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May 11, 2016
Are you the executor or beneficiary of an estate that has over $5,430,000 of net assets? If so, you may not be aware of a new form that is required to be filed in 2016.
Large estates with net assets valued at over $5,430,000 are required to file IRS Form 706, which is a tax on the value of the estate. This is different than IRS Form 1041, which taxes the income of the estate. While these returns are not new for 2016, IRS Form 8971 is a new form that must be filed for estates that are required to file IRS Form 706. Estates that elect to file IRS Form 706 but are not required to do will not be subject to the new reporting requirements. Those estates that were required to file IRS Form 706 and did so as of July 31, 2015 will be subject to the new reporting requirements.
The purpose of this new reporting requirement is to provide a valuation of most assets received by each beneficiary from an estate. The value of these assets are reported on Schedule A of the form, which will be prepared for each beneficiary separately. The form and schedules for each beneficiary is filed with the IRS, and then each beneficiary will receive a copy of the Schedule A that reports their share of the assets they received. The valuation of the separately-stated assets will be the beneficiary’s basis in those assets, which will be of significance if the beneficiary decides to sell, gift, or transfer the assets to someone else.
Why is this form so important? Unlike other tax forms and returns, which you should keep until the period of limitations runs out for those returns, beneficiaries must keep their copy of Schedule A until they decide to sell the asset to an unrelated party, as the schedule will provide the basis in the asset used to calculate the gain or loss on the sale. If, however, the asset is gifted, a new Schedule A will need to be prepared.
Please contact us if you have any questions about taxes on estates and their filing requirements.