Basis Consistency: How to Kill a Fly with a Bazooka

Almost two years ago, the government created new tax rules for large estates that make it more complicated and costly for the people who inherit property. The rules were meant to close a tax loophole and bring in more money for the government, but many tax experts think the government is exaggerating how much money they’ll make. The Treasury Department and IRS have tried to explain the rules, but there are still a lot of unanswered questions. When someone inherits property, they usually have to pay taxes on it when they sell it. The new rules make it harder for them to prove how much the property was worth when they inherited it, which could make their taxes go up. The government was worried that people might be lying about how much property they inherited in order to get tax benefits. So, Congress made a new rule that requires the person in charge of an estate (like a lawyer or accountant) to report the value of the property to the people who inherited it, and also to the IRS. This rule applies to any estate that had to file a tax return after July 31, 2015. To follow this rule, the person in charge of the estate has to fill out a form called Form 8971 and give it to the IRS and the people who inherited the property. When someone dies and their estate has to pay taxes, the IRS needs to be told who gets what from the estate. This is done by filing Form 8971 and Schedule A, which show who is inheriting what. These forms need to be filed within 30 days of when the estate tax return is due, or within 30 days of when it is actually filed. If the estate tax return is late, then the forms are due 30 days after it is filed. However, you don’t have to file these forms if the estate is small, if the tax return is only for a specific reason, or if other estate tax-related forms are filed. The forms must be given to anyone who is getting something from the estate. If the whole estate goes to a trust, then you just have to give the forms to the trustee of the trust. If someone is responsible for handling the property and assets of a deceased person, they need to make sure to find and provide information to anyone who is supposed to inherit the property. They also have to include tax identification numbers for the beneficiaries. If they can’t find a beneficiary or the beneficiary doesn’t have a tax number, they have to explain what they did to try to find them. They also have to let the IRS know if the property is given to someone else. If they make a mistake in the paperwork, they have to fix it and let everyone know within 30 days. When reporting the property, they have to make sure to include everything except for certain items like cash and some personal items. If they make any mistakes in the paperwork or the value of the property changes, they have to update everyone. If the person who was supposed to inherit the property gives it to someone else, the person who was in charge of the property has to let everyone know and provide the correct information. If the person who died didn’t owe any taxes, the people receiving the property may not have to worry about some of these rules, but they still have to follow the basic requirements. If a property was left out of the estate tax return because it wasn’t found before filing, the person inheriting the property could have major problems. If they don’t file an updated tax return, their starting value for the property will be zero. This could make their taxes much higher when they sell the property or prevent them from getting certain tax deductions. People who know a lot about taxes think this rule is unfair, especially because there’s no requirement to report newly discovered property if the tax return was filed honestly. The rule also doesn’t make sense for things like money or property that was supposed to be given to family or charity, but the government hasn’t given clear rules about those situations yet. If the person in charge of handling someone’s estate doesn’t file the necessary tax forms on time, or includes incorrect or incomplete information, they may have to pay a penalty of $260 for each form. This penalty can be reduced to $50 if the forms are filed within 30 days of the deadline. The maximum penalty for a year is $3,193,000, or $532,000 if the forms are not more than 30 days late. If the person intentionally ignores the reporting requirements, the penalty can be even larger. If a beneficiary claims a basis that is too high and it results in an underpayment of tax, they may have to pay a penalty of 20 percent of the underpayment. There is talk of getting rid of the estate tax, and if that happens, it might mean the end of these basis consistency rules. The rules for reporting inherited property might change if the estate tax is repealed. Right now, beneficiaries have to report the value of inherited property for tax purposes. If the estate tax goes away, there might be new rules to make sure beneficiaries don’t underreport the value of what they inherit. Fiduciaries of estates (like executors) and their advisors need to understand the current rules to follow the law and avoid penalties. The IRS is still working on finalizing the rules for reporting inherited property. This is a list of rules and regulations related to taxes and inheritance. It includes information about how property is valued when it is inherited, who is responsible for reporting the inheritance to the IRS, and the penalties for not following these rules. It also discusses potential changes to the laws and the potential consequences for not following them. The Economic Growth and Tax Relief Reconciliation Act of 2001 has specific sections that are important for understanding tax planning. Two principals at a company in Miami and Boca Raton are experts in this field. They received their education from reputable universities. This information is provided by the Tax Section, with specific editors listed.

Source: https://www.floridabar.org/the-florida-bar-journal/basis-consistency-how-to-kill-a-fly-with-a-bazooka/