Consistent tax basis reporting by the executor of an estate on the federal estate tax return and the beneficiaries of the estate on their individual income tax returns will be required under section 2004 of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015, H.R. 3236, which has apparently passed both the House and the Senate. [Updated: The bill was signed into law by the President on 7/31, becoming P.L. 114-41..]
Previously, the values reported on the federal estate tax return were “deemed” to be the fair market values of the property passing from the decedent for the purpose of determining the income tax basis for the property under IRC section 1014 (see Treas. Reg. 1.1014-3(a)), but it was not an absolute requirement that the same values be used for federal estate tax and income tax purposes, and there were no specific reporting requirements or specific penalties for applying inconsistent values. H.R. 3236 adds a new subsection 1014(f) which states that the basis of property acquired from a decedent cannot exceed the value finally determined for estate tax purposes, a new section 6035 requiring basis reporting by persons required to file estate tax returns, and adds inconsistent basis reporting to the list of actions for which a 20 percent accuracy-related penalty is imposed under IRC section 6662.
These new provisions apply to property for which an estate tax return is filed after the date of enactment. [Update: Because the bill was signed into law on 7/31/2015, the new rules and reporting requirements apply to returns filed on or after 8/1/2015. Watch this website for suggestions on how to comply with the new reporting requirements.]