“Highway” legislation makes changes to tax-filing deadlines

The Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 (the Act), signed into law July 31, 2015, contains several tax provisions. Clarification of the six-year statute of limitations in the case of overstatement of basis, and required consistency between estate tax value and income tax basis of assets acquired from a decedent have all been modified. See our 2016 year-end tax letter for more information about tax return deadlines for partnerships, S corporations and C corporations.

Additional mortgage reporting

Applying to returns and statements due after Dec. 31, 2016, mortgage servicers will be required to report on Form 1098 (Mortgage Interest Statement) the amount of outstanding principal, the property address, and the loan origination date.

Consistent basis reporting for transfer tax and income tax purposes

The basis of property acquired from a decedent generally is the fair market value (FMV) of the property on the decedent’s date of death. Similarly, property included in the decedent’s gross estate for estate tax purposes generally must be valued at its FMV on the date of death. Although the same valuation standard applies to both provisions, pre-Act law does not explicitly require that the recipient’s basis in that property be the same as the value reported for estate tax purposes.

New law

The Act imposes a new basis consistency standard; in general, the basis of property received by reason of death must equal the value of that property for estate tax purposes. A new information reporting requirement is designed to ensure the basis consistency standard is met.

The basis consistency rule only applies to a property whose inclusion in the decedent’s estate increased the liability for the tax on the estate.

New information reporting requirements for those inheriting property

Under the Act, effective for property with respect to which an estate tax return is filed after July 31, 2015, the following new information reporting requirements apply to inherited property:

  • The executor of any estate required to file a return must furnish to the IRS and to each person acquiring any interest in property included in the decedent’s gross estate for federal estate tax purposes a statement identifying the value of each interest in such property as reported on the estate tax return and other related information with respect to such interest as the IRS may prescribe.
  • Certain beneficiaries required to file a return must furnish to the IRS and to each other person who holds a legal or beneficial interest in the property to which such return relates a statement identifying the information described above.

The statements required must be furnished no later than the earlier of:

  • the date which is 30 days after the date on which the return was required to be filed (including extensions, if any), or
  • the date which is 30 days after the date such return is filed.

Six-year limitation period for overstatement of basis

In Home Concrete, the US Supreme Court held that an overstatement of basis does not result in an omission of income for extended statute of limitations (SOL) purposes. The Act provides the six-year limitations period applies where any overstatement of basis results in a substantial omission (in excess of 25 percent) of gross income stated in the return.

This legislative override of the Supreme Court’s decision in Home Concrete is effective for all returns for which the normal assessment period remained open as of the date of enactment (July 31, 2015) and for returns filed after that date.

The information provided here is of a general nature and is not intended to address the specific circumstances of any individual or entity. In specific  circumstances, the services of a professional should be sought. Tax information, if any, contained in this communication was not intended or written  to be used by any person for the purpose of avoiding penalties, nor should such information be construed as an opinion upon which any person may rely. The intended recipients of this communication and any attachments are not subject to any limitation on the disclosure of the tax treatment or tax  structure of any transaction or matter that is the subject of this communication and any attachments.