PLR 1314011: IRS grants an estate more time to make a Section 1022 basis election

Plain-English summary

An estate asked for more time to file Form 8939, make the Section 1022 Election, and allocate basis increases to eligible property transferred from a decedent. The estate's accountant failed to prepare the form by the filing deadline, and the personal representative therefore missed the election. The IRS concluded that the estate acted reasonably and in good faith and that granting relief would not prejudice the government. It granted the executors 120 days from the date of the letter to make the election and required the estate and trust to file amended returns consistent with the failure to make a timely and effective section 645 election.

Ruling snapshot

• Question: Can the estate receive more time to make the Section 1022 Election on Form 8939?
• Outcome: Approved, with a 120-day extension and amended-return condition.
• Key authorities: IRC § 1022; Treas. Reg. § 301.9100-3; Notice 2011-66, as extended by Notice 2011-76

Full text (IRS public release)

Internal Revenue Service Department of the Treasury
Washington, DC 20224

Number: 201314011 Third Party Communication: None
Release Date: 4/5/2013 Date of Communication: Not Applicable
Person To Contact:
Index Number: 1022.00-00, 9100.00-00 ------------------------------------------------------
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----------------------------- Telephone Number:
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------------------------------------------------------ Refer Reply To:
------------------------------- CC:PSI:B04
PLR-130588-12
Date:
December 14, 2012
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Legend

Decedent ------------------------
Accountant --------------------------
Estate --------------------------------------------------------
Trust -------------------------------------------
Date ----------------------

Dear -------------------:

    This letter responds to your personal representative’s letter of July 16, 2012,

requesting an extension of time pursuant to § 301.9100-3 of the Procedure and
Administration Regulations to file a Form 8939, Allocation of Increase in Basis for
Property Acquired from a Decedent, to make the Section 1022 Election and to allocate
basis provided by § 1022 of the Internal Revenue Code (Code) to eligible property
transferred as a result of Decedent’s death.

      The facts and representations submitted are summarized as follows:

    Decedent died in 20----. The personal representative of Decedent’s estate

(Estate) retained Accountant to prepare the necessary tax filings for the estate.
Accountant failed to prepare the Form 8939 before the filing deadline of
January-----, 20----. Consequently, the personal representative failed to make a Section
1022 Election for Estate.

    Estate did not make an effective election under § 645 to treat Trust as part of the

estate. However, Estate's first Form 1041, US Income Tax Return for Estates and
Trusts, reported all of the income of Estate and Trust as if Estate had made an effective
election under § 645, and set a fiscal tax year ending Date.
PLR-130588-12 2

LAW AND ANALYSIS

   Section 1022(a) provides that property acquired from a decedent who died after

December 31, 2009, is treated as transferred by gift, and the basis of the person
acquiring the property from such a decedent is the lesser of the adjusted basis of the
decedent or the fair market value of the property at the date of the decedent's death.

  Section 1022(b)(1) provides, in general, that the basis of property under

§ 1022(a) is increased by basis increase that is allocated to the property.

  Section 1022(b)(2)(A) provides, in general, that basis increase is the portion of

the aggregate basis increase that is allocated to the property.

    Section 1022(b)(2)(B) and (C) provide that the aggregate basis increase is

$1,300,000; and that the aggregate basis increase is increased by--(i) the sum of the
amount of any capital loss carryover under § 1212(b), and the amount of any net
operating loss carryover under § 172 that would (but for the decedent's death) be
carried from the decedent's last taxable year to a later taxable year of the decedent,
plus (ii) the sum of the amount of any losses that would have been allowable under
§ 165 if the property acquired from the decedent had been sold at fair market value
immediately before the decedent's death.

   Section 1022(c)(1) provides that in the case of property that is qualified spousal

property, the basis of such property under § 1022(a) (as increased under § 1022(b)) is
increased by spousal property basis increase allocated to the property.

    Section 1022(c)(2)(A) provides, in general, that spousal property basis increase

is the portion of the aggregate spousal property basis increase which is allocated to the
property. Section 1022(c)(2)(B) provides that the aggregate spousal property basis
increase is $3,000,000.

    Section 1022(d)(1)(A) provides, in general, that the basis of property acquired

from a decedent may be increased under § 1022(b) or (c) only if the property was
owned by the decedent at the time of death. Section 1022(d)(1)(B) describes property
that is considered to be owned by the decedent at the time of death.

   Section 1022(d)(2) provides that the basis adjustments under §§ 1022(b) and (c)

shall not increase the basis of any interest in property above its fair market value in the
hands of the decedent as of the date of the decedent's death.

   Section 1022(d)(3) provides, in general, that the executor is to allocate the basis

adjustments under §§ 1022(b) and (c) on the return required by § 6018 and that any
allocation made may be changed only as provided by the Secretary.

 Section 1022(e) describes property that is considered to be acquired from the

decedent for purposes of § 1022.
PLR-130588-12 3

   Subtitle A of title V of the Economic Growth and Tax Relief Reconciliation Act of

2001, P.L. 107-16 (115 Stat. 76-81), enacted § 2210, which made chapter 11 (the
estate tax) inapplicable to the estate of any decedent who died in 2010 and chapter 13
(the generation skipping transfer (GST) tax) inapplicable to generation-skipping
transfers made in 2010. On December 17, 2010, Tax Relief, Unemployment Insurance
Reauthorization, and Job Creation Act of 2010 (TRUIRJCA), P.L. 111-312 (124 Stat.
3296), became law, and § 301(a) of TRUIRJCA retroactively reinstated the estate and
GST taxes. However, § 301(c) of TRUIRJCA allows the executor of the estate of a
decedent who died in 2010 to elect to apply the Code as though § 301(a) of TRUIRJCA
did not apply with respect to chapter 11 and for property acquired or passing from a
decedent (within the meaning of § 1014(b)). Thus, § 301(c) of TRUIRJCA allows the
executor of the estate of a decedent who died in 2010 to elect not to have the provisions
of chapter 11 apply to the decedent’s estate, but rather, to have the provisions of § 1022
apply (the Section 1022 Election).

   Notice 2011-66, 2011-35 I.R.B. 184, section I.A. provides that the executor of the

estate of a decedent who died in 2010 makes the Section 1022 Election by filing a
Form 8939 on or before November 15, 2011. Notice 2011-76, 2011-40 I.R.B. 479,
extended the due date of the Form 8939 and thus, the election, from
November 15, 2011 to January 17, 2012.

   Notice 2011-66, section I.D.1, provides that the Internal Revenue Service will not

grant extensions of time to file a Form 8939 and will not accept a Form 8939 filed after
the due date except in four limited circumstances provided in section I.D.2. Under this
section of Notice 2011-66, an executor may apply for relief under § 301.9100-3.

  Section 301.9100-3 provides the standards used to determine whether to grant

an extension of time to make an election whose date is prescribed by a regulation (and
not expressly provided by statute).

   Requests for relief under § 301.9100-3 will be granted when the taxpayer

provides the evidence to establish to the satisfaction of the Commissioner that the
taxpayer acted reasonably and in good faith, and that granting relief will not prejudice
the interests of the government.

  Section 301.9100-3(b)(1)(v) provides that a taxpayer is deemed to have acted

reasonably and in good faith if the taxpayer reasonably relied on a qualified tax
professional, including a tax professional employed by the taxpayer, and the tax
professional failed to make, or advise the taxpayer to make, the election.

    Based on the facts submitted and the representations made, we conclude that

the requirements of § 301.9100-3 have been satisfied. Therefore, the executors of
Decedent’s estate are granted an extension of time of 120 days from the date of this
letter to make the Section 1022 Election on a Form 8939 and allocate additional basis to
eligible property as provided by § 1022. A copy of this letter should be attached to the
Form 8939.
PLR-130588-12 4

   This ruling is conditioned on the Estate and Trust filing amended returns

consistent with their failure to make a timely and effective election under § 645.

  In accordance with the Power of Attorney on file with this office, we have sent a

copy of this letter to your authorized representatives.

   Except as expressly provided herein, we neither express nor imply any opinion

concerning the tax consequences of any aspect of any transaction or item discussed or
referenced in this letter.

  The rulings contained in this letter are based upon information and

representations submitted by the Taxpayer and accompanied by a penalty of perjury
statement executed by an appropriate party. While this office has not verified any of the
material submitted in support of the request for rulings, it is subject to verification on
examination.

  This ruling is directed only to the Taxpayer requesting it. Section 6110(k)(3)

provides that it may not be used or cited as precedent.

                                      Sincerely,

                                      Associate Chief Counsel
                                      Passthroughs and Special Industries



                                      _________________________
                               By:    Lorraine E. Gardner
                                      Senior Counsel, Branch 4
                                      Office of the Associate Chief Counsel
                                      (Passthroughs and Special Industries)




   Enclosures
         Copy for § 6110 purposes
         Copy of this letter

cc: