Revenue Procedure 2016-42 Helps Charitable Remainder Annuity Trusts Qualify in a Low Interest Rate Environment

One of the many consequences of the government’s manipulation of interest rates is the impact on the qualification of charitable remainder annuity trusts (CRATs).  A CRAT is a split-interest trust where the person transferring property to the trust typically retains a fixed annuity payment for life (or a term of years not exceeding 20) with the balance (called the remainder) of the trust passing to a designated charity at the end of the annuity payment term.  Because the CRAT is tax-exempt, it is typically used in tax planning for the sale of appreciated property. 

There are several rules that a CRAT must meet, one of which is the 5% exhaustion test of Revenue Ruling 77-374.  This ruling requires that the probability of the annuity payment depleting the assets of the CRAT, so that nothing remains for the charity, cannot be greater than 5%.  The probability of exhaustion is computed by considering the annuity as a percentage of the initial value of the property transferred to the trust (the amount of the annuity must be at least 5% of the initial value), the IRS valuation interest rate under IRC §7520 (use the highest of the current month (1.40% for August 2016) or of the two preceding months (1.80% each for June and July)) which is used to discount the annuity stream to present value, and the life expectancy of the annuitant over which the annuity will be paid.  In August 2016, it is clear that the CRAT minimum annuity payout percentage of 5% is greater than the IRS valuation rate of 1.80%; therefore, if the time period over which the annuity is paid is too long, the 5% depletion test will be failed.  For a single life annuitant at the 1.80% IRS valuation rate, only a 72-year-old or older person can establish a CRAT.  For a joint life expectancy of a husband and wife, the spouse of a 72-year-old must be at least age 77!  Contrast this to August 2008 when the §7520 rate was 4.20%.  Then a 52-year-old could establish a CRAT without failing the exhaustion test. 

Because the low interest rate environment has rendered CRATs unusable except for the oldest of taxpayers, the IRS published Revenue Procedure 2016-42.  It provides a provision which, if adopted, enables the CRAT to disregard the exhaustion test upon creation.  The provision requires the CRAT to terminate early if the future value of the CRAT, when discounted back to the CRAT formation, drops below 10% of the initial CRAT value.  The formula could cause an early termination and end of the annuity payment if the CRAT were to suffer a decline in value, even if temporary due to market fluctuations.  The provision will require annual monitoring before each year’s annuity payment is made.  If the 10% test is failed, then no annuity is paid for that year and the CRAT pays all of its assets over to the charity and terminates.  While this revenue procedure opens the door for CRATs to be used by younger taxpayers, younger taxpayers may find that a charitable remainder unitrust (CRUT) or charitable gift annuity may be preferable to the CRAT which bears the risk of early termination.  However, in the right situation, this new provision can enable the CRAT to be used.

The New “Death Tax”

The lifetime exemption from Federal estate tax (sometimes called the death tax) was permanently increased to $5.00 million plus inflation adjustments (measured from 2010) as part of the American Taxpayer Relief Act of 2012.  It had been scheduled to drop from $5.12 million to $1.00 million in 2013.  For 2016, the exemption stands at $5.45 million.  Because each spouse has this limit, a married couple effectively has a $10.90 million combined exemption.  The government also permanently enacted “portability” enabling the surviving spouse to elect to “port” or add to her or his own lifetime exemption any unused exemption of the deceased spouse.  The large exemption amounts in effect make the estate tax applicable only to a tiny percentage of taxpayers, estimated to be 0.6% of all taxpayers.  Given that almost no one pays the estate tax, what then is the new death tax?  Answer:  it is the income tax.  The income tax is the tax that most people should plan for in their estate planning documents.  Unique income tax benefits and detriments associated with trusts and estates require careful planning. 

When a person dies, the income tax basis of the assets that are included in the gross estate of the decedent changes to be equal to the fair market value (FMV) as of the date of death (or the “alternate valuation date” if that election is made for a tax-paying estate).  An exception applies to assets that are considered “income in respect of a decedent” (IRD).  IRD assets are typically tax-deferred retirement accounts such as 401(k)s, traditional IRAs, and also accrued income items such as accrued interest and dividend income, and unreported income from installment sale contracts.  These IRD assets do not receive a new income tax basis at death.  In addition, if the new basis conformity reporting isn’t complied with when required (see my blog post here), the tax basis of unreported inherited assets becomes zero.  In most instances the FMV will exceed the tax basis of the assets.  Therefore, changing the tax basis to FMV eliminates the inherent capital gains tax.  The new reality of the high estate tax exemption amount should change the emphasis in estate planning from reducing the estate tax (that most likely won’t be owed) to reducing the income tax (that will be owed). 

Putting the emphasis on income tax reduction when structuring estate plans requires looking at both lives for a married couple.  If the surviving spouse continues to live for a number of years, the FMV of the assets owned by the decedent spouse should continue to increase.  If such assets could be included in the gross estate upon the death of the surviving spouse, the assets in effect receive a “second step-up” in income tax basis.  Below are some planning suggestions.  A variety of factors must be considered before adopting any of these suggestions. 

1.      Consider changing your existing estate plan from using the traditional A-B trust structure to simply leaving all assets of the first spouse to die to the surviving spouse, whether directly or in a qualifying trust, and electing portability.  The traditional structure allocates the first spouse’s assets to the B trust (sometimes called the credit shelter, bypass, or family trust) in an amount equal to the unused estate exemption amount.  The balance of the assets (if any) are left to the A trust for the surviving spouse.  The traditional A-B structure is an attempt to use the deceased spouse’s estate exemption that would be lost if not used.  But now, with the availability of the portability election, any unused exemption will be preserved.  The tax problem with the B trust is that the income tax basis of the trust assets will be frozen at the FMV at the time of the first death.  The B trust is designed not to be included in the gross estate of the surviving spouse; therefore, there is no second step-up upon the death of the second spouse.  Leaving the first spouse’s assets to the surviving spouse, whether directly or in a qualifying trust, enables those assets to receive a second step-up in basis.  Before changing your A-B trust structure, other reasons for the structure, such as asset protection or multi-generational trust purposes must be considered.

2.      If the older/sicker spouse owns an irrevocable grantor trust from prior gifting or estate planning strategies, there will likely be a provision in the trust document that permits the spouse-grantor to substitute or replace assets in the grantor trust with assets of like FMV.  Substituting high basis assets for low basis assets in the trust will bring the low basis trust assets into the spouse’s gross estate for a basis step-up.

3.      If the A-B trusts already exist, or if there are other gifting or estate irrevocable trusts that are nongrantor trusts, then the income tax burden of these trusts can be quite high.  For example, in 2016, the top 39.6% ordinary and 20.0% capital gain tax rates begin at only $12,400 of trust taxable income, whereas for a married couple, such rates don’t begin until $466,950 ($415,050 for single taxpayers).  Distributions of trust taxable income to beneficiaries can often result in less overall tax.  Distributions just for income tax reasons should, however, be consistent with the trustor’s purposes for the trust.

4.      When drafting a trust document, the distribution language should give discretion to the trustee to make distributions from income and principal, and should give the trustee authority to define trust accounting income, such as including capital gains in the definition.

5.      Give the older/sicker spouse ownership of appreciated, low-basis property so that it might receive a basis step-up.  However, a special rule prevents a basis step-up if the deceased spouse received the property within 12 months of death from the person inheriting the property.

6.      Have the older/sicker spouse gift high-basis property having an unrealized loss so that the high basis might be preserved instead of being “stepped down” to FMV upon death.  While there are limitations on how much loss can be triggered on the sale of gifted high-basis property, the preserved basis will be available to reduce the capital gain if the property’s value recovers.

7.      Avoid fractionalizing ownership interests to obtain large valuation discounts.  If you don’t have estate tax, you want high valuations to obtain higher tax basis for the property to be inherited by your heirs.

8.      Elect portability where it makes sense.  Electing portability to preserve the unused lifetime estate tax exemption requires the filing of a timely estate tax return for the deceased spouse.  Preparing an estate tax return is expensive, costing thousands of dollars, so it must fit the family’s circumstances to be worthwhile.

Partners Cannot Be Employees

Temporary tax regulations were issued on May 4, 2016, to halt a perceived abuse where wholly owned limited liability companies (LLCs) were used to enable partners to be treated as employees for purposes of participating in tax-favored employee benefit plans.  Under Revenue Ruling 69-184, partners are not considered employees and therefore should not receive Form W-2 and should not participate as regular employees in employee benefit plans.  However, that ruling was published in 1969, and since that time LLCs have been created and the concept of disregarded entities introduced.  Some taxpayers have used the new developments to plan around the ruling.

Wholly owned or single member LLCs are generally “disregarded” as an entity separate from its owner for both income tax and self-employment tax purposes.  For employee employment tax purposes, prior regulations held that a disregarded entity is treated as a corporation, meaning that the LLC rather than the LLC owner is treated as the employer of its employees.  The prior regulations gave an example of an individual owning 100% of an LLC and stated that the individual was not an employee of the LLC.  But since the regulations did not provide an example of a partnership owning 100% of an LLC, some taxpayers interpreted the regulations as permitting the partnership’s partners to be treated as employees of the LLC and therefore eligible to participate in certain tax-favored employee benefit plans not otherwise available to self-employed individuals.

The temporary regulations require partnerships owning a business in a wholly owned LLC to treat the partners as self-employed individuals rather than as employees of the LLC beginning the later of August 1, 2016, or the first day of the next employee benefit plan year beginning after May 4, 2016.

The publication of these temporary regulations is a good reminder of the IRS’ position that partners should not be part of the payroll system.  Partner compensation is considered to be a “guaranteed payment” that is disclosed on Schedule K-1 rather than reported on Form W-2.  Guaranteed payments are self-employment income not subject to payroll tax withholding.  Therefore, partners will need to make timely estimated tax payments of their income and self-employment taxes in order to avoid a penalty for underpaying estimated tax.

Tax Proposals of the Three Presidential Candidates

Thomson Reuters RIA Checkpoint this week issued a summary of the tax proposals of the three remaining presidential candidates.  The summary is based largely on information provided on the candidate's websites as of May 17, 2016.  Excerpts from their article:

Hillary Clinton 

Individual tax reform: 

1.     Impose the "Buffett rule" requiring taxpayers earning more than $1 million per year to pay at least 30% in taxes, and "broadening the base of income subject to the rule."

2.     Enact the "Fair Share Surcharge"—i.e., an extra 4% surtax on taxpayers who make more than $5 million per year.

3.     Modify the treatment of capital gains for taxpayers in the highest bracket by implementing a graduated holding period where the rate decreases, from 39.6% to 20%, over a 6-year period, to promote long-term investment.

4.     Limit the tax value of certain tax breaks to 28%. 

Business tax reform:  

1.     Restrict corporate inversions by increasing, from 20% to 50%, the post-merger threshold of foreign shareholder ownership for an American company to be considered foreign.

2.     Impose an "exit tax" on companies that undergo an inversion to ensure that U.S. taxes are paid on unrepatriated earnings held overseas.

3.     Create a $1,500 "apprenticeship tax credit" for every new worker that a business trains and hires.

4.     Provide for a new 15% tax credit for employers that share profits with their workers.

5.     End "wasteful tax subsidies" for oil and gas companies. 

Estate tax reform: 

1.     Exempt the first $3.5 million of an individual's estate from estate tax ($7 million for married couples), without adjustment for inflation.

2.     Increase the top rate to 45%.

3.     Cap the lifetime gift tax exemption at $1 million. 

Miscellaneous tax reforms: 

1.     End the "carried interest" loophole (under which private equity and hedge fund managers are taxed at capital gains rather than ordinary income rates on fund income).

2.     Close the loophole under which taxpayers essentially avoid IRA contribution limits by undervaluing contributed assets, and preventing taxpayers with "mega IRAs" from contributing further.

3.     "Ask the wealthiest to contribute more" to Social Security, including "options to tax some of their income above the current Social Security cap, and taxing some of their income not currently taken into account by the Social Security system."  

Bernie Sanders 

Individual tax reform. 

1.     Leave the existing rates in place for married couples with income below $250,000 and single filers with incomes below $200,000. However, he would replace the existing top three rates (of 33%, 35%, and 39.6%) as follows:

a.     37% on income between $250,000 and $500,000;

b.     43% on income between $500,000 and $2 million;

c.      48% on income between $2 million and $10 million; and

d.     52% on income of $10 million and above.

2.     Replace the alternative minimum tax (AMT), personal exemption phase-out (PEP), and "Pease" limitation on itemized deductions with a provision limiting the tax savings for each dollar of deductions to 28¢ for "high-income households."

3.     Repeal the favorable rates on capital gains and dividends for married couples with incomes over $250,000 (which would instead be subject to the otherwise applicable income tax rate), while retaining the existing favorable treatment for taxpayers who fall under that threshold.  Increase the 3.8% surtax [established by the Affordable Care Act] on net investment income to 10%. 

Business tax reform: 

1.     End deferral of foreign-source income, instead requiring corporations to pay U.S. taxes on offshore profits as they are earned.

2.     Not allow a corporation to "claim to be from another country" if its management and control operations are primarily located in the U.S.

3.     Eliminate loopholes and subsidies that benefit oil, natural gas, and coal interests. 

Estate tax reform: 

1.     Exempt the first $3.5 million of an individual's estate from the estate tax.

2.     Establish a new progressive estate tax rate structure: 45% on the value of an estate between $3.5 million and $10 million; 50% for the value of an estate between $10 million and $50 million; and 55% for the value of an estate in excess of $50 million, with an "additional billionaire's surtax" of 10%.

3.     Strengthen the generation-skipping tax by applying it with no exclusion to any trust set up to last more than 50 years.

4.     Limit the annual exclusion from gift tax for gifts made to trusts. 

Miscellaneous tax reforms: 

1.     Enact a "Wall Street" or "financial transaction" tax on trades of stock (0.5%), bonds (0.1%), and derivatives (0.005%).

2.     Eliminate the Social Security wage base (for 2016, $118,500) so that everyone pays the same percentage of their income.

3.     End the "carried interest loophole."

4.     Enact a new payroll tax to fund paid family and medical leave.

5.     Create a 6.2% income-based health care payroll tax paid by employers, and a 2.2% income-based tax paid by households (both referred to as "premiums"), to help fund Medicare for all.  

Donald Trump

Individual tax reform: 

1.     Lower income tax rates as follows:

a.     0% for single filers earning up to $25,000, married filers earning up to $50,000, and heads of household earning up to $37,500;

b.     10% for single filers earning $25,001 to $50,000, married filers earning $50,001 to $100,000, and heads of household earning $37,501 to $75,000;

c.      20% for single earners earning $50,001 to $150,000, married filers earning $100,001 to $300,000, and heads of household earning $75,001 to $225,000; and

d.     25% for single filers earning $150,000 and up, married filers earning $300,001 and up, and heads of household earning $225,001 and up.

2.     Change the long-term capital gains and dividends rates to be:

a.     0% for taxpayers in the 0% and 10% income tax rate brackets;

b.     15% for taxpayers in the 15% income tax rate bracket; and

c.      20% for taxpayers in the 25% income tax rate bracket.

3.     Reduce personal exemptions and deductions.

a.     Taxpayers in the 10% brackets will keep "all or most" of their current deductions,

b.     Those in the 20% bracket will keep "more than half" of their current deductions, and

c.      Those in the 25% bracket will keep "fewer" deductions.

d.     Charitable giving and mortgage interest deductions, will remain unchanged for everyone.

e.     Individuals would also be allowed to fully deduct health insurance premium payments. 

Business tax reform: 

1.     Cut the corporate tax rate to 15% and also create a new "business income tax rate" within the "personal tax code" that would match the 15% corporate tax rate for pass-through businesses.

2.     Provide a one-time deemed repatriation of corporate cash held overseas at a 10% rate.

3.     End deferral of taxes on corporate income earned abroad.

4.     Reduce or eliminate corporate loopholes that "cater to special interests," as well as "deductions made unnecessary or redundant" by the new lower rates, and phasing in a "reasonable cap" on the deductibility of business interest expenses.  

Estate tax reform: 

1.     Eliminate the estate tax. 

Miscellaneous tax reforms:  

1.     End the current tax treatment of carried interest.

2.     Repeal the Affordable Care Act.

May 16, 2016 Due Date for Calendar Year Exempt Organizations

Most tax-exempt organizations (TEOs) are required to file tax returns with the IRS.  The normal due date is 4 ½ months following the end of the tax year.  For TEOs having a calendar or December 31^st year-end, the due date is May 15^th.  Since May 15, 2016 falls on Sunday, the due date is officially May 16^th.  However, if tax is owing, and the TEO uses the Electronic Federal Tax Payment System (EFTPS), the payment must be scheduled before 8 p.m. eastern time the day before the due date in order for the payment to be timely made to the IRS.

TEOs use the Form 990 series to file their tax returns.  The specific version of Form 990 depends upon the nature of the organization and the amount of its gross revenues or assets.  The full Form 990 requires much more time and effort to complete than Form 990-EZ.

Financial Status of TEO	Form to File
Gross receipts normally ≤ $50,000	990-N (e-postcard)
Gross receipts < $200,000 and Total assets < $500,000	990-EZ
Gross receipts ≥ $200,000 or Total assets ≥ $500,000	990
Private foundation—regardless of financial status	990-PF

If the tax return is filed late, daily penalties will accrue.  If a tax return is not filed as required for three consecutive years, the organization automatically loses its tax-exempt status.  Churches are not required to file annual tax returns.  An extension of time may be requested by filing Form 8868 with the IRS by the tax return due date.  An extension of three months is granted automatically.  A second extension of three months may be granted if the IRS deems the explanation satisfactory for why a further extension is necessary.

By law the IRS and most TEOs are required to publicly disclose most parts of the Form 990 filings, including schedules and attachments.  Therefore, the IRS cautions TEOs not to include Social Security Numbers in the information to avoid potential identity theft.  In addition, you may not want to use home addresses of the officers and trustees in the filing.

The IRS offers an online search tool to help users more easily find key information about the federal tax status and filings of TEOs, including whether organizations have had their federal tax exemptions automatically revoked.

Scams and Identity Theft

There was a noticeable increase by scammers this tax season to steal the identities of taxpayers.  Several clients received telephone calls threatening penalties and even arrest at their home if they did not immediately provide payment information.  Other attempts to steal identities came through so-called email phishing attempts.  The word “phishing” is computer hacker slang for “fishing” where criminals attempt to “catch” a person’s personal and financial information, including logins and passwords to financial accounts.  Other problems with tax identity theft were revealed when attempts to electronically file tax returns were rejected for the reason that a tax return had already been submitted under the client’s Social Security number, or when the IRS sent a letter indicating suspicious activity on the tax account.  Given the increase in tax scams and identity theft, you should be aware of how the IRS will contact you and what you can do to protect yourself and your information.

·       The IRS will contact you by U.S. mail.  The IRS will not call you to demand immediate payment and threaten to show up at your residence and arrest you.  The IRS will not call you to verify your W-2 or other tax return information, they already have this information.

o   If you receive such a phone call, simply hang up, don’t talk or reason with the person.  If they call back, block their number.

o   Criminals can “spoof” their caller identification information to make it look like they are calling from the IRS or a state tax agency.

o   You can report the incident to the IRS by calling 1-800-366-4484.

·       The IRS will give you an opportunity to review the reasons for any additional tax and to provide information to dispute their findings.

o   If you know that you owe back taxes, don’t let that fact “guilt” you into responding to the scammer’s attempt to gain your information.  Instead, work with your tax preparer or contact the IRS directly at 1-800-829-1040 to make payment arrangements.

·       The IRS will not contact you by email asking for tax information.

o   If you receive a such an email, do not reply and forward it to phishing@irs.gov then delete the message.  Also, be sure never to open any attachments to the email or your computer may become infected with a virus or other computer code designed to steal your information.

·       Protect your financial information by keeping your software up to date and use good anti-virus and anti-spyware software.  Use strong passwords and change them occasionally.

o   A password manager like LastPass is a good option to consider in order to be able to use strong passwords that you otherwise will not be able to remember.

·       If you suspect tax identity theft, complete Form 14039, Identity Theft Affidavit, and send to the IRS.  The IRS will issue you a six-digit identity protection personal identification number, IP-PIN, that you will need to use to submit your tax return.  A new IP-PIN is issued each year.  Be sure not to lose the number because it is very difficult to replace it.  Provide the IP-PIN to your tax preparer.

o   Understand that if the IRS suspects tax identity theft, your tax refund could be delayed by many months as they work to determine the correct identity.

o   If your tax identity has been stolen, there is a good chance that your other financial information is at risk.  You will want to immediately change financial account passwords, alert the credit rating agencies, and take other necessary steps.  Further information about identity theft can be found here.

New Consistent Basis Reporting Regulations Provide Clarity and Some Big Surprises

When a person dies, the income tax basis of property included in the person’s gross estate changes to its fair market value (FMV) at the date of death (or the alternative valuation date six months later if that is elected).  This provision is generally beneficial in two respects:  1) property generally increases in value over time, so the increase in basis eliminates the inherent capital gain for income tax purposes, and 2) cost records for property owned by the decedent are often unavailable.  However, property that is considered “income in respect of a decedent or IRD” has a basis of zero and does not receive a new basis at death. Examples of IRD property include traditional IRAs, qualified retirement plans, and earned or accrued income that was not received as of the date of death.

Some taxpayers have taken aggressive tax positions in order to reduce their income taxes, arguing that the FMV of the property they inherited was actually greater than the FMV used in the decedent’s estate tax return.  In response, on July 31, 2015, Congress enacted a basis consistency law and granted the IRS sweeping powers to carry out the intent of the law.  On March 4, 2016, the IRS published temporary and proposed regulations.

The executor of the estate must report the FMV of the property to the IRS on Form 8971 and to any person acquiring ownership in the property on Schedule A to Form 8971.  The report must be furnished the earlier of:  1) 30 days after the estate tax return due date (including extensions), or 2) 30 days after the filing of the estate tax return.  Any adjustment to the FMV must also be reported within 30 days of the adjustment.  Penalties apply to late or incomplete reporting, and also to any understatement of income tax from using a tax basis greater that the FMV as finally determined for the estate tax return.  The IRS has extended the due date to March 31, 2016 for all Forms 8971 that were due before then.

For the vast majority of estates, these reporting rules will not apply.  Reporting is required only if an estate tax return (Form 706) is required to be filed because the decedent’s gross estate (which includes prior taxable gifts) exceeds the basic exclusion amount, which is $5,450,000 in 2016.  Form 8971 is not required in the following situations:

·       Form 706 is filed only to make the portability election.

·       Form 706 is filed for the sole purpose of making an allocation or an election for purposes of the generation-skipping transfer tax.

·       A protective Form 706 is filed for an estate having a FMV of less than the basic exclusion amount in order to start the statute of limitations (SOL) against a potential IRS audit.

If Form 8971 is required to be filed, not every item included on the estate tax return has to be reported on Schedule A.  Exemptions are:

·       Cash and equivalents.

·       IRD assets.

·       Tangible personal property having a total value of $3,000 or less.

·       Property sold by the estate at a gain or loss.

Some big surprises in the regulations just published:

·       If the executor of the estate has not determined which specific property each beneficiary will receive, then each beneficiary must receive a report of all of the estate’s property that could be used to satisfy the beneficiary’s interest.  This requirement is sure to cause controversy among the beneficiaries when they see the size of the estate and the types of property that are available to them!  Most of the time the executor will not make distributions out of an estate until after receiving a “closing letter (or its current IRS equivalent)” to protect against any personal liability for additional estate tax from an IRS audit.

·       A so-called “zero basis rule” is introduced by the IRS, and seems contrary to well established tax law.  The IRS states that if property is discovered to have been left off of the estate tax return, and would have increased the estate tax if included, its income tax basis is zero no matter the FMV.  If the SOL has not expired on the estate tax return, then the executor can amend the return and add the overlooked asset and restore the tax basis.  If the SOL has expired, the basis is zero.

·       The zero basis rule also applies to an estate tax return that should have been filed but was not.  The basis of property is zero until the estate tax return is filed and final values are determined.  This means that assets sold, depreciated, etc. before then may have overstated basis deductions and tax penalties could result.  Thus a big exposure exists for estates having hard-to-value assets (e.g. a business interest) claiming valuation discounts, and where the gross estate FMV is less than the basic exclusion amount and no estate tax return is filed.  The IRS has a big incentive to challenge the valuation discounts to cause a requirement to file an estate tax return.  In this situation it will be prudent to file a protective estate tax return if increasing the asset’s value would cause or increase estate tax.

·       The new tax law requires basis consistency reporting of executors.  The IRS has now exercised its legislative authority to create a whole new category of people subject to the reporting requirements:  beneficiaries!  Heirs of an estate who in turn gift or otherwise transfer (other than by sale) property received from the estate to a related person or entity, must report the basis of the transferred property to both the IRS and the transferee by filing a Form 8971 within 30 days of the transfer.  There appears to be no time limit on this exposure to report, so in theory the requirement could apply to a transfer made many decades after the inheritance!

·       Some estate plans leave property to one beneficiary for a period of time (e.g. his or her lifetime) after which the property passes to another person (the contingent beneficiary).  The proposed regulations require that a supplemental basis report be provided when the property passes to the contingent beneficiary.  Since this can be many years into the future, one commentator has asked, “Will executors now have lifetime duties?”

Update:

On March 23, 2016, the IRS issued Notice 2016-27 which further extends the due date from March 31, 2016 to June 30, 2016.