During our last edition of the Washington Insider, we discussed the new estate basis regulations, which require executors of estates to furnish Forms 8971 under IRC § 6035 to the IRS and specified beneficiaries. Executors are now required to report on Form 8971, the basis of all property to each beneficiary, which is based on the property’s fair market value on the date of the decedent’s death.  Previously, the due date for filing the forms had been extended to March 31, 2016.

However, shortly before this March 31 deadline, the IRS released Notice 2016-27, once again delaying the due date for providing such information to June 30, 2016. The original due date for executors to furnish basis information to beneficiaries and the IRS was delayed by Notice 2016-19 from February 29, 2016, to March 31, 2016. Responding to concerns by many, including the AICPA, that the reporting was burdensome and time-consuming, the IRS issued Notice 2016-27 to provide executors with a three month extension. The extended due date applies to executors required to file an estate tax return if that return is filed after July 2015.

Failure to properly report basis can lead to a 20 percent accuracy related penalty on the portion of an underpayment of tax attributable to inconsistent estate basis, which applies if the basis claimed by the beneficiary exceeds the basis for federal estate tax purposes. Further, additional penalties may apply for failing to comply with the Form 8971 reporting requirements. Therefore, executors need to be cautious of the amounts they report to the beneficiaries and IRS. With this newly extended due date, executors now have additional time to provide the information statements, but it remains imperative to seek expert advice when doing so. The text of IRS Notice 2016-27 can be found at https://www.irs.gov/pub/irs-drop/n-16-27.pdf.

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