Executors will need 90 days after the Internal Revenue Service publishes the final 2010 and 2011 estate tax Form 706 and Form 8939 and instructions to prepare returns for individuals who died in 2010 and 2011, the American Institute of Certified Public Accountants told the IRS in an Aug. 8 letter.
The IRS set Nov. 15 as the filing deadline for carryover basis election Form 8939 in guidance issued on Aug. 5.
“Undue burdens are placed on executors without a blanket extension of time,” Patricia Thompson, chair of the AICPA Tax Executive Committee, said in recommending to the IRS that it allow a later filing date for all 2010 and 2011 decedents.
Estate tax filings were thrown into turmoil when the estate tax was repealed for 2010 as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 and then reinstated – with a $5 million exemption – by Congress under the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
The 2010 Tax Relief Act allows executors of estates to opt out of paying the reinstated estate tax and instead use a “modified carryover” basis for inherited assets. Basis is generally the original purchase price of an asset, such as stocks or property. Traditionally, assets in an estate have been valued using a step-up in basis to fair market value at the date of death. Under a “modified carryover” basis method, heirs generally use the decedent’s original cost of the assets as their basis when calculating taxes due, with a permitted $1.3 million general basis increase and $3 million spousal property basis increase.
The IRS published the final version of the 2010 Form 706 on Sept. 3 over the Labor Day holiday and updated it on Sept. 8. The IRS released the instructions for the 2010 Form 706 on Sept. 8, too. A final version of Form 8939 and its instructions have not been released by the IRS, as of Sept. 8. Executors will use these forms to file returns for the estates of those who died in 2010.
Thompson noted that in March an IRS statement on its website said that the deadline for Form 8939, which is an informational return used to establish basis for income tax purposes of property acquired from a person who died in 2010, would be 90 days after the final Form 8939 is released. On Sept. 2, the IRS posted new draft instructions on its website for Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return, which start to be due Oct. 1. The IRS estate tax website said the due date for the 2010 Form 706 is Sept. 19.
Without a blanket extension, Thompson said, each executor will be forced to file Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes. Even though a six-month extension is automatic, there is no automatic extension of time to pay the estate tax due. Each estate must show reasonable cause in order to obtain an extension of time to pay the estate tax, she said.