The Internal Revenue Service (IRS) is offering beneficiaries of people with large estates who died in 2010 more time to adjust to mid-year tax-law changes.

The IRS has announced the estate tax penalty relief in IRS Notice 2011-76.

The notice will affect estates left by individual taxpayers with more than $5 million in assets.

The notice will give executors of affected estates until Jan. 17, 2012, to tell the IRS whether an estate will choose to opt out of paying estate taxes or choose to pay estate taxes and make use of a special property basis valuation rule. The original deadline was Nov. 15, 2011.

An executor need not file any special form to make use of the new filing deadline, officials say.

The IRS has issued the notice in an effort to help the executors cope with a shift between the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) and the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA), an act signed into law in July 2010.

One section of EGTRRA phased the federal estate tax out between 2001 and 2009, eliminated the tax in 2010, then called for the tax to return to 2001 levels in 2011.

Section 1022 of EGTRRA let an heir who received property choose to set the basis for the property at the fair market value on the date of the dead taxpayer’s death, if the fair market value of the property was less than the dead taxpayer’s own adjusted basis.

Section 301(a) of TRUIRJCA the brought the estate tax back for 2010 with a $5 million personal estate tax exemption.

Executors of 2010 estates can choose whether to pay the estate tax or use the EGTRRA Section 1022 basis valuation rules.

The IRS is pushing the election decision due date back because Congress passed TRUIRJCA late in the year and developing Form 8939, the Section 1022 treatment election form, took time, officials say.

“The executor of a 2010 estate may not have sufficient time to make an informed decision as to whether or not to make a Section 1022 election and to complete the required filings,” officials say.

The IRS also will be giving executors of 2010 estates that request a filing extension until March 19, 2012, to file their estate tax returns and pay any estate tax due.

“No late-filing or late-payment penalties will be due, though interest still will be charged on any estate tax paid after the original due date,” officials say.

The IRS normally is quick to give 6-month filing extensions but lets estates put off making tax payments only if an executor can show there is good cause for a delay, officials say.

The IRS notes that Notice 2011-76 will have no effect on state estate tax obligations.

- Allison Bell

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