IRS provides filing-deadline relief for estates of people who died in 2010
Posted 9-20-2011 | By Katie Haskins | Download Article
On Sept. 13, the IRS provided important relief for estates of people who died in 2010. IRS Notice 2011-76 increases the potential benefits of filing Form 4768, “Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.” It also extends the Nov. 15 filing deadline for filing Form 8939, “Allocation of Increase in Basis for Property Acquired From a Decedent.”
Background
For people who died in 2010, executors have a choice: They can allow the estate tax to apply, or they can opt out and apply the modified carryover basis rules. Executors of estates that exceed the $5 million exemption (less any gift tax exemption used during life) have a complicated decision to make: They must determine whether the present value of the potential income tax cost under the modified carryover basis rules would be less than the estate tax liability.
This requires an analysis of a variety of factors, including the date-of-death values and tax bases of all assets, their projected future values and expected sale dates, anticipated future income tax rates, and the ability to allocate increased basis to a surviving spouse or others. An executor must also consider potential conflicts among beneficiaries over which assets receive basis increases.
Recent guidance created challenges
In August, the IRS issued Notice 2011-66, which provided guidance on the election to opt out of estate tax for someone who died in 2010 (the Section 1022 election). It stated that the election must be made by filing Form 8939 no later than Nov. 15, 2011.
This deadline presented two challenges for executors:
- The IRS hasn’t yet issued a final Form 8939 (or instructions for it). So executors would have less than two months to make a decision and meet the Nov. 15 filing deadline.
- Their estate tax return filing deadline would be before the Nov. 15 Form 8939 deadline — sometime from Sept. 19, 2011, through Sept. 30, 2011, depending on the date of death. This meant that, even though executors had until Nov. 15 to file Form 8939 to opt out of the estate tax, they actually would have to make the decision several weeks earlier in order to, if applicable, timely file the estate tax return and pay any taxes due. Although they could file Form 4768 for an automatic six-month extension, generally any estate tax would still be due by the original filing deadline.
Valuable relief
Fortunately, Notice 2011-76 provides some valuable relief:
- It extends the deadline for filing Form 8939 to Jan. 17, 2012, and
- It allows estates that timely file Form 4768 to receive an automatic extension of time not only to file their estate tax return, but also to pay any estate tax due — no penalties will be imposed, though interest will be due. So the extended deadline will be sometime from March 19, 2012, through April 2, 2012, depending on the date of death — conveniently a couple of months after the Form 8939 deadline.
Notice 2011-76 provides some additional relief as well, such as penalty relief on 2010 income tax returns for certain beneficiaries of estates of people who died in 2010.
Begin reviewing options now
Notice 2011-76 provides executors of estates of people who died in 2010 some needed breathing room to make a decision on whether to opt out of the estate tax. But the Form 8939 deadline is still only a few months away, so it’s a good idea for executors to begin reviewing their options now. Please contact Katie Haskins, MBT, CPA at khaskins@hlbtr.com to provide more information on the IRS guidance or other factors to consider.