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ESTATES, TRUSTS & GIFTS
The IRS has finally issued Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, and long-awaited guidance for executors of decedents who died in 2010 and who are deciding whether to elect out of the estate tax and apply the carryover basis rules of Sec. 1022 (Rev. Proc. 2011-41; Notices 2011-66 and 2011-76). Rev. Proc. 201141 contains optional safe harbors for the substantive provisions of Sec. 1022, Notice 2011-66 contains the rules for making the carryover basis election and generation-skipping transfer (GST) allocation for 2010, and Notice 2011-76 extends the due date for filing Form 8939 and provides other forms of relief. The carryover basis election is made by filing Form 8939 by January 17, 2012. No further extensions are allowed, despite how late the final Form 8939, instructions, and IRS Publication 4895, Tax Treatment of Property Acquired from a Decedent Dying in 201 0, were published.
General Observations
A few general observations are necessary as one prepares the Form 8939. First, the form cannot be viewed in the same light as a Form 706. Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is generally a complete listing of the decedent's assets and liabilities. In contrast, Form 8939 includes many assets that the decedent does not own, excludes assets that would normally appear on Form 706, and excludes debts, expenses, or claims of the decedent. Second, while Form 8939 appears to be much simpler than Form 706, with fewer schedules and computations, what it gains in simplicity it loses in the volume of detail required for each property. For each property on Form 8939, the executor must provide the date acquired, cost basis, fair market value, amount of gain that the recipient would report as ordinary income if the recipient sold the properry, whether the property is eligible for a basis increase, and how much basis increase is allocated to each property.
Executor
Only the executor, if one has been appointed, can make the election. This appears to be a hard and fast rule no matter how little property the executor controls or how much property other fiduciaries hold. Therefore, steps should be taken to appoint or replace the executor so that the "right"...