General Instructions

More information.   For more information about the latest developments on Form 8939 and its instructions, go to www.irs.gov/form8939 .

Purpose of Form

Form 8939 is an information return used by the executor (defined below) of a decedent who died in 2010:

  1. To make the Section 1022 Election (see Section 1022 Election, later);

  2. To report information about property acquired from a decedent; and

  3. To allocate Basis Increase (see Basis Increase, later) to certain property acquired from a decedent.

For detailed information about the Section 1022 Election, see Notice 2011-66, 2011-35 I.R.B. 184, available at www.irs.gov/pub/irs-irbs/irb11-35.pdf and Notice 2011-76, 2011-40 I.R.B 479, available at www.irs.gov/pub/irs-irbs/irb11-40.pdf. For optional safe harbor guidance under section 1022, see Revenue Procedure 2011-41, 2011-35 I.R.B. 188, available at www.irs.gov/pub/irs-irbs/irb11-35.pdf.

Section 1022 Election

The executor of an estate of a decedent who died in 2010 can elect to apply modified carryover basis treatment to property acquired from the decedent under section 301(c) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA). If the election is made, the estate will not be subject to federal estate tax and does not need to file a Form 706 even if the value of the estate is $5,000,000 or more. As a result, section 1014 generally does not apply to determine the recipient’s basis in property acquired from the decedent. Instead, section 1022 applies to determine the recipient’s basis in most (but not all) property acquired from the decedent. This election is referred to as the Section 1022 Election.

How to Make the Section 1022 Election

The Section 1022 Election is made by filing a timely Form 8939. Prior filings purporting to make the Section 1022 Election must be replaced with a timely filed Form 8939. For information on when to file Form 8939, see When to File, later.

If there is an executor appointed, qualified, and acting within the United States, the IRS generally will accept Form 8939 only if filed by that executor. For detailed information on multiple and conflicting filings by executors who are not appointed, qualified, and acting, see Notice 2011-66, section I.A.

Effect of Election

If the executor makes the Section 1022 Election, special rules apply. These rules include the following.

  • There is no estate tax.

  • The basis of property acquired from a decedent generally is determined under the modified carryover basis rules of section 1022 and not under section 1014. Generally, the recipient's basis is the lesser of the decedent's adjusted basis or the fair market value (FMV) at the date of the decedent's death.

If the executor makes the Section 1022 Election and follows the provisions of section 4 of Revenue Procedure 2011-41, and takes no return position contrary to any provisions of section 4, the IRS will not challenge the taxpayer’s ability to rely on the provisions of section 4 on either Form 8939 or any other return of tax.

Section 1022 Election Irrevocable

A Section 1022 Election can not be revoked after the due date. See When to File, later.

Generally, once the executor has made the Section 1022 Election, the election is irrevocable. However, the executor can revoke a prior Section 1022 Election on a subsequent Form 8939 filed before the due date. See When to File, later. To revoke the Section 1022 Election, the executor must check the box at the top of Form 8939 designated for revocation. See Checkbox for Revoking Section 1022 Election, later. For more information, see Notice 2011-66.

Required Disclosure

Returns by Executors

Generally, if the executor (defined later) makes the Section 1022 Election, the executor must report all the information required by Form 8939 and its instructions about all property acquired from the decedent (other than cash). However, for the executor of a decedent who is a nonresident not a citizen of the United States, the executor must report certain information about the property acquired from the decedent (other than cash) that is one of the following.

  1. Tangible property situated in the United States.

  2. Other property acquired from the decedent by a United States person. A United States person is any of the following.

    1. A citizen or resident of the United States.

    2. A domestic partnership.

    3. A domestic corporation.

    4. Any estate other than a foreign estate. A foreign estate is an estate the income of which, from sources outside the United States that is not effectively connected with the conduct of a trade or business within the United States, is not includible in gross income.

    5. Any trust if a court within the United States is able to exercise primary supervision over the administration of the trust and one or more United States persons have the authority to control all substantial decisions of the trust.

Executor.   The executor is the executor, personal representative, or administrator of the decedent, or, if there is no executor or administrator appointed, qualified, and acting within the United States, then any person in actual or constructive possession of any property of the decedent. For detailed information on multiple or conflicting filings by executors who are not appointed, qualified, and acting, see Notice 2011-66, sections I.A. and I.B.

Note.

For the definition of property acquired from a decedent, see Property Acquired from a Decedent, later.

The executor's disclosure on Form 8939 of property acquired from the decedent does not satisfy the requirements, if applicable, to disclose foreign financial assets on Form 8938, Statement of Specified Foreign Financial Assets, or to disclose a financial interest in or signature authority over a foreign financial account by filing Form TD F 90-22.1, Report of Foreign Bank and Financial Accounts.

Returns by Trustees and Beneficiaries

If the executor is unable to make a complete return as to any property acquired from the decedent, the executor must include a description of such property and the name of every person holding a legal or beneficial interest in the property. Upon notice from the IRS, such person must file Form 8939 as to such property. For details, see section 6018(b)(4).

Statement to Recipients

The executor filing Form 8939 must furnish to each person whose name is required to be set forth in such return (other than the executor filing the return) a written statement showing the information required by section 6018(e) with respect to property (other than cash) acquired from the decedent to the person required to receive the statement. The executor must furnish this statement not later than 30 days after the date Form 8939 is filed.

The statement must include information about all property (other than cash) acquired from the decedent by the recipient of the statement, whether or not the executor allocates any Basis Increase to that property.

Use Schedule A to provide this statement to each recipient of property (other than cash) acquired from the decedent, including the following persons.

  • The decedent's surviving spouse.

  • The trustee of a qualified terminable interest property (QTIP) trust.

  • Any charitable remainder trust the sole non-charitable beneficiary of which is the decedent's surviving spouse.

  • Any other person (other than the executor filing the return) who acquires property (other than cash) from the decedent.

Updated statements.   The executor must furnish an updated statement in the following circumstances.
  • The executor files an amended or supplemental Form 8939. For details, see Amended and supplemental returns, and Notice 2011-66, section I.D.2.

  • The IRS makes an adjustment to any tax return that affects the amounts properly reportable on Form 8939.

  The executor must furnish updated statements to each affected recipient of property no later than 30 days after the executor's filing of the amended or supplemental Form 8939 or receiving notice of the adjustment from the IRS, whichever is applicable. If the property is subject to multiple interests (life estate and remainder interest), the life tenant and all holders of remainder interests are affected recipients of the property.

  If the executor files an amended Form 8939 that revokes a Section 1022 Election, the executor should write “Section 1022 Election Revoked” at the top of the updated statement and send a copy to each affected recipient.

When to File

File Form 8939 by January 17, 2012. See Notice 2011-76. For more information, see www.irs.gov/form8939. Generally, the IRS will not grant extensions of time to file a Form 8939 and will not accept a Form 8939 or an amended Form 8939 filed after the due date. However, see Amended and supplemental returns and Extension of time to file, later.

An executor is not permitted to file both an estate tax return (Form 706 or Form 706-NA) and a conditional Form 8939 that would take effect only if an estate tax audit results in an increase in the gross estate above the applicable exclusion amount in section 2010(c).

For individuals serving in the Armed Forces of the United States or serving in support of the Armed Forces, the deadline for filing Form 8939 can be extended under section 7508. An executor filing Form 8939 after the due date under section 7508 should write “Filed Pursuant to Section 7508” at the top of the first page of the form. For details, see section 7508 and Extension of Deadlines in Publication 3, Armed Forces' Tax Guide.

For individuals living in a Presidentially declared disaster area or affected by terroristic or military action, the deadline to file Form 8939 can be postponed under section 7508A. An executor filing Form 8939 after the due date under section 7508A should write “Filed Pursuant to Section 7508A” at the top of the first page of the form. A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act.

A list of the areas eligible for assistance under the Disaster Relief and Emergency Assistance Act is available at the Federal Emergency Management Agency (FEMA) website at www.fema.gov and at IRS.gov.

Private delivery services.   You can use certain private delivery services designated by the IRS to meet the “timely mailing as timely filing” rule for tax returns. These private delivery services include only the following:
  • DHL Express (DHL): DHL Same Day Service.

  • Federal Express (FedEx): FedEx Priority Overnight, FedEx Standard Overnight, FedEx 2Day, FedEx International Priority, FedEx International First.

  • United Parcel Service (UPS): UPS Next Day Air, UPS Next Day Air Saver, UPS 2nd Day Air, UPS 2nd Day Air A.M., UPS Worldwide Express Plus, and UPS Worldwide Express.

  The private delivery service can tell you how to get written proof of the mailing date.

Extension of time to file

Generally, the IRS will not grant an extension of time to file Form 8939. However, see Notice 2011-66, section I.D.2. for limited relief provisions.

Amended and supplemental returns

There are only a few limited circumstances where the IRS will accept an amended Form 8939. One of these circumstances is described in Amended Form 8939 to allocate Spousal Property Basis Increase, below. For information on other limited circumstances, see Notice 2011-66, section I.D.2. To amend or supplement a previously filed Form 8939, file an amended Form 8939 and check the box at the top of page 1 designated for amended returns. Attach a statement that identifies the schedule, line number, and item number of each amended item, the corrected or amended amount or treatment of the item, and an explanation of the reasons for the change. If the executor files an amended or supplemental Form 8939, the executor must provide updated statements to affected recipients. See Updated statements, earlier.

Amended Form 8939 to allocate Spousal Property Basis Increase.   The executor can file an amended Form 8939 after the due date for the sole purpose of allocating Spousal Property Basis Increase to property eligible to receive an allocation of that basis, provided that each of the two following requirements is satisfied.
  • Form 8939 must have been timely filed and must have been complete when filed except for the allocation of the full amount of the Spousal Property Basis Increase to the eligible property reported on that Form 8939.

  • Each amended Form 8939 must be filed no more than 90 days after the date of the distribution of the qualified spousal property to which Spousal Property Basis Increase is allocated on that amended Form 8939.

  See Spousal Property Basis Increase, later.

Who Must Sign

The executor who files the return must, in every case, sign the declaration on page 1 of Form 8939 under penalties of perjury.

Where to File

Send this return to:

Internal Revenue Service 
Estate & Gift Stop 824G 
201 W. Rivercenter Blvd. 
Covington, KY 41011

Do not file Form 8939 with the decedent's final income tax return. Do not send Form 8939 to the same address you use for mailing the decedent's final income tax return.

Penalties

Section 6716 provides penalties for failing to file this return on time and for failing to provide the information required unless there is reasonable cause for the failure. Generally, the penalty is $10,000 for each such failure. The penalty for failure to provide the information required by section 6018(b)(2) is $500 for each failure. The penalty for failure to provide recipients of property acquired from the decedent the information required by section 6018(e) is $50 for each such failure. If any failure is due to intentional disregard of the requirements of section 6018, the penalty is 5% of the FMV (as of the date of death) of the property about which the information is required.

Rounding Off to Whole Dollars

Show the money items on the return and accompanying schedules as whole-dollar amounts. To do so, drop any amount less than 50 cents and increase any amount from 50 cents through 99 cents to the next higher dollar.

Assembling the Return

Attach the following to the return.

  • Decedent’s death certificate.

  • If the decedent died testate, a certified copy of the will. If you cannot obtain a certified copy, attach a copy of the will and an explanation of why it is not certified.

  • Copies of trust instruments for any trust that is shown on the return as a recipient of property acquired from the decedent.

  • If the executor is appointed, a certified copy of the letters testamentary, letters of administration, or other similar evidence of the executor's authority to act.

  • Appraisals used to value certain property as required under section 2031 and Rev. Proc. 2011-41, section 4.04(1).

Property Acquired from the Decedent

Generally, section 1022 determines a recipient's basis in property, but only if the property is “acquired from the decedent.” Generally, property acquired from the decedent includes the following.

  1. Property acquired by bequest, devise, or inheritance, or by the decedent's estate from the decedent.

  2. Property transferred by the decedent during the decedent's lifetime to:

    1. A qualified revocable trust (as defined in section 645(b)(1)), or

    2. Any other trust with respect to which the decedent reserved the right to make any change in the enjoyment thereof through the exercise of a power to alter, amend, or terminate the trust.

  3. Any other property passing from the decedent by reason of death to the extent that such property passed without consideration.

Note.

Section 1022 does not apply to a decedent's interest in a QTIP trust or similar arrangement funded for the benefit of the decedent by the decedent's predeceased spouse. A recipient's basis in this property will not be determined under section 1022.

Income in Respect of a Decedent

Section 1022 does not apply to property that constitutes a right to receive an item of income in respect of a decedent (IRD) under section 691. The executor is not required to list property that constitutes a right to receive an item of IRD on Form 8939. Generally, IRD is income that the decedent would have received had death not occurred and that was not properly includible on the decedent's final income tax return. IRD includes the following.

  • An installment obligation, reportable by the decedent on the installment method, that remains uncollected by the decedent.

  • Accrued but unpaid interest on a note, certificate of deposit, or other obligation.

  • Dividends declared on a share of stock before the decedent's death but payable to shareholders of record on a date after the decedent's death.

The right to receive an amount of IRD must be treated in the hands of the estate, or by the person entitled to receive that amount by bequest, devise, or inheritance from the decedent, or by reason of the decedent's death, as if it had been acquired in the same transaction as the decedent acquired that right, and must be considered as having the same character it would have had if the decedent had lived and received that amount. For more information, see Regulations section 1.691(a)-3.

Example: Installment Obligation.

Decedent Tammy died in 2010 and her executor, Vince, timely makes the Section 1022 Election. Whitney, an heir of Tammy's estate, is entitled to collect an installment obligation, reported by Tammy on the installment method, that has a face value of $100, FMV of $80, and a basis in Tammy's hands on the date of her death of $60. Section 1022 does not apply to the installment obligation and does not determine the estate's basis or Whitney's basis in the installment obligation.

Property Eligible for Increase to Basis

Generally, the executor can allocate additional basis under section 1022 (up to the FMV of the property) to property acquired from the decedent that was owned by the decedent at the time of death. Property the basis of which can be increased is eligible property.

Not all property acquired from the decedent is considered owned by decedent at the time of death.

Property Owned by the Decedent at the Time of Death

The basis of property acquired from the decedent can be increased by an allocation of Basis Increase (defined in Basis Increase, later) only if and to the extent the property was owned by the decedent at the time of death.

Rules relating to ownership.   The following rules apply in determining whether property was owned by the decedent at the time of death.

Jointly held property.

If property was owned by the decedent and one or more other persons (either as joint tenants with right of survivorship or tenants by the entirety), the following rules apply.

  1. If the only other person with whom the decedent owned the property is the decedent's surviving spouse, the decedent is treated as owning 50% of the property.

  2. If any other person with whom the decedent owned the property is not the decedent's surviving spouse and if the decedent furnished consideration for the acquisition of the property, the decedent is treated as the owner to the extent of the portion of the property that is proportionate to the consideration furnished by the decedent.

  3. If any other person with whom the decedent owned the property is not the decedent's surviving spouse and if the property was acquired by gift, bequest, devise or inheritance by the decedent and the other person as joint tenants with right of survivorship and their interests are not otherwise specified or fixed by law, the decedent is treated as owning a fractional part of the property. The fractional part of the property that the decedent is treated as owning is determined by dividing the value of the property by the number of joint tenants with right of survivorship.

Revocable trusts.

The decedent is treated as the owner of any property that the decedent transferred to a qualified revocable trust (QRT) during his or her lifetime.

A QRT is any trust (or part of a trust) that, on the day the decedent died, was treated as owned by the decedent under section 676 by reason of a power to revoke that was exercisable by the decedent (determined without regard to section 672(e)). For this purpose, a QRT includes a trust that was treated as owned by the decedent under section 676 by reason of a power to revoke that was exercisable by the decedent with the consent or approval of a nonadverse party or the decedent’s spouse. However, a QRT does not include a trust that was treated as owned by the decedent under section 676 by reason of a power to revoke that was exercisable solely by a nonadverse party or the decedent’s spouse and not by the decedent. For more information, see sections 645(b) and 676 and the instructions for Form 8885, Election To Treat a Qualified Revocable Trust as Part of an Estate.

Election not required.

No election is required for a trust to be a QRT.

Powers of appointment.

The decedent is not treated as the owner of any property by virtue of holding a power of appointment with respect to such property.

Community property.

Property that represents the decedent's surviving spouse's one-half share of the community property held by the decedent and his or her surviving spouse will be treated as owned by (and acquired from) the decedent if at least one-half of the whole of the community interest in such property is treated as owned by (and acquired from) the decedent under the community property laws of the state (or possession of the United States or any foreign country) that apply to the decedent.

Property Not Eligible for Increase to Basis

Only property owned by and acquired from the decedent is eligible for allocation of Basis Increase. See Rules relating to ownership, earlier.

The executor cannot allocate Basis Increase to cash, whether acquired from the decedent, in exchange for property acquired from the decedent, or otherwise.

The executor cannot allocate any Basis Increase to property or proceeds acquired after the decedent's death in exchange for property acquired from the decedent. The basis of this property is determined under other applicable rules for determining basis.

Even if property acquired from the decedent was owned by the decedent at the time of death, the basis of the types of property acquired from the decedent discussed below, under Property Acquired by the Decedent by Gift Within 3 Years of Death and under Stock or Securities of Certain Entities, generally cannot be increased under section 1022. This property is ineligible property.

Property Acquired by the Decedent by Gift Within 3 Years of Death

Generally, property that the decedent acquired by gift or lifetime transfer for less than adequate and full consideration in money or money's worth during the 3-year period ending on the date of the decedent's death is not eligible for a basis increase. However, property acquired by the decedent from the decedent's spouse during such 3-year period will generally be eligible for a basis increase, unless, during the 3-year period, the decedent's spouse acquired the property in whole or in part by gift or lifetime transfer for less than adequate and full consideration in money or money's worth.

Stock or Securities of Certain Entities

The decedent's interest in the following types of property is not eligible for an increase in basis.

  • Stock or securities of a foreign personal holding company.

  • Stock of a domestic international sales corporation (DISC) or former DISC.

  • Stock of a foreign investment company.

  • Stock of a passive foreign investment company unless such company is a qualified electing fund (as defined in section 1295) with respect to the decedent.

Amount of Increase to Basis

The executor can allocate General Basis Increase (defined in General Basis Increase, later), and/or Spousal Property Basis Increase (defined in Spousal Property Basis Increase, later) to eligible property (defined earlier) but not in excess of the amount needed to increase the decedent's adjusted basis to the property's FMV as of the date of the decedent's death. The result is that, for each property, the sum of the decedent’s adjusted basis in that property and the Basis Increase allocated to that property can not exceed the FMV of that property on the decedent’s date of death.

The executor can allocate Basis Increase (defined in Basis Increase, later) to property owned by and acquired from the decedent on a property-by-property basis. For example, the executor can allocate Basis Increase to one or more shares of stock or to a particular block of stock rather than to the decedent’s entire holding of that stock.

Basis Increase may not be allocated separately to a life estate and remainder interest in the same property.

Decedent's Adjusted Basis

Generally, the adjusted basis of the property in the hands of the decedent as of the date of the decedent's death is the decedent's cost or other basis, adjusted as required by sections 1016, 1017, and 1018 or as otherwise specifically provided for under applicable provisions of Internal Revenue laws.

Property acquired by gift.   If the decedent acquired property by gift, the decedent's adjusted basis at death is the decedent's basis determined under section 1015, adjusted as required by sections 1016, 1017, and 1018 or as otherwise specifically provided for under applicable provisions of Internal Revenue laws. The decedent's original basis under section 1015 is the same as it would be in the hands of the donor or the last preceding owner by whom it was not acquired by gift, except that if such basis (adjusted for the period before the date of the gift as provided in section 1016) is greater than the FMV of the property at the time of the gift, then for the purpose of determining loss the basis shall be such FMV.

Fair Market Value (FMV)

Generally, for purposes of section 1022, the FMV of property is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell and both having reasonable knowledge of the relevant facts.

Basis Increase

Basis Increase is the sum of the General Basis Increase (defined later) and the Spousal Property Basis Increase (defined later).

General Basis Increase

General Basis Increase is the sum of the aggregate basis increase and the carryovers/unrealized losses increase. However, for a decedent who was neither a resident nor citizen of the United States, the General Basis Increase is limited to the Aggregate Basis Increase (limited as described below).

Aggregate Basis Increase

Aggregate Basis Increase is $1,300,000. However, for a decedent who was neither a resident nor citizen of the United States, the Aggregate Basis Increase is $60,000.

Carryovers/Unrealized Losses Increase

Carryovers/Unrealized Losses Increase is the sum of the following three items.

  1. The amount of any capital loss carryovers under section 1212(b) that would (but for the decedent’s death) be carried from the decedent’s last taxable year to a later tax year. See Carryforwards, below.

  2. The amount of any net operating loss (NOL) carryovers under section 172 that would (but for the decedent’s death) be carried from the decedent’s last taxable year to a later tax year. See Carryforwards, below.

  3. The amount of any losses that would be allowable under section 165 if the property acquired from the decedent had been sold at FMV immediately before the decedent’s death (“unrealized losses”). See Unrealized Losses, later.

Note.

The amount of any losses that would be allowable under section 165 is determined based on a hypothetical sale and does not require an actual sale of property.

For any decedent who was neither a citizen nor resident of the United States the amount of the Carryovers/Unrealized Losses Increase is zero.

Carryforwards

The Carryovers/Unrealized Losses Increase includes any capital loss carryovers under section 1212(b) and the NOL carryovers under section 172 that would (but for the decedent's death) be carried forward to tax years after the decedent’s last tax year.

Capital loss.   The capital loss carryforward included in the Carryovers/Unrealized Losses Increase is the amount of any capital loss carryforward that would (but for the decedent's death) be carried to a tax year of the decedent after the decedent’s last tax year. Generally, you can figure the decedent's capital loss carryforward using the Capital Loss Carryover Worksheet in the Instructions to Schedule D (Form 1040).

  Existing income tax rules will apply to determine the decedent’s share of a capital loss carryforward under section 1212(b) if the decedent’s final Form 1040 is filed jointly with the decedent’s surviving spouse. For rules about a capital loss carryforward arising from community property, see sections 4.05 and 4.06(4) of Rev. Proc. 2011-41.

Net operating loss (NOL).   The NOL carryovers under section 172 included in Carryovers/Unrealized Losses Increase are the losses that would (but for the decedent's death) carry forward to tax years after the decedent’s last tax year.

  
An NOL arising in the decedent's final tax year must be carried back and used in the applicable 2-year, 3-year, 5-year, or 10-year carryback period unless the carryback period is waived on the decedent's final income tax return by attaching a statement showing that the carryback period is waived. See Waiving the Carryback Period in Publication 536.

  Existing income tax rules will apply to determine the decedent’s share of the NOL carryovers under section 172 if the decedent’s final Form 1040 is filed jointly with the decedent’s surviving spouse. For rules about NOL carryovers arising from community property, see sections 4.05 and 4.06(4) of Rev. Proc. 2011-41.

Unrealized Losses

The amount of unrealized losses included in the Carryovers/Unrealized Losses Increase is the amount that would have been allowable as a deduction under section 165 if the property acquired from the decedent had been sold at FMV immediately before the death of the decedent. The amount of losses that would have been allowable as a deduction under section 165 is limited to losses incurred in a trade or business and losses incurred in any transaction entered into for profit, though not connected with a trade or business.

Certain limitations on the allowance of losses may apply. For example, no deduction is allowable for a loss sustained on any registration-required obligation not in registered form. For more information, see section 165(j) and Regulations section 1.165-12.

Figure the unrealized losses that can be included in the General Basis Increase without regard to the limitation in section 165(f) on the allowance of losses from the sale or exchange of capital assets. The amount of any loss that would have been allowable under section 165 if the property acquired from the decedent had been sold at FMV immediately before the decedent’s death is determined without the dollar limitations on capital losses under section 1211.

For rules about unrealized losses arising from community property, see sections 4.05 and 4.06(4) of Rev. Proc. 2011-41.

Spousal Property Basis Increase

Spousal Property Basis Increase is $3,000,000.

Generally, the executor can allocate Spousal Property Basis Increase only to qualified spousal property that was both acquired from and owned by the decedent.

Qualified spousal property.   Qualified spousal property means:
  • Outright transfer property; and

  • Qualified terminable interest property.

Outright transfer property.

For purposes of the Spousal Property Basis Increase, outright transfer property means any interest in property acquired from the decedent by the decedent's surviving spouse. Outright transfer property does not include an interest passing to the surviving spouse that, on the lapse of time, on the occurrence of an event or contingency, or on the failure of an event or contingency to occur, will terminate or fail:

  1. If both:

    1. An interest in such property passes or has passed (for less than adequate and full consideration in money or money's worth) from the decedent to any person other than such surviving spouse (or the estate of such spouse); and

    2. By reason of such passing such person (or his heirs or assigns) may possess or enjoy any part of such property after such termination or failure of the interest so passing to the surviving spouse; or

  2. If such interest is to be acquired for the surviving spouse, pursuant to directions of the decedent, by his executor or by the trustee of a trust.

For purposes of the exception described in the preceding sentence, an interest shall not be considered as an interest which will terminate or fail merely because it is the ownership of a bond, note, or similar contractual obligation, the discharge of which would not have the effect of an annuity for life or for a term.

For purposes of whether property is outright transfer property, an interest passing to the surviving spouse shall not be considered as an interest which will terminate or fail on the death of such spouse if both of the following two conditions are met.

  • The spouse's death will cause a termination or failure of such interest only if it occurs within a period not exceeding 6 months after the decedent's death, or only if it occurs as a result of a common disaster resulting in the death of the decedent and the surviving spouse, or only if it occurs in the case of either such event.

  • Such termination or failure does not in fact occur.

Qualified terminable interest property (QTIP).

For purposes of the Spousal Property Basis Increase, QTIP is property that passes from the decedent and in which the surviving spouse has a qualifying income interest for life. The surviving spouse has a qualifying income interest for life if both of the two following conditions are met.

  1. The surviving spouse is entitled to all the income from the property, payable annually or at more frequent intervals, or has a usufruct interest for life in the property.

  2. No person has a power to appoint any part of the property to any person other than the surviving spouse.

Item 2, above, shall not apply to a power exercisable only at or after the death of the surviving spouse. To the extent provided in regulations, an annuity shall be treated in a manner similar to an income interest in property (regardless of whether the property from which the annuity is payable can be separately identified).

Special Rules.   For purposes of the Spousal Property Basis Increase, the following rules apply.
  • The term “property” includes an interest in property.

  • A specific portion of property is treated as separate property. For this purpose, “specific portion” only includes a portion determined on a fractional or percentage basis.

The executor also can allocate Spousal Property Basis Increase to the following.

  1. Property held by a testamentary charitable remainder trust (CRT) as defined in section 664 (subject to the limitation of section 1022(d)), if the surviving spouse is the sole non-charitable beneficiary of the CRT and the CRT would have qualified for the marital deduction under section 2056(b)(8) if the decedent's executor had not made the Section 1022 Election.

  2. Property that is sold before being distributed. However, this allocation can be made only to the extent that the executor:

    1. Certifies on Form 8939 that the net proceeds from the sale of that property will be distributed to or for the benefit of the decedent’s surviving spouse in a manner that would qualify property as qualified spousal property, and

    2. Attaches to Form 8939 each document providing a bequest or devise to the surviving spouse.

For more information, see Rev. Proc. 2011-41, section 4.02(3).

For detailed information on how to report the property described in item 2, see the specific instructions for Schedule A, line 4, column (e)(i) and (e)(ii).


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