2010 Estate Tax Repeal, Basis Rules, and Reporting Requirements

Kristin L. Yokomoto, JD, LLM, MBA

In the midst of Congress passing sweeping laws in support of unprecedented federal financial bailouts and approving major national healthcare reform, Congress surprisingly did not act to prevent this year's repeal of the federal estate tax and generation skipping transfer tax (GST). As a result, pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), these taxes have been repealed for decedents dying after December 31, 2009, and through December 31, 2010. While this interim repeal may sound tax free, it is trickier than its face value suggests due to the new related modified carryover basis rules under Internal Revenue Code section 1022. These new basis rules replace the historical stepped-up (or stepped-down) basis rules with carryover basis rules, as modified for certain permissible basis increase allocations. Also, as part of the repeal, there is no longer the need to file estate tax returns with the IRS; however, new reporting rules may require executors to file a new type of return under revised IRC section 6018.