Death and Taxes : Selected Income Tax Issues for Decedents and Their Families

This outline provides a survey of selected income tax issues affecting decedents and their families. In a tax system based on voluntary self-assessment, filing a tax return has obvious significance. But age and infirmity may affect the practical ability to comply; death even moreso. Marriage presents special tax opportunities for the couple, including the ability to file a joint return and share some tax attributes. Those joint returns present other concerns and complexities, including joint and several liability, which can affect a surviving spouse. Married taxpayers retain a separate taxpayer status with regard to the measurement and utilization of certain tax attributes, including losses and basis. Death of a spouse affects not only the filing of returns, but also the tax attributes available to the survivor. Basis adjustments provide a significant source of complexity. New basis reporting rules applicable to taxable estates present new responsibilities and challenges. Other tax attributes, including deductions, losses, and credits that may be carried forward or backward also deserve attention. A decedent's interest in an S corporation or partnership raises some additional issues involving tax attributes passing to a transferee, including the basis of that ownership interest and attributes that may pass through the entity. Some common issues are considered for both entities. The partnership discussion also includes an overview of the new audit regime for partnerships and the implications of this regime for estate planners and beneficiaries, who may include continuing partners or transferees of partnership interests from a decedent