Publication 4895 (2011)

Publication 4895

(Rev. October 2011)

Department

of the

Treasury

Internal

Revenue

Service

Cat. No. 55918T

Tax Treatment

of Property

Acquired From

a Decedent

Dying in 2010

Reminders

Throughout this publication, section references

are to the Internal Revenue Code unless otherwise noted.

More information. For more information

about the latest developments on Publication

4895, go to www.irs.gov/pub4895. For information about Form 8939 and its instructions go to

www.irs.gov/form8939.

Election required. In order for the modified

carryover basis rules described in this publication to apply to property you acquired from a

decedent who died in 2010, the estate’s executor must make a valid and timely election (Section 1022 Election) on Form 8939, Allocation of

Increase in Basis for Property Received From a

Decedent. If the executor does not make a valid

and timely Section 1022 Election, the rules in

effect for determining basis in property acquired

from a decedent who died immediately before

2010 will apply. For information on the rules

applicable if the Section 1022 Election is not

made, see Pub. 551.

Introduction

This publication is designed to help executors

and individuals who acquired property from a

decedent dying in 2010, for which the Section

1022 Election has been made, determine the tax

treatment of the property acquired. See Property

Acquired From the Decedent, later.

Comments and suggestions. We welcome

your comments about this publication and your

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Oct 14, 2011

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Tax questions. If you have a tax question,

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Useful Items

You may want to see:

Publication

❏ 551

Basis of Assets

❏ 555

Community Property

❏ 559

Survivors, Executors, and

Administrators

Form (and Instructions)

❏ 8939 Allocation of Increase in Basis for

Property Received From a

Decedent

❏ 706

United States Estate (and

Generation-Skipping Transfer) Tax

Return

Section 1022 Election

The executor of an estate of a decedent who

died in 2010 can elect to apply modified carryover basis treatment to property acquired from

the decedent under section 301(c) of the Tax

Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA).

If the election is made, the estate will not be

subject to federal estate tax and does not need

to file a Form 706 even if the value of the estate

is $5,000,000 or more. As a result, section 1014

generally does not apply to determine the recipient’s basis in property acquired from the decedent. Instead, section 1022 applies to determine

the recipient’s basis in most (but not all) property

acquired from the decedent. This election is

referred to as the Section 1022 Election.

Form 8939

Form 8939 is an information return used by the

executor of a decedent who died in 2010:

1. To make the Section 1022 Election;

2. To report information about property acquired from a decedent (defined in Property Acquired From the Decedent, later);

and

3. To allocate Basis Increase (defined in Basis Increase, later) to certain property acquired from a decedent.

For detailed information about the Section

1022 Election, see Notice 2011-66, 2011-35

I.R.B. 184, available at www.irs.gov/irb/

2011-35_IRB/ar09.html and Notice 2011-76,

2011-40 I.R.B 479, available at www.irs.gov/irb/

2011-40_IRB/ar13.html. For optional safe harbor guidance under section 1022, see Revenue

Procedure 2011-41, 2011-35 I.R.B. 188, available at www.irs.gov/irb/2011-35_IRB/ar10/html.

The Section 1022 Election is made when the

executor timely files Form 8939. The due date

for Form 8939 is January 17, 2012. For more

information on the filing due date, see When to

File in the Instructions for Form 8939.

Page 2

Effect of the Section 1022

Election

If the executor makes the Section 1022 Election,

special rules apply. These rules include the following.

• There is no estate tax.

• The basis of property acquired from a decedent generally is determined under the

modified carryover basis rules of section

1022 and not under section 1014. Generally, the recipient’s basis is the lesser of

the decedent’s adjusted basis or the fair

market value (FMV) at the date of the decedent’s death, increased by any allocation of Basis Increase, and as further

adjusted as required by sections 1016,

1017, and 1018, or as otherwise specifically provided for under applicable provisions of Internal Revenue laws.

If the executor makes the Section 1022 Election and follows the provisions of section 4 of

Revenue Procedure 2011-41, and takes no return position contrary to any provisions of section 4, the IRS will not challenge the taxpayer’s

ability to rely on the provisions of section 4 on

either Form 8939 or any other return of tax.

Once made, the Section 1022 Election cannot be revoked after the due date for filing Form

8939.

Note. If the executor does not make a valid

and timely Section 1022 Election, the rules in

effect for determining basis in property acquired

from a decedent who died immediately before

2010 will apply.

Interaction of Section 1022

with Other Income Tax

Provisions

For information on how property acquired from

the decedent for which a Section 1022 Election

has been made is treated with respect to certain

income tax provisions (including holding period,

tax character, and depreciation) see Rev. Proc.

2011-41, section 4.06.

Statement to

Recipients

The executor filing Form 8939 must furnish a

Schedule A (Form 8939) to each person who

acquired property from the decedent, including

the following persons.

• The decedent’s surviving spouse.

• The trustee of a qualified terminable interest property (QTIP) trust.

• Any charitable remainder trust the sole

non-charitable beneficiary of which is the

decedent’s surviving spouse.

• Any other person (other than the executor

filing the return) who acquires property

from the decedent.

The executor must provide a Schedule A

(Form 8939) to each person who acquired property from the decedent no later than 30 days

after the date that the executor files Form 8939.

The executor must also provide amended or

supplemental Schedules A (Form 8939) in certain circumstances. For more information, see

Notice 2011-66.

The Schedule A (Form 8939) that the recipient of property receives should include the following information about the property acquired

from the decedent.

• A description of the property.

• The date the decedent acquired the property (to help determine the recipient’s

holding period in the property).

• The adjusted basis of the property on the

date of the decedent’s death.

• The FMV of the property on the date of the

decedent’s death.

• The amount of Basis Increase allocated to

the property.

• The amount, if any, of ordinary income

that would result on the sale of the property.

Property Acquired

From the Decedent

Generally, section 1022 determines a recipient’s

basis in property, but only if the property is

acquired from the decedent. Generally, property

acquired from the decedent includes the following.

1. Property acquired by bequest, devise, or

inheritance, or by the decedent’s estate

from the decedent.

2. Property transferred by the decedent during the decedent’s lifetime to:

a. A qualified revocable trust (as defined

in section 645(b)(1)), or

b. Any other trust with respect to which the

decedent reserved the right to make

any change in the enjoyment thereof

through the exercise of a power to alter,

amend, or terminate the trust.

3. Any other property passing from the decedent by reason of death to the extent that

such property passed without consideration.

Note. Section 1022 does not apply to a decedent’s interest in a QTIP trust or similar arrangement funded for the benefit of the

decedent by the decedent’s predeceased

spouse. A recipient’s basis in this property will

not be determined under section 1022.

Note. Section 1022 also does not apply to

property that constitutes a right to receive an

item of income in respect of a decedent under

section 691.

Publication 4895 (October 2011)

Property Eligible for

Increase to Basis

Generally, the executor can allocate additional

basis under section 1022 (up to the FMV of the

property) to property acquired from the decedent that was owned by the decedent at the time

of death.

Property Owned by the

Decedent at the Time of

Death

The basis of property acquired from the decedent can be increased by an allocation of Basis

Increase only if and to the extent the property

was owned by the decedent at the time of death.

For information about ownership, see Rules

relating to ownership, in the Instructions for

Form 8939.

Amount of Basis

Increase

The executor can allocate General Basis Increase (defined in General Basis Increase,

later), and/or Spousal Property Basis Increase

(defined in Spousal Property Basis Increase,

later) to eligible property (defined earlier) but not

in excess of the amount needed to increase the

decedent’s adjusted basis to the property’s FMV

as of the date of the decedent’s death. The

result is that, for each property, the sum of the

decedent’s adjusted basis in that property and

the Basis Increase allocated to that property

cannot exceed the FMV of that property on the

decedent’s date of death.

The executor can allocate Basis Increase to

property owned by and acquired from the decedent on a property-by-property basis. For example, the executor can allocate Basis Increase to

one or more shares of stock or to a particular

block of stock rather than to the decedent’s

entire holding of that stock.

Basis Increase may not be allocated separately to a life estate and remainder interest in

the same property.

Decedent’s Adjusted Basis

Generally, the adjusted basis of the property in

the hands of the decedent as of the date of the

decedent’s death is the decedent’s cost or other

basis, adjusted as required by sections 1016,

1017, and 1018, or as otherwise specifically

provided for under applicable provisions of Internal Revenue laws.

Fair Market Value (FMV)

Generally, for purposes of section 1022, the

FMV of property is the price at which the property would change hands between a willing

buyer and a willing seller, neither being under

any compulsion to buy or sell and both having

reasonable knowledge of the relevant facts.

Publication 4895 (October 2011)

Basis Increase

Basis Increase is the sum of the General Basis

Increase (defined below) and the Spousal Property Basis Increase (defined below).

General Basis Increase

General Basis Increase is the sum of the Aggregate Basis Increase (defined below) and the

Carryovers/Unrealized Losses Increase (defined in Rev. Proc. 2011-41). However, for a

decedent who was neither a resident nor citizen

of the United States, the General Basis Increase

is limited to the Aggregate Basis Increase (limited as described below).

Aggregate Basis Increase

Aggregate Basis Increase is $1,300,000. However, for a decedent who was neither a resident

nor citizen of the United States, the Aggregate

Basis Increase is $60,000.

Spousal Property Basis

Increase

Spousal Property Basis Increase is $3,000,000.

Generally, the executor can allocate Spousal

Property Basis Increase only to qualified

spousal property that was both acquired from

and owned by the decedent. Qualified spousal

property means:

• Outright transfer property; and

• Qualified terminable interest property.

For more information on outright transfer

property and QTIP, see Spousal Property Basis

Increase, in the Instructions for Form 8939.

As part of the TCE program, AARP offers the

Tax-Aide counseling program. To find the nearest AARP Tax-Aide site, call 1-888-227-7669 or

visit AARP’s website at

www.aarp.org/money/taxaide.

For more information on these programs, go

to IRS.gov and enter keyword “VITA” in the

upper right-hand corner.

Internet. You can access the IRS website at IRS.gov 24 hours a day, 7 days

a week to:

• E-file your return. Find out about commercial tax preparation and e-file services

available free to eligible taxpayers.

• Check the status of your 2011 refund. Go

to IRS.gov and click on Where’s My Refund. Wait at least 72 hours after the IRS

acknowledges receipt of your e-filed return, or 3 to 4 weeks after mailing a paper

return. If you filed Form 8379 with your

return, wait 14 weeks (11 weeks if you

filed electronically). Have your 2011 tax

return available so you can provide your

social security number, your filing status,

and the exact whole dollar amount of your

refund.

• Download forms, including talking tax

forms, instructions, and publications.

• Order IRS products online.

• Research your tax questions online.

• Search publications online by topic or

keyword.

• Use the online Internal Revenue Code,

regulations, or other official guidance.

• View Internal Revenue Bulletins (IRBs)

published in the last few years.

• Figure your withholding allowances using

Penalty Relief

For certain penalty relief related to the recipient’s income tax return and computing the recipient’s income tax liability, see Notice 2011-76.

the withholding calculator online at www.

irs.gov/individuals.

• Determine if Form 6251 must be filed by

using our Alternative Minimum Tax (AMT)

Assistant available online at www.irs.gov/

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• Sign up to receive local and national tax

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How To Get Tax Help

You can get help with unresolved tax issues,

order free publications and forms, ask tax questions, and get information from the IRS in several ways. By selecting the method that is best

for you, you will have quick and easy access to

tax help.

Free help with your return. Free help in preparing your return is available nationwide from

IRS-certified volunteers. The Volunteer Income

Tax Assistance (VITA) program is designed to

help low-moderate income taxpayers and the

Tax Counseling for the Elderly (TCE) program is

designed to assist taxpayers age 60 and older

with their tax returns. Most VITA and TCE sites

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• Asking tax questions. Call the IRS with

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• Solving problems. You can get

face-to-face help solving tax problems

every business day in IRS Taxpayer Assistance Centers. An employee can explain IRS letters, request adjustments to

Page 3

your account, or help you set up a payment plan. Call your local Taxpayer Assistance Center for an appointment. To find

the number, go to www.irs.gov/localcontacts or look in the phone book under

United States Government, Internal Revenue Service.

• TTY/TDD equipment. If you have access

to TTY/TDD equipment, call

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order forms and publications.

• TeleTax topics. Call 1-800-829-4477 to listen to pre-recorded messages covering

various tax topics.

• Refund information. To check the status of

your 2011 refund, call 1-800-829-1954 or

1-800-829-4477 (automated refund information 24 hours a day, 7 days a week).

Wait at least 72 hours after the IRS acknowledges receipt of your e-filed return,

or 3 to 4 weeks after mailing a paper return. If you filed Form 8379 with your return, wait 14 weeks (11 weeks if you filed

electronically). Have your 2011 tax return

available so you can provide your social

security number, your filing status, and the

exact whole dollar amount of your refund.

If you check the status of your refund and

are not given the date it will be issued,

please wait until the next week before

checking back.

• Other refund information. To check the

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return refund, call 1-800-829-1040.

Evaluating the quality of our telephone

services. To ensure IRS representatives give

accurate, courteous, and professional answers,

we use several methods to evaluate the quality

of our telephone services. One method is for a

second IRS representative to listen in on or

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individual tax return, or you are more comfortable talking with someone in person,

visit your local Taxpayer Assistance

Page 4

Center where you can spread out your

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ongoing, complex tax account problem or

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issues will be handled without an appointment. To find the number of your local

office, go to

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phone book under United States Government, Internal Revenue Service.

Mail. You can send your order for

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the address below. You should receive

a response within 10 days after your request is

received.

Internal Revenue Service

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Bloomington, IL 61705-6613

Taxpayer Advocate Service. The Taxpayer

Advocate Service (TAS) is your voice at the IRS.

Our job is to ensure that every taxpayer is

treated fairly, and that you know and understand

your rights. We offer free help to guide you

through the often-confusing process of resolving

tax problems that you haven’t been able to solve

on your own. Remember, the worst thing you

can do is nothing at all.

TAS can help if you can’t resolve your problem with the IRS and:

• Your problem is causing financial difficul-

ties for you, your family, or your business.

• You face (or your business is facing) an

immediate threat of adverse action.

• You have tried repeatedly to contact the

it to us through our Systemic Advocacy Management System at www.irs.gov/advocate.

Low Income Taxpayer Clinics (LITCs).

Low Income Taxpayer Clinics (LITCs) are independent from the IRS. Some clinics serve individuals whose income is below a certain level

and who need to resolve a tax problem. These

clinics provide professional representation

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collection disputes, and other issues for free or

for a small fee. Some clinics can provide information about taxpayer rights and responsibilities in many different languages for individuals

who speak English as a second language. For

more information and to find a clinic near you,

see the LITC page on www.irs.gov/advocate or

IRS Publication 4134, Low Income Taxpayer

Clinic List. This publication is also available by

calling 1-800-829-3676 or at your local IRS office.

Free tax services. Publication 910, IRS

Guide to Free Tax Services, is your guide to IRS

services and resources. Learn about free tax

information from the IRS, including publications,

services, and education and assistance programs. The publication also has an index of over

100 TeleTax topics (recorded tax information)

you can listen to on the telephone. The majority

of the information and services listed in this

publication are available to you free of charge. If

there is a fee associated with a resource or

service, it is listed in the publication.

Accessible versions of IRS published products are available on request in a variety of

alternative formats for people with disabilities.

DVD for tax products. You can order

Publication 1796, IRS Tax Products

DVD, and obtain:

• Current-year forms, instructions, and publications.

• Prior-year forms, instructions, and publications.

• Tax Map: an electronic research tool and

finding aid.

IRS but no one has responded, or the IRS

has not responded to you by the date

promised.

• Tax law frequently asked questions.

• Tax Topics from the IRS telephone re-

If you qualify for our help, we’ll do everything

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every turn. We have offices in every state, the

District of Columbia, and Puerto Rico. Although

TAS is independent within the IRS, our advocates know how to work with the IRS to get your

problems resolved. And our services are always

free.

As a taxpayer, you have rights that the IRS

must abide by in its dealings with you. Our tax

toolkit at www.TaxpayerAdvocate.irs.gov can

help you understand these rights.

If you think TAS might be able to help you,

call your local advocate, whose number is in

your phone book and on our website at www.irs.

gov/advocate. You can also call our toll-free

number at 1-877-777-4778 or TTY/TDD

1-800-829-4059.

TAS also handles large-scale or systemic

problems that affect many taxpayers. If you

know of one of these broad issues, please report

• Internal Revenue Code — Title 26 of the

sponse system.

U.S. Code.

• Links to other Internet based Tax Research Materials.

• Fill-in, print, and save features for most tax

forms.

• Internal Revenue Bulletins.

• Toll-free and email technical support.

• Two releases during the year.

– The first release will ship the beginning

of January 2012.

– The final release will ship the beginning

of March 2012.

Purchase the DVD from National Technical

Information Service (NTIS) at www.irs.gov/

cdorders for $30 (no handling fee) or call

1-877-233-6767 toll free to buy the DVD for $30

(plus a $6 handling fee).

Publication 4895 (October 2011)