Internal Revenue Service Releases 12/16/2010 Advance Proof Copy of Form 8939 Required for Step-up in Basis for 2010 Deaths

Attached is the 12/16/2010 advance proof copy from the Internal Revenue Service of Form 8939, entitled “Allocation of Increase in Basis for Property Received from a Decedent.” This form is necessary for the estates of many 2010 decedents to achieve a step-up in basis. It reputedly is required to be filed with the decedent’s final income tax return, and is believed to be necessary only for estates in excess of $1,300,000. Until we see specific instructions from the Internal Revenue Service, however, it is my belief that all estates should consider filing this form.

Schedule A pertains only to surviving spouses. For assets inherited by persons other than surviving spouses, Schedule B would be required. Note that on both of these schedules, the date that the decedent acquired the property is required, along with the decedent’s adjusted basis in the asset. While that information may be easy to determine for real estate, it may not be easy to determine for securities and mutual funds held in book entry for many years. Further, taxpayers and their accountants may find that attempting to list the separate purchases made in dividend reinvestment plans to achieve a step-up in basis on each investment may not be worth the time and effort.

A positive note for taxpayers is that this latest draft of the form still does not require an explanation of why the Executor of the estate believes the asset would be entitled to a step-up in basis under Internal Revenue Code Section 1022. Thus, technical issues as to whether life estates, reserved powers of appointment or irrevocable trusts are “owned by the decedent” and “received from the decedent” under Internal Revenue Code Section 1022 are not flagged on the form except, perhaps, where an “[a]ccurate description of the property” is required. For my previous posts on Internal Revenue Code Section 1022, see http://elderlawblog.info/category/internal-revenue-code-section-1022-2

Traps for the Unwary Regarding the Modified Carryover Basis Rules for 2010 Deaths

Why DOESN’T a Reserved Life Estate Get a Step-up in Basis under Internal Revenue
Code Section 1022?

More about Whether Life Estates Are Eligible for a Step-up in Basis in 2010

Which Powers of Appointment Are Eligible for a Step-up in Basis in 2010 under the
Modified Carryover Basis Rules?

Are All Revocable Trusts Eligible for a Step-up in Basis under the Modified
Carryover Basis Rules?

When Are Assets in an Irrevocable Trust Eligible for a Step-up in Basis in 2010
under the Modified Carryover Basis Rules?

Can a “Retained” Life Estate Be Eligible for a Step-up in Basis under Internal
Revenue Code Section 1022?

When Is an Asset Considered “Acquired from the Decedent” under Internal Revenue Code
Section 1022?

What Are the Mechanics of Obtaining a Step-up in Basis in 2010 under Internal
Revenue Code Section 1022?