The Internal Revenue Service has issued its final draft of Form 8971, Information Regarding Beneficiaries' Acquired Property from a Decedent, and instructions. This is in response to new section 6035 of the Internal Revenue Code, which was added by the Highway Funding Bill of 2015, imposing on certain executors the responsibility of providing information statements to IRS and to any person acquiring an interest in property from estates.
Form 8971 and the attached Beneficiary Statement(s) A are required to be filed with the Internal Revenue Service and estate beneficiaries by the earlier of:
- 30 days after the due date (as extended) of the federal estate tax return; or
- 30 days after the date the return is actually filed.
Both the instructions to Form 8971 and Notice 2015-57 delayed the first filing date until February 29, 2016. On February 11th, IRS issued Notice 2016-19 providing an additional delay until March 31, 2016, for any statements that would have been due before that date.
An estate is subject to penalties for failing to file or filing incomplete information with the Internal Revenue Service and the beneficiaries. The amount of the penalty depends on how long after the due date the form is filed. Intentional disregard of the filing requirements produces the most significant penalty, which can be up to 10% of the amounts required to be reported.
An estate which is required to file Form 706 or 706-NA under Internal Revenue Code sections 6018(a) and 6018(b) or a qualified heir required to file Form 706-A, where the tax return is filed after July 2015, must file the Form 8971 and the supporting Schedule(s) A. This generally applies where the gross estate plus adjusted taxable gifts exceed the basic exclusion amount ($5,340,000 for 2014; $5,430,000 for 2015 and $5,450,000 for 2016).
The instructions make clear that Form 8971 is not required for an estate where the gross estate plus the adjusted taxable gifts is less than the basic exclusion amount but the estate elects to file a tax return for the sole purpose of making an allocation or election with respect to generation-skipping tax.
Unfortunately, IRS has not provided guidance exempting estates which file estate tax returns solely for the purpose of electing portability of a Deceased Spouse's Unused Exclusion amount. While it would appear that an estate electing portability does not file a return under section 6018(a), there is some contrary language contained in the regulations. Until further guidance is provided, an estate electing portability should assume that it is has a filing requirement.
Schedule A (Beneficiary Statement) requires detailed information as to the property being transferred, including where it is reported on the estate tax return. Since the filing date will generally be before the estate division is finalized, the executor must provide to each beneficiary information on all property which could be used to satisfy the bequest. This may cause the same property to be shown on multiple beneficiary statements. A supplemental Form 8971 and Schedule(s) A will be required upon any changes to the information required, including when the ultimate asset division is finalized.
Should you have any questions concerning this Tax Flash, contact your Marcum tax professional.