Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent

<RULE> DEPARTMENT OF THE TREASURY <SUBAGY>Internal Revenue Service</SUBAGY> <CFR>26 CFR Parts 1 and 301</CFR> <DEPDOC>[TD 9991]</DEPDOC> <RIN>RIN 1545-BM97</RIN> <SUBJECT>Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent</SUBJECT> <HD SOURCE="HED">AGENCY:</HD> Internal Revenue Service (IRS), Treasury. <HD SOURCE="HED">ACTION:</HD> Final rule. <SUM> <HD SOURCE="HED">SUMMARY:</HD> This document contains final regulations that provide guidance on the statutory requirement that a recipient's basis in certain property acquired from a decedent be consistent with the value of the property as finally determined for Federal estate tax purposes. In addition, the final regulations provide guidance on the statutory requirements that executors and other persons provide basis information to the IRS and to the recipients of certain property. 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 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. </SUM> <EFFDATE> <HD SOURCE="HED">DATES:</HD> <E T="03">Effective date:</E> These regulations are effective on September 17, 2024. <E T="03">Applicability dates:</E> For dates of applicability, <E T="03">see</E> §§ 1.1014-1(d), 1.1014-10(f), 1.6035-1(j), and 1.6662-9(c). </EFFDATE> <FURINF> <HD SOURCE="HED">FOR FURTHER INFORMATION CONTACT:</HD> Concerning section 1014(f), Donna Douglas at 202-317-6859; concerning section 6035, Karen Wozniak at 202-317-6844 (not toll-free numbers). </FURINF> <SUPLINF> <HD SOURCE="HED">SUPPLEMENTARY INFORMATION:</HD> <HD SOURCE="HD1">Background</HD> This document contains amendments to the Income Tax Regulations (26 CFR part 1) under sections 1014(f) and 6035 of the Internal Revenue Code (Code) relating to the statutory consistent basis requirement and basis reporting requirements, and amendments to the Procedure and Administration Regulations (26 CFR part 301) under sections 6721 and 6722 of the Code relating to the applicable penalties for failure to comply with the statutory basis reporting requirements. <HD SOURCE="HD2">1. General Statutory Background and Enactment of the 2015 Act</HD> Section 2004 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (2015 Act), Public Law 114-41, 129 Stat. 443, 454 (July 31, 2015), enacted sections 1014(f), 6035, 6662(b)(8), 6662(k), 6724(d)(1)(D), and 6724(d)(2)(II) of the Code to require consistency between a recipient's basis in certain property acquired from a decedent and the value of the property as finally determined for Federal estate tax purposes. Section 1014(f) sets forth the consistent basis requirement, while the procedural rules in sections 6035, 6662, and 6724 set forth the applicable reporting requirements, penalties, and definitions. On March 23, 2018, section 104 of Division U of the Consolidated Appropriations Act, 2018, Public Law 115-141, 132 Stat. 348, 1170, made a technical correction to the definition of the term <E T="03">inconsistent estate basis</E> under section 6662(k) of the Code, retroactive to the original date of enactment of the 2015 Act. The technical correction modified the definition to take into account, for purposes of the accuracy-related penalty imposed under section 6662 of the Code, that the basis of property determined under section 1014(f) is only the initial basis of such property. Thus, nothing in section 1014(f) prevents post-death basis adjustments pursuant to other sections of the Code. <HD SOURCE="HD2">2. Existing Regulatory and Administrative Guidance Under Sections 1014(f) & 6035</HD> On March 4, 2016, the Department of the Treasury (Treasury Department) and the IRS published in the <E T="04">Federal Register</E> (81 FR 11486) a notice of proposed rulemaking and notice of proposed rulemaking by cross-reference to temporary regulations (REG-127923-15). The proposed regulations would provide guidance on the consistent basis requirement under section 1014(f) applicable to recipients of certain property from a decedent and the reporting requirements under section 6035 applicable to executors and other persons required to file an estate tax return. Section 1.6035-2 of the proposed regulations (proposed § 1.6035-2) cross-references temporary regulations under § 1.6035-2T (TD 9757), published in the <E T="04">Federal Register</E> (81 FR 11431) on the same day, which provide transitional relief on the due date for filing the information return required by section 6035 (Information Return) and furnishing the statement(s) required by section 6035 (Statement(s)). Specifically, the temporary regulations extended the due date for filing and furnishing the required Information Return and Statement(s) to March 31, 2016. <SU>1</SU> <FTREF/> <FTNT> <SU>1</SU>  Prior extensions of the due dates to file and furnish the required Information Return and Statement(s) were set forth in Notice 2015-57, 2015-36 IRB 24, and Notice 2016-19, 2016-09 IRB 362. </FTNT> On March 23, 2016, in response to requests from the public for an additional extension of time for filing and furnishing the required Information Return and Statement(s), the Treasury Department and the IRS issued Notice 2016-27, 2016-15 IRB 576, extending the due date for both to June 30, 2016. On December 2, 2016, the Treasury Department and the IRS published in the <E T="04">Federal Register</E> (81 FR 86953) final regulations (TD 9797) confirming the extension until June 30, 2016, to file and furnish the required Information Return and Statement(s). <HD SOURCE="HD2">3. Public Hearing and Comments</HD> On June 27, 2016, the Treasury Department and the IRS held a public hearing on the proposed regulations. In addition to the comments received at the hearing, the Treasury Department and the IRS received approximately thirty written comments on the proposed regulations. The written comments are available for public inspection at <E T="03">https://www.regulations.gov</E> or upon request. After consideration of all of the comments, the Treasury Department and the IRS are adopting the proposed regulations with certain revisions. These revisions substantially reduce the burden on both the IRS and taxpayers and increase administrability of the proposed rules. The revisions include (1) removing the zero basis rule for unreported property; (2) adopting a suggested interpretation of the term <E T="03">acquiring</E> for purposes of section 6035(a)(1) and thereby modifying the reporting requirements applicable in the case of property not acquired by a beneficiary before the estate tax return due date; (3) eliminating the subsequent transfer reporting requirement for all beneficiaries other than trustees; and (4) excepting additional types of property interests from the consistent basis requirements and the reporting requirements under section 6035. In addition, a number of requested technical changes have been made to the proposed regulations. Besides the changes made in response to comments, non-substantive revisions have been made to clarify the language and improve the organization of the proposed regulations. The public comments and revisions are discussed in the Summary of Comments and Explanation of Revisions section of this preamble. <HD SOURCE="HD1">Summary of Comments and Explanation of Revisions</HD> <HD SOURCE="HD3">1. Section 1014(f)—Consistent Basis Requirement</HD> <HD SOURCE="HD3">A. Proposed § 1.1014-10(a)(1): Consistent Basis Requirement—In General</HD> Section 1014(f)(1) provides that the basis of certain property acquired from a decedent cannot exceed that property's final value for purposes of the Federal estate tax imposed on the estate of the decedent, or, if the final value has not been determined, the value reported on a required Statement. This statutory rule is referred to as the <E T="03">consistent basis requirement.</E> Section 1.1014-10 of the proposed regulations (proposed § 1.1014-10) includes proposed rules that would implement the consistent basis requirement. Proposed § 1.1014-10(a)(1) provides that a taxpayer's initial basis in certain property acquired from a decedent may not exceed the property's final value for estate tax purposes within the meaning of proposed § 1.1014-10(c). Proposed § 1.1014-10(a)(1) additionally provides that the consistent basis requirement applies whenever the taxpayer reports a taxable event to the IRS with respect to the property and continues to apply until the entire property is sold, exchanged, or otherwise disposed of in one or more transactions that result in the recognition of gain or loss for Federal income tax purposes, regardless of whether the owner on the date of the sale, exchange, or disposition is the same taxpayer who acquired the property from the decedent or as a result of the decedent's death. The final regulations retain the rule in proposed § 1.1014-10(a)(1) incorporating the consistent basis requirement as it applies if a final value has been determined. However, proposed § 1.1014-10(a)(1) is revised in the final regulations to incorporate the consistent basis requirement as it applies if no final value has been determined (previously addressed in proposed § 1.1014-10(c)(2)). Proposed § 1.1014-10(a)(1) additionally is revised in the final regulations to explain that the property subject to the consi ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━ Preview showing 10k of 242k characters. Full document text is stored and available for version comparison. ━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━━