IRS Form 706

As of now, and Congress could change it and even change it retroactively, there is no estate tax for 2010 and there is no Form 706 for 2010.

Thanks - it is a bit scary to be sitting at the whim of Congress ! Someone told me that I had to file something anyway since Virginia may not do the same as Congress, but without a Form 706 as yet, who can file.... crazy situation. Hauslohn

Under the current law, you can step up 1.3 million of stock. So do you have to file a form 706 or some form to report this step-up to the IRS?

If you have more than 1.3 million (plus additional 3million spousal step up) there is a new form to file. Not where I can easily put my finger on the form number. If under the threshold no form.

You don't report basis until you sell.

Phil Marti VITA/TCE Volunteer

Phil

See Reporting Requirements for Executors in the attached.

Thanks, Art! I've been telling anyone who thinks they're even close to the $1.3 million to get off to a pro pronto.

Phil Marti VITA/TCE Volunteer Clarksburg, MD

| See Reporting Requirements for Executors in the attached. | | | |

``Jointly Owned Property with Rights of Survivorship

The decedent is treated as owning 50% of the property if the only other joint tenant is the decedent's spouse.

If property was acquired by the decedent by gift, bequest, devise, or inheritance, then, the decedent is treated as owning a fractional share, determined by dividing the value of the property by the number of joint tenants with right of survivorship.

In all other cases, the decedent is treated as owning only the portion of the property which is proportionate to the consideration furnished by the decedent.''

Consider some examples to see if I am reading this correctly.

Case 1: Individual purchases house at fair market value and adds non-spouse as joint tenant with no consideration. Individual dies and by the third rule 100% of the value of the house is eligible for step up. On the other hand, if the non-spouse joint tenant dies then by the second rule 50% of the value of the house is eligible for step up.

Case 2: Individual purchases house at fair market value and adds spouse as joint tenant with no consideration. Individual dies and by the first rule only 50% of the value of the house is eligible for step up.

Case 3: Individual inherits house and adds non-spouse as joint tenant with no consideration. Individual dies and by the second rule only 50% of the value of the house is eligible for step up.

Case 4: Same as case 3 but for a spouse. Same result by the first rule.

Then there's the question of how basis increases by improvement are allocated. Consider in case 3 non-spouse joint tenant has made extensive improvements. Do those costs remain with his 50% ownership that is not being stepped up or do half of them get allocated to the other 50% where they would often be wasted?

Dan Lanciani ddl@danlan.*com

Trying not ot thread-jack too severely, but...

I can see there being a form to file for estates over $1.3M because the TP would need to allocate the step-up to select assets. But if you have less than $1.3M is there a form to file that establishes the new stepped-up basis?

No, and this is not new. You never had to file to establish basis if under the estate tax threshold.

Very cool, thank you. I was aware that you didn't have to file to step- up in the past, but then again, everything stepped-up (or down) under section 1014. Now that some things will get a step-up and others won't (at the TP's restricted discretion), I was curious if they changed the filing rules (e.g. an "informational return").

Question: how does the IRS intend to keep up with how TPs allocate the $1.3M? It seems to me that the IRS would have difficulty preventing an heir from claiming that ANYTHING they later sold was among the assets they chose to step-up.

Frex: Suppose I inherit Mom's $1.4M stock account (original basis $100k) in 2010 and immediately sell it. I claim the $1.3M step-up. Now suppose that 20 years later I sell Mom's house for $1.4M (again, original basis = $100k). If I try to claim the $1.3M step-up again, how does the IRS know that I already used it 20 years ago?

I'm not looking to skirt the system, just trying to understand it. Thanks again.

Addressing Art's comment about not having to file to establish basis -

I agree with my esteemed colleague, but I'd like to toss in a spoiler (or at least an alternative opinion). I frequently recommend that the return be filed even when not required by law. Mostly I do this when the valuations put us close the exclusion line. This starts the clock on the statute of limitations for the authorities to exam the return. IMNHO, if I think there is any chance that an alternative valuation could cause an issue, even when I'm comfortable with what's being used, I WANT that clock to start ticking so my client (the heir of the decedent) can reach a point in time when they KNOW the IRS and the State can't come back to haunt them. Remember the statute of limitations to exam a return does NOT start until the return has been filed.

Just because you can, doesn't mean you should - likewise, just because you don't have too, doesn't mean you shouldn't. Sometimes its better to be safe, especially when the alternative means being sorry.

Gene E. Utterback, EA, RFC, ABA

The speaker at my EA dinner meeting last night addressed this subject in detail. He said to attach a white paper schedule to the decedent's final 1040. List all assets just as they would appear on a 706, showing decedent's acquisition date, basis, dod value and indicating the aggregate step-up for each item.

~ Barbara

If you look at §1014 stepped up basis is clearly related to estate tax rather than the decedent's income tax. In fact it expressly excludes income in respect of a decedent. So if you want to start the statute of limitations clock running, I'd think the 706 would be the better thing to file to do that.

But as of about 5 minutes ago anyway, there was no 2010 Form 706.

The IRS instructions say file the step up info for over 1.3 million with the final 1040.

Stu...

However, the reporting requirement is in §6075. This was also amended by EGTRRA. Instead of estate tax returns, we now have "returns relating to large transfers at death". The law reads:

??(a) RETURNS RELATING TO LARGE TRANSFERS AT DEATH.? The return required by section 6018 with respect to a decedent shall be filed with the return of the tax imposed by chapter 1 for the decedent?s last taxable year or such later date specified in regulations prescribed by the Secretary.??.

I think "tax imposed by chapter 1 for the decedent?s last taxable year" means income tax.

-Mark Bole

I suggest you file the information specified in EGTRRA for *any* estate where step-up in basis applies in 2010, even those below $1.3 million, for the reasons already mentioned by Gene Utterback: basically, it covers you when you go to sell the asset.

-Mark Bole

Just to clarify, there is no alternate valuation date in 2010, but under current law it returns in 2011. I think you were just using alt. valuation as an example, not as something that applies in 2010.

-Mark Bole

Can't you use the alternative valuation date to determine the stepped up basis for the 1.3 million. That is, if stock prices drop by half in the next six months, then you'll want to use the alternative valuation date to determine the estate value, so that more shares qualify for the step up in basis.