The US House of Representatives has passed the Highway Funding Bill, H.R. 3038. Buried in the text of the Bill is a “basis consistency provision.” Basically, that means a law that would require that a beneficiary who receives assets from a decedent must use the value the decedent’s executor puts on the federal estate tax return as the income tax basis on the inherited property. In addition, the executor must issue to each beneficiary (and file with the IRS) a statement of that value within 30 days after the filing of the estate tax return. Relevant provisions in statutes related to reporting and penalties would be updated to reflect these changes, and Treasury would have the authority to issue regulations.
Currently, the
beneficiary of an estate does not have to use the numbers on the estate
tax return as the beneficiary’s income tax basis of inherited property.
In some cases, the lack of a consistency rule has been advantageous.
For
example, suppose a decedent owns a lot facing a major highway which the
appraiser evaluates, but does not take into account the fact that a
major retailer has acquired a large tract behind that lot which does not
have highway frontage. As a result, the value placed on the estate tax
return does not consider the need of that major retailer to acquire the
lot in order to have highway frontage. Under the proposed law, the
beneficiary would have to use the low estate value even though the lot
is actually worth much more. If the beneficiary sells to that major
retailer at the lot’s true value, there is a false profit and
inappropriate capital gains taxes, or, alternatively, penalties for not
using the executor’s number.
Consider the potential claims that the beneficiary would want to make against the executor, the appraiser and the accountant. Recently, on the ACTEC listserv, a question was posted about where an executor or trustee could acquire liability insurance, as the attorney who posted the question could not find any agency which handled that sort of coverage. Such insurance may become a necessity if the estate is large enough to file an estate tax return.
Please forward this alert to those who might find it useful. Further information will be sent out as it becomes available. The full text of the bill can be found at: https://www.congress.gov/bill/114th-congress/house-bill/3038/text#toc-HD5D44DF267B04DD099BDD72E69968B20