Transcript Available of IRS Hearing on Estate Basis

For IRS:

We will ask our speakers to stand up and speak for minutes, but you will see the green light will go from 10 to 7 minutes, when you have 3 minutes left the yellow light will turn on, and you must see when you see the red light.

MR. AUCUTT: Thank you very much, Ms. Pond, and Panel. Good morning. I'm Ronald Aucutt, I'm a Partner in the Tyson's Corner office of the Law Firm of McGuire Woods; I'm also a Member of the Washington Affairs Committee at the American College of Trust and Estate Counsel, ACTEC; and was the representative of the Washington Affairs Committee primarily involved in finalizing ACTEC's comments on these proposed regulations and recommending approval of those comments to ACTEC's President Cynda Ottaway.

President Ottaway has asked me to represent ACTEC at this hearing, as well as my colleague Gregg Simon who chaired the ACTEC Taskforce that drafted the comments. Lora Davis, who is here today on behalf of the ACTEC Section of the State Bar of Texas, was also an active participant on that Taskforce.

I'm going to focus on the reporting requirement under Section 6035, particularly the requirement in the proposed regulations of property not yet distributed, be reported within 30 days after the estate tax return is filed. The reporting requirement seem elaborate and burdensome, well out of proportion to any apparent value in enforcing Section 1014(f), the Estate Planning community's acceptance will be crucial to making those rules work.

And ACTEC believes that the biggest element of the proposed regulations that currently denies them that acceptance is the wasteful reporting of the estate tax value of assets long before those assets are in the hands of the beneficiaries who have any need or reason to care about bases. In an estate that is large enough and complex enough, to require the filing of a Federal State tax return, they almost certainly be few of any distributions within 30 days after that return is filed, other than certain assets by jointly held assets that pass by operation of law or contract at the time of death.

The futility of reporting information about the basis, in other words, value, of an asset to a beneficiary who has not received the asset and who may never receive it, it goes without saying. Moreover, providing beneficiaries with tedious lists of assets they never received, lists that here and there have a value that is relevant, will never encourage compliance with Section 1014(f), it will frustrate compliance.

I won't labor these points any further, but we'll assume there's simply no question about the desirability of tying reporting to distributions. The problem then has to be a concern about the statute. And I get it. Section 6035(a)(3) says that each statement require to be furnished under paragraph 102 shall be furnished at such time as the Secretary may prescribe; but in no case, that a time later than, the earlier of, basically 30 days after the estate tax return is filed.

I get it that the words "in no case" might seem to be restrictive, but in context what these words apply to, looking now at paragraphs 1 and 2, just as the statute does, is the requirement that the executor of any estate required to file a return under Section 6018(a) shall furnish to the Secretary and to each person acquiring any interest in property included in the decedent's gross estate a statement identifying the value of each interest in such property.

Now, it probably shouldn't say property included in the decedent's gross estate, it should say property, the value of which is included in the decedent's gross estate; since it doesn't say that, I suppose the proposed regulations could have taken the position that well, there is really no such thing as a gross estate, and therefore the statute doesn't apply to anything at all, and there is no reporting requirement at all.

Well, that would be silly. Everybody knows what Congress meant, or would have meant if it had focused on the difference, so we all interpret the statute to say something that makes sense in addressing what Congress must have had in mind, or anyway, would have had in mind, if it had focused. But it's also silly to go the other extreme and be required reporting about property that's not been distributed, when what the statute requires to be identified is each interest in property acquired by a person.

In this case, what Congress apparently had in mind was that the acquisition of property from the decedent happens at death when the decedent happens. So, the statute likewise should be construed with reference to that. So construed, this seemingly rigid deadline of 30 days after filing the estate tax return does make sense, but it would apply only to asset received at death, or before the estate tax return is filed.

Assets distributed after that would have to be reported on supplemental statements, perhaps within 30 days after the distribution which would respect the idea of 30 days contained in the statute, and basically treat the identification of the recipient as an adjustment for purposes of Section 6035. In fact, distribution is already treated as an adjustment in the proposed regulations, except that supplemental reporting is only optional, but recognizing that the statutory period from the decedent's death is really 10 months, or 16 months if there's an extension, as there often is, then the idea the AICPA has suggested of requiring just one file in each calendar year, say, January 31st, would make a lot of sense too, especially if early filing was permitted with the executor wanted to close the estate.

Either rule would certainly serve the obvious purpose of the statute by giving beneficiaries information they need as and when they need it. Just as the statute ties the time of reporting and filing -- to the filing of the estate tax return when values are known, on the apparent assumption that distribution had already occurred, the approach ACTEC proposes will also tie the time of reporting to the actual distribution window recipient acquiring the asset is known, information that obviously is equally important to the Service.

In fact, simply letting acquiring mean acquiring is less of a textual stretch than supplying the words "the value which" that Congress didn't use in order to make sense of the statute at all. But no one would fault either interpretation. Although there is no 2015 legislative history, as such, Section 6035 was drawn verbatim, from Section 1422 of the discussion draft introduced by Ways and Means Committee Chairman Dave Camp, on February 21, 2014.

The accompanying summary of that draft stated that the estate would be required to report the value of the property to the IRS, and to the beneficiary receiving the property. The corresponding Joint Committee Staff explanation stated that the executors are required to report to both the recipient and the IRS, not, for example, all the possible potential recipients in the IRS.

The statutory language is traceable to the identical language in the so-called Sensible Estate Tax Act of 2011 introduced by Congressman McDermott, in November 2011, described in the accompanying CRS summary as requiring disclosure to recipients of any interest in an estate or gift. Information identifying the value of each interest received. That, in turn, derives from similar language in the Responsible Estate Tax Act introduced by Senator Sanders in June 2010.

The next two sections of Senator Sanders' Bill, by the way, provided legislative language regarding valuation rules for certain transfers of non-business assets, and requiring a minimum 10-year term for GRATS, which, along with consistent basis, happen to be the same three estate in gift tax proposals that were included in the 2009, and the then current, 2010 Treasury Green Books, except that the statutory language on valuation due from proposals from the Clinton Administration.

Now that's not a coincidence, and the clear origin of these proposals, not in original congressional ideas after all, but in efforts by some in Congress to implement the Green Book proposals, albeit it with some odd variations, ought to reassure the Treasury Department all the more that it's in a good position to interpret what had to have been contemplated at the beginning, and to tie the reporting requirement to the receipt of the property.

Finally, ACTEC believes, as its written comments elaborate, that two significant positions taken in the proposed regulations clearly exceeds the regulatory authority granted by the statute. These are the so-called Zero Basis Rule for certain property after discovered or otherwise inadvertently omitted from an estate tax return, because Section 1014(f), by its terms, applies only to a final determination that begins with a return, or to a Schedule A furnished under Section 6035; and the requirement to report so-called subsequent transfers because Section 6035 by its terms applies only to executives.

ACTEC's comments also make some more technical suggestions in case you disagree with either of those points, but I'll conclude by saying, again, that ACTEC's suggestion that the final regulations construed a statutory word "acquiring" to mean acquiring, for the convenience of both taxpayers and the Service, would be much less of a textual stretch than the zero basis, and subsequent transfer rules that will only frustrate taxpayers and their advisors.

Thus I return to the point I started with, that ACTEC's proposal is crucial to the public acceptance of these rules. But what I've just referred to is cited in footnotes in the notes I've been speaking of, and I would be glad to share copies. Thank you very much.

MS. HUGHES: Thanks.

MS. POND: Could the next speaker, please, approach the podium? Thank you.

MS. DAVIS: Good morning. My name is Lora Davis, I'm an attorney with the law firm of Davis Stephenson in Dallas, Texas. My comments are being presented on behalf of the Tax Section of the State Bar of Texas. My comments should not be construed as representing the position of Board of Directors, the Executive Committee or the general membership of the State Bar of Texas.

My comments are being made as a result of the approval of the Committee and Government submissions of Tax Section of the State Bar of Texas, and pursuant to the procedures of the Council of the Tax Section, which is the governing body of that section. No approval or disapproval of the general membership of the Tax Section of the State Bar of Texas has been obtained, and the comments represent only views of the members of the Tax Section who prepared them. Thank you for letting me get that out.

First of all, I would really like to thank Treasury and the IRS for all their efforts to pull together a completely new reporting process, and corresponding guidance with respect to this entirely new law. I know it could not have been easy, and we appreciate all your efforts. My comments today are intended to assist in the development of procedures that will provide the information needed while placing the minimum burden on the taxpayers affected by this law.

I would specifically like to address two concerns, one relating to the information required on the statement to be filed, and the other with regard to the timing. Not so eloquently as Ron, but I'm going to attempt to address the issue relating to the 30-Day Reporting Rule.

The proposed regulations provide that if assets have not yet been distributed then the executor must report any assets that could be distributed to a beneficiary on Schedule A even if this results in duplicative reporting. In Texas we might call that fishing with dynamite, but I'm going to refer to that as the kitchen sink approach.

This method could be effective in some estates that have limited assets for a small number of beneficiaries. We support the retention of this proposed rule to give flexibility to executors to comply with these new rules. However, in many cases we believe that the kitchen sink approach will be costly and inefficient, and we request that you consider an additional alternate more-customized approach. Requiring large estates with substantial assets to file duplicative schedules A for multiple beneficiaries seems contrary to common sense.

The reason for the basis consistency rules is to ensure that certain taxpayers who inherit assets don't report basis in an amount that's higher than what's reported on the estate tax return. The reporting requirements should reflect that goal, by requiring the executor to only report assets actually received.

For example, if you give the IRS the beneficiary's information on a large stock portfolio, with hundreds of stock positions, there are also, after the Schedule A has filed, and before distributions are made, it's of no use and of no purpose to anybody, the IRS or the beneficiaries. It only results in increased legal fees to the estate, increased administration burden on the IRS, and confusion to the beneficiaries who receive the statement but not the assets.

For those estates that determine it to be impractical to comply with the kitchen sink approach, an alternative that would allow Schedule A to be furnished 30 days following an actual distribution certainly makes sense, and this viable option is compliant with the statute. 6035 requires the executor to identify and report the value of each interest acquired by the beneficiary to the IRS, and the beneficiary.

If no distribution has been made, the interest of the beneficiary is not in any specific asset of the estate but it's in the nature of a claim equal to the dollar amount of the beneficiary share of the estate. Thus, a proper report by the executor to satisfy the statutory requirements would include furnishing Schedule A to a beneficiary that describes this general claim, and the dollar amount of that claim.

Later, when the distribution is actually made to a beneficiary in satisfaction of his or her claim, a supplemental report may need to be filed to report any assets of the estate that were included on the estate tax return or otherwise required to be reported. If this optional customized reporting is permitted, the IRS and the beneficiaries will only receive the information that they may actually need, rather than receiving a large amount of extraneous and unnecessary information.

I see no downside to preventing this type of reporting, which in many cases, will be the only logical option. The efficiencies in this proposed customized option are obvious. Executors can avoid having to file a Mini 706 every time they prepare Schedule A. Significant fiduciary risk may also be reduced. For example, in the states with complicated family dynamics, the kitchen sink reporting option could increase tensions among family members, which could, in turn, increase fiduciary risk and associated legal fees.

The ability to reduce these costs and risks, along with reducing the inevitable confusion that beneficiaries will have under the kitchen sink approach, cannot be emphasized enough. This provision of the proposed regulations will affect nearly every estate subject to 6035. We respectfully request that the IRS and Treasury take another look and consider the more customized option as an alternative to the kitchen sink approach.

We believe it's compliant with the statute, responsive to the desired result, and will be in some cases more efficient and effective for executors, beneficiaries, and the IRS.

Secondly, we, along with many others, would like to request that an automatic extension of up to six months be provided. Although Section 6035 limits the initial due date of the statements by saying the statements must be filed at such time prescribed by the Secretary, and no case at a time later than the general 30-Day Rule; Section 6081(a) empowers the Secretary to grant a reasonable extension of time for filing any return declaration, statement, or other document required under the code or by regulation, with such extension generally limited to six months.

The regulations under 6081 specifically include any return or statement required under Subtitle F, which includes Section 6035. We believe, the IRS has the authority to grant an extension under Section 6081, notwithstanding the language in Section 6035, which could easily be interpreted to refer only to the original due date. No reference is made to a prohibition on extensions. Similarly, Section 6072 provides dates that other returns shall be filed on, but extensions for those returns have been granted under 6081.

Allowing an extension will give executors time to file a complete and accurate return that requires fewer supplements, which will reduce the overall burden on taxpayers, and processing cost of the IRS. Thus we respectfully request that the IRS consider allowing automatic extensions of time to file Form 8971 and to furnish Schedules A.

Thank you for your attention. I'd be happy to answer any questions.

MS. HUGHES: I have one question. On your optional reporting method, do you contemplate that it's going to be all or nothing, that all the beneficiaries get the upfront reporting 30 days after returning this file, or they all get it when distributions are made, or is it a pick and choose: the beneficiaries or beneficiary?

MS. DAVIS: It seems to me that if you -- by statute you have the reporting requirements so something will have to be reported within 30 days, so if the distribution of a specific has already been made, it makes sense to go ahead and report it, but to the extent that you haven't distributed assets, and you still have this pot sitting out there that you are sure how you are going to divide it, that then you would report that as a claim in a general amount. So, it's distribution by distribution, or asset by asset, these three would make the choice, right.

MS. HUGHES: Okay. Thank you.

MS. DAVIS: Thank you.

MS. POND: The next speaker, please?

MR. SIMON: Hello. My name is Gregg Simon, I'm a Partner in the Chicago law firm of Much Shelist. I'm also an ACTEC Fellow and was the Chair of the Taskforce that put together the comments that were submitted. The following is not a summary of all of these comments, to say no they will be reviewed in detail in connection with finalizing the regulations, but items that we believe oral discussion will enhance. And while important, I will not discuss the questions of whether various provisions of the regulations fall under the statutory authority, nor repeat what Ron had said.

Going with the regulations -- with the exceptions in the regulations, three of the exceptions deal with areas where basis does not change the cash exception -- is confusion over exactly what the term cash means. Does it include bank accounts, money market accounts, which of course are targeted to $1 -- but the value can change. Funds and brokerage accounts, certificates of deposit, these exceptions likely should apply under cash exception.

What about life insurance, typically paid in cash, if it doesn't fall under the cash exception, likely it should fall under a separate exception on itself. And what about promissory notes and accounts receivable, particularly if they are valued at least on face value on the estate tax return? Similarly, items such as federal and state and other refunds and tax refunds and other refunds, are they considered cash? Basis isn't going to change them.

And finally, accounts denominated in a foreign currency, well, they are cash in some regards, but they could be subject to gains. Clarifications needed as to whether they fall under this cash exception. The IRD exception, there are times when there's items that typically are IRD such 401(k) plans, or IRAs that may have a basis including the annuities too and installment notes. What is typically recorded then? This is problematic particularly if the estate tax return only reports the aggregate value, not broken down by IRD, and non-IRD.

Similarly, Roth IRAs and Roth 401(k)s are not IRD, thus they would not fall squarely under this IRD exception, but assets in the Roth IRA or Roth 401(k) are not taxable to the beneficiary when distributed, and exceptions should likely be made for Roth IRAs as well. The sale exception should not just apply where there is gain or loss recognized, but also to sales where sales price equals basis, zero gain.

The final regulations should exempt from the reporting requirements any property that is sold, exchanged, or otherwise disposed of, and not distributed by an executor or trustee to a beneficiary, in a manner that does not cause gain recognition, and a transaction that constitutes a sale or exchange that is reportable for income tax purposes, or that would be reportable if the gain or loss were not zero.

The sale exceptions should apply when the state assets are used to fund a pecuniary bequest, as under the Kenan case, gain or loss is recognized on the states on such funding, or when the 643(e)(3) election is made for the state to recognize gain when assets are distributed in kind. The wording in the proposed regulations, "And therefore not distributed to a beneficiary, would lead one to believe reporting is required in such events.

Also, if a bond matures before being distributed to a beneficiary, it should fall within this type of exception. The tangible personal property exemption is really administrative convenience, not basis convenience. The proposed regulations provide the exception for tangible personal property which an appraisal is not required under 20-2031-6B regulation, which only requires appraisals for items having a marked artistic or intrinsic value of a total in excess of $3,000. This de minimus exception is over 50 years old, and we would request that it be updated even in connection with these 6035 regulations and maybe even in connection with a 2031 review of regulations.

There also appears to be uncertainly if this exception applies to individual items or groupings. The 2031-Regulation also allows for groupings of items of personal effects. Plus, there may not be a detailed item-by-item list on the estate tax return, and such personal effects may pass to several beneficiaries, and the beneficiaries may not agree as to how to allocate basis among them.

The executors should be allowed to use any reasonable method to apportion the reported value among the beneficiaries. Another man area of concern is the treatment of distributions to trust and trust beneficiaries, particularly with regard to pour-over wills, and revocable trust. Whether the trust is fully funded, partially funded or unfunded as the decedent staff, there should be a consistent treatment. The proposed regulations state that if the beneficiary is a trust, the executor must furnish the Schedule A to the trustee of the trust, rather than to the beneficiaries.

However, when there is no probate estate, and a fully funded trust, it appears that Schedule A can be given to the ultimate beneficiary, not just to the trustee. In an unfunded trust, the executor would be distributing assets to the trustee and would make sense to give the Schedule A to the trustee. However, in case of a fully or partially-funded trust, it may make sense for the executor to provide the Schedule A directly to the ultimate beneficiary, particularly when there is no probate executor or the -- and the trustee is the statutory executor.

This is how reporting is done on the 706, beneficiaries of irrevocable trust such as a marital trust or bypass trust that are reported, not just the revocable trust itself. ACTEC believes that permitting the executor to report either to the trustee or to the beneficiaries of a trust directly, or accomplish the intended goals of the proposed regulations in an efficient manner.

With regard to supplemental reporting the proposed regulations in Treasury and the IRS acknowledge, where various circumstances may arise when a value is finally determined. The IRS accepting the value as filed, the IRS coming up with the value if the estate doesn't contest an IRS agreement of the parties, or even to court action, the supplemental filing being due 30 days after the occurrence of the enumerated events.

Clarification is needed to more clearly identify the exact date on which the final was determined. When the value of an asset is determined by an agreement with the IRS, ACTEC believes the dates of such valuation is considered final, shall be the date as I'm with the taxpayer and the IRS have agreed upon and executed the Form 890, or similar binding agreement. In addition, if the value of an asset is determined by a court, additional guidance is needed with respect to determining when the court's determination is considered final.

ACTEC suggests clarifying "final" mean not the date the court actually renders the decision, but the date when the time for appealing the court ruling, whether an order judgment or decision, has expired. And if an appeal is taken, the day of the appellate judgment is entered, where the case settled and the time for appealing the judgment has expired.

The last area of it I wanted to talk about is undetermined, uncooperative, or missing beneficiaries. When a beneficiary cannot be located, the regulations provide an executor must use reasonable due diligence to identify and locate all beneficiaries. If the executor is unable to locate them by the due date of the form, then the executor is required to report that on the Form 8971, and explain the efforts taken to locate the beneficiary.

ACTEC believe that clarification is needed as to what due diligence is and that executor should be treated as having exercised due diligence in identifying and locating beneficiaries if the executor follows the local custom rule or protocol to search for unknown or unlocated errors. As this varies state by state, we do not believe that it is appropriate to prescribe specific steps that every estate must take, to locate on unknown or unlocated beneficiary.

Also not frequently the actual identify of a beneficiary cannot be determined. This can arise by a will contest, or a trust contest, or even litigation over who the decedent heirs are. This is different than the case through which the beneficiary is identified, but the assets the beneficiary are to receive are undetermined. (Inaudible) is needed on how and when to report assets to which the ultimate, or even the presumptive beneficiary is unknown.

Finally, and infrequently, beneficiaries are uncooperative and will not furnish their taxpayer identification numbers. Of concern is that the instructions to the forums saying putting unknown is basically not acceptable. What does and executor do after due diligence he or she cannot get the EIN number? Can the executor request that from the IRS so they could comply? Of course the IRS has confidentiality rules, and isn't going to freely hand out the EINs, but that puts the executor in the bind.

We believe that similar to when a beneficiary cannot be located, in this case, that they can, as they do on the estate tax return provide the taxpayers identification is unknown, where the individual has no number, but unknown or none, and made it then, supplementally, furnish if and when they are able to get it, such as when the distribution is made, and distributions withheld until the IRS -- until the executor gets the tax identification number which is the traditional carrot in front of the state. Thank you.

MS. HUGHES: I have one question. Including notes and accounts receivable and the list of things that could be defined as cash and therefore exempt from the reporting requirement, could you go into that a little bit more, because it seems to me both of those can be sold for a price that's different from face value. So why --

MR. SIMON: Well, that wasn't necessarily concluding that it should be or shouldn't be in there, but many times, as you are saying, typically, a note receivable will be paid off in cash, but as you said, if it is sold I think the regulation should clarify so there is not confusion over whether or not it's cash, because in the typical case it is going to be paid off for its face value, if collectable, but I think the regulations should just specify, and I think it's the same with foreign currency, that, yes, there could be gains or losses that are recognized, and I think clarity is needed whether there will be confusion over whether people think an account receivable is going to be cash or not.

MS. HUGHES: Thank you.

MR. SIMON: Thank you.

MS. POND: The next speaker, please?

MS. BARRAS: Good morning. My name is Jacklynn Barras, and I'm a Vice President and the Senior Wealth Manager for BNY Mellon. On behalf of the American Bankers Association, and as Chair of the Trust Taxation Committee of the ABA, I want to thank you for this opportunity to testify at this hearing on IRS Proposed Rules governing the Consistent Basis Reporting Between An Estate and a Beneficiary Acquiring Property From a Decedent. The comments reflected this morning reflect those of the ABA's Taxation Committee and do not necessarily reflect those of BNY Mellon.

Before I discuss our industry's comments on the proposed regulation, I would like to briefly describe the bank trust business. Both state and nationally chartered banks as well as trust companies may receive trust powers from their primary regulator, and with those powers act as executor of an estate. When acting in this capacity, bank executors must comply with all relevant tax laws, as well fiduciary duties to the client, and are examined by bank regulators periodically.

Much effort and expense is devoted to tax compliance, including reporting obligations to the service, and the bank's clients; some institutions, such as my own, act as executor for hundreds of taxable estates, thereby necessitating, if possible, automated systems to produce required statements.

My testimony today echoes the written comments that the ABA has submitted in its February and June letters. From the onset, it's important to note that ABA members do not object to providing estate beneficiaries with basic information. In fact, many of us do so voluntarily already, as a service to our beneficiaries of these estates. However, as is true for many of the more complex estates, banks often do not know within 30 days of the filing of the 706 which beneficiaries will receive what (inaudible).

Further, as a matter of bank procedure, it is customary for executors to delay full distribution of estate assets until after the bank has received an IRS closing letter. The delay is done for not only risk management purposes, but also to ensure that there are sufficient funds in the estate to meet federal and state tax obligations. Any information reported prior to an executor settling an estate will be preliminary, and likely subject to change.

In that regard the information provided 30 days after the return is filed, would not be helpful either to the IRS or beneficiaries. Therefore we support the very reasonable suggestion that ACTEC has put forth to allow executors to report the dollar amounts of the beneficiaries interests, instead of an asset-by-asset listing of the property the beneficiary could potentially acquire.

Such a reasonable change would go a long way to making this role less burdensome and more practical for all parties. For a variety of reasons including but not limited to the financial needs of beneficiaries, and personal investment considerations, executors will often liquidate an estate before distributing the assets in the form of cash to beneficiaries.

Under the proposal, the executor does not need to furnish a statement to beneficiaries for cash distributions. We strongly believe that similarly, the executor need not further a statement to the service; confirmation of that exemption for both reporting would be invaluable to banks that want to avoid the expense and burden of making unnecessary filings.

As mentioned earlier, banks spend significant resources on technology and employees to manage voluminous reporting to the service, clients and bank regulators. Any opportunity to conserve resources is fundamental, and I note that the June ABA Letter contains suggestion language to incorporate this exemption into the language of the rule.

ABA and its members appreciate the proposals' exceptions to certain types of property from reporting requirements. These exceptions are very reasonable and should be clarified and broadened to make them even more helpful, in reducing unnecessary filings.

First, the definition of cash should include cash and any financial account. Cash and foreign currencies, life insurance proceeds, bond proceeds and other interests that are payable in cash, as we heard earlier this morning.

Second, the exception for property sold, exchanged or otherwise disposed of should not be limited to situations in which there is capital gain or loss. Instead, the exceptions should include all dispositions of property, for which a transition is recognized for income tax purposes, regardless of whether or not it produces a capital gain or loss.

Due to the fiduciary duty undertaken, banks are very concerned about inadvertent penalties to clients who are estates, and estate beneficiaries. The instructions to Form 8971 imply that the estate may be subject to penalties if the information about beneficiaries is incomplete. Unfortunately, there are many legitimate situations in which the bank, through no fault of its own, or the estate, may not have access to require information for the form; one such example is in uncertain parentage or intestacy.

In case of uncertain heirs or intestacy, lengthy heir searches can stand well beyond the due dates for filing Form 8971, or the current regulation anticipates these lengthy searches. It does not anticipate the difficulty and reluctance of beneficiaries to furnish this information when we find them. In fact, I ran across this last week, when a beneficiary who we found refused to give us the information out of fear in everything that they are hearing about the IRS and people trying to steal their Social Security numbers.

So through no fault of our own, if we needed to file a Form 8971 right now, this beneficiary listening to the news and being mindful to the instructions given to them by the IRS and others would render us unable to comply with the form 8971 requirements. Introducing some flexibility into the rule would lessen the risk that the situations posed.

For example, the role should explicitly state that no penalty would arise if missing beneficiary information such as the TIN is due to the beneficiary not having one, or the beneficiary being unreachable or unresponsive, to the request for that information. The proposed regulations provide that if the executor does not report after discovered or omitted property on a federal estate tax return filed before the period of limitations and the assessment expires, the final basis value of the property for purposes of Section 1014(f) is zero.

This onerous rule goes well beyond the statutory requirements of authority given under the acts basis consistency and basis reporting provisions, and would unfairly deny an estate beneficiary the basis in an inherited asset that the beneficiary is otherwise entitled to under Section 1014. We therefore urge the IRS to withdraw this requirement from the Proposed Rule.

Lastly, I wanted to give our perspective on the new reporting obligations for beneficiaries who transfer reportable property to certain persons. We understand that the IRS would like to prevent beneficiaries from circumventing the rules by passing property among family members. Nonetheless, we feel strongly that tainting of certain property of estates would quickly become unworkable, and ripe for inadvertent violations by the public at large.

Without getting into the statutory authority to impose new obligations, we believe that the requirement will be challenged by subsequent transfer hours resulting in costly litigation delays in uniform compliance, and uncertainty amongst taxpayers. For ABA Member Corporate Trustees the requirements to furnish Form 8971 for non-decedent transfers could create duplicative filing requirements given already established basis reporting mechanisms. Further, these duplicative reports do not advance the ultimate goal of furnishing accurate and consistent basis information, as they were already manifest in other reporting mechanisms.

As such we believe the requirement will exacerbate the resources needed by ABA member banks, taxpayers, and the service to little or no benefit to all. In the end it is hard to see how the public will even have awareness of their reporting obligations.

While executors are fiduciaries to the states, they are often not fiduciaries to the beneficiaries and therefore have no obligation to advise them on the potential reporting obligations. Moreover prudent fiduciaries would likely avoid advising beneficiaries on the reporting obligations, because doing so may expose them to potential liability for providing improper tax advice.

Lastly, neither the regulations nor the instructions provide any guidance on how beneficiaries of estates -- estate property are to know of their potential subsequent filing obligation, plus this new requirements is ripe for inadvertent violations and would undermine efforts of voluntary compliance. Thank you so much.

SPEAKER: Follower?

MS. BARRAS: Exactly, that's why we are here. I think most property recipients and subsequent transfers are not sophisticated enough to understand the rules or are simply unaware of them. Thank you so much. And I'm open to any questions that you may have. Thank you.

MS. MELCHIORRE: Anyone else. Is there anyone else who would like to speak with that?

MS. POND: If someone else would like to speak they certainly can, we are all here. But you don't have to. All right, with that we are concluded. Thank you so much.