2. Page | 2
All this sounds very simple since I was able to summarize in one long sentence. However, let’s discuss
some questions and issues with Format, Questions to consider, What returns are included, Possible
Adjustments and Penalties for failure to produce the statement.
Format of Statement:
1. A statement seems simple enough. What should be included in the statement?
2. What will we attach to the statement?
3. Will the IRS provide a form in the future?
4. Should we provide a separate form for each beneficiary?
Based on information the Service required on Form 8939, in 2010 when there was no estate tax
and a carry‐over basis, I suspect the Service will want a separate statement for each beneficiary.
This will help with the privacy that should be required of the beneficiaries.
Obviously, the Service is going to try and match the statements to the cost basis reported by the
beneficiaries on their income tax return, so they will require enough information to be able to
do so. If we just provide copies of Form 706, Schedules A‐I, then there is no privacy and no
indication as to what asset each individual is receiving. Therefore, I believe the statement
should definitely include the following:
1. Estate’s Name, Executor Name, address and decedent’s SSN to match the Form 706
data.
2. Beneficiaries’ name, address and SSN or EIN if a trust.
3. Listing of assets that each beneficiary should or could receive. In this case, I believe
if it is the residue, then possibly copies of Form 706 schedules can be attached.
a. For stocks/bonds, include the number of shares in total and the cost per
share.
4. I would break the statement into two parts:
a. Assets specifically devised, or that have a beneficiary designation, or jointly
owned property, like personal property, home place, IRA, etc., and
b. Assets that will either relate to the residue or are calculated within the trust
document, which calculation will not have been completed until final
estate/trust distribution.
Be sure to provide disclaimers especially regarding personal property where the “realized loss”
may not be deductible.
Until further clarification is provided, I believe the address to mail the statement should be the
same address that you used to file the estate tax return.
3. Page | 3
Obviously, this information should be retained by either the beneficiary or the trust in a
permanent file somewhere for ease of access.
Questions to consider:
1. Is the information that we provide relevant to each beneficiary?
2. What if the beneficiary is only a specific devisee and gets none of the residue?
3. What if some or all of the assets are sold prior to filing the estate tax return?
4. Why does the IRS believe that providing information that may be as much as 15 months old
seems relevant?
5. What about items that don’t get a step‐up in basis, like items of Income in Respect of
Decedent (IRD)(i.e. IRA)?
6. Is there a lack of privacy with the attachments?
7. Do we know what assets will go to each individual?
8. Does giving this information lead a beneficiary to believe they are receiving all of these
assets?
9. Should we get the beneficiary to sign off that they received the document?
As you can see there are many questions that I don’t believe we have all the answers at this point. I will
try to give relevant information that may answer some of these questions. However, I don’t believe
either the new IRC Code Section 6035 or the summaries so far written give us clues as to what is
required to be done.
To make the answers relevant to each beneficiary, I believe advisors will need to account for the assets
thoroughly until the estate tax return is filed. Have the assets been sold, or exchanged? If so, I believe
we should report what they may be entitled to receive based on the document. Just attaching copies of
Form 706 schedules could provide very unclear information to both the Service and the beneficiary.
This would possibly make more change forms necessary in the long run.
As I mentioned, if we provide separate statements for each beneficiary, this should help with the issue
of privacy and relevant information to all. If a beneficiary, whether an individual or a trust, is getting the
residue, then a listing of all assets remaining can be included in the statement to each of the persons
receiving a percentage of the residue. I do believe in the case of a residual beneficiary that a statement
at the bottom should indicate that this is not a list of assets that each will receive at the end of the
estate/trust administration, however, in accordance with Code Section 6035, we are providing the most
up to date information to comply with this code section. During the period of administration, many
changes can be made to this trust that could affect this information, and if such change is required to be
reported by the Service, we will provide more information at that time to correct this information.
Assets that have no basis, like items of IRD, should be reported at zero to make sure no one is confused
as to the basis. If all assets are sold, I believe a schedule showing the cash amount that each beneficiary
5. Page | 5
From my perspective I was wondering if other adjustments to basis while assets are held in an
estate/trust would be included in the definition of “adjustments”.
1. Funding a pecuniary bequest that requires gain to be realized. The beneficiary
would then have basis equal to fair market value at the time of funding, and not
from date of death.
2. Same outcome will apply if the estate/trust elects to realize gains under Section
643(3).
3. What about basis in partnership/s‐corp which requires yearly adjustments to basis
based on the K‐1 income, expense, capital contributions and distributions?
4. Passive activities that accumulate losses, as is the case with publicly traded
partnerships. When these are distributed to a related party, then the basis is
adjusted by the amount of losses that cannot be carried forward to the recipient.
5. Stock splits, or spin‐offs that require a basis allocation different than as originally
shown.
6. Rental, investment property additions during estate administration. (e.g. a new
roof, or new furnace, etc.)
I’m sure there are other cases in which the cost basis will be different than what was reported
on the estate tax return and included in the statement that we will be filing. I think it is obvious
that the Service would like to be able to match the reporting of basis by the beneficiary,
whether an individual or a trust with the statement that is filed reporting this cost basis. If that
is the case, then I believe other adjustments will be necessary. If we don’t tell them how will the
beneficiary know the starting point in which to continue to calculate their correct cost basis?
I don’t believe a supplemental statement should be provided if an asset is sold within the trust
prior to distribution after the original statement was issued. This type of change would not be
necessary, since the beneficiary will never have to report this sale on their tax return, especially
if we put the proper disclaimers at the bottom.
Penalties for not filing the statement?
A new section defining definitions of statements now appears in Section 6724(d)(1)(D) of the
code and under “Payee Statements”, IRC Section 6724(d)(2)(II) . Failure to file an information
return under IRC Section 6721 or failure to furnish correct payee statements under IRC Section
6722 indicate that between 7/31/15 and 12/31/15, the penalty would be based on $100 per
return not filed. After 12/31/15, that penalty goes up to $250 per return. Remember that we
do believe that a separate return should be filed for each beneficiary, which if the estate/trust
has 10 total beneficiaries, then that penalty could be assessed at $100 per return. Because of
the newness of the situation and since no instruction has been given, one could ask for
abatement of penalty.
