Final Directive Released Regarding Massachusetts Cost Basis for Assets Passing At Death in 2010 and Thereafter

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Form 8939 Not Required to be Filed in Order to Apply 2010 Cost Basis Allocation for Massachusetts Purposes

As we reported here, on October 11, 2011, the Massachusetts Department of Revenue issued, for practitioner comment, a two-part draft Directive addressing the extent to which assets passing from Massachusetts decedents in 2010 and thereafter may receive a step-up in cost basis for purposes of Massachusetts capital gains tax. In draft Directive 2, the DOR interpreted the law as providing that the Massachusetts cost basis of property acquired from decedents who die in 2011 or thereafter is full “stepped-up” basis. In draft Directive 1, however, instead of providing for a full step-up in cost basis for Massachusetts purposes, the DOR interpreted the law as providing for the “modified carryover” basis regime applicable for federal tax purposes under IRC § 1022 to estates of 2010 decedents whose executors elect out of application of estate tax.

As the deadline for filing the federal Form 8939 to allocate cost basis under §1022 for federal purposes (January 17, 2012) has approached, a number of practitioners have expressed concern regarding whether availability of the § 1022 cost basis allocation for Massachusetts purposes requires the Personal Representative to prepare a Form 8939, especially where the Personal Representative is not opting out of application of federal estate tax for 2010, and therefore has no federal Form 8939 requirement.

On January 12, 2012, the Massachusetts Department of Revenue issued the final Directive 11-7. In substance, the final Directive is consistent with the draft Directive – full step-up in cost basis for assets passing upon death in 2011 and thereafter, and IRC § 1022 modified carryover basis for assets passing upon death in 2010. The Final Directive confirms that this modified carryover basis regime applies to assets passing from the estates of 2010 decedents regardless of what election is made federally.

New Massachusetts Requirement for Personal Representatives to Furnish Certain Basis Information to Beneficiaries

Directive 11-7 further confirms that there is no requirement to file anything at all with the Commonwealth, or otherwise to prepare a Form 8939, in order to allocate cost basis for Massachusetts purposes. However, the Personal Representative is required to send to all recipients of property from the estate of a 2010 decedent the written statement required under IRC § 6018(e). IRC § 6018(e) requires the Personal Representative to deliver this written statement within 30 days of the deadline for filing Form 8939 (or by February 16, 2012). The Directive does not address whether this same 30-day deadline applies if the Personal Representative has no federal Form 8939 filing requirement. However, conversations with the Department of Revenue have indicated that this 30-day delivery requirement does apply for Massachusetts purposes regardless of whether the Personal Representative has a federal Form 8939 filing requirement.

Proposed Remedial Legislation

As discussed here, the Boston Bar Association has promulgated and continues to support Bill # H2559 (referenced in Footnote 2 of the final Directive), which would alleviate the need for the aforementioned Directive, would provide certainty regarding cost basis of assets received from a decedent after 2009 for Massachusetts purposes, and would conform Massachusetts practice in this regard with the federal policy, and with the historic Massachusetts practice, of subjecting assets passing at death to either estate tax or capital gains tax, but not both.

H2559 is currently before the Joint Committee on Revenue. Please consider contacting your representatives and asking them (1) to urge the members of the Joint Committee to report H2559 favorably out of the committee and (2) to vote for it. The phone numbers and email addresses of the members of the Joint Committee on Revenue may be found here.

To identify your representatives, and for contact information, please click here.

A template letter for your consideration may be found here.

Thank you for your support.