Filings for 2010, 2011 decedents: new insights on IRS requirements, including determining FMV of undivided interests

Last August, the Internal Revenue Service released Notice 2011-66 , concerning the methods for electing and applying a carryover basis treatment under Sec. 1022 of the Internal Revenue Code (IRC) to 2010 estates, and Rev. Proc. 2011-41 , providing optional safe harbor guidance under Sec. 1022 IRC. In a detailed, thorough analysis, Steve Akers (Bessemer Trust) summarizes what’s new and important in the IRS guidance, and highlights the provisions relevant to fair market value appraisals. In particular, Akers observes that under the “Aggregation Rule” in Section 4.04 of Rev. Proc. 2011-41:

The “Basis Increase” allocated to any asset cannot result in the basis of that asset exceeding the fair market value of the asset on the date of death. If Basis Increase is allocated to an “undivided portion” of an asset that is distributed to a particular recipient, the IRS takes the taxpayer-favorable position that discounts do not have to be applied in determining the fair market value limit of each recipient’s “undivided portion.” Instead, “the FMV of an undivided portion of the decedent’s property that is acquired from the decedent at death is a fractional share of the FMV of the decedent’s property at death.”
“That rule would apply explicitly to undivided interests in real property,” Akers observes. “Presumably, it will also apply to minority interests in partnerships, LLCs, and corporations that are distributed among the estate beneficiaries.” Read Akers’ complete overview, written for Leimberg Information Services and presented to the National Association of Estate Planners Council, here.