A federal law enacted July 31, 2015 imposes a new reporting requirement for all federally taxable estates, effective immediately. This change is bound to affect many advisors and tax return preparers.

Who must report?

The person filing the federal estate tax return.

 

What must be reported?

A statement showing the values of all interests in the property of a decedent as reported on the decedent's federal estate tax return and other information as the Secretary of the Treasury may require.

 

Is there a form?

Not yet!

 

To whom must the statement of value be sent?

Each individual receiving an interest from the decedent must receive the statement, and it also must be sent to the Secretary of the Treasury.

 

What is the deadline for filing the statement of value?

For any federal estate tax return filed between August 1, 2015 and January 30, 2016, the statement of value must be filed by February 29, 2016. For all federal estate tax returns filed after January 30, 2016, a statement of value must be filed by the earlier of 30 days after the estate tax return is due (including extensions) or 30 days after the return is actually filed.

 

Example: If a federal estate tax return was filed on August 3, 2015, the statement of value must be filed by February 29, 2016.

Example: If a federal estate tax return is filed on February 1, 2016, the statement of value must be filed by March 2, 2016.

 

What are the penalties for not filing a statement of value?

If such a statement of value is not filed, it will be subject to the penalties regarding informational returns under §§ 6721 and 6722, and possibly others.

How does this affect beneficiaries receiving property with § 1014 stepped-up basis?

All beneficiaries of federally taxable estates will now receive actual notice of the value of property listed in the estate federal tax return. Under this new law, no taxpayer may claim that property with a § 1014 stepped-up basis has a basis greater than the value of the property as determined for estate tax purposes. The statement of value will convey this information to the beneficiaries. This will prevent taxpayers from overstating the § 1014 basis on their income tax returns and using the reasonable error argument to avoid the 20% penalty for under-reporting income.

 

Open questions still remain, like how to assess a § 1014 basis if no estate tax return was required to be filed. Congress has asked for regulations to determine the applicability of this law when no estate tax return is filed.

Don't forget: any penalties incurred by failing to file a statement of value will likely affect you, the advisor.

So stay tuned...