New IRS Forms Informs Beneficiaries of Asset Basis Values

Instructions to IRS Form 8971 for reporting the asset basis of estates have now been finalized.

Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, tells estate executors and others required to file a Form 706 how to report the final estate tax value of a property to the Internal Revenue Service and beneficiaries receiving the property from the estate.

Form 706 is the United States Estate (and Generation-Skipping Transfer) Tax Return.

The instructions appear on the Office of Information and Regulatory Affairs website.

The instructions aren’t yet the final draft, the IRS said Jan. 5, but have been submitted to the OMB via the Treasury Department to secure approval under the Paperwork Reduction Act to issue the new form. By law such submissions must be made available to the public.

Penalties

Executors who intentionally disregard filing requirements or fail to file correct Forms 8971 or furnish correct Schedules A to beneficiaries by the due date (absent a showing of reasonable cause) may be subject to a penalty. The amount of the penalty depends on when the correct Form 8971 is filed. Beneficiaries who report basis in property that’s inconsistent with the amount on the Schedule A may also be liable for a accuracy-related penalty equal to 20 percent of the underpayment (under Internal Revenue Code Section 6662).
Thirty-Day Time Frames

Consistency in basis reporting between estates and beneficiaries was driven by the Surface Transportation and Veterans Health Care Choice Improvement Act (Pub. L. No. 114-41), which was enacted July 31.

Form 8971, including all attached Schedule As, must be provided to the beneficiary listed on Schedule A no later than the earlier of:

  • 30 days after the date one of the Series 706 forms is required to be filed (including extensions if there are any) with the IRS; or
  • 30 days after the date Form 706, or one of the others of that series, is filed with the IRS.

    This requirement may become unduly burdensome because it’s typically not yet known which assets will be distributed to which beneficiaries at that point in time. As a result, a form must be filed identifying the assets that “could” be used to satisfy each beneficiary’s share.

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