Form 8939 Allocation of Increases in Basis for Property Acquired from a Decedent
Caution: Many of the comments below were drafted before the IRS issued the final Form 8939. See the final form and instructions before taking any action.
The IRS worked on developing a form to use to meet the above reporting requirements in mid-2010, but later started over on a new draft form - several times! A new Form 8939 was issued on December 16, 2010, “Allocation of Increase in Basis for Property Acquired From a Decedent”. http://www.irs.gov/pub/irs-dft/f8939--dft.pdf. This form was subsequently revised several times.
It has been estimated that there could be as few as 3,000 of these forms actually filed for 2010. Only estates that would elect carryover basis treatment would be those over $5,000,000, and some of those, some might prefer the default estate tax treatment if it is less expensive than eventual capital gains tax on property that is greatly appreciated.
The deadline for Filing Form 8939 is extended by TRA until no earlier that nine months after the date of enactment. The date of enactment was December 17, 2010. Nine months later would have been September 17, 2011, which is a Saturday. So the following Monday, September 19, 2011 is the due date. The due date otherwise would have been Monday, April 18, 2011 (in 2011 Friday, April 15, 2011, is Emancipation Day, which is a holiday in Washington, D.C.), or until October 17, 2010 if the decedent’s final income tax return is extended.
In general the size of the boxes on the forms is so small that most of the information required to be disclosed will have to be presented in attached schedules. But that is only the beginning of the difficulties.
Because there is no indication as to what supporting data will have to be provided, executors might be advised to attach all basis calculations and corroboration, all appraisals, and other documentation.
Here is a summary of the form as it now stands:
Page 1: Background data has to be provided. Those heirs who “acquired property” from the decedent have to be identified as well as the value of property passing to each. The various basis adjustments listed in preceding discussions in this chapter have to be identified and calculated. The form is to be signed by the executor. If all assets are held in a revocable trust, presumably the trustee will sign but no indication is made for this.
Page 2: The next section of the Form requires similar information for property acquired by heirs other than a surviving spouse. For each asset, the form requires listing an accurate description of the property, the date the decedent acquired the property, the adjusted tax basis at death, the fair value at death, and an indication as to whether any portion of the gain would be ordinary income (e.g., as a result of depreciation recapture). No provisions appear to be made to address how an executor will report assets for which the data cannot be identified. Presumably estimates will have to be made and statements attached indicating what was done. If the basis of the property at death is less than or even equal to the fair value of the property, additional information must be disclosed including the basis increase allocated to the property. No indication appears to be required as to how the allocation was determined, but executors will wish to carefully identify the rationale and method for allocation for inclusion in reports to heirs, perhaps even in receipts and releases to be signed by heirs. A box is to be checked if the property is ineligible. Presumably this refers to IRA and other IRD to which basis adjustment cannot be allocated.
Page 3: This requires the details of property acquired by heirs other than a surviving spouse for the $1.3 million general basis adjustment. For each asset, the form requires listing an accurate description of the property, the date the decedent acquired the property, the adjusted tax basis at death, the fair value at death, and an indication as to whether any portion of the gain would be ordinary income (e.g., as a result of depreciation recapture). No provisions appear to be made to address how an executor will report assets for which the data cannot be identified. Presumably estimates will have to be made and statements attached indicating what was done. If the basis of the property at death is less then or even equal to the fair value of the property then additional indemnification must be disclosed including the basis increase allocated to the property. No indication appears to be required as to how the allocation was determined, but executors will wish to carefully identify the rationale and method for allocation for inclusion in reports to heirs, and perhaps even in receipts and releases to be signed by heirs. A box is to be checked if the property is ineligible. Presumably this refers to IRA and other IRD to which basis adjustment cannot be allocated.
A myriad of issues are raised by this deceptively simple Form. Until the estate is settled, other than specific bequests it may be impossible for the executor to identify which specific assets will be distributed to which beneficiaries. The final distribution of assets can only occur when the estate is settled and final distributions made. Final distributions generally are preceded by the beneficiaries signing receipts and releases. For 2010 estates electing carryover basis treatment the complexity and potentially adverse affects of the limited basis allocation on different beneficiaries may have executors attach rather detailed explanations and calculations to the receipts and releases, and perhaps even drafts of Form 8939 for each beneficiary to approve. The beneficiaries may also be advised to retain independent counsel. All this will make it difficult if not impossible to complete a final Form 8939 by the required due date.