Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:
- quote -

Do you have any authority for that? Because I haven't been
able to find any.

What you're saying makes a bit of sense based on the
language of the statute. But if it were truly the meaning
of 2035 that it wouldn't apply to anything except when there
are strings attached under the other statutes, section 2035
would be superfluous.

The authority I've been able to find generally says that
2035 requires that all gifts within 3 years of death that
are over the exemption amount are required to be brought
back into the estate for tax purposes.

Stu

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"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

Baring other facts, stock isn't subject to the three year
rule. See 2035 which requires inclusion if "the value of
such property (or an interest therein) would have been
included in the decedent's gross estate under section 2036,
2037, 2038, or 2042 if such transferred interest or
relinquished power had been retained by the decedent on the
date of his death, the value of the gross estate shall
include the value of any property (or interest therein)
which would have been so included." 2036(a)(2)

2035 also requires inclusion of gift tax paid within three
years of death.

2036 deals with Retained Life Estates.
2037 deals with Transfers Taking Effect at Death.
2038 deals with Revocable Transfers.
2042 deals with Proceeds of Life Insurance.

So the stock is not brought back in under the three year
rule unless some string was attached. A straight forward
transfer, as proposed by the original post, would not be
brought back in under the three year rule.

However if the person dies within three years of a $10
million dollar gift then the large amount of gift tax would
be included in the estate.

---
Drew Edmundson, CPA
Cary, NC

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"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

Congress is saying that *if* the asset had *not* been transferred
*and* it would have been included under 2036, 2037, 2038 or 2042,
*then* it is still included if the transfer happened within three
years of death.

See: 2035 which says in part:

(a) Inclusion Of Certain Property In Gross Estate.--

If--

(1) the decedent made a transfer (by trust or otherwise) of an
interest in any property, or relinquished a power with respect to any
property, during the 3-year period ending on the date of the
decedent's death, **and**

(2) the value of such property (or an interest therein) would have
been included in the decedent's gross estate under section 2036, 2037,
2038, or 2042 if such transferred interest or relinquished power *had
been retained* by the decedent on the date of his death,

the value of the gross estate shall include the value of any property
(or interest therein) which would have been so included.

Emphasis added.

- quote -

2036, 2037, 2038 and 2042 don't apply to assets transferred before
death except by virtue of 2035. They do apply to assets held at death
(i.e. not transferred prior to death).

Drew Edmundson, CPA
Cary, NC

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Drew Edmundson <drewsbeagles[at]hotmail.com> wrote:

- quote -

I think you're reading 2035 too narrowly. It says the
property is included in the estate, "if such transferred
interest or relinquished power had been retained by the
decedent on the date of his death."

You are saying that if 2036 et al apply, then the value
is included in the estate. But if those statutes apply,
then the three year rule wouldn't be needed.

The three year rule applies to property actually
transferred. The Supreme Court interpreted the statute
to require inclusion of "all gifts made "in contemplation
of death," which presumptively included all gifts made
within three years of the decedent's demise." UNITED STATES
v. HEMME, 476 U.S. 558 (1986).

Stu

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- quote -

Sorry for the late reply. This is my fourth attempt to post
this message.

The value of her estate being over 1.5 million dollars has
nothing to do with whether the stock is included in the
estate for estate tax purposes. I believe you are confusing
how the lifetime credit (exclusion) is being recalculated at
death with the inclusion of certain pre-death gifts in the
estate at FMV on date of death.

The taxable gifts prior to death, at FMV on date of gift,
reduce the exclusion amount on the estate return. But the
gift is not included in the value of the estate. Nor is the
gift's basis stepped up.

- quote -

I would say your basis is her basis unless you meet the
rules of 2035. Basically 2035 says a gift within 3 years of
death is includible if the value would have been included
under 2036, 2037, 2038 or 2042 if held at death. 2036 deals
with transfers with a retained life estate, with stock you
would have needed her to have held it jointly with you or
via some kind of entity (like a trust) to show a retained
life estate. 2037 deals with transfers taking effect at
death. If the stock gift was made prior to death then I
don't see how this applies. 2038 deals with revocable
transfers, again some kind of entity (like a trust) would be
required. 2042 deals with life insurance.

The typical way to transfer stock that would get caught by
the three year rule would be to do so via a trust or family
limited partnership. A straight signing over of the stock
will not be brought back into the estate at FMV on death.
Even a gift via a partnership or trust is not automatically
brought back in if the transfer is made within three years
of death. The transfer has to fall under 2035.

2035 also requires the inclusion of gift tax paid within 3
years of death.

See the Tax Almanac site for the code:

http://www.taxalmanac.org/index.php/...itle_B_-_Index

Since I doubt 2035 applies my guess is your basis is her
basis with perhaps two adjustments. If you sold for a loss
and her basis exceeded FMV on date of gift then your basis
for purposes of determining loss is the fair market value of
the property at the time of the gift (see Section 1015(a)).
If she paid gift tax on the gift then you would add the tax
to basis but your basis may not exceed FMV on the date of
gift (see 1015(d)(1)(A)).

---
Drew Edmundson, CPA
Cary, NC

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"Stuart A. Bronstein" <spamtrap[at]lexregia.com> wrote:
- quote -

Sorry for the late reply but this is my fourth attempt to
get this post through. Either BellSouth doesn't like me,
Dick doesn't like me, or Dick's setup doesn't like
BellSouth.

Anyway this is what I have tried to post:

The three year rule applies in only limited circumstances.
Unless the original poster has additional facts I don't
believe it applies in his case. See 2035.

---
Drew Edmundson, CPA
Cary, NC

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Here's the statute:

- quote -

Thanks much for your thoughtful response. I'll include the
page that you pointed to in my cost basis records.

I'm very sorry for the miss attributions. I'll try to do it
correctly. And I'll shout it now -- It was Stuart A.
Bronstein who gave the information on cost basis for gifts
made and then included in deceased estate getting the steped
up basis.

Thanks again

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- quote -

Here's the statute:
http://snipurl.com/jlij

Oh, and please watch your attributions. You got who said
what wrong in your post.

Stu

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"Herb Smith" <smithf...[at]aol.com> wrote:

- quote -

Well....I have a need to know this info ... I recently sold
some of the so called gifted stocks to pay a tax bill.... I
was looking for section 1014(b) at the IRS site. I didn't
find much. I thought it would be nice to attach something
definitive from the IRS to my cost basis figures. Do you
know where I could find some official statement? All that I
have found in the past is gifted moneys get the original
cost basis.

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"Herb Smith" <smithff33[at]aol.com> wrote:

- quote -

Even if the gift was included in the taxable estate for
being made within three years of death?

Looks like section 1014(b) (and in this case subparagraph 9)
says that property required to be included in the taxable
estate gets the stepped up basis even if it otherwise
wouldn't be entitled to.

Stu

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nanasue wrote:

- quote -

The stocks received as a GIFT retain the giftors original
basis, those received as an inheritance from the decedent
get an adjustment to current FMV.

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- quote -

So if the unified credit has already been used up... The
Gift tax would be about 0.5M, so the basis would be 1.5M,
and the heirs (when they sell would pay capital gains on
8.5M. (in NYS, about 2m, so total tax paid is 2.5m)

But if left in an estate, the estate tax would be about 5M
and the heirs would have no capital gains tax. Total tax
paid is twice that of gifts.

Is that about right, using round numbers?

In round figures, is that about it?

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- quote -

About a year before my mother passed away she gifted me a
number of stocks and mutual funds. A gift tax return was
filed. If her estate were over 1.5 million, the value of
those stocks and mutual funds would be included in her
estate for estate tax purposes.

My question -- what is the cost basis for those stocks and
bonds -- her original cost basis or the value at her death?

Thanks in advance

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Stuart A. Bronstein wrote:

- quote -

2010.

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Larry wrote:
- quote -

Completely wrong.
- Estate tax provides a step-up to FMV at the time of death.
- Gift tax carries the original basis (+ gift tax paid).

- quote -

An estate, if it is the seller, does pay CG tax, but here,
the gain is likely very near zero.

- quote -

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Rich Carreiro wrote:
- quote -

Or $1M + gift tax actually paid. [Someone giving that large
an amount might have exceeded his unified credit if there
were other gifts....]

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Stuart A. Bronstein" wrote:

- quote -

*Or* it may decrease. Just depends. But yes, the new basis
is whatever the value was at date of death.

- quote -

Somehow, "fairness" and "tax code" in the same sentence is
more often an oxymoron ;-)

- quote -

But if the value goes down before death, neither the estate
nor the individual's final return can claim the loss. The
loss is just... uh ... lost. And no, that's never been fair
imho.

- quote -

aha! Soooo.... in the case of lower "Date of Death" value,
vs original basis, will the heirs be able to use the
original basis and take the loss? (I dunno, I haven't looked
it up)

- quote -

I would hope it holds

- quote -

Rick

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"Larry" <Larry[at]larry.com> wrote:
- quote -

When a gift is made, the property retains the same basis it had in
the hands of the donor. But when someone dies and his property
passes to someone as a result of that, the basis is increased to
the value at the date of death.

The theory appears to be that it would be unfair to impose both an
income and an estate tax on the same thing, which is the equity in
the property. So when property is subject to estate tax (even if
no tax is actually due because the estate is too small), the basis
goes up so that no income tax is imposed on that equity.

Now, in the year that no estate tax will be due from anyone under
current law (I think it's 2009 but I'm not going to take the time
to look it up), there is no stepped up basis for property passing
to heirs. Which is completely consistent with that theory.

Stu

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"Rich Carreiro" <rlcarr[at]animato.arlington.ma.us> wrote:
- quote -

Actually I thought it might be just the opposite!
I thought it kept it's original basis through the estate
tax, and the recipient would have CG tax when sold. Are you
telling me it jumps to $10M for estate tax and the recipient
would have no CG when sold.?? Does the estate also have to
pay capital gains tax?

I posted here because I had doubts about what my accountant
told me, but I didn't think he was completely wrong. Is
there a website somewhere that explains this?

Thanks.

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Larry <Larry[at]larry.com> wrote:

- quote -

The recipient's basis would certainly be different in those
two cases.

Seth

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