frustrated woman taking a phone inquiry

New IRS forms—IRS Forms 8971—are due on March 31, 2016 and, while they close an estate tax loophole, they also create confusion.

While closing an estate tax loophole is a good idea and should be simple, it is not. The loophole being closed allowed one value of property for estate tax purposes and a different value for income tax purposes. The new rule requires the IRS to receive an itemized list of estate property valuations within 30 days of the date of death. Heirs and beneficiaries will then be stuck with that value for income tax purposes.

However, Forbes in “Executors, Inheritors, Lawyers Flummoxed By New IRS Forms” reports that the forms are causing some problems.

The biggest issue comes when a bequest has not been specifically funded.

The executor is required to list all of the property that could be used to fund the bequest and its value on a schedule that is sent to the beneficiaries of that bequest. The form itself is not clear and can lead beneficiaries to think they are inheriting all of the listed property when their actual inheritance is quite small.

Another potential source of problems is that beneficiaries have to file another form if they subsequently transfer the property, but nothing informs them of that requirement.

Since the IRS is still open to public comments on closing the loophole, there is a chance that changes may still be coming that would clear up the issue.

Reference: Forbes (March 9, 2016) “Executors, Inheritors, Lawyers Flummoxed By New IRS Forms

For more information on tax planning and estate planning, please visit my estate planning website.

Mr. Amoruso concentrates his practice on Elder Law, Comprehensive Estate Planning, Asset Preservation, Estate Administration and Guardianship.