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Death and Taxes: Not Quite as Certain as You Think

Solve tax mysteriesIn 1789, Benjamin Franklin now famously observed in a letter to French physicist and writer Jean Baptiste Leroy, “Everything appears to promise that it will last; but in this world nothing can be said to be certain, except death and taxes.”  However, 222 years later, Americans have much uncertainty with taxes, particularly those related to death. 

One such tax mystery that is still unraveling is the estate tax.  It started over 10 years ago with the enactment of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which lowered tax rates and increased exemptions on estates starting in 2002 through 2009, until the tax was finally repealed in 2010.  Then, unless a later Congress took further action, the higher pre-EGTRRA rates would return starting in January 2011.

Many wondered whether Congress would let 2010 arrive without doing something to keep estates from getting an entire year estate tax-free.  Who would have guessed that we would be more than halfway through 2011 without enough guidance to figure out how to file for last year.  Amazingly, 2009 ended and 2010 went on without any major congressional action on this issue.  So, the mystery of what law would apply to 2010 estates intensified.

Finally, on December 17, 2010, President Obama signed the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.  Then we knew that for 2010, the estate tax was reinstated along with a $5 million exemption.  The law also added an election to opt out of that tax and apply carryover basis instead. However, because of this new election, the detective work was not over.  For 2010 only, CPAs need to work with their estate clients to investigate and decide whether this complicated carryover basis option (see AICPA letter of issues) is worth electing.

On September 3, IRS released a final Form 706 for 2010 enabling practitioners to finally start working through the issues.  However, without final instructions from the IRS and updated software from vendors, they are stuck and it is due in just 12 days - September 19.  (The 2011 form will be due October 1.)

To further complicate matters, the form (8939) and instructionsthat estates need to make the carryover basis election have yet to be finalized by the IRS.  This form is due November 15 and extensions will be allowed only under a few narrow circumstances.

The AICPA requested the IRS and Treasury to provide a blanket extension until 90 days after the forms and instructions are finalized, as well as an extension for filing Form 8939.  As of the date of this post, the final answer is still pending.

Estate Tax UncertaintyWhile we wait for the missing pieces to finish the estate tax puzzle, the AICPA is helping tax practitioners and their clients with this uncertainty by providing resources on the AICPA website, including articles, presentations, and a listing of links to all the issued guidance, draft forms and instructions.  We will continue to closely monitor and comment on this issue and keep you informed as developments occur.

We only have another year of certainty before we once again will be guessing about the rules for 2013 estates.  How likely do you think it is that Congress will act before 2013?

Eileen Reichenberg Sherr, CPA, MST, Senior Technical Manager – Taxation, American Instituate of CPAs. Eileen staffs the AICPA Trust, Estate and Gift Tax Technical Resource Panel and its Carryover Basis Task Force.  She is responsible for the development and submission of comments to Congress, Treasury and the IRS, and developing tools, updates and alerts for members.  She has a Master’s degree in Taxation from The George Washington University.


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