Long Technical Post--Final Form 8971 & Instructions Released-Many ?? Remain

January 31, 2016

The final form 8971 and the instructions to the form have now been released and are available here for your convenience.

Download Form 8971

Download Form 8971 Instructions

This is a form that is required to be filed for all estates where a Federal Estate Tax return is filed after August 1, 2015. The point of it is to inform both the beneficiaries and the IRS of the estate tax value of assets passing to beneficiaries where a Federal Estate Tax Return is required.

  1. If a Federal Estate Tax Return is not required to be filed, this form and its accompanying schedule A which is to be sent to the individual beneficiaries is not required.
  2. Where a Federal Estate Tax Return is required, even though there may be no Federal Estate Tax due because of the marital or charitable deduction, the form and accompanying Schedule A will be required.
  3. Where a Federal Estate Tax Return is filed for the purpose of electing portability, it is probably the case that this form and attached schedule are not required. BUT, there is some doubt about that simply because the portability Regulations say that if you wish to make the election the Federal Estate Tax Return is required. So that is one among MANY questions that are not answered at this point.
  4. where a Federal Estate Tax Return is required and the inclusion of an asset causes an increase in estate tax liability, the beneficiary receiving the property must use a value which is not LOWER than that reported on the Federal Estate's tax Return.
  5. The form is due to be filed with the IRS and Schedule A is due to be delivered to each beneficiary within 30 days of the filing of the form 706. There is ambiguity about when it must be filed if it is filed late, because the instructions say that it must be filed by the earlier of the date that is 30 days after the due date or 30 days after the date the Form 706 is filed. It also says that if the first Form 706 is filed after July 2015 and after the forms due date, the form and schedules are due within 30 days after the actual filing date.
  6. If the date for the filing of Form 8971 and Schedule A is delayed by virtue of the fact that the form had not yet been released, the due date for the Form and Schedule is February 29, 2016. Notice 2015 – 57 indicates that February 29, 2016 is also the first day that the IRS will accept these forms. I would hope and think that you should be able to file them earlier than that if you are ready to do so. Otherwise it will be a very busy day on February 29, 2016.
  7. The Form may be required before you know what assets are going to pass to what beneficiary. That is unfortunate, however, as you then have to list all of the possible assets that might be used to satisfy the beneficiary's interest in the estate. Then when you actually know what assets pass to the beneficiary, it appears that you are supposed to file a supplemental Form and Schedule.
  8. If the final value of the property for Federal Estate Tax purposes turns out to be different than what was reported on the Federal Estate Tax purposes, you are supposed to file a Supplemental Form and Schedule.
  9. All of this ignores the fact that and things can happen after a Federal Estate's Tax value is established which may in fact affect the cost basis in the property received. But you (the executor or other responsible person who must file this form – seemingly the same person as is required to file the Form 706) are not required to report the cost basis of the asset to the beneficiary – but rather its Federal Estate Tax value as finally determined. In most cases that will be the same but not in all cases.
  10. You clearly have to identify by schedule and by item number in the asset passing to the beneficiary. I believe this means that using a "see attached" for securities held in a brokerage account or trust account will probably not work for this purpose. This may well means significantly more work for those practitioners who utilize this shortcut method.
  11. the instructions go into the penalties at great length which start as low as $50 per Form 8971 to a maximum penalty of $3,193,000 per year. I guess I wouldn't worry too much about the maximum penalty since that would imply a rather large number of Federal Estate Tax returns. And you qualify for lower maximum penalties if "your" an average annual gross receipts for the 3 most recent tax years ending before the calendar year in which the information returns were due are $5 million or less (what does "your" mean? you personally? the firm?).
  12. With respect to the consistency requirement and whether the question "did this asset increase estate tax liability?" Should be answered "yes" or "no" the instructions indicate that generally, any property that qualifies for a marital deduction or charitable deduction will not generate estate tax and "No" should be indicated. If, as is usually the case, the marital and charitable deduction may be determined by formula, it would seem to me in many cases the value of the asset may generate estate tax even if that particular asset were used to satisfy a marital or charitable formula.
  13. This form is to be filed to a slightly different address and separately from Form 706 or any of the other Form 706 series.

Unfortunately, this is complicated, it is more work, there are ambiguities and many questions. Hopefully these questions may be answered within the next year or so, but in the meantime we will have to struggle with how to interpret, prepare and file these forms and Schedule A.

Sorry for the long post, but this is important to many of you and it is complicated. When I have time, I will send another post with respect to an important Pennsylvania Omnibus bill which may very soon become law in the Commonwealth.

Best regards,


Bob Wolf, Moderator, P & T Hot Tip Email Listp Email List

Tener, Van Kirk, Wolf & Moore, P.C.

One Oxford Centre, Suite 2100

301 Grant Street

Pittsburgh, PA 15219

(412) 281-5580

Fax (412) 281-6115

Any tax advice in the foregoing message was not intended or written to be used, and cannot be used by any person for the purpose of avoiding tax penalties that may be imposed with respect to the matters addressed. Some of that advice may have been written to support the promotion or marketing of the transactions or matters addressed within the meaning of IRS Circular 230, in which case, be advised that the advice was written to support the promotion or marketing of the transaction(s) or matter(s) addressed, and you should seek advice based on your particular circumstances from an independent tax advisor.

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