Elderly clients are wondering what to do about the temporary disappearance of the estate tax this year, and it’s a good idea for accountants to inform them about some of the options.

During a webinar hosted by the American Institute of CPAs on Thursday, estate tax experts Robert S. Keebler and Jonathan Blattmachr discussed estate tax administration and recommended sending a letter to clients informing them what to do. The estate tax had been set last year at 45 percent for estates of over $3.5 million for individuals and $7 million for couples, and is set to return next year to hit all estates of over $1 million at a rate of 55 percent.

Congress attempted last December to pass legislation to extend the estate tax at the old levels this year, but that didn’t happen, thanks to partisan wrangling. This year, if the heirs sell off assets, they are taxed on capital gains at a rate of 15 to 28 percent. There are also complicated carryover and step-up basis rules to contend with, making things even more worrisome. House Ways and Means Committee Chairman Sander Levin, D-Mich., said his committee would begin working on a fix that could be retroactive (see Congress to Start Fixing Estate Tax).

Still, accountants will need to advise clients, particularly elderly ones, in the meantime. “Instead of an estate tax return, you must file a carryover basis return this year,” said Keebler. “Bu the IRS hasn’t issued the form and hasn’t issued the regulations, because of the possibility that Congress may repeal the carryover basis rules.”

However, he noted that the IRS will still need detailed information. “If you can’t get it, you still have to give the IRS the names of the people who hold the assets and they’ll go to them. You have the affirmative duty to inform those people.”

Clients could be hit with penalties, some of which could be quite severe, he noted. It is especially important to get basis information and contact clients before they die “so you’re not on an endless Easter egg hunt,” he warned.

He recommended sending a separate letter to clients. “Let’s hear about the air conditioning on your roof, and what you paid for the stamp collection so the information is on hand,” he said.

“Nothing should be sold this year which has an inherent gain,” warned Blattmachr. “If you need more money, borrow until the end of year and then claim a stepped-up basis.”