Taxation

Ca. Tax Lawyer OCTOBER 2018, VOLUME 27, NUMBER 3

Helpful Suggestions for Improving Compliance with Information Regarding Beneficiaries Acquiring Property from a Decedent (Form 8971) and the Associated Basis Consistency Requirements1

By Dennis I. Leonard and Alison B. Arnold2

EXECUTIVE SUMMARY3

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the "2015 Act")4 requires: (1) that the income tax basis of certain property acquired from a decedent’s estate be consistent with its finally determined value for federal estate tax purposes; and (2) that the executor of a decedent’s estate (and certain subsequent transferees of estate assets) disclose specific information regarding estate assets to both the Internal Revenue Service (the "Service") and any persons acquiring certain assets from the decedent’s estate.5

Information regarding certain estate assets must be reported using Form 8971 (Information Regarding Beneficiaries Acquiring Property From a Decedent) and Schedule A thereto.6 Any person required to file a Form 8971 or Schedule A—including any person with an ongoing duty to supplement such forms, or any person involved in certain subsequent transfers of affected assets—is subject to penalties for: (i) failure to timely file; (ii) failure to file a corrected supplement; (iii) omission of required information; and/or (iv) inclusion of incorrect information.7 Beneficiaries who receive affected assets are similarly subject to penalties, plus the possibility of "zero basis" in those assets.8 Lastly, inaccurate compliance by an executor (or anyone with a duty to report) may rise to the level of a breach of fiduciary duty under applicable state law.9

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