After a long-awaited delay, the IRS finally issued some guidance on August 5, 2011 with respect to the filing of the new Form 8939. Notice 2011-66 describes how administrators can opt-of estate taxes for decedents who died in 2010 using Form 8939. Revenue Procedure 2011-41 outlines the tax rules that apply to these “opted out” estates.
Last December, Congress finally approved a new law on estate taxes. This law set the exemption at $5,000,000 and the tax rate at 35%. The law was also made retroactive to January 1, 2010 but allowed for an intriguing twist. If someone died in 2010, the administrator had two choices. They could operate under the old law where there were no estate taxes. Or, they could use the tax rules of the new law. Opting out of estate taxes has a potential disadvantage of also opting out of stepped-up basis rules and opting into modified carryover basis rules. However, opting out also means no estate tax is due no matter how large the estate.
To elect to use the old 2010 provisions with no estate tax, administrators must file the new Form 8939 no later than November 15, 2011. The IRS will not grant extensions to file this form and will only accept late-filed forms under very limited circumstances. To elect to use the new tax laws for 2010 decedents, administrators must file the traditional Estate Tax Return Form 706 by September 19, 2011.
The IRS believes that “7,000 executors of estate who died in 2010 will… [opt out of estate taxes] and thus will be required to file Form 8939, and that it will take approximately 8 hours to prepare.” Although Form 8939 is due in three months, as of August 10, 2011, the IRS has yet to release the final form or any instructions.
The attorneys at Burt + Clerc are happy to help administrators, trustees, and executors with filing the new Form 8939 or Form 706. We can be contacted at our office in Palm Desert, California at 760-340-0034.