The Internal Revenue Service has posted the instructions for the estate tax form for people who died in 2010, the year that the estate tax was not in effect for many taxpayers.
It also granted tax filing and penalty relief to large estates of people who died in 2010, saying their heirs will have until early 2012 to file the necessary tax returns and pay any estate taxes owed. The IRS is also providing penalty relief to certain beneficiaries of large estates on their 2010 federal returns.
Under the original Bush tax cuts of 2001, the estate tax was effectively gone for people who died in 2010. The tax cut extension that was passed last December reinstated the estate tax for those who died in 2010, but it allowed their executors to opt out of the estate tax, and instead elect to be governed by the repealed carryover basis provisions of the 2001 law. That choice is supposed to be made by filing Form 8939.
The instructions for Form 706, which were posted last month, note that executors of estates of decedents who died in 2010 may make a special election to apply modified carryover treatment. If the special election is made, the estate will not be subject to federal income tax and Form 706 should not be filed.
Alternatively, for decedents who died between Jan. 1, 2010, and Dec. 16, 2010, the due date for Form 706 was originally September 19. (For those who died later in the year, the due date is nine months after death.) The applicable exclusion amount is $5 million (a credit equivalent of $1,730,800), and the maximum estate tax rate is 35 percent. The applicable rate for generation-skipping transfers is zero. Prior gifts must be calculated at the rate on the decedent's date of death.
The tax relief granted by the IRS is designed to give large estates, normally those over $5 million, more time to comply with some of the key tax law changes enacted late last year. Revised versions of the estate tax forms are now available on IRS.gov, and the carryover basis form will be released this fall, the IRS noted. Under the relief, large estates that opt out of the estate tax will now have until Tuesday, Jan. 17, 2012, to file Form 8939. This special carryover basis form, required of estates making this choice, was previously due on Nov. 15, 2011. More details are available in Notice 2011-76, on IRS.gov.
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