Monday, February 21, 2011

IRS Answers Estate, Gift and Generation-Skipping Transfer Tax Questions

The IRS has posted answers to frequently asked questions (FAQs) about estate tax issues for decedents dying in 2010.   

The 2010 Tax Relief Act reinstated the estate tax for decedents dying after December 31, 2009. However, the applicable exclusion amount is increased to $5 million (up from $3.5 million for decedents dying 2009) and the maximum tax rate is reduced to 35 percent.  Also, the 2010 Tax Relief Act allows executors of the estates of decedents dying 2010 to elect out of the estate tax system and use the carryover basis rules that were enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001.

The FAQ answers include the following:

Was the generation-skipping transfer (GST) tax retroactively reinstated in 2010?
The 2010 Tax Relief Act retroactively reinstates the GST tax for transfers made in 2010; however, the applicable exclusion amount is increased to $5 million (up from $3.5 million for 2009 transfers) and the tax rate for 2010 is zero.

How do I elect out of the estate tax and elect to apply new carryover basis rules?
The executor will make the election on a timely filed, yet to be released, Form 8939, which is the form that will be used to report the basis of the assets acquired from a decedent.

Should I file Form 706 for a decedent who died in 2010?
Yes, unless the executor elects out of the estate tax and elects to apply the new carryover basis rules enacted under the Economic Growth and Tax Relief Reconciliation Act of 2001.  The IRS will publish Form 706 for estates of decedents dying in 2010 in the next several months.

What is the due date for Form 706 for a decedent dying in 2010?
The due date for Form 706 for 2010 decedent’s estates is the later of September 19, 2011 or nine months after the date of death.

Can I get an extension for filing Form 706 for a decedent dying 2010?
Yes, the executor may request an extension of time to file.

Should I file Form 709 for gifts I made in 2010?
Yes, if you made gifts that are subject to the gift tax. For more information, please contact your tax adviser.

What will happen to the estate, gift and generation-skipping transfer taxes after 2012?
The provisions of the 2010 Tax Relief Act sunset December 31, 2012.  Therefore, under current law, the applicable exclusion amount will return to $1 million and the maximum tax rate will return to 55 percent.

What are the filing requirements for a decedent who died in 2010?
Current legislation requires the executor of an estate to file the following tax returns:
  • The final income tax return (Form 1040) for the decedent;
  • Fiduciary income tax returns (Form 1041) for the estate during administration; and
  • Estate Tax Return (Form 706), if the fair market value of the assets of the estate exceed $5 million, or Form 8939, if the executor elects out of the estate tax and elects to apply the new carryover basis rules.
In addition, if the executor files Form 8939, then no later than 30 days after the filing of Form 8939, the executor must send a written statement to each recipient of property that contains the information on Form 8939. For more information, you should consult your tax adviser.


Thanks to my colleague Robert Clofine, CELA for alerting me to these recent IRS postings.

No comments: