Tax Form 8971 – If Missed Could Cost You BIG!

Beneficiaries Acquiring Property From Descendants


As our society continues to age we are new seeing estates beginning to distribute their assets. On Tax Form 8971, you will find the list of these distributions and this form could be delivered at any point during the year. Please don’t forget to forward this to your Tax Preparer!!!  Not filing this information in a timely basis could create a huge tax liability for you.

  • Heirs must use the estate tax value of assets received from an estate as their income tax basis
  • Executors must report estate tax value (basis) of assets to IRS and heirs (on Form 8971 and Schedule A)
  • 6 year (up from 3 years) statute of limitations (on assessment) expanded to apply where overstatement of asset basis is equivalent of omitting > 25% of gross income on income tax return

US Estate (and Generation-Skipping Transfer) Tax Return    

  • If required Form 706 is never filed, the basis of assets required to be reported will be zero for heirs  
  • If asset improperly omitted from required 706 and statute of limitations expired, omitted property’s basis is zero for heirs  
  • If asset improperly omitted from required 706 and statute still open, estate may report asset on amended 706 (heir gets basis in amount of final estate tax value) 
  • After 3 years (assuming no fraud or other), IRS cannot say “asset was not reported, therefore basis is zero” 

Tax Tip: Form 8971, If your tax preparer doesn’t handle the entire families returns they will not know you have received this document… be sure to bring it to their attention as soon as possible. It is a valuable document for tax planning.
Tax Tip: Protective 706 filings for estates whose value appears to be just below the filing threshold look better than ever, they may slice against you, however, if you file, but omit an asset and the S/L expires on you .

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