Because Nephew A is required to file an estate
tax return under section 6018 with regard to D's interest in Property
A, Nephew A also is subject to the reporting requirements of section
6035 with respect to Property A. Similarly, because Nephew B has actual
or constructive possession of Property B on the due date of D's estate
tax return, Nephew B is an executor described in paragraph (b)(2) of
this section with regard to D's interest in Property B. Because Nephew
B is required to file an estate tax return under section 6018 with
regard to D's interest in Property B, Nephew B also is subject to the
reporting requirements of section 6035 with respect to Property B.
(iv) Example 4--Executor unable to make a complete return. The
value at death of property includible in D's gross estate exceeds the
basic exclusion amount in effect for the year of D's death under
section 2010(c). E is appointed the executor of D's estate. During the
administration of D's estate, E discovers that D has made transfers
each year for the past ten years to T as trustee of Trust. E contacts
T, but T refuses to provide E with any information regarding Trust. E
timely files D's estate tax return reporting the value of all of the
property in D's gross estate except Trust. Pursuant to
[[Page 76381]]
Sec. 20.6018-2 of this chapter, E includes with the return a statement
that gives T's name and contact information and the date and amount of
each transfer from D to T as trustee of Trust, which is all the
information E has about Trust. The IRS provides notice to T of T's
obligation to make D's estate return as to Trust. Because E is required
to file an estate tax return under section 6018, E is subject to the
reporting requirements of section 6035 as to the property reported on
the estate tax return filed by E. Because T is required to file an
estate tax return under section 6018, T is subject to the reporting
requirements of section 6035 as to Trust.
(c) Required Information Return and Statement(s)--(1) Required
Information Return. An executor required to file an estate tax return
under section 6018 must file with the IRS an Information Return by the
date required under paragraph (c)(3) of this section. The term
Information Return refers to the Form 8971, Information Regarding
Beneficiaries Acquiring Property from a Decedent, and all required
attachments. Required attachments include a copy of each Statement
described in paragraph (c)(2) of this section (if any) required to be
furnished to a beneficiary who acquires property within the meaning of
paragraph (c)(4) of this section on or before the due date of the
estate tax return or, if earlier, the date on which the estate tax
return is filed with the IRS. Required attachments also include a copy
of each Statement (if any) furnished pursuant to paragraph (c)(5) of
this section before the filing of the Information Return. The term
Information Return also refers to any successor form or procedure
designated by the IRS for this purpose. The Information Return must
identify each beneficiary who has acquired or will acquire property
subject to reporting (under paragraph (e) of this section), as well as
other information prescribed by the Information Return and the
instructions for that form. For the duty to supplement the Information
Return in the event such property is acquired by a beneficiary after
the filing of the estate tax return, see paragraph (c)(3)(ii) of this
section. For the duty to supplement the Information Return in the event
of a change to the information required to be reported, see paragraph
(d) of this section.
(2) Required Statement(s). An executor required to file an estate
tax return under section 6018 also must furnish a Statement to each
beneficiary who acquires property subject to reporting under paragraph
(e) of this section. For purposes of this section, the term Statement
refers to the payee statement described as Schedule A of the
Information Return to be furnished to a beneficiary, or any successor
form, schedule, or procedure designated by the IRS for this purpose.
The Statement furnished to a beneficiary must identify that
beneficiary's acquired property and its value and other information
prescribed by the Statement and the instructions for that form. For
each property reported on a Statement, the value the executor reports
on that Statement is the value of the property as reported on the
estate tax return filed with the IRS. Generally, this is the value of
the property on the date of the decedent's death, except in the case of
an election in which the value is determined under section 2032 or
2032A, in which case it is the value determined under the applicable
provision. If different interests in the same property pass from the
decedent to one or more income beneficiaries or life tenants and
remaindermen, the value to be reported is the value of the entire
property and each recipient will be responsible for identifying his or
her respective share of uniform basis. For the duty to supplement the
Statement in the event of a change to the information required to be
reported, including a change in the identified value of property
reported on a Statement, see paragraph (d) of this section.
(3) Due dates--(i) General rule. Except as provided in paragraphs
(c)(3)(ii) and (iii) of this section and in Sec. 1.6035-2, the
executor must file the Information Return with the IRS on or before the
due date specified in this paragraph (c)(3)(i). In addition, each
Statement, a copy of which is required to be attached to the
Information Return, must be furnished to the named beneficiary on or
before this same due date. The Information Return must be filed, and
each such Statement (if any) must be furnished to its named
beneficiary, on or before the earlier of--
(A) The date that is 30 days after the due date of the estate tax
return required under section 6018 (including extensions, if any); or
(B) The date that is 30 days after the date on which that estate
tax return is filed with the IRS.
(ii) Due date and applicable rules if property is acquired
subsequently by beneficiary. If a beneficiary acquires property subject
to reporting after the due date of the estate tax return (or the
earlier filing of the Information Return), the executor must furnish a
Statement to that beneficiary with regard to that acquired property on
or before January 31 of the year following the beneficiary's
acquisition of that property. By that same January 31, the executor
also must attach a copy of the Statement to a supplement to the
Information Return (a supplemental Information Return) and must file
the supplemental Information Return with the IRS. The supplemental
Information Return must include a copy of each Statement required to be
furnished for that year pursuant to this paragraph (c)(3)(ii), as well
as a copy of each Statement (if any) furnished in accordance with
paragraph (c)(5) of this section that has not already been filed with
the IRS as an attachment to the Information Return or a supplement to
the Information Return. The requirements of this paragraph (c)(3)(ii)
do not apply if the property already has been reported on a Statement
furnished pursuant to paragraph (c)(5) o
[…truncated; see source link]Indexed from Federal Register on September 17, 2024.
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