No Need to File Estate Tax Return for People Who Die in 2010

08/26/2010

At a recent tax seminar, an IRS spokesperson told a room full of tax professionals that they should not send the IRS any estate tax returns (Form 706) for individuals who died in 2010.  Why?  Because the IRS simply does not know what to do with them.

I guess everyone is waiting to see what Congress will do to address the estate tax situation this year and for future years. 

What do I think will be done?  I honestly have no idea.  If I was forced to bet, I wouldn’t be surprised if come 2011, the amount a person can leave at death without being subject to an estate tax goes back down to $1,000,000. This is what will automatically happen if Congress takes no action.

And Congress actually has very few work days scheduled for the remainder of the year to resolve this issue.   We have a little over 4 months left in the year, but Congress probably has less than 30 work days scheduled.  They already went on vacation for two weeks in July.  They were also gone for most of August.  They’re back in September for a short period then off they go again to prepare for the election.   They will be back for two weeks in December.  Further, Congress seldomly works on Mondays or Fridays.   Those days are reserved for personal travel time in case the representative needs to go back to their districts for the weekend.  A carryover from the days of horses and buggies I suppose.

With so few work days left, I’m not sure how much Congress will get done on a topic as complex as the estate tax.  The parties don’t seem like they can agree on anything and there are other priorities that Congress needs to address besides the estate tax.

The one thing we do know is that for individuals who died in 2010, there is no need to file an estate tax return.  Instead, the IRS plans to release a new type of return that will address the new modified carryover basis rules that have replaced the old federal estate tax and stepped up basis rules.

This new form will be required to be filed if the fair market value of (non-cash) property owned at death exceeds $1.3 million or the deceased person was gifted property within three years of their death and the gift should have been reported on a federal gift tax return.  The form will be due at the same time as the deceased person's final income tax return, meaning April 15, 2011.