Practitioners involved with the administration of trusts and estates of a decedent may be confronted with the issue of dealing with one or more assets of a decedent discovered after the administration is believed to have been concluded. Consideration of timely reporting of those assets for estate tax purposes may be essential to avoiding assignment of a zero basis to such assets.The recipient of property from a decedent generally takes a basis equal to the fair market value of the property at the time of the decedent’s death (or the alternate valuation date (i.e., six-months after the decedent’s date of death)) pursuant to Section 1014(a) of the Internal Revenue Code of 1986, as amended (the “IRC”). However, under Proposed Regulations issued in 2016 addressing the so-called consistent basis reporting rules, the basis of inherited property may unexpectedly be determined to be zero.The relevant Proposed Regulations under IRC Section 1014(f), which remain as proposed to this date, result from enactment of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 containing provisions requiring consistency between the basis of inherited property in the hands of the recipient and the value of that property reported for federal estate tax purposes. The Proposed Regulations are intended to address the situation where a decedent’s estate reports a discounted value for property generating a lower value for estate tax purposes and the recipient reports a higher basis for the property pursuant to IRC Section 1014(a) resulting in a lower income tax liability upon the subsequent disposition of the property. IRC Section 1014(f) provides that th

the transfer. IRC Sec. 2512(b). IRC Sec. 1274. Notwithstanding any collateral, the debt should be recourse to the entire trust. To avoid a deemed contribution to the trust for purposes of the gift tax under IRC Sec. 7872 and, more importantly, to support the treatment of the note as evidence of genuine indebtedness.The payment and receipt of interest has no immediate income tax consequences. Rev. Rul. 85-13. IRC Sec. 1001. IRC Sec. 1012. In a different context (QPRTs), the IRS has by regulation prohibited such swapping in order to defeat the step-up. See Reg. Sec. 25.2702-5(b)(1). Plus any accumulated income. However, if the IRS were to successfully challenge the adequacy of the consideration, the difference between the value of the property and the face amount of the note would be treated as a gift, which may or may not be protected by the grantor’s remaining exemption amount. Rev. Rul. 77-402; Reg. Sec. 1.1001-2(c), Ex. 5; Rev. Rul. 87-61. IRC Sec. 2031 and Sec. 2033. IRC Sec. 691. IRC Sec. 1014(c). IRC Sec. 675(4). Rev. Rul. 85-13; though it could have estate or gift tax consequences. Equal to the excess of the fair market value of the property and the grantor’s adjusted basis in the property. IRC Sec. 1014(a). IRC Sec. 1014(b)(1). IRC Sec. 1014(b)(9). As a testamentary transfer described in IRC Sec. 102(a)? Query whether the excess may be addressed by a formula adjustment clause based upon the value of the property as finally determined for estate tax purposes? Under the installment method of IRC Sec. 453. IRC Sec. 1014(b)(1) and (9). And I’m not talking about burial plots.

lists look at in disbelief. Unfortunately, there are plenty of advisors who are not as suspicious or rigorous, who take the optimistic approach, and perhaps lead their clients astray.This year, three dubious techniques that some less cautious advisors have promoted are now coming to an end.Step-Up in Basis versus the Estate TaxWealthy individuals who plan ahead are faced with a choice for their heirs: pay the capital gains tax or pay the estate tax.Assets that are in your estate when you pass away receive a step-up in basis, meaning that your heirs don’t need to pay capital gains tax when the assets are sold. Those assets are subject to the estate tax. There are ways to remove assets out of your estate, reducing the estate tax liability, but forfeiting the step-up in basis.Conceptually, the reason is straightforward – (1) to get the step-up in basis, the asset must transfer due to your death and (2) if an asset transfers due to your death, it’s subject to the estate tax. Specifically, IRC 1014 grants a step-up in basis to the person “acquiring the property from a decedent or to whom the property passed from a decedent” while IRC 2031 calculates an estate tax on the gross estate.In recent times several tax and estate planning attorneys have published about techniques, and promoted structures, that would allow the client to have it both ways – to remove an asset from the estate while also providing a step-up in basis. The argument notes a difference between IRC 1014(b)(1) which grants a step-up to “property acquired by bequest, devise, or inheritance, or by the decedent’s estate” and IRC 1014(b)(9) which grants the step-up to “property acquired from the decedent by reason of death, form of ownership, or other conditions… if by reason thereof the property is required to be included in… the decedent’s gross estate. The argument is that 1014(b)(9) requires inclusion in the gross estate, and 1014(b)(1) does not, and therefore assets that are acquired by bequest, devise, or inheri

(Internal Revenue Code (“IRC”) §6018) On July 31, 2015, President Obama signed into law the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (P.L. 114-41; the Act). Section 2004 of the Act enacted IRC §1014(f) and IRC §6035. Under the Act, effective for property with respect to which an estate tax return is filed after July 31, 2015, the basis of any property to which IRC §1014(a) (i.e., the rules for determining basis of property acquired from a decedent) applies can’t exceed: In the case of property, the final value of which has been determined for purposes of the estate tax on the estate of the decedent, such value.

The election must be made on or before the due date (with extension) for the return on which the sale will be reported.[xv] IRC Sec. 1014.[xvi] Query whether this will include property that the decedent gifted while living but which is nonetheless included in their gross estate for purposes of the federal estate tax; for example, because the donor continued to enjoy the economic benefits of the gifted property. IRC Sec. 2036.Such property is currently subject to a basis adjustment at the death of the decedent-donor.

South Dakota – Special Spousal Trust Statute - SDCL 55-17Effective July 1, 2016, a new South Dakota statute allows a married couple to create a special trust, called a South Dakota Special Spousal Trust, the assets of which upon transfer will be considered community property under South Dakota law. Further, the statute allows Settlors of such trusts to take advantage of the benefits of the 100% income tax basis step-up provided in IRC Section 1014(b)(6). There is no definitive authority regarding whether residents of non-community property states can avail themselves of this trust and get the benefits of the IRC Section 1014(b)(6) step-up at the first spouse's death.

South Dakota – Special Spousal Trust Statute - SDCL 55-17 Effective July 1, 2016, a new South Dakota statute allows a married couple to create a special trust, called a South Dakota Special Spousal Trust, the assets of which upon transfer will be considered community property under South Dakota law. Further, the statute allows Settlors of such trusts to take advantage of the benefits of the 100% income tax basis step-up provided in IRC Section 1014(b)(6). There is no definitive authority regarding whether residents of non-community property states can avail themselves of this trust and get the benefits of the IRC Section 1014(b)(6) step-up at the first spouse's death.

If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. This notice looks like about the best that could be done in the form to permit the blast of value information to all beneficiaries long before the recipients of particular assets are identified that the statute seems to require, without unnecessarily alarming or misleading the beneficiaries.

ould have taken. The budget proposes to increase the maximum ordinary rate from 37% to 39.6%. This change is already scheduled to occur after 2025 – the budget would accelerate it. Transfers to a U.S. spouse or to a charity would carry over the basis of the donor or decedent. Capital gain would not be realized until the surviving spouse disposes of the asset or dies, and appreciated property transferred to charity would be exempt from the capital gains tax. However, the transfer of appreciated assets to a split-interest trust – such as charitable remainder trust – would be subject to the capital gains tax, with an exclusion from that tax allowed for the charity’s share of the gain based on the charity’s actuarial share of the value transferred as determined for gift or estate tax purposes.In addition, the exclusion under current law for capital gain on certain small business stock would continue to apply. IRC Sec. 1202. The basis step-up at death under current law would be eliminated. IRC Sec. 1014. The basic exclusion amount is currently $10 million, but it is scheduled to revert to $5 million for gifts made after December 31, 2025 and for decedents dying after that date. IRC Sec. 2010. This echoes the application of IRC Sec. 6166 to defer payment of the estate tax. IRC Sec. 7701(a)(30) and (31). Not a typo. The extent of the disclosure being required by both federal and state governments is getting out of hand. IRC Sec. 2642. I suppose it was only a matter of time before fiduciary income tax returns were adapted as a tool for enforcing the GST tax. For example, one that established the donor’s intent to transfer a specific dollar amount of property: “I intend to transfer that number of shares of Corp stock that have a fair market value, as finally determined for transfer tax purposes, of $2 million.” If the value determined as a result of, say, a gift tax audit exceeds the value reported by the donor, then some portion of the property transferred by the donor may be returned t

he opinions expressed herein are solely those of the author(s) and do not necessarily represent the views of the Firm. It is not disregarded as a sham entity. At least where the taxing authority or court determines that the shareholder in question was a “responsible person” or was “under a duty to act” as to such taxes. See IRC Sec. 6672 as to federal employment taxes. IRC Sec. 11: “A tax is hereby imposed for each taxable year on the taxable income of every corporation.” As distinguished from a pass-through like an S corporation, which is generally not subject to income tax. IRC Sec. 1363(a): “Except as otherwise provided in this subchapter, an S corporation shall not be subject to the taxes imposed by this chapter.”Meyer v. Commissioner, T.C. Memo. 2024-15. Actually, the Court considered a motion for summary judgement filed by a former shareholder in which the latter asked the Court to conclude the former shareholder was not a transferee of their corporation. The basis step-up under IRC Sec. 1014. It is important to note that a decedent’s shares of stock in a closely held corporation will usually be valued using a discount for lack of marketability and, depending upon the size of their interest, a discount for lack of control. See Rev. Rul. 59-60. Query whether the appraisers accounted for the appreciation of Corp’s assets and the potential tax liability inherent therein.As a general rule, a shareholder’s basis in C corporation stock is equal to their original capital contribution in exchange for which they acquired the stock from the Corporation, plus any additional paid-in capital.It should also be noted that a beneficiary who inherits property from a decedent is treated as having a long-term holding period in such property, regardless of how soon after such inheritance the beneficiary sells the property. Mind you, a buyer is likely to pay less for the stock of a corporation because they will not be able to recover their investment in such stock until the stock is resold or