Estates of decedents who died in 2010 were given a very valuable option. They can elect to not be subject to estate taxes and have carryover basis for income tax purposes. Alternatively, they can elect to be subject to estate taxes yet receive a stepped-up basis for the assets owned by the decedent.
Those who choose to be subject to the estate tax system are required to file a Form 706 by September 19, 2011 if the estate is larger than $5 million. The IRS has just announced that these estates may obtain a six-month extension of the time to file to March 19, 2012 by requesting an extension on Form 4768.
Those who choose to be in the carryover basis system will be required to file a Form 8939. Originally, the IRS said that Form 8939 would be due on November 15, 2011. That deadline has been extended until January 17, 2012.
One of the reasons the IRS extended these dates is because of their delay in providing the appropriate forms. We only recently received the Form 706 and the accompanying instructions. We have yet to receive Form 8939.
All of the estates with whom we are working know which system they plan to elect. All of the estates under $5 million are electing the estate tax system so that they can have stepped-up basis for income tax purposes without having to file Form 8939. These estates do not have to file any forms to make this election. Only 1 of the estates that were above $5 million are choosing the estate tax system. The rest are choosing the carryover basis system. The 2 month extension until January 17, 2011 is very welcome news for these estates, especially since we have yet to see the Form 8939.
If you are uncertain of the best tax system, you should file the Form 4768 no later than September 19, 2011. This will buy you 4 months of time to make the decision. You will not be precluded from electing the carryover basis system if you file the Form 4768.
If you file Form 4768, you should also request an extension of time for payment of any estate taxes that would be owed. If you eventually file a Form 706 and owe taxes, the extension of time to pay will cause you to owe interest during the interim. However, late payment penalties will be avoided, and the interest rate is very low.