Late Section 1022 carryover-basis election allowed for a 2010 decedent's estate

Plain-English summary

For people who died in 2010, a one-year quirk in the law let an estate choose between the reinstated estate tax and a special "carryover basis" regime under Internal Revenue Code § 1022, which is elected by filing Form 8939 to allocate basis increases to inherited property. Here the executor hired a CPA to handle the estate's filings, but the CPA never prepared Form 8939 by the January 17, 2012 deadline, so the estate missed the § 1022 election. The executor asked the IRS for extra time under the "9100 relief" regulations (Treas. Reg. § 301.9100-3), which allow a missed regulatory election to be treated as timely when the taxpayer acted reasonably and in good faith and relief will not prejudice the government. Because the executor had reasonably relied on a qualified tax professional who failed to make the election, the IRS granted a 120-day extension to file Form 8939 and make the Section 1022 election. This matters because the election controls how much basis (and therefore how much future capital-gains tax relief) the heirs get in the decedent's property.

Ruling snapshot

• Question: Should the estate get an extension of time under § 301.9100-3 to file a late Form 8939 making the Section 1022 election for a 2010 decedent?
• Outcome: Approved (120-day extension granted)
• Key authorities: IRC § 1022; § 301(c) of TRUIRJCA (P.L. 111-312); Notice 2011-66; Notice 2011-76; Treas. Reg. § 301.9100-3

Full text (IRS public release)

Internal Revenue Service                          Department of the Treasury
                                                  Washington, DC 20224

Number: 201845012                     Third Party Communication: None
Release Date: 11/9/2018               Date of Communication: Not Applicable
Index Number: 1022.00-00, 9100.00-00
                                      Person To Contact:
------------------------------------------                    --------------------------, ID No. ----------------
----------------------------------                            -----------------
---------------------------------------------                 Telephone Number:
--------------------------------------------                  ----------------------
                                      Refer Reply To:
                                      CC:PSI:B04
                                      PLR-104894-18
                                      Date:
                                      August 02, 2018

RE: ---------------------------------------------------------------------

Legend

Decedent          - --------------------------
Son               - ----------------------------
Country           - ---------------------------------------------------------
CPA               - ------------------------------------------------


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

This letter responds to your personal representative's letter of December 14, 2017,
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 2010, a resident of Country. Son, in his capacity as executor of
Decedent's estate, retained CPA to prepare the necessary tax filings for the estate.
CPA failed to prepare the Form 8939 before the filing deadline of January 17, 2012.
Consequently, the executor failed to make a Section 1022 Election for Decedent's
estate.

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(b)(3) provides that in the case of a decedent nonresident not a citizen of
the United States the aggregate basis increase under § 1022(a) is $60,000, and
§ 1022(2)(C) does not apply.

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.

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 personal
representative of Decedent's estate is 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.

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



                                          Lorraine E. Gardner
                                          _________________________
                                   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


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