The IRS Wants You To Have Angry Beneficiaries


Imagine you’re the personal representative (executor) of your uncle’s estate. In his will, he’s left $10,000 to a dear friend in Italy. Your attorney calls and says, “We need to get in touch with Sophia in Rome to let her know she needs to ‘register’ with the IRS.”

Your first reaction might be “Sophia is a bit of a hothead – she’s not going to like this one bit.” Your second reaction might be, “This sounds like something that could hold things up.” You could easily be right on both counts.

Form 8971, Information Regarding Beneficiaries Acquiring Property From a Decedent, is used to report the final estate tax value of a decedent’s assets. The primary purpose of the Form is to provide an accurate (or at least “official”) record of the tax basis of assets inherited.

The Form requires personal representatives to list (all of the) assets owned by the decedent, together with their “date of death value.” Under Internal Revenue Code §1014, generally speaking, an asset’s date-of-death value becomes the inheritor/beneficiary’s tax basis in the asset.

Form 8971 was intended as a “loophole closer” for a perceived capital gain tax abuse. That is, Congress determined that there are ruffians out there inheriting assets, subsequently selling them, and then overstating the assets’ tax basis when reporting the sale on their income tax returns. (Higher basis = smaller (or no) capital gain = less tax.)

Much has been written about this Form, the lengthy schedules it requires, the repetitive nature of the reporting and the general inconsistencies surrounding when and if it’s required or can even be relied upon. This Forbes article provides a good summary.

But we wanted to point out here a latent surprise lurking in Form 8971 for estates and trusts with foreign national beneficiaries. In addition to all of the asset info required, Form 8971 also requires personal representatives to provide Taxpayer Identification Numbers (TINs) for all beneficiaries.

In fact, with respect to entering the TINs, the instructions to Form 8971 state: “Entering ‘none,’ ‘unknown,’ or similar language, or otherwise failing to enter a TIN, will cause the form to be considered incomplete and may subject the estate to penalties.” In other words, “I don’t have a TIN” is not an acceptable answer for Sophia here.

Sophia most likely does not have a TIN already. Obtaining a TIN for her can be troublesome. It can often take several months, and it just got more complicated.

Under a new Code provision, IRC § 6039(i), foreign nationals must apply for a TIN by mail, or in person with an IRS employee or US diplomatic mission or consular post. Applying by mail means providing proof of citizenship by mail, which means mailing things like a passport, driver’s license, birth certificate, etc. to the US Government! Sophia is not going to like this at all.

Previously, these individuals had the option of using a certified acceptance agent (“CAA”) to review and verify the individual’s proof of identity or residency. This CAA option is missing from the new law. Some commentators suspect that this is an oversight that may be corrected by Congress, but for now it’s the law.

Form 8971 is, generally speaking, due within 30 days of the estate tax return due date. So, personal representatives (executors) will need to promptly identify any beneficiaries who do not have a TIN and notify them of the new requirements.

What’s the practical takeaway for fiduciaries administering estates? Often, completing Form 8971 will often mean assisting Sophia with obtaining her TIN, as she may not understand the requirements or even speak English. We can also expect to hear an earful from Sophia about having to “register” with the IRS!

About Oakstone Law PL

Over two decades of managing estate and trust related problems and opportunities for clients has taught us a lot. We’ve worked with assorted billionaires and millionaires, including Forbes 400 members, pro football team owners, professional athletes, and C-level executives of public companies. Along the way, we’ve learned a thing or two about how effective planning works, and where things can break down.

But we’ve also learned that for you, it’s not just about us being expert technicians. We’ve listened and learned about the hassles that drive clients and their families crazy – and how to avoid them. Are you familiar with or tired of things like surprise invoices, confusing or vague pricing, unreturned phone calls and emails? Unfortunately, these are all too common in the professional services world.

But you won’t experience those with us. At Oakstone Law, we recognize that you’re not just looking for expertise, you’re looking for professionals who care about you and your family. And we’re focused on delivering the highest quality service to you and your family.

Our mission:

Delivering peace of mind with the highest quality, most enjoyable service our clients, their families and their advisors have ever experienced.

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1415 Panther Lane, Suite 439
Naples, Florida 34109
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