The Treasury Green Book provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning is found on page 195 of the Green Book and is re-printed here for your convenience:
REQUIRE CONSISTENCY IN VALUE FOR TRANSFER AND INCOME TAX PURPOSES
Section 1014 provides that the basis of property acquired from a decedent generally is the fair market value of the property on the decedent’s date of death. Similarly, property included in the decedent’s gross estate for estate tax purposes generally must be valued at its fair market value on the date of death. Although the same valuation standard applies to both provisions, current law does not explicitly require that the recipient’s basis in that property be the same as the value reported for estate tax purposes.
Section 1015 provides that the donee’s basis in property received by gift during the life of the donor generally is the donor’s adjusted basis in the property, increased by gift tax paid on the transfer. If, however, the donor’s basis exceeds the fair market value of the property on the date of the gift, the donee’s basis is limited to that fair market value for purposes of determining any subsequent loss.
Section 1022, applicable to the estates of decedents dying during 2010 if a timely election to that effect was made, provides that the basis of property acquired from such a decedent is the lesser of the fair market value of the property on the decedent’s date of death, or the decedent’s adjusted basis in that property as increased by the additional basis (if any) allocated to that property by the executor under section 1022.
Section 6034A imposes a consistency requirement – specifically, that the recipient of a distribution of income from a trust or estate must report on the recipient’s own income tax return the exact information included on the Schedule K-1 of the trust’s or estate’s income tax return – but this provision applies only for income tax purposes, and the Schedule K-1 does not include basis information.
Reasons for Change
Taxpayers should be required to take consistent positions in dealing with the IRS. The basis of property acquired from a decedent generally is the fair market value of the property on the decedent’s date of death. Consistency requires that the same value be used by the recipient (unless that value is in excess of the accurate value). In the case of property transferred on death or by gift during life, often the executor of the estate or the donor, respectively, will be in the best position to ensure that the recipient receives the information that will be necessary to accurately determine the recipient’s basis in the transferred property.
The proposal would impose both a consistency and a reporting requirement. The basis of property received by reason of death under section 1014 must equal the value of that property for estate tax purposes. The basis of property received by gift during the life of the donor must equal the donor’s basis determined under section 1015. The basis of property acquired from a 196 decedent to whose estate section 1022 is applicable is the basis of that property, including any additional basis allocated by the executor, as reported on the Form 8939 that the executor filed. The proposal would require that the basis of the property in the hands of the recipient be no greater than the value of that property as determined for estate or gift tax purposes (subject to subsequent adjustments).
A reporting requirement would be imposed on the executor of the decedent’s estate and on the donor of a lifetime gift to provide the necessary valuation and basis information to both the recipient and the IRS.
A grant of regulatory authority would be included to provide details about the implementation and administration of these requirements, including rules for situations in which no estate tax return is required to be filed or gifts are excluded from gift tax under section 2503, for situations in which the surviving joint tenant or other recipient may have better information than the executor, and for the timing of the required reporting in the event of adjustments to the reported value subsequent to the filing of an estate or gift tax return.
The proposal would be effective for transfers after the year of enactment.