AICPA asks IRS for Guidance on Carryover Basis Rules

The American Institute of Certified Public Accountants has asked the Internal Revenue Service to issue guidance about how to apply carryover basis rules for the assets of taxpayers who died in 2010 in order to settle their estates.   Basis is generally the original purchase price of an asset, such as stocks or property.

 “The carryover basis regime is new and unfamiliar, and the April 18, 2011, due date for filing the information returns allocating the basis adjustments to particular assets is rapidly approaching,” the AICPA said.

 The traditional “step-up basis” method, under which heirs were permitted to use the fair market value of the assets at the time of the decedent’s death, was repealed for 2010 by the Economic Growth and Tax Relief Reconciliation Act of 2001 and replaced with carryover basis.  Under carryover basis, heirs use the decedent’s original cost of the assets as their basis when calculating taxes due, but the executor is allowed to increase the basis of the assets up to $1.3 million. An additional $3 million increase is permitted if the assets are passed to the surviving spouse.

 Among the specific questions for which the AICPA requested guidance are who will make the basis allocation if the estate does not have an executor, what happens to the decedent’s suspended passive losses, will the basis allocation form be a stand-alone form or a form attached to the decedent’s final Form 1040, how do the rules apply to community property, and how are net operating loss carryovers and capital loss carryovers measured?

Click here for a copy of the AICPA letter.