Estate Basis Reporting Should Be More Specific, Individual Says

Comment 1) Section 1.1014-10(b)(2) of the proposed regulations provides, in relevant part, that property that qualifies for an estate tax charitable or marital deduction under section 2055, 2056, or 2056A, respectively, does not generate a tax liability under chapter 11 and therefore is excluded from the property subject to the consistency requirement in paragraph (a)(1) of this section.

This statement does not address the situation where transfer of property only partially qualifies for the charitable or marital deduction. For example, this would occur when funding Testamentary CRTs. In these situations, the transfer of property that would qualify for charitable or marital deduction may be a fraction of the final value (as determined in paragraph (c)).

Therefore, 1.1014-10(b)(2) should provide that such situations are either covered by the general rule (not excluded) or excluded by this paragraph (2). It would make no practical sense to have part included or part excluded. However, this rule should consider situations where a Testamentary CRT is funded where the income interest is covered by the marital deduction and the remainder interest covered by the charitable deduction which would result in a full deduction offset to the property placed in the CRT.

Comment 2) Property that is subject to the 1014(f) basis consistency requirement is property that is covered by 1014(a)(1)-(3). This key aspect is not specifically stated in the regulation text, but it should be.

Reg. 1.1014-10(b)(2) should be divided into two parts. Part (i) would be the text from the proposed regulations (as amended for the comments above). Part (ii) should have a statement that provides something to the effect of: if the basis of property is not determined under 1014(a)(1)-(3), then the property is excluded from the consistency requirement. This provision will take into account carryover basis due to the 2031(c) election; IRD in 1014(c); DISC stock in 1014(d), pre-death gifts under 1014(e); stock in a passive foreign investment company by reason of 1291(e)(1); and property covered by 72.