Estate receives 120 days for late 2010 carryover-basis election

Plain-English summary

The estate of a nonresident alien who died in 2010 intended to elect the modified carryover-basis rules under section 1022 instead of the reinstated estate tax rules. The estate's attorneys failed to prepare Form 8939 by the January 17, 2012 deadline. The IRS concluded that the estate acted reasonably and in good faith because it relied on qualified tax professionals who failed to make or advise it to make the election. It granted the personal representatives 120 days from the ruling date to file Form 8939, make the section 1022 election, and allocate additional basis to eligible property. The ruling did not address other tax consequences.

Ruling snapshot

• Question: Could the estate receive additional time to elect the section 1022 carryover-basis regime and allocate basis on Form 8939?
• Outcome: approved
• Key authorities: IRC § 1022; 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: 201735015                                              Third Party Communication: None
Release Date: 9/1/2017                                         Date of Communication: Not Applicable
Index Number: 1022.00-00, 9100.00-00
                                                               Person To Contact:
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-------------------------------                                Telephone Number:
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---------------------------------------                        Refer Reply To:
-------------------                                            CC:PSI:B04
                                                               PLR-138440-16
                                                               Date:
                                                               May 09, 2017
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Legend

Decedent                         -------------------------------------------------

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

       This letter responds to your personal representative’s letter of December 9, 2016,
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, a non-resident alien, died in 2010. The executors of Decedent’s
estate retained attorneys to administer the estate. The attorneys failed to prepare the
Form 8939 before the filing deadline of January 17, 2012. Consequently, the executors
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.

PLR-138440-16                                2

      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.

       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

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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
representatives 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-138440-16                                4

      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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