The IRS finalized regulations (T.D. 9991) on the statutory requirement that the basis of property acquired from a decedent be consistent with the basis reported on the estate tax return.

Generally, under Sec. 104(f), a recipient's basis in certain property acquired from a decedent must be consistent with the value of the property as finally determined for federal estate tax purposes. In addition, under Sec. 6035, executors and other persons must provide basis information to the IRS and to the property recipients.

The new regulations provide guidance on these requirements, finalizing regulations proposed eight years ago (REG-127923-15).

The final regulations regarding the statutory consistent-basis requirement affect recipients of property acquired from a decedent if the inclusion of the value of the property in the decedent's gross estate increases the federal estate tax liability

The final regulations regarding the statutory basis-reporting requirements affect executors and other persons required to file an estate tax return based on the value of the decedent's gross estate and the amount of the decedent's lifetime adjusted taxable gifts, as well as trustees making in-kind distributions of property initially acquired from a decedent that was subject to the statutory basis-reporting requirements.

Changes in the final regulations

According to the IRS, the changes made from the 2016 proposed regulations "substantially reduce the burden on both the IRS and taxpayers and increase administrability of the proposed rules." The AICPA had commented on the proposed regulations in a June 1, 2016, letter.

Significant changes the final regulations make from the proposed rules include removing the zero-basis rule for unreported property. The proposed regulations provided that, for property discovered after the filing of, or otherwise omitted from, an estate tax return, where that property is not reported before the expiration of the limitation period for assessing estate tax, the final value of the property would be zero (Prop. Regs. Sec. 1.1014-10(c)(3)(i)(B)).

Commenters urged the removal of the zero-basis rule, characterizing it as "onerous, unduly harsh, and unfair." The preamble to the final regulations stated that the IRS recognized that this rule would primarily affect recipients of unreported property, who may not know of or be involved in the failure to report the property for estate tax purposes.

In three other significant revisions of the proposed regulations, the final regulations:

• Adopt a suggested interpretation of the term "acquiring" under Sec. 6035(a)(1) for reporting purposes;


• Eliminate a reporting requirement for subsequent transfers of property for all beneficiaries other than trustees; and


• Except additional types of property interests from the consistent-basis and Sec. 6035 reporting requirements.

The final regulations go into effect upon their publication in the Federal Register, which is scheduled for Sept. 17.

— To comment on this article or to suggest an idea for another article, contact Dave Strausfeld at David.Strausfeld@aicpa-cima.com.