Notice 2011-66

Part III. Administrative, Procedural, and Miscellaneous
Method for Making Election
to Apply Carryover Basis
Treatment under Section
1022 to the Estates of
Decedents who Died in 2010
and Rules Applicable to
Inter Vivos and Testamentary
Generation-Skipping Transfers
in 2010
Notice 2011–66
PURPOSE
This notice provides guidance with regard to the time and manner in which the
executor of the estate of a decedent who
died in 2010 elects, pursuant to section
301(c) of the Tax Relief, Unemployment
Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111–312 (124 Stat.
3296) (TRUIRJCA), to have the estate tax
not apply and to have the carryover basis rules in section 1022 apply to property transferred as a result of the decedent’s death. This notice also addresses
how a donor may elect out of the automatic
allocation of generation-skipping transfer
(GST) tax exemption to direct skips occurring during 2010. It also clarifies the
due dates for returns for the taxable year
ending December 31, 2010, that report a
generation-skipping transfer, that allocate
GST exemption, or that opt out of the automatic allocation of GST exemption. In
addition, the notice discusses the application of chapter 13 (the GST tax) to testamentary transfers during 2010. Finally,
this notice addresses certain other collateral issues arising from the determination
of basis under section 1022.
This notice applies to executors of the
estates of decedents who died in 2010 and
to recipients of property acquired from
such decedents (within the meaning of
section 1022(e)) (hereinafter, acquired
from the decedent), if the executors make
the election under section 301(c) of TRUIRJCA. This notice also applies to donors
who made a gift during 2010 that is a generation-skipping transfer or an indirect gift
for purposes of the GST tax. See Revenue
Procedure 2011–41 for a safe harbor with

August 29, 2011

regard to the interpretation and application
of section 1022.
BACKGROUND
Subtitle A of title V of the Economic
Growth and Tax Relief Reconciliation Act
of 2001, P.L. 107–16 (EGTRRA) enacted
section 2210, which made chapter 11 (the
estate tax) inapplicable to the estate of any
decedent who died in 2010 and chapter
13 (the GST tax) inapplicable to generation-skipping transfers made in 2010. On
December 17, 2010, TRUIRJCA became
law, and section 301(a) of TRUIRJCA
retroactively reinstated the estate and
GST taxes. However, section 301(c) of
TRUIRJCA allows the executor of the
estate of a decedent who died in 2010
to elect to apply the Internal Revenue
Code (IRC) as though section 301(a) of
TRUIRJCA did not apply with respect to
chapter 11 and with respect to property
acquired or passing from the decedent
(within the meaning of section 1014(b)).
Thus, section 301(c) of TRUIRJCA allows
the executor of the estate of a decedent
who died in 2010 to elect not to have
the provisions of chapter 11 apply to the
decedent’s estate, but rather, to have the
provisions of section 1022 apply (Section
1022 Election).
Even though an executor may elect
out of the estate tax under TRUIRJCA,
the provisions of chapter 13 (GST tax)
nonetheless continue to apply. Section
302(c) of TRUIRJCA, however, provides
that the applicable tax rate for each GST
occurring during 2010 is zero. Section
301(d)(2) provides that, in the case of
any generation-skipping transfer made
after December 31, 2009, and before
December 17, 2010, the due date for filing
a return required under section 2662 of the
IRC (including any election required to be
made on such return) shall not be earlier
than September 17, 2011.
TRUIRJCA also retroactively repealed
section 2511(c), which treated each transfer in trust during 2010 as a gift unless the
trust was treated as wholly owned by the
donor or the donor’s spouse. Because of
this retroactive repeal, this section does not
apply even if a Section 1022 Election is
made.

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GUIDANCE
I Section 1022 Election and Filing
Requirements.
A. Section 1022 Election.
The executor of the estate of a decedent
who died in 2010 may make the Section
1022 Election by filing a Form 8939, Allocation of Increase in Basis for Property
Acquired From a Decedent, on or before
November 15, 2011. Once made, the election is irrevocable except as provided in
section I.D.1 or D.2 of this notice. Prior filings purporting to make the Section 1022
Election must be replaced with a timely
filed Form 8939.
If, for the same decedent, the Internal
Revenue Service (IRS) receives a Form
8939 and either a Form 706, United States
Estate (and Generation-Skipping Transfer) Tax Return, or a Form 706–NA, United
States Estate (and Generation-Skipping
Transfer) Tax Return Estate of Nonresident
not a Citizen of the United States, the IRS
will issue a letter to each person who filed
such a form. The letter will include the
name and address of each person who filed
a Form 706 (or Form 706–NA) or a Form
8939 with respect to the decedent, and will
explain that each of those persons must
collectively sign and file either a restated
Form 706 (or Form 706–NA) or Form
8939 on or before 90 days from the date
the IRS mails such letters. If no restated
Form 706 (or Form 706–NA) or Form
8939, signed by each person who previously filed any such form, is filed within
that 90-day period, the IRS will determine
whether the executor has made a Section
1022 Election for the decedent’s estate or
whether the decedent’s estate is subject to
chapter 11. In making this determination,
the IRS will consider all relevant facts
and circumstances disclosed to the IRS,
including without limitation the relative
total fair market values of the decedent’s
property in the possession of the executors
and the nature and significance of the economic impact of the Section 1022 Election
(or its loss) on the beneficial owners of
the property held by each executor. Some
factors may be more relevant, and may be
accorded more weight, than others for any
particular estate.

2011–35 I.R.B.

B. Method to Allocate Basis.
The executor must allocate Basis Increase, as defined in section 4.02 of Revenue Procedure 2011–41, on a timely filed
Form 8939. For purposes of this section,
references to the term “executor” shall be
construed in accordance with section 2203
as if that section was applicable. Accordingly, if an executor has been appointed,
has qualified, and is acting for a decedent’s estate within the United States, the
IRS generally will only accept Forms 8939
filed by such executor.
If an executor has not been appointed,
any person in actual or constructive possession of property acquired from the
decedent may file a Form 8939 for the
property he or she actually or constructively possesses. If the IRS receives multiple Forms 8939 that collectively purport
to allocate Basis Increase in an amount
greater than the amount of Basis Increase
available to the estate, the IRS will issue
a letter to each person who filed such a
form. The letter will include the name and
address of each other person who filed a
Form 8939 with respect to the decedent,
and will explain that each of those persons
must collectively sign and file a single,
restated Form 8939 allocating available
Basis Increase in order to make the Section 1022 Election. The restated Form
8939 must be filed on or before 90 days
from the date the IRS mails such letters.
If no restated Form 8939, signed by each
such person who previously submitted a
Form 8939, is filed within that 90-day
period, the IRS will allocate the available
Basis Increase as the IRS, in its discretion,
may determine. In making this determination and exercising its discretion, the
IRS will consider all relevant facts and
circumstances disclosed to the IRS. That
allocation might be made on a pro-rata
basis, based on the amount of unrecognized appreciation in the property owned
by the decedent (within the meaning of
section 1022(d)) (hereinafter, owned by
the decedent) at death and acquired from
the decedent that was reported on the
timely filed Forms 8939, or in any other
manner deemed appropriate for the particular decedent’s estate by the IRS in the
exercise of its discretion.
The recipient’s basis in a particular
property (including the amount of Basis

2011–35 I.R.B.

Increase allocated to that property) is subject to adjustment upon the examination
by the IRS of any tax return reporting a
value dependent upon the property’s basis
(for example, the property’s depreciation,
sale, or other disposition that triggers gain
or loss on the property, or otherwise).
C. Reporting Requirements.
If the executor makes the Section 1022
Election, the executor must report and
value on Form 8939 all property (excluding cash and property that constitutes
the right to receive an item of income in
respect of a decedent under section 691
(IRD)) acquired from the decedent. Section 6018(b)(1). In addition, the executor
also must report all appreciated property
acquired from the decedent, valued as
of the decedent’s date of death, that was
required to be included on the donor’s
Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, if such
property was acquired by the decedent by
gift or by inter vivos 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.
Section 6018(b)(2). This does not include
property transferred to the decedent by the
decedent’s spouse, who had not acquired
the property in whole or in part by gift or
by inter vivos transfer for less than adequate and full consideration in money or
money’s worth during that same 3-year
period.
In the case of a deceased nonresident
who is not a citizen of the United States,
the property to be reported is limited to tangible property situated in the United States
that is acquired from the decedent and any
other property acquired from the decedent
by a United States person. Section 6018
describes the information that must be provided on Form 8939.
In addition to the information as provided in this paragraph C, the executor
must include with the Form 8939 any other
information and supporting documentation as identified in the instructions to the
Form 8939 or in any Internal Revenue
Bulletin (see § 601.601(d)(2)(ii)(b)).
Within 30 days after the executor files
a timely filed Form 8939, the executor (or
each executor filing such a form) must provide a statement to each recipient acquir-

185

ing property reported on that form, setting forth the information required under
section 6018(c), regardless of whether the
executor allocates Basis Increase to such
property on the form. Section 6018(e). If
an adjustment is made to the basis of property reported on a Form 8939, the executor
must provide updated statements to each
recipient of property affected by that adjustment within 30 days after making the
adjustment or receiving notice of the adjustment from the IRS, whichever is applicable.
D. Time for Filing Return.
1. In General.
Form 8939 is due November 15, 2011.
A Form 8939 filed prior to that date may
be amended or revoked, but only on a
subsequent Form 8939 filed on or before
November 15, 2011. The Form 8939 that
is timely filed by an executor is the last
Form 8939 filed by that executor on or before November 15, 2011. No executor’s
Form 8939 will have any effect on any
Form 8939 filed by a different executor.
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, except as provided in
section I.A or B (in the event of conflicting filings) or in section I.D.2 (regarding
relief provisions) of this notice. Thus, a
taxpayer may not file an estate tax return as
well as 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. Notwithstanding the previous sentences, however,
for persons qualifying under section 7508
or 7508A, the due date for filing a Form
8939 is postponed as provided in those sections. Any executor filing a Form 8939 after November 15, 2011, pursuant to section
7508 or 7508A should write “Filed Pursuant to Section 7508” or “Filed Pursuant
to Section 7508A”, as applicable, on the
top of the form. The failure to write these
notations at the top of the Form 8939, however, does not adversely impact the extension granted under section 7508 or 7508A.
Furthermore, for decedents qualifying for
relief under section 692, an executor must
file a Form 8939 to make the Section 1022
Election.

August 29, 2011

2. Relief Provisions.
Four types of relief from the requirements of section I.D.1 of this notice are
available. First, an amended Form 8939
may be filed after the due date of that form
for the sole purpose of allocating Spousal
Property Basis Increase, as that term is
defined in section 1022(c)(2) and section
4.02(3) of Revenue Procedure 2011–41,
among the property eligible to receive an
allocation of that basis, provided that each
of the two following requirements is satisfied. The first requirement is that the Form
8939 must have been timely filed and was
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. The second
requirement is that 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.
Second, provided an executor timely
filed a Form 8939, the executor may file an
amended Form 8939 under the provisions
of § 301.9100–2(b) on or before May 15,
2012, for any purpose except to make or revoke a Section 1022 Election. The executor must write “Filed Pursuant to Section
301.9100–2” on the top of the amended
Form 8939.
Third, an executor may apply for relief
to supplement a timely filed Form 8939
under § 301.9100–3. A request for relief
to supplement a timely filed Form 8939
is limited to an extension of time to allocate any Basis Increase that has not previously been validly allocated, and such relief, if appropriate, will be granted only if:
(1) after filing the Form 8939, the executor
discovers additional property to which remaining Basis Increase could be allocated;
and/or (2) the fair market value of property reported on the Form 8939 is adjusted
as the result of an IRS examination or inquiry. Relief will not be granted to reduce
an allocation of Basis Increase made on a
timely filed Form 8939.
Fourth, an executor may apply for relief under § 301.9100–3 in the form of
an extension of the time in which to file
the Form 8939 (thus, making the Section
1022 Election and the allocation of Basis
Increase), which relief may be granted if

August 29, 2011

the requirements of § 301.9100–3 are satisfied. Taxpayers should be aware, however, that, in this context, the amount of
time that has elapsed since the decedent’s
death may constitute a lack of reasonableness and good faith and/or prejudice to the
interests of the government (for example,
the use of hindsight to achieve a more favorable tax result and/or the lack of records
available to establish what property was or
was not owned by the decedent at death),
which would prevent the grant of the requested relief.
II GST Tax in 2010.
A. With Respect to Decedents Who
Died in 2010
The GST tax was retroactively reinstated by TRUIRJCA and applies to the estates of all decedents who died after December 31, 2009, regardless of whether a
Section 1022 Election is made. The GST
tax is computed by multiplying the taxable amount by the applicable rate. Section 2602. Section 2641(a) defines the applicable rate for this purpose as the maximum federal estate tax rate applicable to
the estate of a decedent dying at the time
of the transfer, multiplied by the inclusion
ratio with respect to that transfer. Section 302(c) of TRUIRJCA provides that,
for each GST occurring during 2010, the
applicable rate under section 2641(a) is
zero. This provision is interpreted to mean
that the maximum federal estate tax rate
for purposes of computing the GST tax
on such a transfer is deemed to be zero
which, when multiplied by any inclusion
ratio, will result in an applicable rate of
zero. As under the law applicable to GSTs
occurring prior to 2010, the only way to
achieve a zero inclusion ratio for the transfer is to make a timely allocation of GST
exemption to the transfer.
If the executor of a decedent who died
in 2010 makes the Section 1022 Election, the executor allocates that decedent’s
available GST exemption by attaching the
Schedule R of Form 8939 to the Form
8939 for that decedent’s estate. If the Form
8939 is timely filed, this allocation will
be considered a timely allocation of the
decedent’s GST exemption under section
2632.

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B. Inter Vivos Direct Skips
In the case of inter vivos direct skips
that occurred in 2010, if the donor wishes
to pay GST tax at the rate of zero percent and therefore does not wish to have
any GST exemption allocated to that
transfer, the donor may elect out of the
automatic allocation of GST exemption
to that direct skip in either of two ways.
First, the donor affirmatively may elect
out of the automatic allocation by describing, on a timely filed Form 709,
both the transfer and the extent to which
the automatic allocation is not to apply.
See section 26.2632–1(b)(1)(i). Alternatively, that same regulation also provides
that, “. . . a timely-filed Form 709
accompanied by payment of the GST tax
(as shown on the return with respect to
the direct skip) is sufficient to prevent an
automatic allocation of GST exemption
with respect to the transferred property.”
Because it is clear that a 2010 transfer
not in trust to a skip person is a direct
skip to which the donor would never want
to allocate GST exemption, the IRS will
interpret the reporting of an inter vivos
direct skip not in trust occurring in 2010 on
a timely filed Form 709 as constituting the
payment of tax (at the rate of zero percent)
and therefore as an election out of the
automatic allocation of GST exemption
to that direct skip. This interpretation
also applies to a direct skip not in trust
occurring at the close of an estate tax
inclusion period (ETIP) in 2010 other than
by reason of the donor’s death. However,
a donor may or may not want to allocate
GST exemption to a 2010 direct skip made
to a trust. Therefore, this interpretation
will not apply to any transfer in trust
that is a direct skip or that occurs at the
end of an ETIP. In addition, because this
interpretation only applies to inter vivos
direct skips, it will also not apply to any
direct skip, or to the close of an ETIP,
by reason of the donor’s death. Section
26.2632–1(c)(4). The rules regarding the
automatic allocation of GST exemption
will apply to transfers described in the
preceding sentence unless the transferor
affirmatively elects to have those rules not
apply.

2011–35 I.R.B.

C. Filing Deadlines
Section 2611(a) defines a GST transfer
as a direct skip, a taxable distribution, or
a taxable termination. An indirect skip,
as defined in section 2632(c)(3), is not
a GST transfer. Section 2631 provides
that each individual is allowed a GST exemption amount which may be allocated
to any property with respect to which
such individual is the transferor. Under
§ 26.2632–1(b)(3) and (4), an election to
treat a trust as a GST trust or to allocate
GST exemption to any inter vivos transfer other than a direct skip, is made on a
timely filed Form 709. Section 2632(b)(1)
and (c)(1) provide that, if any individual makes a direct or indirect skip during
life, any unused portion of such individual’s GST exemption shall be allocated
to the property transferred to the extent
necessary to make the inclusion ratio for
such property zero. Sections 2632(b)(3)
and (c)(5) and § 26.2632–1(b)(1)(i) and
(b)(2)(ii) provide that an individual may
prevent the automatic allocation of GST
exemption by so providing on a timely
filed Form 709.
Section 301(d)(2) of TRUIRJCA extends the time for filing any return required under section 2662 (including any
election required to be made on such
return) to report a GST transfer made
after December 31, 2009, and before
December 17, 2010, to September 17,
2011. Accordingly, the due date for filing
a return reporting a direct skip, a taxable
distribution, or a taxable termination
(including any election required to be
made on such return) that occurred
on or after January 1, 2010, through
December 16, 2010, is September 19,
2011, including extensions (because
September 17, 2011, falls on a Saturday),
except in the case of a Schedule R attached
to Form 8939, which is due on or before
November 15, 2011.
However, the language of Section
301(d)(2) of TRUIRJCA does not extend
the due date of all gift and GST returns
for 2010. Specifically, to the extent a
return relates to an indirect skip, or to a
post-December 16, 2010, direct skip, the
due date of the return is not extended.
Thus, the due date for filing a Form 709
that does not report a GST transfer or that
reports a GST transfer (or any election
pertaining to such transfer) that occurs

2011–35 I.R.B.

on or after December 17, 2010, through
December 31, 2010, was April 18, 2011,
including extensions. In addition, the due
date for filing a Form 709 to elect to treat
a trust as a GST trust or to allocate GST
exemption to a transfer occurring during
2010 under § 26.2632–1(b)(3) or (4) was
April 18, 2011, including extensions.
However, if a donor timely filed Form 709
for the taxable year ending December 31,
2010, but failed to allocate GST exemption
to a transfer occurring during such year,
see § 301.9100–2 for possible relief.
D. Application of Chapter 13 to
Testamentary Transfers During 2010
For purposes of chapter 13, the Treasury Department and IRS will construe
and apply any reference to chapter 11
without regard to whether the executor
of a decedent who died in 2010 made a
Section 1022 Election. For example, references to chapter 11 in §§ 2612(c)(1),
2642(b)(2)(A), 2642(f), 2651(e)(1)(B),
and 2661(2) will be construed as if the
decedent was subject to chapter 11 even if
the decedent’s executor made the Section
1022 Election.
III Transfer Certificates Under
§ 20.6325–1
Section 6324(a)(1) generally provides
that, unless the estate tax is paid in full,
a lien is imposed upon the gross estate of
a decedent for 10 years from the date of
death for any unpaid estate tax liability.
Section 6324(a)(2) generally provides that,
if the estate tax is not paid when due, then
(1) any transferee, trustee, person in possession of property, or person who receives
property from the gross estate as described
in sections 2034 to 2042 shall be personally liable for the estate tax to the extent
of the value of that property on the decedent’s date of death and (2) any part of any
property included in the gross estate that
is transferred by such person shall be divested of the lien and a like lien shall attach to all of the property of such person.
Section 6325(c) and the regulations thereunder provide procedures for issuing a certificate of discharge of lien for any property subject to any lien imposed by section
6324.
In the case of a transfer agent holding
property registered in the name of a nonresident decedent who is not a citizen of

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the United States, § 20.6325–1(a) provides
that the IRS may issue a transfer certificate to permit the transfer of property without liability for such decedent’s estate tax.
Specifically—
[a] transfer certificate is a certificate
permitting the transfer of property of a
nonresident decedent without liability.
. . . Corporations, transfer agents of
domestic corporations, transfer agents
of foreign corporations (except as to
shares held in the name of a nonresident decedent not a citizen of the United
States), banks, trust companies, or other
custodians in actual or constructive possession of property, of such a decedent can insure avoidance of liability
for taxes and penalties only by demanding and receiving transfer certificates
before transfer of property of nonresident decedents.
Thus, transfer certificates requested
with respect to property of a nonresident
decedent who is not a citizen of the United
States have been issued by the IRS when
the Commissioner has been satisfied that
the “tax imposed upon the estate, if any,
has been fully discharged or provided for.”
Section 20.6325–1(c).
Concerns have been raised as to
whether it is still necessary to obtain such
transfer certificates prior to transferring
property owned by nonresident decedents
who are not citizens of the United States,
who died in 2010, and whose executors
make the Section 1022 Election. This
notice clarifies that a transfer certificate
is not required, and the IRS will not issue
transfer certificates, with respect to the
property of a nonresident decedent who
is not a citizen of the United States, who
died in 2010, and whose executor makes
the Section 1022 Election.
IV Election to Treat a Trust as Part of
an Estate Under Section 645
Under section 645, if the executor (if
any) of an estate and the trustee of a qualified revocable trust so elect, the trust will
be treated as part of the estate (and not as a
separate trust) for income tax purposes for
all taxable years of the estate ending after
the date of the decedent’s death and before
the applicable date. Section 645(b)(2) defines “applicable date” as, “(A) if no return
of tax imposed by chapter 11 is required
to be filed, the date which is 2 years after

August 29, 2011

the date of the decedent’s death, and (B)
if such a return is required to be filed, the
date which is 6 months after the date of
the final determination of the liability for
tax imposed by chapter 11.” If an executor makes the Section 1022 Election, no
return of tax imposed by chapter 11 is required to be filed. Accordingly, if an executor makes the Section 1022 Election,
section 645(b)(2)(A) applies and the applicable date is the date that is 2 years after the
date of the decedent’s death.
REQUEST FOR COMMENTS
The Treasury Department and the IRS
invite public comments on the guidance
provided in this notice. All materials submitted will be available for public inspection and copying.
Comments may be submitted to Internal Revenue Service, CC:PA:LPD:PR
(Notice 2011–66), Room 5203, PO Box
7604, Ben Franklin Station, Washington,
DC 20044. Submissions may also be
hand-delivered Monday through Friday
between the hours of 8 a.m. and 4 p.m.
to the Couriers Desk at 1111 Constitution
Avenue, NW, Washington, DC 20224,
Attn:CC:PA:LPD:PR (Notice 2011–66),
Room 5203. Submissions may also be
sent electronically via the internet to the
following email address: [email protected]. Include the
notice number (Notice 2011–66) in the
subject line.
EFFECTIVE DATE
This notice is applicable to executors of
the estates of decedents who died in 2010,
and to persons acquiring property from
such a decedent whose executor makes
the Section 1022 Election. This notice
is also applicable to donors who made a
GST transfer or an indirect gift for purposes of the GST tax during 2010. The
Treasury Department and the IRS intend to
issue regulations to confirm the guidance
set forth in this notice.
DRAFTING INFORMATION
The principal authors of this notice are
Laura Urich Daly, Theresa Melchiorre,
and Mayer Samuels of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries).
For further
information regarding this notice, contact

August 29, 2011

Laura Urich Daly, Theresa Melchiorre, or
Mayer Samuels at (202) 622–3090 (not a
toll-free call).
PAPERWORK REDUCTION ACT
The collection of information contained
in this notice has been submitted to the Office of Management and Budget (OMB) in
accordance with the Paperwork Reduction
Act (44 U.S.C. 3507) and OMB approval
is pending. An agency may not conduct
or sponsor, and a person is not required to
respond to, a collection of information unless the collection of information displays
a valid control number.
The first, second, and third collection
of information requirements, as required
by section 6018(c) and (e), are in section
I.C. of this notice. The collection of information relates to the requirement that
the executor provide a statement to each
recipient acquiring property reported on
Form 8939. Section I.C of this notice also
requires the executor to provide updated
statements to each recipient of property affected by any adjustment made to Form
8939. Finally, section I.C of this notice requires the executor to provide any other information and supporting documentation
as identified in the instructions to the Form
8939 or in any Internal Revenue Bulletin
(see § 601.601(d)(2)(ii)(b)). This collection of information is necessary for the
proper performance of the function of the
IRS in the collection of income tax when
the property is later disposed of by the recipient or other holder of the property.
It is anticipated that the decedent’s executor will complete and attach to Form
8939 schedules showing property received
by each recipient acquiring property from
a decedent. To meet this collection of information requirement, the executor is required to send a copy of the schedule relating to property received by that particular recipient to such recipient and to send
an updated schedule to each recipient in
the event the information on the schedule
changes. The decedent’s executor will also
have to provide any other information and
supporting documentation as identified in
the instructions to the Form 8939 or in any
Internal Revenue Bulletin. We estimate
that approximately 7,000 estates of decedents who died in 2010 will file Form 8939
and that it will take an executor approximately 10 hours to comply with these re-

188

quirements. The total reporting burden is
estimated to be 70,000 hours.
The fourth collection of information
requirement in this notice is in section
II.A, as provided in Treasury Regulation
§ 26.2632–1(d)(1), and relates to allocating the decedent’s unused GST exemption.
This information collection is necessary
for the proper performance of the function
of the IRS in the collection of GST tax
when there is a taxable termination or taxable distribution. We estimate that 6,000
executors of estates of decedents who died
in 2010 will allocate the decedent’s unused GST exemption on a Schedule R for
Form 8939 attached to Form 8939 and that
it will take each executor approximately
3 hours to prepare the documentation. The
total reporting burden is estimated to be
18,000 hours.
Books or records relating to collections
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by section 6103.

26 CFR 601.105: Examination of returns and claims
for refund, credit or abatement; determination of correct liability
(Also Part 1 §§1022, 172, 165, 469, 1212, 1040, 684,
6018, 20.6325–1)

Rev. Proc. 2011–41
SECTION 1. PURPOSE
This revenue procedure provides optional safe harbor guidance under section 1022 of the Internal Revenue Code
(Code), enacted by section 542 of the
Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), P.L.
107–16 (115 Stat. 76–81). Section 1022
determines a recipient’s basis in property
acquired from the decedent (within the
meaning of section 1022(e)) who died
in 2010 if the decedent’s executor elects
to have section 1022 apply. Section
301(c) of the Tax Relief, Unemployment
Insurance Reauthorization, and Job
Creation Act of 2010, P.L. 111–312 (124
Stat. 3296) (TRUIRJCA), allows such
an executor to elect to have the estate
tax not apply and to have the carryover
basis rules in section 1022 apply to

2011–35 I.R.B.

property transferred as a result of the
decedent’s death (Section 1022 Election).
This revenue procedure does not address
the time or manner in which such an
executor makes the Section 1022 Election
or allocates generation-skipping transfer
(GST) exemption to transfers occurring as
a result of such decedent’s death. Instead,
taxpayers must see Notice 2011–66 for
such guidance.
SECTION 2. BACKGROUND
Subtitle A of title V of EGTRRA enacted section 2210, which made chapter 11
(the estate tax) inapplicable to the estate of
any decedent who died in 2010 and chapter
13 (the GST tax) inapplicable to generation-skipping transfers made in 2010. On
December 17, 2010, TRUIRJCA became
law, and section 301(a) of TRUIRJCA
retroactively reinstated the estate and
GST taxes. However, section 301(c) of
TRUIRJCA allows the executor of the
estate of a decedent who died in 2010
to elect to apply the Code as though
section 301(a) of TRUIRJCA did not
apply with respect to chapter 11 and with
respect to property acquired or passing
from a decedent (within the meaning of
section 1014(b)). Thus, section 301(c)
of TRUIRJCA allows the executor of the
estate of a decedent who died in 2010 to
elect not to have the provisions of chapter
11 apply to the decedent’s estate, but
rather, to have the provisions of section
1022 apply.
SECTION 3. SCOPE
The safe harbor procedures of this revenue procedure apply to executors of the
estates of decedents who died in 2010 and
to recipients of property acquired from
such decedents, if the executors make the
Section 1022 Election. If the executor of
the estate of the decedent who died in 2010
makes the Section 1022 Election and follows the applicable provisions of section
4 of this revenue procedure and takes no
return position contrary to any provisions
of section 4, the Internal Revenue Service
(IRS) will not challenge the taxpayer’s
ability to rely on the provisions of section
4 either on the Form 8939, Allocation of
Increase in Basis for Property Acquired
From a Decedent, or any other return of
tax.

2011–35 I.R.B.

SECTION 4. APPLICATION
.01 Application of Section 1022.
(1) In General. Section 1022 applies to
the estate of a decedent who died in 2010
only if the executor, as defined in section
2203, makes the Section 1022 Election
as described in Notice 2011–66. Section
1022(a)(1) generally provides that property acquired from the decedent (within the
meaning of section 1022(e)) (hereinafter,
acquired from the decedent) is treated as
having been transferred by gift. If the
decedent’s adjusted basis is less than or
equal to the property’s fair market value
(FMV) determined as of the decedent’s
date of death, the recipient’s basis is the
adjusted basis of the decedent. Section
1022(a)(2)(A). If the decedent’s adjusted
basis is greater than that FMV, the recipient’s basis is limited to that FMV. Section
1022(a)(2)(B).
If the executor of the estate of a decedent who died in 2010 makes the Section
1022 Election, section 1022 applies to determine a recipient’s basis in all property
acquired from that decedent, regardless of
the year in which the property is sold or
distributed. Accordingly, if property is
acquired from the decedent who died in
2010 and the executor makes the Section
1022 Election, then when the property is
sold during 2010, 2011 or any subsequent
year, the recipient’s (seller’s) basis in the
property is determined under section 1022
rather than under section 1014.
Furthermore, sections 1022(b) and (c)
allow the executor of such a decedent’s
estate to allocate additional basis (Basis
Increase) to increase the basis of certain
assets that both are acquired from the
decedent and are owned by the decedent
(within the meaning of section 1022(d))
(hereinafter, owned by the decedent) at
death. If the property is acquired from
and owned by the decedent, and if the
decedent’s adjusted basis in the property
is less than the property’s FMV on the
decedent’s date of death, then the executor
generally may allocate Basis Increase to
the property, provided that the property’s
total basis may not exceed the property’s
FMV on the date of death.
(2) Property Not Subject to Section
1022. If the decedent’s executor makes
the Section 1022 Election, section 1022
will apply to determine a recipient’s basis
only in property acquired from the dece-

189

dent as further described in section 4.01(3)
of this revenue procedure. Thus, section
1022 does not determine the recipient’s
basis in every type of property transferred
from a decedent who died in 2010. An
example of property that is not property
acquired from the decedent is property
that constitutes a right to receive an item
of income in respect of a decedent under
section 691 (IRD). Section 1022(f). For
purposes of section 1022, annuities subject to income tax under section 72 are
considered property that constitutes the
right to receive an item of IRD. Rev. Rul.
2005–30, 2005–1 C.B. 1015. The recipient’s basis in property that is not subject
to section 1022 is determined under other
applicable sections of the Code.
(3) Property Acquired From the Decedent — Section 1022(e). Property acquired
from the decedent (within the meaning of
section 1022(e)) is property acquired by
bequest, devise, or inheritance, or by the
decedent’s estate from the decedent. The
term also includes property transferred by
the decedent during the decedent’s lifetime: (i) to a qualified revocable trust as
defined in section 645(b)(1), regardless of
whether the election under section 645 is
made for that trust; or (ii) to 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 (which, for this purpose, is deemed to
include a retained reversionary interest in
the trust on death and trust property subject
to any retained power of appointment). Finally, the term includes any other property
that passes from the decedent by reason
of death to the extent that such property
passes without consideration, such as: (i)
any property transferred at the decedent’s
death by reason of the decedent’s holding and/or exercising a general power of
appointment (as defined in section 2041)
with respect to such property if that power
was not created by the decedent, (ii) property held by the decedent and another person as joint tenants with right of survivorship or as tenants by the entirety; and (iii)
the surviving spouse’s one-half interest in
community property (as discussed in section 4.05 of this revenue procedure).
The term does not include, however,
a decedent’s interest in a qualified terminable interest property (QTIP) trust or
similar arrangement described in section

August 29, 2011

1022(c)(5) funded for the benefit of the
decedent by the decedent’s predeceased
spouse. As a result, this property is not
subject to section 1022 and a recipient’s
basis in this property will not be determined under section 1022. See section
4.01(2) of this revenue procedure.
(4) Property Owned by the Decedent —
Section 1022(d). Property acquired from
the decedent must also be owned by the
decedent at death (within the meaning of
section 1022(d)) to be eligible for the allocation of Basis Increase under sections
1022(b) and/or (c). Section 1022(d)(1)(A).
Thus, property may be acquired from the
decedent, and its basis will be determined
under section 1022(a), but will not be eligible to receive an allocation of Basis Increase unless that property is also owned
by the decedent at death. Property owned
by the decedent at death includes, but is not
limited to: (i) any property legally titled in
the name of the decedent at death (and not
held by the decedent solely in a legal or
representative capacity); (ii) certain jointly
owned property, whether owned as tenants
in common or with rights of survivorship
(see section 1022(d)(1)(B)(i)); (iii) property transferred by the decedent during life
to a qualified revocable trust as defined
in section 645(b)(1), regardless of whether
the election under section 645 is made
for that trust; and (iv) certain community
property (see section 1022(d)(1)(B)(iv)).
Section 1022(d)(1)(B) provides additional rules defining ownership for this
purpose and specifically states that, for
purposes of determining whether Basis Increase may be allocated to property, certain
property is not owned by the decedent at
death. For example, property over which
the decedent holds any power of appointment is not considered owned by the decedent at death. In addition, although considered to have been acquired from the decedent, property transferred to a trust by the
decedent during life in which the decedent
retained a power to alter, amend, or terminate the trust is not considered owned
by the decedent at death for this purpose.
Property transferred to a trust by the decedent during life in which the decedent retained an income interest is not considered owned by the decedent at death solely
by reason of that retained income interest.
In addition, because of the different definitions of ownership in sections 679 and
1022, although a transfer of property to a

August 29, 2011

foreign trust by a United States grantor, for
example, may be sufficient to cause that
grantor to be treated as the owner of at least
a portion of that trust for income tax purposes under section 679, such a transfer
is not sufficient to result in the trust’s being considered to be owned by the United
States grantor at that grantor’s death for
purposes of section 1022(d).
Notwithstanding these examples, however, even though the property in these
types of trusts would not be deemed to
be owned by the decedent, if the terms of
the trust require the trust property to revert back to the decedent upon death, then
such property is deemed to be owned by
the decedent. Finally, an interest in a QTIP
trust or similar arrangement described in
section 1022(c)(5) funded for the benefit
of the decedent by a predeceased spouse of
the decedent is not owned by the decedent
for this purpose.
The provisions of sections 4.01(2), (3),
and (4) are illustrated by the following examples:
Example 1. On August 1, 2006, decedent (D) created a qualified personal residence trust (QPRT) pursuant to § 25.2702–5(c). The term of the QPRT expires on July 31, 2011. The QPRT instrument provided that, if D dies prior to July 31, 2011, the property in the QPRT is to be distributed to D’s child (C).
D died in 2010, and D’s executor made the Section
1022 Election. In this case, the property in the trust
had been transferred to the trust by D during D’s lifetime. The QPRT is not a qualified revocable trust
as defined in section 645(b)(1) nor is it a trust over
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. The
property that passes to C under the QPRT instrument
by reason of D’s death is not considered to have been
acquired from D and thus, section 1022 is not applicable to determine C’s basis in the property held in
the QPRT. Instead, C’s basis in this property is determined under other applicable sections of the Code.
Example 2. Assume the same facts as in Example
1, except that the QPRT instrument provided that, if
D dies prior to July 31, 2011, the QPRT terminates
and the property in the QPRT is to be distributed to
D’s estate. Because the trust property becomes the
property of D’s estate at D’s death, the trust property
is considered to have been acquired from D. Section
1022(e)(1). For the same reason, the property is also
considered owned by D and, therefore, Basis Increase
may be allocated to this trust property.

(5) Property Owned By and Acquired
From the Decedent But Not Eligible for
the Allocation of Basis Increase. Notwithstanding the rules regarding the definition
of property owned by and acquired from
the decedent, section 1022 provides that
Basis Increase may not be allocated to two
types of property. First, pursuant to sec-

190

tion 1022(d)(1)(C), the executor may not
allocate Basis Increase to property that is
acquired by the decedent by gift or by inter vivos transfer for less than adequate and
full consideration in money or money’s
worth during the three-year period ending on the date of the decedent’s death.
This prohibition does not apply, however,
to property acquired by the decedent from
the decedent’s spouse, provided the property had not been transferred to the spouse
during such three-year period in whole or
in part by gift or by inter vivos transfer for
less than adequate and full consideration in
money or money’s worth.
Second,
pursuant
to
section
1022(d)(1)(D), the executor may not
allocate Basis Increase to the stock or
securities of a foreign personal holding
company, a DISC or former DISC, a
foreign investment company, or a passive
foreign investment company, unless such
company is a qualified electing fund as
defined in section 1295 with respect to the
decedent.
.02 Amount of Basis Increase.
(1) Basis Increase. Basis Increase consists of the sum of the General Basis Increase (Aggregate Basis Increase and Carryovers/Unrealized Losses Increase) under
section 1022(b) and the Spousal Property
Basis Increase under section 1022(c).
(2) General Basis Increase. The General Basis Increase is the sum of the
Aggregate Basis Increase and the Carryovers/Unrealized Losses Increase under
section 1022(b).
(a) Aggregate Basis Increase. The Aggregate Basis Increase is $1,300,000 under
section 1022(b)(2)(B).
(b) Carryovers/Unrealized Losses Increase. The Carryovers/Unrealized Losses
Increase consists of the sum of: (i) the
amount of any capital loss carryovers under section 1212(b) that would (but for
the decedent’s death) have been carried
from the decedent’s last taxable year to a
later taxable year; (ii) the amount of any
net operating loss carryovers under section 172 that would (but for the decedent’s
death) have been carried from the decedent’s last taxable year to a later taxable
year; and (iii) the amount of unrealized
losses 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.
Section 1022(b)(2)(C).

2011–35 I.R.B.

The capital loss carryovers under section 1212(b) and the net operating loss carryovers under section 172 available to be
included in General Basis Increase are the
losses that would carry forward to years after the year of the decedent’s death.
The amount of unrealized losses consists solely of the losses described in section 165(c)(1) and (2) from all property acquired from the decedent that would have
been allowable as a deduction, if the property had been sold at FMV immediately
before the decedent’s death. However,
losses described in section 165(c)(3) are
sustained prior to the decedent’s death and
would not arise on a hypothetical sale of
the property. These losses therefore must
be claimed instead on the decedent’s final Form 1040, and may not be included
in the Carryovers/Unrealized Losses Increase. For the purpose of computing unrealized losses, the capital loss limitations
referred to in section 165(f) are ignored.
Thus, for example, 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. Section
1022(b)(2)(C)(ii).
Existing income tax rules will apply to
determine the decedent’s share of these
loss carryovers and unrealized losses under section 172 and section 1212(b) if the
decedent’s final Form 1040 is filed jointly
with the decedent’s surviving spouse.
Thus for example, if a calendar year decedent and the surviving spouse file a joint
Form 1040 for 2010, these amounts will
be determined based on their tax liability
with respect to the decedent’s final taxable
year ending on the date of the decedent’s
death and the surviving spouse’s taxable
year ending on December 31, 2010. With
regard to such loss carryovers and unrealized losses arising from community
property, see sections 4.05 and 4.06(4) of
this revenue procedure.
The provisions of this section
4.02(2)(b) are illustrated by the following
example:
Example 3. D owned 100 shares of stock that
D held for profit within the meaning of section
165(c)(2). The stock is a capital asset, and any gain
or loss from the sale of the stock would be long-term
capital gain or loss under sections 1221 and 1222(3).
D died in 2010, still owning the stock. As of D’s date
of death, D’s adjusted basis in the stock pursuant

2011–35 I.R.B.

to section 1011 was $5,000, and the stock’s FMV
on D’s date of death was $1,000. D did not sell the
stock during life, and thus did not incur a loss under
section 165(c)(2) reportable on D’s final Form 1040.
The stock is considered to be property owned by
and acquired from D. D’s executor made the Section
1022 Election. If D had sold the stock immediately
prior to D’s death, D would have had a net long-term
capital loss of $4,000. Based on D’s 2010 taxable
income, D would have been able to deduct $3,000 of
the loss and $1,000 would have been carried over to
future years. Section 1211(b). For purposes of section 1022, however, the full unrealized net long-term
capital loss of $4,000, that would have been available
to D if D had sold the stock before death, is available
as a Carryovers/Unrealized Losses Basis Increase.

(3) Spousal Property Basis Increase.
The Spousal Property Basis Increase is
$3,000,000 under section 1022(c)(2) and
may be allocated to any or all property
owned by and acquired from the decedent that also satisfies the definition of
qualified spousal property in section
1022(c)(3). Qualified spousal property
is property that either is transferred outright to the decedent’s surviving spouse
(within the meaning of section 1022(c)(4))
or is QTIP (within the meaning of section
1022(c)(5)), whether or not held in trust.
The definition of QTIP under this provision does not require that a QTIP election
under section 2056(b)(7) be made.
The executor may allocate Spousal
Property Basis Increase to qualified
spousal property that has already been
distributed. See paragraph I.D.2 of Notice
2011–66 regarding relief for allocating
Spousal Property Basis Increase to such
property distributed after the due date of
the Form 8939.
In addition, Spousal Property Basis Increase also may be allocated to property
that is sold (regardless of whether the allocation of Spousal Property Basis Increase
is made before or after such sale) prior to
its distribution. However, this allocation
may be made only to the extent that the executor (1) certifies on the 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.
The allocation of Spousal Property Basis Increase to property not distributed in
kind is illustrated by the following examples. In each example, assume that the
decedent’s Aggregate Basis Increase and

191

Carryovers/Unrealized Losses Increase
have been fully allocated to other assets.
Example 4. D died in 2010 owning 20,000 shares
of Corporation X stock. D’s executor made the Section 1022 Election. D’s adjusted basis in the stock is
$600,000 ($30 per share), and the FMV on D’s date
of death is $2,000,000 ($100 per share). Under the
terms of D’s will, D’s Spouse (S) is to receive 50 percent of D’s estate, outright. Four months after D’s
death, the FMV of the stock declines to $1,800,000
($90 per share). D’s executor sells all 20,000 shares
of the stock and receives $1,770,000 in proceeds net
of sales commissions (thus, $88.50 per share). D’s
executor intends to distribute all of the proceeds from
the sale of the stock to S, in partial satisfaction of
S’s residuary bequest; there are no known outstanding liabilities that would reduce this distribution. D’s
executor may allocate up to $1,400,000 of Spousal
Property Basis Increase ($70 to each of the 20,000
shares of stock) if the required certification and supporting documentation is included on a timely filed
Form 8939. (Note that, to the extent that more than
$58.50 per share is allocated to the stock, the sale will
generate a loss.)
Example 5. The facts are the same as in Example
4 except that D’s executor applies $165,000 of the net
proceeds from the sale of the stock to pay administrative expenses of D’s estate. D’s executor intends to
distribute the remaining $1,605,000 of net proceeds
from the sale of the stock to S. Spousal Property
Basis Increase may be allocated to no more than
18,135 shares. This number of shares is determined
either by dividing the net proceeds to be distributed
to S by the net per-share proceeds ($1,605,000 /
$88.50 = 18,135.6 shares, limited for this purpose to
18,135 whole shares), or by calculating the ratio of
the net proceeds payable to S to the total net proceeds
(20,000 shares x $1,605,000 / $1,770,000 = 18,135.6
shares, thus limited to 18,135 whole shares). As
in Example 4, D’s executor may allocate up to $70
of Spousal Property Basis Increase to each of these
18,135 shares of the stock (for a total of $1,269,450),
all of the net proceeds of which will be distributed to
S, provided a certification and supporting documentation are included on a timely filed Form 8939.
Example 6. D died in 2010 owning personal property with an adjusted basis of $200,000 and a FMV on
D’s date of death of $500,000. D’s executor made the
Section 1022 Election. Under the terms of D’s will,
D’s spouse (S) is to receive 50 percent of D’s estate,
outright. Four months after D’s death, D’s executor
sells the personal property for $600,000. D’s executor
applies $150,000 of the net proceeds from the sale of
the personal property to pay administrative expenses
of D’s estate and intends to distribute the remaining
$450,000 of net proceeds from the sale of the personal
property to S. D’s executor may allocate no more than
$225,000 of Spousal Property Basis Increase to the
personal property. This maximum allocation is determined by multiplying the unrealized appreciation
at death ($300,000) by the ratio of net proceeds to
be distributed to S over the total net proceeds of the
sale. Thus, D’s executor may allocate up to $225,000
($300,000 X ($450,000 / $600,000)) of Spousal Property Basis Increase to the personal property, provided
a certification and supporting documentation are included on a timely filed Form 8939.

August 29, 2011

Spousal Property Basis Increase also
may be allocated to property held by a
testamentary charitable remainder trust
(CRT) as defined in section 664 (subject
to the limit of section 1022(d)(2)), 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 executor
of the decedent’s estate had not made the
Section 1022 Election.
(4) Nonresident Decedents who are not
citizens of the United States. In the case
of a nonresident decedent who was not
a citizen of the United States at death,
the amount of the Aggregate Basis Increase is limited to $60,000 and is not
increased by any Carryovers/Unrealized
Losses Increase. This limitation in section 1022(b)(3), however, only applies to
limit the available General Basis Increase
to $60,000. Accordingly, an executor of
the estate of a nonresident decedent who
was not a citizen of the United States at
death may allocate Spousal Property Basis Increase to qualified spousal property
(within the meaning of section 1022(c)(3))
owned by and acquired from the decedent.
.03 General Rules for Allocating Basis
Increase. The executor may allocate Basis Increase to property owned by and acquired from the decedent on a propertyby-property basis, provided that the decedent’s adjusted basis in each such property
(after the allocation, if any) does not exceed the FMV of that property at the decedent’s death. For example, Basis Increase
may be allocated 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. Generally, Basis Increase may be allocated to property owned by and acquired
from the decedent even after the executor
has disposed of or distributed the property.
For a special rule regarding Spousal Property Basis Increase, see section 4.02(3) of
this revenue procedure.
For each property, the sum of the decedent’s adjusted basis in that property and
the Basis Increase allocated to that property may not exceed the FMV of that property on the decedent’s date of death. Section 1022(d)(2). Under this rule, the executor may not allocate any Basis Increase
to increases in value occurring after the
decedent’s death.
For purposes of section 1022(a), references to the term “property” include in-

August 29, 2011

terests in that property. Thus, Basis Increase may be allocated to some or all of
the decedent’s shares of stock in a particular company, or to a life or remainder interest owned by the decedent at death. However, if, by reason of the decedent’s death,
the decedent’s property is divided into different interests that are not undivided portions or fractional interests of each and every interest or right in the property that
was owned by the decedent, Basis Increase
may not be allocated separately to the various interests in that property created by
reason of the decedent’s death. An example of such a division of property is the division of property owned outright by the
decedent at death into a life interest and a
remainder interest in that property. Basis
Increase may be allocated to the property
owned by the decedent at death, but may
not be allocated separately to the life estate and/or remainder interest.
.04 Determination of Fair Market
Value.
(1) In General. The FMV of property
acquired from the decedent who died in
2010 is determined in the same manner for
purposes of section 1022 as for purposes
of the estate tax. Thus, the provisions
contained in the regulations under section
2031 that require appraisals to determine
the FMV of certain property included in
the gross estate for federal estate tax purposes also apply for purposes of determining the FMV of property acquired from the
decedent under section 1022. The executor must attach any appraisals required under section 2031 to the Form 8939.
(2) Aggregation Rule. The Basis Increase allocated to property acquired from
the decedent by a recipient cannot increase
the recipient’s basis in that property or
property interest above the FMV of that
property or interest in the hands of the
decedent at death. See section 1022(d)(2).
Therefore, for purposes of section 1022,
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. Thus, if each of two or more recipients acquires an undivided portion of a
property from the decedent, then the FMV
of each recipient’s portion of that property
for purposes of section 1022 is the FMV of
the decedent’s entire interest in the property at death multiplied by a fraction. The
numerator of that fraction is the undivided

192

portion of the decedent’s property acquired
by that recipient, and the denominator is
the decedent’s entire interest in that property at death. An undivided portion of the
decedent’s property refers to a fraction or
percentage of each and every interest or
right the decedent held in the property at
death.
.05 Special Rules for Community Property. The decedent’s interest in community
property held by the decedent and the surviving spouse under the community property laws of any state or possession of the
United States or any foreign jurisdiction is
treated as owned by and acquired from the
decedent if the decedent’s interest satisfies
the requirements of sections 1022(d) and
(e). If at least one-half of the whole of
the community interest is treated as owned
by and acquired from the decedent under
these provisions (without regard to the special rule for community property in section
1022(d)(1)(B)(iv)), the surviving spouse’s
one-half interest in that community property also is treated as owned by and acquired from the decedent for purposes of
section 1022. Section 1022(d)(1)(B)(iv).
Accordingly, the surviving spouse’s basis in his or her one-half interest in community property, as determined under section 1022(a), will be the lesser of the surviving spouse’s adjusted basis of that interest in such community property or the
FMV of that interest on the decedent’s
date of death. In addition, Basis Increase
may be allocated to the surviving spouse’s
one-half interest in such community property.
If both spouses’ interests in such community property are treated as owned by
and acquired from the decedent as described in the preceding paragraph, all of
the unrealized losses described in section
4.02(2)(b) of this revenue procedure that
would have been allowable to both the
decedent and the surviving spouse if the
property had been sold at FMV immediately before the decedent’s death are
included in the General Basis Increase. In
contrast, only the decedent’s net operating
loss carryovers and capital loss carryovers
are eligible to be included in the General
Basis Increase. Further, to the extent the
decedent’s net operating loss carryovers
and capital loss carryovers are deductible
on the final jointly filed Form 1040, they
are not available to be added to the General Basis Increase.

2011–35 I.R.B.

The provisions of this section 4.05 are
illustrated by the following examples:
Example 7. (i) D and D’s spouse (S) live in a
community property state (State). D died in 2010,
and D’s executor made the Section 1022 Election.
At D’s death, Property X, community property of D
and S under the laws of State, had an adjusted basis of $1,000,000 and a FMV of $8,000,000. D and
S used Property X in a trade or business within the
meaning of section 165(c)(1). Under the community property laws of State, each spouse is entitled
to an undivided equal share of community property.
D and S have filed joint Forms 1040 for all taxable
years in which they have owned Property X, including 2010, the year of D’s death. D and S have a total
of $100,000 of net operating losses under section 172,
after the deductions taken on D’s and S’s final joint
Form 1040. $50,000 of the $100,000 of net operating
losses would (but for D’s death) be carried from D’s
last taxable year to a later taxable year of D. Under the
community property laws of State, upon the death of
a married person, one-half of the community property belongs to the decedent and the other one-half
belongs to the surviving spouse. Therefore, one-half
of Property X belongs to D and the other one-half belongs to S. In D’s will, D bequeathed D’s one-half interest in Property X to D’s child (C). In this case, C acquired Property X by bequest, and therefore, Property
X is acquired from D and is subject to the provisions
of section 1022. As a result, C’s basis in Property
X under section 1022(a)(2) is $500,000, the lesser of
D’s adjusted basis in D’s one-half interest in Property
X or the FMV of that interest at D’s death. In addition, because Property X is considered as owned by
D at the time of death, General Basis Increase may
be allocated to D’s interest in Property X. The executor of D’s estate has $1,300,000 in Aggregate Basis
Increase and $50,000 (D’s share of the $100,000 of
the unused net operating losses) in Carryovers/Unrealized Losses Increase available to allocate to the interest acquired by C in Property X.
(ii) On the date of D’s death, the other one-half
interest in Property X belongs to S under the laws
of State. As a result, for purposes of section 1022,
S’s one-half interest in Property X is deemed to have
been owned by and acquired from D. Under section
1022(a)(2), S’s basis in S’s one-half interest in Property X is $500,000, the lesser of S’s adjusted basis in
S’s one-half interest or the FMV of that interest as of
D’s death. That interest has a FMV on D’s death of
$4,000,000.
(iii) The executor may allocate Basis Increase to
S’s one-half interest in Property X. In this case, the
executor decides to allocate $450,000 of Aggregate
Basis Increase, $50,000 of Carryovers/Unrealized
Losses Increase, and $3,000,000 in Spousal Property
Basis Increase to S’s one-half interest in Property X.
As a result, S’s basis in S’s one-half interest in Property X is $4,000,000 (the sum of S’s own adjusted
basis of $500,000 and S’s allocated Basis Increase
of the sum of $450,000, $50,000, and $3,000,000),
equal to its FMV as of D’s date of death. D’s $50,000
in unused net operating losses is included in Basis
Increase that is allocated by D’s executor to S’s interest in Property X; the other $50,000 of the unused net
operating losses is available to S on S’s subsequent
income tax returns.
(iv) With respect to the one-half interest in Property X passing from D to C, the executor may allocate

2011–35 I.R.B.

any or all of the remaining General Basis Increase of
$850,000 to this property. In this case, the executor allocates the entire remaining $850,000 of General Basis Increase to C’s one-half interest in Property
X. C’s basis in the one-half interest in Property X is
$1,350,000 ($500,000 plus $850,000).
Example 8. (i) The facts are the same as in Example 7, except that the FMV of Property X on D’s date
of death was $800,000. Under section 1022(a)(2),
S’s basis in S’s one-half interest in Property X is
$400,000, the lesser of S’s $500,000 in adjusted basis and the FMV of that interest in Property X as
of D’s date of death. D’s executor may not allocate any Aggregate Basis Increase, Carryovers/Unrealized Losses Increase, or Spousal Property Basis
Increase to spouse’s one-half interest in the community property because the property’s basis, as augmented under section 1022, may not exceed its FMV
on D’s date of death. For the same reason, D’s executor may not allocate any General Basis Increase to the
one-half interest in Property X passing to C.
(ii) A loss of $200,000 would have been incurred
if Property X had been sold at FMV immediately before D’s death. All of this $200,000 is available as
Carryovers/Unrealized Losses Increase that may be
allocated to property owned by and acquired from D
with a basis pursuant to section 1022(a)(2) that is less
than the FMV as of D’s date of death.

.06 Interaction of Section 1022 with
Certain Other Income Tax Provisions.
(1) Holding Period of Inherited Property. To the extent the recipient’s basis
in property acquired from the decedent is
determined under section 1022, the recipient’s holding period of that property shall
include the period during which the decedent held the property, whether or not the
executor allocates any Basis Increase to
that property.
In computing the applicable percentage
under section 1250 for purposes of determining the amount of ordinary gain on
the sale of section 1250 property, section
1250(e) applies to determine the period of
time the recipient is deemed to have held
section 1250 property acquired by gift or
on the death of a decedent. Therefore, to
the extent a recipient’s basis in property
is determined under section 1022, the recipient’s holding period of such property
under section 1250(e)(2) includes the period during which the property was held by
the decedent, regardless of whether the executor allocates any Basis Increase to that
property.
(2) Tax Character of Inherited Property. The tax character of property acquired from the decedent by a recipient is
determined in the same way as the holding
period. Thus, to the extent a recipient’s
basis in property is determined under section 1022, the tax character of the property

193

is the same as it would have been in the
hands of the decedent. Consequently, for
property described in section 1221 (capital
assets) or section 1231 (property used in a
trade or business and involuntary conversions), and for property subject to section
1245 (depreciation recapture upon disposition of certain depreciable property) or
section 1250 (depreciation recapture upon
disposition of certain depreciable real
property), the tax character of the property
described in these sections (the basis of
which is determined under section 1022)
in the hands of the recipient is the same
as it would have been in the hands of the
decedent. However, the tax character of
the property may be affected by a subsequent change in the recipient’s use of the
property.
The provisions of this section 4.06(2)
are illustrated by the following example:
Example 9. D owned tangible personal property
(section 1245 property) and claimed on D’s income
tax return a depreciation deduction under section 168
that would have been subject to recapture under section 1245 if D had sold the property prior to D’s death.
D died in 2010 and D’s executor made the Section
1022 Election. D bequeathed all of D’s tangible personal property to D’s child (C). Because C’s basis is
determined under section 1022, the property is section 1245 property in the hands of C and therefore
will be subject to recapture under section 1245 when
sold by C, regardless of whether the property is depreciable property in the hands of C or whether the
executor allocates any Basis Increase to that property.
See § 1.1245–3(a)(3).

(3) Depreciation of Property Acquired
from the Decedent. If section 1022 applies
to property acquired from the decedent
that is depreciable property in the hands
of the recipient, regardless of whether the
executor allocates any Basis Increase to
the property, the recipient is treated for depreciation purposes as the decedent for the
portion of the recipient’s basis in the property that equals the decedent’s adjusted
basis in that property. Consequently, the
recipient determines any allowable depreciation deductions for this carryover
basis by using the decedent’s depreciation
method, recovery period, and convention
applicable to the property. If the property
is depreciable property in the hands of
both the decedent and the recipient during
2010, the allowable depreciation deduction for 2010 for the decedent’s adjusted
basis in the property is computed by using the decedent’s depreciation method,
recovery period, and convention applicable to the property, and is allocated

August 29, 2011

between the decedent and the recipient
on a monthly basis. This allocation is
made in accordance with the rules in
§ 1.168(d)–1(b)(7)(ii) of the Income Tax
Regulations for allocating the depreciation
deduction between the transferor and the
transferee.
The portion of the recipient’s basis in
the property that exceeds the decedent’s
adjusted basis in the property as of the
decedent’s date of death (for example, the
Basis Increase allocated to the property
by the executor) is treated for depreciation purposes as applying to a separate asset that the recipient placed in service on
the day after the date of the decedent’s
death. Accordingly, the recipient determines any allowable depreciation deductions for this excess basis by using the depreciation method, recovery period, and
convention applicable to the property on
its placed-in-service date or, if not held on
that date as depreciable property by the recipient, on the date of the property’s conversion to depreciable property.
(4) Passive Activity Loss Provisions.
Section 469(a) disallows certain losses
from passive activities. However, pursuant to section 469(b), losses disallowed
under section 469(a) may be suspended
and carried forward. Section 469(g)(2)
provides that, if an interest in a passive
activity is transferred by reason of the
taxpayer’s death, the taxpayer may treat
suspended passive losses as losses that are
not from a passive activity (and therefore
may deduct the losses) to the extent such
losses are greater than the excess (if any)
of the basis of such property in the hands
of the transferee, over the adjusted basis
of such property immediately before the
death of the taxpayer. Section 469(j)(6)
provides that, when an interest in a passive
activity is transferred by gift, the basis
of such interest immediately before the
transfer is increased by the amount of any
passive activity losses allocable to such
interest that have not been allowed as
deductions as a result of section 469(a).
Once used to increase the donor’s basis,
these losses may not be deducted for any
taxable year.
Because property owned by the decedent at death will be treated under section 1022 as having been transferred by
gift, section 469(j)(6), rather than section
469(g)(2), applies to determine the decedent’s adjusted basis in such property. The

August 29, 2011

basis adjustment under section 469(j)(6) is
deemed to occur immediately prior to the
decedent’s death, and thus is applied to determine the decedent’s adjusted basis in the
property at death as described in section
1022(a)(2)(A). In addition, any loss that
would have been sustained under sections
165(c)(1) or (c)(2) on a hypothetical sale
of the property immediately prior to the
decedent’s death (equal to the excess of
the decedent’s adjusted basis (determined
as described under section 469(j)(6)) over
the FMV at death) may be included in the
section 165 losses in the General Basis Increase. Because the reduction in the hypothetical loss under section 165 by reason
of the section 469 basis adjustment equals
the amount of section 469 loss added to the
decedent’s basis, there is no duplication of
a benefit under these two sections.
Section 1022(d)(1)(B)(iv) provides that
the surviving spouse’s interest (as well as
the decedent’s interest) in certain community property is deemed to have been
owned by and acquired from the decedent,
and thus 100 percent of that community
property is deemed to have been transferred by gift for purposes of section 1022.
Because section 469(j)(6) increases basis by the amount of suspended passive
activity losses allocable to the interest
that is transferred by gift, 100 percent of
those losses, rather than only the decedent’s one-half of such losses, are to be
added to determine the decedent’s and the
spouse’s adjusted basis in that community
property for purposes of section 1022(a)
and to determine the amount of unrealized
section 165 losses to be included in the
General Basis Increase. To the extent that
losses attributable to the spouse’s interest in the community property are used
to increase basis and/or were included in
Carryovers/Unrealized Losses Increase
allocated by the decedent’s executor, such
losses may not thereafter be deducted by
the spouse. However, to the extent that
losses attributable to the spouse’s interest
in community property are not so used
by the decedent’s executor, they remain
the spouse’s suspended passive activity
losses. For purposes of this computation,
these losses will be deemed to be the last
part of Basis Increase allocated, and the
decedent’s share of these losses will be
deemed to be allocated before the surviving spouse’s share of these losses.

194

The provisions of this section 4.06(4)
are illustrated by the following examples:
Example 10. D owned an apartment building that
generated losses that have been disallowed under section 469. D died in 2010 and D’s executor made
the Section 1022 Election. The building is property
owned by and acquired from D. Pursuant to D’s will,
D’s child (C) is to acquire the building. On D’s date
of death, the FMV of the building was $100,000, the
basis of the building was $10,000, and the suspended
passive activity losses allocable to the building were
$50,000. Pursuant to section 469(j)(6), the $50,000
in suspended passive activity losses are added to D’s
basis of $10,000, resulting in an adjusted basis of
$60,000. For purposes of section 1022(b)(2)(C)(ii), a
hypothetical sale of the property just before D’s death
would have produced a gain of $40,000 ($100,000
FMV less D’s adjusted basis of $60,000), so there is
no loss under section 165 from this property. C’s basis in the building as of D’s date of death is $60,000,
plus any amount of the General Basis Increase allocated to this property.
Example 11. Assume the same facts as in Example 10, except that the suspended passive activity
losses allocable to the building are $200,000 instead of $50,000. Pursuant to section 469(j)(6), the
$200,000 in suspended passive activity losses are
added to D’s basis of $10,000 resulting in an adjusted
basis of $210,000. Under section 1022(a)(2), C’s
basis in the building is $100,000 (the lesser of D’s
adjusted basis in the building ($210,000) and the
building’s FMV on the date of death ($100,000)).
Thus, C’s basis in the building reflects $90,000 of
the section 469 suspended losses. If the property
had been sold at FMV immediately before D’s death,
a section 165 loss of $110,000 would have been
allowable (FMV of $100,000 minus $210,000 of D’s
adjusted basis). This $110,000 constitutes the section
165 loss that may be included in the General Basis
Increase.

(5) Recognition of Gain on Satisfaction of Pecuniary Bequest with Appreciated Property. Section 1040, as applicable to the estates of decedents who died in
2010 and whose executors make the Section 1022 Election, provides that, if an executor distributes appreciated property to
satisfy a pecuniary bequest, the estate must
recognize gain to the extent the FMV of
the distributed property on the date of distribution exceeds its FMV on the date of
the decedent’s death. The basis of that
property in the hands of the recipient then
equals the sum of the basis of that property immediately before the distribution
and the amount of gain recognized by the
estate.
Section 1040 further provides that the
same rule will apply to distributions of appreciated trust property made in satisfaction of trust provisions that are the equivalent of a pecuniary bequest, but only to
the extent so provided in regulations. This
safe harbor will apply this rule to quali-

2011–35 I.R.B.

fied revocable trusts as defined in section
645(b)(1), as well as to trusts that would
have been included in the decedent’s gross
estate for federal estate tax purposes under
section 2036, 2037, or 2038 had the decedent’s executor not made the Section 1022
Election.
The provisions of section 1040, however, do not apply to the distribution of
property that constitutes the right to receive an item of IRD in satisfaction of a
pecuniary bequest.
(6) Sale or Exchange Treatment of
Transfers to Nonresident Aliens. Section
684, enacted in 1997, generally provides
that any transfer of property by a United
States person to a foreign estate or trust
(except to the extent that a person is treated
as the owner of the trust under section
671) is treated as a sale or exchange of
such property, and requires the transferor
to recognize gain in the amount of any
excess of the FMV of the property at the
time of the transfer over the transferor’s
adjusted basis in the property. For transfers of property occurring on the death
of a decedent whose executor makes the
Section 1022 Election, this provision also
applies to transfers of property by United
States persons to nonresident aliens.
The existing regulations provide an exception to the general rule of taxation under section 684 in the case of a transfer of
property by reason of the death of a United
States transferor, but only if the basis of
such property in the hands of the recipient is determined under section 1014(a).
Section 1.684–3(c). If the recipient’s basis in such property is not determined under section 1014(a), section 684 continues
to apply, and the United States transferor
is treated as having transferred the property immediately before death and is required to recognize the built in gain in the
property transferred at that time. Section
1.684–3(g), Example 3.
For purposes of applying section 684 to
transfers of property by reason of the death
of a United States person in 2010 whose
executor makes the Section 1022 Election,
the question has arisen as to whether (1)
section 684 applies prior to section 1022,
with the effect of treating the transfer as
a sale for FMV before any Basis Increase
may be allocated to the property, or (2)
whether the executor’s allocation of Basis Increase is deemed to increase the recipient’s basis in the property before the

2011–35 I.R.B.

amount of any unrecognized gain taxable
under section 684 is determined.
If the property is owned by and acquired
from the decedent, the executor’s allocation of Basis Increase will be deemed to
occur prior to the application of section
684. Specifically, in determining the adjusted basis of the property in the hands
of the decedent under section 684(a)(2),
any allocation of Basis Increase shall be
deemed to occur prior to the computation of gain under section 684. Thus, the
amount of gain recognized under section
684 on the transfer may be reduced or even
eliminated if sufficient Basis Increase is allocated to such property.
However, if the property transferred is
not owned by the decedent at death, then
no Basis Increase may be allocated to the
property, and the decedent will be required
to recognize all of the unrealized gain in
the property transferred to the foreign estate or trust or to the nonresident alien as
provided in section 684.
The provisions of this section 4.06(6)
are illustrated by the following examples:
Example 12. D, a United States citizen, acquired
stock in 1984 for $1,000 that had a FMV of $30,000
on D’s date of death in 2010. D bequeathed the stock
to D’s brother (N), a nonresident alien. The executor
of D’s estate made the Section 1022 Election, and,
therefore, may allocate General Basis Increase of up
to $29,000 to this stock. Such an allocation of basis
will be deemed to have occurred prior to the deemed
sale under section 684. Accordingly, if the executor allocates $29,000 of General Basis Increase to the
stock, then D will recognize zero gain on D’s final
Form 1040 under section 684 on the bequest of the
stock to N.
Example 13. D, a United States citizen, acquired
real property located in the United States in 1984 for
$1,000,000 that had a FMV of $10,000,000 on D’s
date of death in 2010. D’s executor made the Section
1022 Election. D’s will devised the real property to
D’s brother (N), a nonresident alien. Assuming that
the General Basis Increase available to the executor
of D’s estate for allocation is $1,300,000, the executor may allocate up to the entire amount of General
Basis Increase to this property. Such an allocation
will be deemed to have occurred prior to the deemed
sale under section 684. Accordingly, if the executor allocates $1,300,000 of General Basis Increase to
this property, D will recognize gain on D’s final Form
1040 under section 684 in the amount of $7,700,000
($10,000,000 of FMV less $2,300,000 of basis) on the
devise of the property to N.
Example 14. In 2005, D, a United States citizen,
transferred securities with a FMV of $5,000 and an
adjusted basis of $1,000 to a foreign trust (FT). The
income from FT was payable to D during D’s life,
but D retained no other right to and no power over
FT. At all times after the 2005 transfer through D’s
death, FT has a United States beneficiary, D (within
the meaning of section 679(c)), and D was treated

195

as the owner of FT under section 679(a). D died in
2010 and D’s executor made the Section 1022 Election. The FMV of the assets of FT at D’s death was
$30,000. Notwithstanding that D was the owner of
FT under section 679 on the date of death, because
the securities were transferred by D in an inter vivos
transfer to FT over which D retained no other right
or power, the securities were not acquired from the
decedent and section 1022 does not apply to the securities in FT. Under §1.684–2(e)(1), D is treated as
having transferred the securities to FT immediately
before D’s death, and D must recognize $29,000 of
gain on D’s final Form 1040 under section 684(a).

.07 Testamentary Charitable Remainder Trusts. Section 1.664–1(a)(1)(iii) provides, among other things, that a trust is
a CRT if a deduction is allowable under
section 170, 2055, 2106, or 2522 and the
trust meets the description of a charitable remainder annuity trust or a charitable remainder unitrust, as such terms are
described in §§ 1.664–2 and 1.664–3, respectively. A testamentary CRT that otherwise qualifies as a CRT under section 664
and the regulations thereunder, but fails to
meet the requirement that a deduction is allowable under section 2055 solely because
the decedent’s executor makes a Section
1022 Election thus making section 2055
inapplicable to the decedent’s estate, will
qualify as a CRT under section 664.
SECTION 5. AREAS NOT COVERED
BY THIS REVENUE PROCEDURE
This Revenue Procedure does not address the manner in which the executor
of the estate of a decedent who died in
2010 makes the Section 1022 Election.
For information on making that election,
the deadline for making that election and
related procedures, and on allocating the
decedent’s GST exemption to transfers occurring at a death occurring in 2010, see
Notice 2011–66.
SECTION 6. EFFECTIVE DATE
This revenue procedure is effective August 29, 2011, the date this revenue procedure was published in the Internal Revenue
Bulletin. However, taxpayers may apply
the safe harbor in this revenue procedure
for prior periods.
SECTION 7. PAPERWORK
REDUCTION ACT
The collection of information contained
in this revenue procedure has been submitted to the Office of Management and Bud-

August 29, 2011

get (OMB) in accordance with the Paperwork Reduction Act (44 U.S.C. 3507) and
OMB approval is pending. An agency may
not conduct or sponsor, and a person is not
required to respond to, a collection of information unless the collection of information displays a valid control number.
The collection of information requirement in this revenue procedure is in section
4.02(3) and section 4.04(1) of this revenue
procedure. The collection of information
in section 4.02(3) relates to certain documents the executor is required to attach
to the Form 8939 if the executor allocates
Spousal Property Basis Increase to property that is sold prior to its distribution to
the surviving spouse.
The collection of information in section 4.04(1) relates to the requirement that

August 29, 2011

the executor obtain and attach to the Form
8939 the FMV appraisal of certain property acquired from the decedent. This collection of information is necessary for the
proper performance of the function of the
IRS in the collection of the income tax
when the property is later sold by the recipient or other holder of the property. In addition, this collection is necessary to comply with the requirements of section 6018.
We estimate that 7,000 executors of estates of decedents who died in 2010 will
make the Section 1022 Election and thus
will be required to file Form 8939, and that
it will take approximately 8 hours to prepare the documentation. The total reporting burden is estimated to be 56,000 hours.
Books or records relating to collections
of information must be retained as long

196

as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by section 6103.
SECTION 8. DRAFTING
INFORMATION
The principal authors of this revenue procedure are Laura Urich Daly,
Theresa Melchiorre, and Mayer Samuels
of the Office of Associate Chief Counsel
(Passthroughs & Special Industries). For
further information regarding this revenue procedure, contact Laura Urich Daly,
Theresa Melchiorre, or Mayer Samuels at
(202) 622–3090 (not a toll-free call).

2011–35 I.R.B.