The AICPA on Thursday sent a letter to the IRS with recommendations to two areas of new instructions to Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent. The AICPA understands that Treasury and the IRS are considering updating the form instructions for the final regulations.
According to the AICPA, the IRS should provide further guidance on the duty supplement and should clarify whether Schedule A must be provided to a previously revocable trust included in a decedent’s estate within 30 days of filing Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.
Changes to these two areas of the instructions to Form 8971, which was last updated in January 2016, “would be beneficial to ensure clarity and compliance,” the letter stated.
Taxpayers and practitioners are unclear about the duty supplement, the AICPA said, giving the example of instances when an after-discovered asset is reported on a supplemental/amended Form 706, and the asset has not been distributed to the beneficiary. This situation raises the issue of whether the executor must file a supplemental Form 8971 and Schedules A if nothing has changed from the original Form 8971 and Schedules A, the AICPA said.
Regarding the second recommendation about Schedule A, the AICPA said regulations are unclear on this point, particularly because the trust holds the assets both before and after the person’s death, leading to a basis adjustment without an actual distribution or transfer. This situation raises two questions, the AICPA said: Is the executor responsible for telling the trust’s trustee about the basis adjustment? And is that determination based on whether the executor and the trustee are the same person?
The IRS plans to update the Form 8971 instructions to be consistent with the final regulations (T.D. 9991), said Eileen Sherr, CPA, CGMA, director–Tax Policy & Advocacy for the AICPA. The AICPA Trust, Estate, and Gift Tax Technical Resource Panel discussed the issue in November with IRS officials, who said they welcomed the AICPA’s thoughts on the soon-to-be-updated version of the form instructions, she said.
The AICPA letter noted that the final regulations contained many of its recommendations, including:
- Removed the zero-basis rule;
- Provided guidance on charitable/marital deduction property;
- Clarified that retirement plans are excepted assets;
- Clarified that loan forgiveness to a beneficiary is an excepted asset;
- Provided an ability to defer reporting until actual distribution (which addressed the AICPA’s concern about not knowing which beneficiaries will get particular assets);
- Clarified that the executor is not responsible for determining the allocation of uniform basis when two or more beneficiaries actuarially share an asset; and
- Provided guidance on requirements for supplemental filings due to audit changes.
— To comment on this article or to suggest an idea for another article, contact Martha Waggoner at Martha.Waggoner@aicpa-cima.com.
