New Basis Reporting Requirements for Estates: Meeting Form 8971, Schedule A, and New Beneficiary Consistency Mandates

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1 New Basis Reporting Requirements for Estates: Meeting Form 8971, Schedule A, and New Beneficiary Consistency Mandates FOR LIVE PROGRAM ONLY WEDNESDAY, JUNE 1, 2016, 1:00-2:50 pm Eastern IMPORTANT INFORMATION FOR THE LIVE PROGRAM This program is approved for 2 CPE credit hours. To earn credit you must: Participate in the program on your own computer connection (no sharing) if you need to register additional people, please call customer service at x10 (or x10). Strafford accepts American Express, Visa, MasterCard, Discover. Listen on-line via your computer speakers. Respond to five prompts during the program plus a single verification code. You will have to write down only the final verification code on the attestation form, which will be ed to registered attendees. To earn full credit, you must remain connected for the entire program. WHO TO CONTACT DURING THE LIVE EVENT For Additional Registrations: -Call Strafford Customer Service x10 (or x10) For Assistance During the Live Program: -On the web, use the chat box at the bottom left of the screen If you get disconnected during the program, you can simply log in using your original instructions and PIN.

2 New Basis Consistency Reporting Requirements Keith Schiller, Esq. Schiller Law Group, a Professional Law Corporation 3201 Danville Blvd., Suite 285 Alamo, CA Tel: (925) kschiller@slg4law.com Web sites: Presentation June 1, 2016, for STRAFFORD CONTINUING EDUCATION WEBINARS 1 Presenters: Keith Schiller, Esq. Vincent F. Lackner, Jr. Esq. Lackner Group Carnegie Office Park, Suite North Bell Ave. Carnegie, PA Tel: (809) BASIS CONSISTENCY AND FORM 8971 WITH SCHEDULE A 1.1 Treasury Strives for Income Tax Basis Consistency with Estate Tax Valuation The Surface Transportation and Veterans Health Care Choice Act of 2015 ( Highway Act ) established basis consistency rules and basic reporting requirements when the estate tax return is filed after July 31, Code 1014(f) establishes the basis consistency rules while Code 6035 imposes the requirements to inform the IRS and the beneficiaries of the estate tax 1 Copyright Keith Schiller. April, These materials may not be reproduced, in whole or part, without the prior written permission of Keith Schiller and Bloomberg BNA, the publisher of Art of the Estate Tax Return Estate Planning At The Movies ( 706 Art ). Estate Planning At The Movies is the registered trademark of Keith Schiller. Some portions of these materials have been adapted from 706 Art. References to motion pictures are intended for educational benefit to assist the recall of the reader of significant estate planning or tax considerations or to otherwise aid professionals in their communication with clients for greater awareness and more effective estate and tax planning. The author thanks Vince Lackner for his helpful input and comments.

3 value. Form 8971 (first published as a draft in December 2015 and then in final form in January 2016) is used to report the estate tax values to the IRS and beneficiaries. The instructions to Form 8971 and the proposed regulations issued under Code 1014(f) and 6035 in March 2016 comprise the primary post-enactment guidance. The law enacted in 2015 changes prior law regarding income tax basis consistency and places additional administrative burdens on fiduciaries and the preparer of the federal estate tax return. Beneficiaries who report valuations for income tax purposes contrary to the estate tax values will cause a six-year statute of limitations to apply to the understatement of tax liability arising from such inconsistency. Code 6501(e)(1)(B)(ii). As of the date of these materials, the IRS has issued proposed regulations and instructions to the Form These have both clarified the law and raised questions. The IRS extended until June 30, 2016, the earliest filing date for Form 8971 and related Schedule A. Notice This additional time is needed by the IRS and Treasury to respond to questions from practitioners, including this author, regarding issues of compliance and uncertainties in the authority issued to date. 1.2 Traditional Basis Consistency Rules and Exceptions Whatever allowance exists for income tax basis change on the death of an individual continues on the death of the first spouse irrespective of whether a portability election is made. Internal Revenue Code 1014(a) provides: Except as otherwise provided in this section, the basis of property in the hands of a person acquiring the property from a decedent or to whom the property passed from a decedent shall, if not sold, exchanged, or otherwise disposed of before the decedent s death by such person, be (1) [DOD] the fair market value of the property at the date of the decedent s death, (2) [Alt Val] in the case of an election under section 2032, its value at the applicable valuation date prescribed by those sections, (3) [Special Use] in the case of an election under section 2032A its value determined under such section, or (4) [Conservation Easement] tothe extent of the applicability of the exclusion described in section 2031(c) the basis in the hands of the decedent. Income in respect to a decedent (under Code 691 and referenced as IRD ) represents the most significant, but not the exclusive, exception to basis adjustments arising from death. Reg sets forth the central connection between estate tax valuation and income tax value. That section states, The value of property as of the date of the decedent's death as appraised for the purpose of the Federal estate tax shall be deemed to be its fair market value. The regulation does not require that any estate tax be paid. Similarly, the regulation (which has not been updated since December 31, 1960) makes no reference to an estate tax return filed solely to make the portability election. On the other hand, this regulation states that in the event, no estate tax return is required under Code 6018, the value of the property appraised as of the date of the decedent's death for the purpose of State inheritance or transmission taxes shall be deemed to be its fair market value. 2

4 Aside: Code 6018 requires an estate tax return to be filed when the combination of the gross estate plus adjusted taxable gifts exceeds the basic exclusion amount ($5,430,000 for deaths in 2015 and $5,450,000 for deaths in 2016) in the year of death. (Gifts made after September 8, 1976 and before January 1, 1977 that used any of the decedent s specific exemption reduce the basic exclusion amount. Thus, the threshold test has three parts: (1) gross estate + (2) adjusted taxable gifts + (3) use of the specific exemption to compare against the unreduced basis exclusion amount.) Impact of Basis Consistency Rules Enacted in 2015: Code 1014(f) applies only to assets included in the gross estate, the value of which increases the estate tax liability, after considering available credits. Thus, the new basis consistency rules do not apply to estate tax returns filed for portability election purposes only. Reg (a)(2) provides that notwithstanding Reg (a)(1) (which is a portability regulation that provides that an estate tax return filed to make a portability election is a required return under Code 6018), an executor does not have to file or furnish Form 8971/Schedule A if the executor is not required by 6018 to file an estate tax return for the estate, even if the executor does file such a return for other purposes, e.g., to make a generation-skipping transfer tax exemption allocation or election, to make the portability election under 2010(c)(5), or to make a protective filing to avoid any penalty if an asset value is later determined to cause a return to be required or otherwise. As a result, at least from the standpoint of the scope of the new law, the required return condition does not apply to an estate tax return filed solely to make a portability election. Further Implication: Practitioners may deduce from the foregoing proposed regulation that a portability-only return is not a required return except for purposes of the portability election i.e., that it will not be viewed as a required return for purposes of income tax basis consistency rules under the traditional rules discussed in and 1.2.3, infra, of this outline Presumption of Value Reg (a) provides that the value of property as of the date of the decedent's death, as appraised for the purpose of the federal estate tax, shall be deemed to be its fair market value. For the purpose of determining the basis at death (for determining gain or loss on the sale thereof or the new base to establish the deduction for depreciation), the value of the property as determined for the purpose of the federal estate tax shall be deemed to be its fair market value at the time of acquisition. Thus, in the ordinary course of events, income tax basis arising from death is consistent with the reported estate tax value. TAM observes that, except where the taxpayer is estopped by his previous actions or statements, such value is not a conclusive but a presumptive value, which may be rebutted by clear and convincing evidence. In McMillan v. U.S., 64-2 U.S.T.C (S.D. W.V. 1964), the court applied a duty of consistency and found that the taxpayer had sufficiently participated in the estate tax valuation of foreign stock. The decision adds language that may be helpful to taxpayers, particularly after a return is reviewed, to estop the IRS from arguing for a valuation that is less than reported on the estate tax return. The court states: So if a taxpayer who acquired gain in an exchange of property sets up as its measure a value of what he received in which the Commissioner acquiesces, that value is the basis to be taken in measuring a further gain on a sale of the property in a later year. The taxpayer cannot say: 'I was 3

5 mistaken. The value was many times what I said it was. I therefore realized less gain on the last sale,' without doing justice all around in correcting his mistake. The reverse principle is also true if the Commissioner, in reviewing the return, should correct the first valuation and the taxpayer should acquiesce. The Commissioner could not repudiate his action when that value again became a determining factor A duty of consistency has also been applied with special-use valuation property in Van Alen v. Comr., T.C. Memo In that case, the court declined to follow Rev. Rul , which allows the taxpayer, who did not participate in the estate tax return, to overcome the estate tax value by clear and convincing evidence. The enabling language in Code 1014 respecting special-use value applying for income taxes differs for assets generally in the gross estate. Thus, the duty of consistency in Van Alen may not be presumed to apply to assets generally The Estate Tax Return Must Be Required The estate tax return does not establish a presumed valuation for income tax purposes unless a return is required. Moreover, the taxpayer has the burden of establishing basis. Establishing basis is a factual matter. If the taxpayer is unable to establish basis, the basis may be deemed to be zero. Decades ago, the IRS determined that an estate tax return that was filed despite the fact that no return was required under the threshold of Code 6018(a) was ineffective for purposes of making the alternate valuation (AV) date election. Rev. Rul (As a historic note, the IRS had previously ruled that AV date elections could be made even if the impact was to increase value and not reduce estate tax. This old rule was reversed by statutory change to Code Current law allows the AV date election to be made only to reduce the estate tax liability.) While the AV date discussion reflects the core of Rev. Rul , the ruling concludes with the following statement of broader application: Accordingly, it is held that where the value of the decedent's gross estate at the date of death does not exceed the statutory exemption of $60,000, a Federal estate tax return, Form 706, filed with respect to the estate is not a return as contemplated by section 26 USC 6018(a)(1) of the Code. [Typo in the ruling which stated 6918.] Because the return will not be recognized for Federal estate tax purposes, it follows that any material contained therein would have no force or effect with respect to its application in the determination of any other Federal tax liability. (Emphasis added.) Is Portability Return a Required Return to Deem the New Income Tax Basis? Code 2010(c)(5) and Reg (a)(1) require a timely filed federal estate tax return in order to make a portability election with regulator reference to Code This spawned debate regarding whether a Form 706 filed solely to make a portability election must be filed within the time and in the manner required for estate tax returns generally. Reg (a)(1)-(7) establishes particular rules for making portability elections and creates a regulatory requirement for a timely filed and properly prepared estate tax return. Distinction: Portability elections may be made on estate tax returns in which filing is required under general filing rules or on returns below the filing threshold. 4

6 Example 1: Abe dies in 2014 with a gross estate of $6 million and secured or general debts on Schedule K of $5 million, a portability election of as much as $4,340,000 ($5,340,000 less $1 million taxable estate) may be available. Abe s estate tax return is required under the statutory mandate of Code Result: The presumption of income tax basis equal to the federal estate tax value for assets subject to Code 1014(a) applies. Example 2: Betty dies in 2014 with a gross estate of $2 million and little or no material debt. Her DSUEA on this return filed solely to make the portability election may range from $3,340,000 ($2m taxable) to $5,340,000 (marital/charitable deductions for full $2m). Betty s estate is not subject to any state death tax. Betty s estate tax return is required solely under the statutory mandate of Code Result: The presumption of income tax basis equal to the federal estate tax value for assets subject to Code 1014(a) may not apply. This is an open issue, at least under Reg (a). Moreover, the position taken by Proposed Regulation (a)(2) that a portability return is not a return under Code 6018 for purposes of basis consistency reporting requirements under the Highway Act provides insight that the IRS would likely assert a similar position for purposes of traditional basis consistency rules, thus concluding that valuation on a portability return is not presumptively the income tax value. Example 3: Carla dies in 2014 with the identical estate values and debts as Betty, though her estate is subject to some state death tax. Although no estate tax return is due under the federal filing requirements, Reg (a) extends presumptive value to the valuation reported on the state death tax return to apply for purposes of establishing date of death value for income tax basis under Reg As a basic rule, portability elections are available only with the timely filing of a complete and properly-prepared estate tax return. Estates qualifying for simplified reporting may use good faith estimates of value rather than fair market value for the reporting of assets that receive the estate tax marital deduction or charitable deduction when the estate tax return is not required under the general rules (i.e., is filed solely for the portability election) and certain other tests are met. However, a good-faith estimate of value does not report fair market value. Accordingly, the good faith estimate does not support a consistency argument under traditional valuation principles. (See, 706 Art, 7A.9 for discussion of requirements and practical commentary with simplified reporting.) Estate tax returns filed solely for portability election purposes have entered unchartered waters relative to the impact of deeming of value for purposes of income tax basis adjustment. The ability to file a return with simplified reporting while hoping to apply a good-faith estimate of value may have been undermined by two references in the simplified reporting regulations: (1) The general rules established for simplified reporting under Reg (a)(7)(ii)(A) provide, in relevant part, an executor is not required to report a value for such property on the estate tax return (except to the extent of the good-faith estimate of value later described in the regulation with rounding up to the next $250,000 increment). Thus, the general rule states that the reporting of value in the traditional manner on the return is not required, but it does not expressly state that traditional reporting of fair market value cannot be indicated in some manner on the return. (2) Example #1 under subparagraph (B) in the regulation considers real property, bank accounts and life insurance passing outright to the surviving spouse and reported in the simplified manner. In applying simplified reporting, the example applies the facts so that the executor files an estate tax return on which these assets are identified on the proper schedule, but provides no information on the return with regard to the date of death value. 5

7 One approach toward simplified reporting would be to report assets without values on the schedules, indicate the rounded up good faith estimates of value on lines 10 and 23 of the Recapitulation, attach an appendix to the return with the executor stating fair market value with actual valuations, and attach appraisals to support those valuations of fair market value. Nevertheless, it would appear safest when trying to fall within the framework of a required return in light of Rev. Rul , for purposes of establishing an evidentiary basis and greater stability for income tax reporting, to file the Form 706 for portability-only purposes and replicate traditional estate tax return practice. In other words, traditional reporting of value and forsaking use of simplified reporting provides the best position to assert the presumption that the reported value on the Form 706 applies for income tax basis for date of death value under Reg Summary of Changes under Code 1014(f) and 6035 Code 1014(f) provides that the basis of certain property acquired from a decedent cannot exceed that property s value as finally determined for federal estate tax purposes (i.e., the final value ). Final value is a described term. If no final value has been determined when the taxpayer s basis in the property becomes relevant, the taxpayer uses the value reported on the Statement (Schedule A to the Form 8971) required by Code 6035(a) (the fair market value reported on the federal estate tax return) to determine the taxpayer s basis for federal tax purposes. Code 1014(f)(2) provides that 1014(f)(1) applies only to property included in the decedent s gross estate when that property increases the estate s liability for federal estate tax (reduced by credits allowable against the tax other than a credit for the prepayment of estate tax). Early Alert of Terms: Schedule(s) A is attached to the Form 8971 filed with the IRS. Schedule A is also referred to as a Statement when furnished to the beneficiaries or respective beneficiaries. It is a defined term in 1.4, infra. Code 6035 requires the reporting, both to the IRS and to the beneficiary, of the value of property included on a federal estate tax return required under Code Code 6018(a)(1) imposes an estate tax return filing requirement in the estate of a citizen or resident alien when the combination of the gross estate plus adjusted taxable gifts exceeds the basic exclusion amount in the year of death. Code 6018(a)(2) imposes an estate tax return filing requirement in the estate of a non-resident alien (NRA) when the gross estate exceeds $60,000. Thus, in the estate of a U.S. citizen or resident alien, reporting under Code 6035 is not required when the estate tax return is filed solely to make a portability election. As noted, Code 1014(f) applies only with respect to any property that, when included in the decedent s estate, increases the estate tax liability (reduced by allowable estate tax credits against that tax other than credit for the prepayment of estate tax). Accordingly, situations will often arise in which informational reporting is required under Code 6035 yet the consistency rule under Code 1014(f) will not apply because the value of the property does not increase the estate tax liability. In addition, property in the gross estate passing fully under a marital deduction and charitable deduction must be reported and furnished under Code 6035 even if the basis consistency rules do not apply to that property when the estate return is required to be filed under Code Described and Defined Terms The following is a summary of described or defined terms, which provide a shortcut to later discussion of the regulations under Code 1014(f) and 6035: 6

8 (A) Final Value: The determination of final value is established by an order of priority under Reg (a)(2). Accordingly, it is classified in this text as a described term rather than a defined term. The final value of property reported on a return filed pursuant to Code 6018 is its value as finally determined for estate tax purposes. Reg (c) recites the definition of final value. That final value is: (1) the value reported on a return filed with the IRS that is required by Code 6018 once the period of limitations for assessment of the estate tax under Chapter 11 has expired without that value having been timely adjusted or contested by the IRS; (2) if the foregoing item (1) does not apply, then the value is the value determined or specified by the IRS once the periods of limitations for assessment and for claim for refund or credit of estate tax have expired without that value having been timely contested; (3) if neither of the foregoing applies, the value is the value determined in an agreement, once that agreement is final and binding on all parties (i.e., a settlement agreement with the IRS); or (4) if none of the foregoing apply, the value is the value determined by a court, once the court s determination is final. Prior to the determination of final value under the foregoing definition, the recipient of that property may not claim an initial basis in that property in excess of the value reported on the Statement required to be furnished under Code 6035(a) (i.e., the Schedule A provided to the recipient with respect to a Form 8971 filed by the executor). If the final value is subsequently adjusted from the value reported on the prior Schedule A provided under Code 6035(a), then the taxpayer may not rely on the Schedule A initially furnished under Code 6035(a) for the value of the property, and the taxpayer may have a deficiency and underpayment resulting from this difference. Reg (3) recognizes that the estate may discover property or the omission of property after the estate tax return is filed. In the event that property is discovered after a mandated estate tax return is filed (i.e., a return required under Code 6018) and property to which the consistency requirement applies is discovered after the required estate tax return has been filed or otherwise is omitted from that return (after-discovered or omitted property), the final value of that property is determined as follows: 1. The final value of the after-discovered or omitted property is determined in accordance with the above-described final-value rules if the executor, prior to the expiration of the period of limitation on assessment of estate tax, files with the IRS an initial or supplemental estate tax return under Code 6018 reporting the property. 2. On the other hand, if no reporting of the omitted or after-discovered property is made on an initial or supplemental estate tax return prior to the expiration of the assessment period for estate tax, the final value is zero. If no required estate tax return under Code 6018 is filed, and if the inclusion in the decedent s gross estate of the after-discovered or omitted property would have generated or increased the estate s estate tax liability, the final value, for purposes of Code 1014(f), of all property subject to the basis consistency rules is zero until the final value is determined (B) Executor: The term executor includes both the executor as that term is defined generally for estate tax purposes under Code 2203 plus any other person who is required under Code 6018(b) to file a return. Reg (d) uses the same terms to define executor as does Reg (g)(1). This term appears in lower case when used in the regulations. (C) Information Return: An Information Return is defined to mean Form 8971, including each beneficiary s Statement (Schedule A) required to be furnished, or any successor form issued by the IRS for this purpose. Reg (g)(2). 7

9 (D) Statement: The term Statement means the payee s statement described as Schedule A of the Information Return furnished to a beneficiary or any successor form or schedule issued by the IRS for this purpose. Reg (g)(3). (E) Beneficiaries: See 1.6, infra, for a description of beneficiaries. It is not otherwise an expressly defined term. This term appears in lower case when used in the regulations. 1.5 Form 8971 and Statement (Schedule A) Form 8971 must be filed by an executor of an estate or other persons required to file Form 706 or 706-NA under Code 6018(a) or 6018(b) or qualified heir who must file Form 706- A under Code 2032A after July 31, 2015 (whether timely or late). Form 8971 is used to report the estate tax value to the IRS and all Schedules A relevant to the estate (or those being supplemented) filed with the IRS as part of Form The respective Schedule A is to be sent to each beneficiary to inform that beneficiary of the estate tax value applicable to property being distributed to that beneficiary. Accordingly, the date on which the estate tax return is filed determines whether the basis consistency and reporting requirements enacted under the Highway Act apply to the given estate. Example 1: D-1 died in 2012 and the estate tax return was filed 8/1/15 for an estate required to file under Code 6018(a) or 6018(b). Result: the Executor must file an Information Return (Form 8971 with its Schedule(s) A) with the IRS and furnish a Schedule A to each respective recipient beneficiary. Example 2: D-2 died in December 2014 and the estate tax return was filed 7/31/15. Result: No filing of Form 8971 or service of the Schedule A is required. Example 3: D-3 died on February 1, 2014 for which the estate tax return was filed on April 10, 2015 and required under Code 6018(a) or 6018(b). On September 4, 2015 (after the extended due date for the filing of the Form 706 has expired) a supplemental estate tax return is filed because additional assets are identified and/or missing appraisal information is received. Analysis: The estate tax return was filed before August 1, By regulation, an estate tax return cannot be amended once the due date, including extension has expired. Reg (d). The term supplemental return is misleading. The document by regulation constitutes supplemental information. Result: Thus, the late supplement is not a return and compliance with the Highway Act should not be triggered. Example 4: The conditions are the same as in Example 3, above, except that D-3 died on June 5, 2015, and the executor filed a timely extension of time for Form 706 through September 5, Result: Form 8971 with its Schedule A must be filed and served under 6035 because the supplement is considered a return. Reg (d) Protocol for Filing Form 8971 and Transmitting Schedule(s) A A return that is as complete as possible must be filed before the expiration of the extension period. The return thus filed will be the return required by Code 6018(a), and any tax shown on the return will be the amount determined by the executor as the tax referred to in Code 6161(a)(2), or the amount shown as the tax by the taxpayer upon the taxpayer's return referred to in Code 6211(a)(1)(A). The return cannot be amended after the expiration of the extension period, although supplemental information may subsequently be filed that may result in a finally determined tax different from the amount shown as the tax on the return. Reg The instructions state that Form 8971 and Schedule A do not apply to an executor of an estate that is not required to file an estate tax return under Code 6018 but who does so for the 8

10 sole purpose of making an allocation or election respecting GST tax. Reg (a)(2) confirms that the Form 8971 and Schedule A is similarly not required in either the foregoing instance or when the return is filed solely to make a portability election. Form 8971 (with all attached Schedule(s) A) must be filed with the IRS no later than the earlier of: 1. Within 30 days after the date on which Forms 706, 706-NA, or 706-A is required to be filed (including extensions granted, if any) with the IRS; or 2. Within 30 days after the date on which any of the Forms 706, 706-NA, or 706-A is filed with the IRS. If the first Form 706, 706-NA, or 706-A is filed after the due date (including extensions) and after July 31, 2015, then Form 8971 and Schedule(s) A are due 30 days after the filing date. The IRS initially extended the time, if otherwise earlier due, for the filing of this return and beneficiary information until February 29, 2016, then March 31, 2016, and finally to June 30, Notice A beneficiary may be provided with his/her/its Schedule A by mail, , in-person delivery, or private delivery service. The executor of the estate (or other person required to file) certifies on Form 8971 the date on which the Schedule A was provided to each beneficiary and must retain proof of mailing, proof of delivery, acknowledgement of receipt, or other relevant information of delivery and content. Acceptable private delivery services are recited in the instructions. If the executor is the beneficiary, the executor must still issue the Schedule A to that beneficiary. The Schedule A supports the knowledge of the IRS even if the executor-beneficiary knows the facts independently Included and Excluded Assets Property to which the Information Return (which is a defined term and discussed in 1.4, supra) requirement applies includes all property reported or required to be reported on an estate tax return except for property excluded from the reporting requirements for the Informational Return. This includes, for example, any other property in which basis is determined in whole or in part by reference to that property (for example as the result of a like-kind exchange or involuntary conversion). In the estate of a non-resident alien, this requirement applies only to the property that is subject to U.S. estate tax. Only the deceased spouse s one-half interest in community property is subject to the Information Return requirements. The following property is excluded from the reporting requirements: 1. Cash (other than a coin collection or other coins or bills with numismatic value); 2. Income in respect to a decedent ( IRD ) (as defined in Code 691); 3. Tangible personal property for which an appraisal is not required under Reg (b); and 4. Property sold, exchanged, or otherwise disposed of (and therefore not distributed to a beneficiary) by the estate in a transaction in which capital gain or loss is recognized. Example 5: The gross estate for which an estate tax return is required under Code 6018 includes an IRA with a value of $5 million, tangible personal property in several rooms in the house none of which has articles with a value greater than $100, a painting with a value of $6,000 as determined by an independent and competent appraiser in the field or disinterested dealer in that class of property, and a home with a value of $2 million. Only the painting and 9

11 residence are subject to the filing and furnishing of the Information Return and Statement. Reg (a)(2). Example 6: The same facts apply as shown in Example 5 except that the IRA is a Roth IRA with respect to which distributions would be qualified distributions under Reg A-6. In that instance, the Roth IRA is not an asset generating IRD. Thus, the Roth IRA in addition to the painting and residence are subject to the filing and furnishing of the Information Return and Statement. Alert: At the time of this presentation, several uncertainties exist under the proposed regulations issued in March 2016 and the instructions to Form In view of the extended due date of June 30, 2016, the author anticipates that many of these uncertainties will be resolved in final regulations or other announcements. Some examples include, whether to include assets on Schedule A if the asset has some income tax basis greater than zero (such as a contract for sale pending close of escrow to which contingencies have been fulfilled, an installment sale, life insurance if subject to Code 101 for which basis exists and an IRA with some non-deductible contributions) and the distinction with Roth IRAs between those that satisfy the qualified distribution rule (generally a 5-year hold) versus those that do not (to which IRD applies in part). Thus, we defer discussion to see what developments may arise so that these can be addressed in class. Practice Hint with Problematic Beneficiaries: Some beneficiaries are naturally antagonistic toward other loved ones of the decedent. If the beneficiary of a pecuniary bequest and nothing else were to see valuations and assets going to other beneficiaries, that beneficiary might start litigation or accentuate the stresses in life. If a beneficiary s bequest is funded in cash, particularly before the Form 8971 is filed, or can be funded only in cash under the terms of the trust, then the executor need not furnish a Schedule A to that beneficiary. This follows from the first exception in the list of exceptions above listed from Reg (a)(2). The Statement (Schedule A) provided to a given beneficiary shall indicate all property acquired (or expected to be acquired) by that beneficiary from the estate. If the beneficiary receives a partial interest in the property that is less than the total interest valued in the gross estate, indicate on Schedule A for that beneficiary both that interest (as a dollar figure) and the percentage of the full gross estate value that this beneficiary s distribution represents. Example 7: The gross estate owns 100% of Blackacre valued for $500,000, and distributed one half to each of Son and Daughter. Schedule A for each child would indicate a 50% interest and $250,000 value for income tax purposes. If the executor has not determined which beneficiary is to receive an item of property as of the due date of the basis reporting information, the executor must list all items of property that may be used, in whole or part, to fund the beneficiary s distribution on that beneficiary s Schedule A. The IRS recognizes that the same property may be reflected on more than one Schedule A. The regulations provide that executor may, but is not required to, file and furnish a supplemental Information Return and Statement (i.e., file Form 8971 and furnish Schedule[s] A) after the executor determines the identity of property subject to the information return requirement when the prior Information Return and Statement were filed and furnished listing all 10

12 property that a given beneficiary might receive. 2 However, if the beneficiary cannot be located after due diligence and that beneficiary is later located after the initial Form 8971/Schedule A is filed, the executor must file a supplemental Information Return and furnish the Statement (Schedule A) within 30 days after locating the beneficiary.(see 1.6, infra, and Reg (c)(4).) Example 8: Decedent s (D) estate makes a specific gift of a home to B-1, and leaves the residue to be divided in equal shares among B-1, B-2 and B-3. In addition, B-3 is the surviving joint tenant of an asset fully included in D s gross estate. The estate tax return is required under Code After the estate tax return has been filed and more than 30 days thereafter, the executor determines the assets to be distributed to each of the three residuary beneficiaries. Result: The executor must timely file Form 8971 and all Schedules A with the IRS within 30 days of filing the estate tax return. The Schedule A for each beneficiary appears below. R below represents all assets that may included in the residue that were part of the gross estate or that passed as a result of the death of D B-1: R plus home B-2: R B-3: R plus joint tenancy property The executor is not required to file or furnish a supplemental Information Return (Form 8971) and Statement (Schedule A) after the allocation of assets to fund the residue is made. The executor may, however, choose to file and furnish the Form 8971 and Schedule A. Corollary: If the executor did not have information regarding the joint tenancy sufficient to report that asset on the estate tax return but was aware that B-3 had the information, the executor could notify the IRS of that fact and B-3 s contact information in accordance with Code 6018(b), and B-3 would be required to file an estate tax return and comply with Code 6035 with respect to that asset. 3 Assets valued using the alternate valuation (AV) date under Code 2032 or special-use valuation under Code 2032A will report income tax basis using the changes arising under these sections. Example 9: The gross estate owns 100% of XYZ Corp. with an estate tax value of $4 million as of the date of death and $3.5 million value on the AV date. Form 8971/Schedule A reporting will use the $3.5 million AV date value. Example 10: The gross estate reports a value of $2.9 million as the special-use value for a farm, which otherwise would have a fair market value of $4 million. The Form 8971/Schedule A reporting will use the $2.9 million special-use value. However, if a recapture event later arises so that the income tax basis adjusts as a result of the recapture event and an election to make the income tax basis adjustment, 4 supplemental Information Return (Form 2 See, Reg (c)(3), example 1. The initial instructions to Form 8971 provide that once distribution is made, a supplemental Schedule A is required. However, that rule was changed in the regulations. 3 Reg (d); Reg (g) and see 14 of the Notice of Proposed Rulemaking and Notice of Proposed Rulemaking by cross-reference to temporary regulations dated 3/2/16, published 3/4/16, Reg See, 1016(c). 11

13 8971) and Statement (Schedule A) should be filed with the IRS and furnished to the recipientbeneficiary. Reg (e)(2). For estate tax returns in which the filing of an Information Return (Form 8971) and furnishing to the recipient(s) of Schedule A is required, each asset in the estate must have its schedule and line item reference on the estate tax return so that information can be placed on the Schedule A for a particular beneficiary. Accordingly, each asset within the reporting requirement of Reg (a)(1) must have its own federal estate tax return schedule and item number reference. If you combine several assets within one descriptor on the Form 706 (such as with an exhibit that has one item number on a Schedule but which lists several securities in the exhibit), there will not be a separate item number to reference in Schedule A to the Form While that approach can continue to be used for purposes of the Form 706, it will not generally be efficient when any of the listed securities must be reported on a Schedule A to the Form Schedule Thus, a protocol of entering separate item numbers for each asset provides greater efficiency. The easier method of combining several items in one attachment should not be used unless all 25 of the items will be distributed to the same beneficiary or will be distributed as part of the residue among known beneficiaries (among whom the shares will be divided). In any event, each item listed as an attachment (such as an EstateVal report) needs to be separately numbered so that cross-references can be included with the Statement(s) furnished to the recipient(s) of the assets listed. Therefore, list each security separately on Schedule B, E or G as applicable in order to facilitate later compliance with Form 8971 and its respective Schedule(s) A Describing Assets on Schedule A The instructions for the preparation of Schedule A to Form 8971 direct that the same description in column B be recited as the one that the executor used for the property on the Form 706, Form 706-NA, or Form 706-A be recited. In addition, include in column B the schedule and item number in which the property was reported on Form 706, Form 706-NA, or Form 706-A, as applicable. This instruction may be clear on its face, yet it may be unduly cumbersome. For example, descriptors in the estate tax return commonly reference exhibits and identify those exhibits, including appraisals. However, these cross-references are not critical to the identification of the asset or interest for purposes of Schedule A. Moreover, the appraisals are not provided to the beneficiary as part of the Schedule A transmittal or filing. Consult the instructions to the Form 706, Form 706-NA, or Form 706-A for the particular descriptors required to a given class of asset. If the beneficiary acquired (or is expected to acquire) a joint interest, a fractional interest, or any other interest in property that is less than 100%, indicate the interest in the property the beneficiary will acquire. Comment: It will be helpful to use reporting software that integrates completing Form 706 with the descriptors and references needed to complete Schedule A to the Form The instructions to Form 8971 require the same descriptor in Schedule A that is used for the description of the asset in the Form 706. The Instructions for the Form 706 and, as specifically stated on Forms B, E, F and G, call for the reporting of CUSIP numbers when available. Unless your selected software system exports those numbers from the third column in Schedule B of the Form 706 into the respective Schedule A to the Form 8971, your staff will be required to input those numbers manually. Thus, unless your reporting software program automates this process, you should enter those CUSIP numbers as part of the descriptor in the 12

14 second column of Schedule B; this will save time. The author suggests that, for efficiency, preparers leverage software that assists in reporting both Forms 706 and 8971, integrating the two. This comment also applies to the reporting of CUSIP numbers and taxpayer identification numbers on Schedules E and F Supplementing Form 8971 and Schedules A The executor must file the supplemental Information Return (Form 8971 and Schedule A) within 30 days after (1) the final value is determined; (2) the executor discovers that previously provided information on the Information Return or Statement is incorrect; or (3) a supplemental estate tax return is filed reporting property not reported on a previously filed estate tax return. (See, Reg (c)(3)(i) relating to after-discovered or omitted property). In this case, a copy of the supplemental Statement provided to each beneficiary of an interest in this property must be attached to the supplemental Information Return. With respect to property in the probate estate or held by a revocable trust at the decedent s death, if an event described in the foregoing paragraph occurs after the decedent s date of death but before or on the date the property is distributed to the beneficiary, the due date for the supplemental Information Return and corresponding supplemental Schedule A is the date that is 30 days after the date the property is distributed to the beneficiary. If the executor chooses to furnish to the beneficiary a Schedule A that includes information regarding any changes to the basis of the reported property (within Reg (a)(2)) that occurred after the date of death but before or on the date of distribution, that basis adjustment information (which is not part of the requirement under Code 6035) must be shown separately from the final value required to be reported on that Schedule A. Schedule A provides a box at the top of the schedule to check if the filing is supplemental. A supplemental Information Return and Statement(s) are not required to be filed in the following instances: (1) to correct an inconsequential error or omission within the meaning of Reg (b); or (2) to specify the actual distribution of property previously reported as being available to satisfy the interests of multiple beneficiaries. The regulations warn that changes requiring supplement under this rule are not inconsequential errors or omissions within the meaning of Reg (b) (penalties for failure to furnish a correct beneficiary Statement). Form 8971 and Schedule(s) A may not be filed electronically. In the event of an audit of an estate tax return, Form 8971 and Schedules A should be provided to the IRS office conducting the audit Communication With the Return Preparer Permission to discuss Form 8971 and attached Schedule(s) A is limited to information reported or required to be reported on these forms. It does not authorize the return preparer to represent the estate before the IRS or to enter into agreements with the IRS respecting these forms. The taxpayer must complete and attach Form 2848 (Power of Attorney) if the executor would like the return preparer to represent the estate before the IRS with respect to these forms or other matters pertaining to the estate. If the executor would like the return preparer to receive other confidential information pertaining to the estate, a Form 8821 (Tax Information Authorization) should be completed. A paid return preparer may sign the original or amended Form 8971 by rubber stamp, mechanical device, or computer software program as alternatives to a handwritten signature. 13

15 1.5.6 Penalties The IRS will impose penalties for late filed and/or incorrect Forms 8971 and Schedule(s) A. Code Only one penalty will apply for all failures relating to a single filing of a single Form 8971 and the Schedule(s) A required to be filed with that form. Each filing of a Form 8971 with Schedule(s) A is a separate filing, regardless of whether the filing is of the initial Form 8971 and Schedule(s) A or a supplemental Form 8971 and Schedule(s) A. The amount of the penalty depends on when the correct Form 8971 and Schedule(s) A is filed. The penalty is: $50 per Form 8971 (including attached Schedule(s) A) if it is filed within 30 days after the due date. The maximum penalty is $500,000 per year (or $175,000 if the taxpayer qualifies for lower maximum penalties). $250 per Form 8971 (including attached Schedule(s) A) if it is filed more than 30 days after the due date or if it is not filed. The maximum penalty is $3 million per year ($1 million if the taxpayer qualifies for lower penalties.) The executor or other person required to file qualifies for the lower maximum penalties if their average gross receipts for the three most recent tax years (or for the period they were in existence, if shorter) ending before the calendar year in which the information returns were due total $5 million or less. If any failure to file a correct Form 8971 or Schedule A is due to intentional disregard of the requirements to file correct forms, the penalty is at least $500 per Form 8971 and the Schedule(s) A required and no maximum penalty applies. An inconsequential error or omission is not considered a failure. An inconsequential error or omission does not prevent the IRS from processing the form or schedules. Errors and omissions that are never considered inconsequential are those related to the taxpayer identification number (social security number, individual taxpayer identification number, or other number used by the IRS for administration), taxpayer s surname, and the value of the asset the beneficiary is receiving from the estate. Foreign beneficiaries who do not have a taxpayer identification number and who receive property subject to reporting on Schedule A will need to obtain an individual taxpayer identification number (ITIN). The IRS has published guides for individuals to obtain an ITIN. 5 If the foreign beneficiary-recipient of an asset otherwise requiring Form 8971 and Schedule A compliance does not want to obtain an ITIN, then the executor will likely have to fund the bequest in cash or with other excluded assets before the Information Return is filed to avoid issuing a Schedule A to that beneficiary. As a point of caution, the sale of a specifically bequeathed asset (such as real property or other unique asset) to facilitate the avoidance of obtaining an ITIN may be more difficult or unwelcome to the foreign beneficiary who wants to receive the particular asset given. The executor may prefer to address these considerations early in the administration process to promote understanding and offer choices where appropriate. A similar penalty schedule and terms described above apply for the failure to furnish correct Schedule(s) A to beneficiaries by the due date. Code Beneficiaries who report basis in property that is inconsistent with the amount on the Schedule A may be liable for a 20% accuracy penalty. Code Penalties for failing to file a correct Form 8971 or Schedule(s) A will not apply to any 5 See, Form W-7, Topic Individual Taxpayer Identification Number (ITIN) on the IRS website, and for more information, refer to Publication 519, U.S. Tax Guide for Aliens, as to the Individual Taxpayer Identification Number (ITIN). 14

16 failure that is shown to be due to reasonable cause and not willful neglect. See, Code 6724 and cross-references thereto in Reg (h)(1) and (2). The IRS notes that in general it must be shown that the failure was due to an event beyond the control of the taxpayer or due to significant mitigating factors. It must further be shown that the executor or other person required to file acted in a responsible manner and took steps to avoid the failure. The penalty amount and ceilings are inflation adjusted. For example, see Rev. Proc Description of Beneficiaries and Relationship to Reporting Requirements The executor must furnish the Statement (i.e., Schedule A) containing the required information regarding that beneficiary s property to each beneficiary (including a beneficiary who is also an executor) receiving property that must be reported on the Information Return filed with the IRS,. Reg (c). (See 1.4, supra, for the definition of Information Return and Statement.) The term beneficiary includes individuals, trusts, entities, estates, or other recipients of property with respect to which the reporting requirements apply. Reg (c)(2). For purposes of this rule, the beneficiary of a life estate is the life tenant; the beneficiary of a remainder interest is the remainderman identified as if the life tenant were to die immediately after the decedent; and the beneficiary of a contingent interest is a beneficiary, unless the contingency has occurred prior to the filing of Form Reg (c)(1). If the contingency subsequently negates the inheritance of the beneficiary, the executor must do supplemental reporting to report the change of beneficiary. If the beneficiary has not been determined by the due date for the Information Return, or the executor has not determined what property will be used to satisfy the interest of each beneficiary, the executor must report on the Schedule A for each such beneficiary all of the property that the executor could use to satisfy that beneficiary s interest. The instructions and the regulations are inconsistent respecting the executor s filing responsibilities when the identification of which recipients will receive particular property or interests therein is undetermined. Reg (c) states, Once the exact distribution has been determined, the executor may, but is not required to, file and furnish a supplemental Information Return and Statement On the other hand, the instructions provide, A supplemental Form 8971 and corresponding Schedule(s) A should be filed once the distribution to each such beneficiary has been made. However, the executor has a duty to Supplement the Information Return and Statement(s) in the event of the discovery of additional or unreported assets or changes in valuation. (See 1.5.4, supra, regarding the duty to supplement the Return Information and Statement, and 1.8, infra, regarding unreported or omitted assets.) The executor must use reasonable due diligence to identify and locate all beneficiaries. Reg (c)(4). The IRS must be informed with the filing of the Form 8971 of any inability to locate a beneficiary by the due date. In addition, the executor must explain the efforts the executor has taken to locate the beneficiary and to satisfy the obligation of reasonable due diligence. If the executor subsequently locates the beneficiary, the executor must furnish the beneficiary with that beneficiary s Schedule A and file a supplemental Information Return with the IRS within 30 days of locating the beneficiary. A copy of the beneficiary s Schedule A must be attached to the supplemental Information Return. If the executor is unable to locate a beneficiary and distributes the property to a different beneficiary who was not identified in the Information Return as the recipient of that property, the executor must file a supplemental Information Return with the IRS and furnish the substitute beneficiary with that beneficiary s Schedule A within 30 days after the property is distributed. Reg (c)(4). 15

17 The proposed regulations have added a controversial requirement in Reg (f) in which certain transferees who receive carryover basis must file and furnish the Information Return. (See 1.7, infra.) As discussed in the next section, the executor is not the only one with a reporting requirement. 1.7 Subsequent Transfers by Recipients and Reporting Duties Among the most controversial requirements under the proposed regulations is Reg (f) that compels the beneficiary who receives property required to be reported on an Information Return (see 1.4, supra, for the definition of Information Return) to provide the Information Return to anyone who receives that property in a non-recognition event. This imposes a reporting obligation on persons other than executors of the estate tax return (or persons with greater knowledge about the value or nature of an asset than the executor and to whom an estate tax reporting obligation applies). In this case, the duty would fall upon donees of gifts or other related transferees 6 who receive property in a non-recognition event. Apart from the larger question regarding whether the regulations can expand reporting requirements to include subsequent transferees, some more mundane issues arise: 1. Does a beneficiary who establishes a revocable living trust have to file a Form 8971 and furnish the Schedule A to the trustee of that settlor s trust? Given the inclusion of any trust in which the grantor is treated as the owner within the definition of a related transferee, this appears to be the case. If this is the case, it will constitute a horrid trap for estate planners. 2. Are trustees who receive property subject to Information Return reporting required to file and furnish Form 8971/Schedule A when distributing property to a related transferee? While such would appear to be the case, Reg (f) does not expressly include a trustee within the definition of a related transferee. 3. Recipients of part-exchange, part-sale transactions. The related transferee who becomes a recipient/transferor must, no later than 30 days after the date of the distribution or other transfer, file with the IRS a supplemental Information Return (i.e., Form 8971 and each Schedule A related to that recipient/transferor) and furnish the Statement (i.e., Schedule A; see 1.4, supra, for the definition of this term), and a copy of the same supplemental Statement to the transferee. The requirement to file a supplemental Statement and furnish a copy to the transferee similarly applies to the distribution or transfer of any other property the basis of which is determined in whole or in part by reference to that property (for example as the result of a like-kind exchange or involuntary conversion). In the case of a supplemental Statement filed by the recipient/transferor before the recipient/transferor s receipt of the Statement from the executor, the supplemental Statement will report the change in the ownership of the property and need not provide the value information that would otherwise be required on the supplemental Statement. In the event the transfer occurs before the final value is determined, the transferor must provide the executor with a copy of the supplemental Statement filed with the IRS and furnished to the transferee in order to notify the executor of the change in ownership of the property. When the executor subsequently files any return and issues any Statement required by 6 Reg (f): A related transferee means any member of the transferor s family as defined in Code 2704(c)(2); any controlled entity (a corporation or any other entity in which the transferor and members of the transferor s family [as defined in Code 2704(c)(2)], whether directly or indirectly, have control within the meaning of Code 2701(b)(2)(A) or (B)), and any trust of which the transferor is a deemed owner for income tax purposes. 16

18 paragraphs (a) or (e) of Reg , the executor must provide the Statement (or supplemental Statement) to the new transferee instead of to the transferor. If the transferor chooses to include, on the supplemental Statement provided to the transferee, information regarding any changes to the basis of the reported property that occurred during the transferor s ownership of the property, then that basis adjustment information (which is not part of the requirement under Code 6035) must be shown separately from the final value required to be reported on that Statement. 1.8 Problems with Omitted or Unreported Assets Note that the starting point for income tax basis under the definition of final value is the value of assets within the scope of Code 1014(f) as reported on the estate tax return. Accordingly, the filing of an estate tax return is required to establish the final value unless the final value is determined by a subsequent event described in 1.4, supra. See, Reg (c)(1). The filing of the estate tax return with values reported is the first step in establishing income tax basis when an estate tax return is required. Thus, it appears under Reg (c)(1) that if an estate tax return is required but the fair market value as of the filing of the estate tax return is not shown on the estate tax return, then the income tax basis is zero (unless a later event determines final value). The principle of a zero-income-tax basis applies potentially to after-discovered or omitted property that falls within property to which the basis consistency rules apply. (See Reg (b) for the definition of property within the basis consistency rules.) In the event that property to which the basis consistency rules apply is discovered after the required estate tax return has been filed or is omitted from that return (after-discovered or omitted property), the final value of that property is determined under the following rules: First, the final value of the after-discovered or omitted property is determined in accordance with the final value rules discussed under the described and defined terms in 1.4, supra, if the executor, prior to the expiration of the period of limitation on assessment of the estate tax, files with the IRS an initial or supplemental estate tax return under Code 6018 reporting the property. Second, if the executor does not report the after-discovered or omitted property on an initial or supplemental estate tax return filed prior to the expiration of the period of limitation on assessment of the estate tax, the final value of that unreported property is zero. Third, if no estate tax return required under Code 6018 has been filed, and if the inclusion in the decedent s gross estate of the after-discovered or omitted property would have generated or increased the estate s tax liability, the final value, for purposes of Code 1014(f), of all property to which the basis consistency rules apply is zero until the final value is determined under the general rule. Specifically, if the executor files a return pursuant to Code 6018(a) or (b) that includes this property or the IRS determines a value for the property, the final value of all property within the scope of Code 1014(f) includible in the gross estate then is determined in accordance with the definition of final value. Example 11: The executor files a required Form 706 but omits an asset, or later discovers that an asset exits. The executor files and furnishes Form 8971 and Schedule(s) A as required based on the known assets. After the foregoing filing, the executor determines that another asset exists (assuming in this instance a fair market value of $400,000 as of the date of death). If the executor supplements the estate tax return and files and furnishes Form 8971 and Schedule(s) A within the statute of limitations for assessment of estate tax, the basis to the recipient is $400,000. If, on the other hand, the executor does not supplement the estate tax 17

19 within the limitations period and file and furnish Form 8971 and Schedule(s) A within the assessment period, the income tax basis for the after-discovered or omitted asset is zero. If executors are uncertain of value when the estate tax return is filed, the safer course would be to take the best estimate feasible. Indicate the uncertainty of value and that the obtaining of a qualified appraisal is in process. This disclosure may assist with later penalty abatement if the valuation is low and avoid the valuation being successfully asserted as an admission if the value is too high. Then, supplement the estate tax return and supplement any Information Returns and Statement(s) provided under Code If no value is indicated on the initial return, the income tax basis will also be zero under the initial definition of final value. The foregoing reflects one of the most significant consequences of the basis consistency rules. Prior to the consistency rules of Code 1014(f) and proposed regulations, no requirement existed by which basis adjustment to date of death value was dependent on the filing of an estate tax return. Reg (a) (par. (5) and (6)) and (b). Estate tax returns cannot be amended once filed unless time remains to file the return, as extended. Reg (d) provides that an estate tax return may be supplemented. It does not mandate the supplementing of the estate tax return. Under Code 6501(a), the IRS generally has three years from the filing of the estate tax return to assess tax. That period is extended to six years in the event that assets representing greater than 25% of the value of the gross estate are not reported. Code 6501(e(2). In Woods (Estate of Williamson) v. Comr., T. C. Memo , T. C. Memo the tax court concluded that the IRS had sufficient information regarding uncertainty of assets in the gross estate as a result of disclosures in the application for extension of time to file the estate tax return to determine that the three-year statute applied, not the longer assessment period. The IRS was prohibited from assessing additional estate tax, and the estate tax was not sanctioned for failing to file a supplemental return even though the additional assets in the gross estate were resolved to be part of the gross estate within the three-year assessment period. Under this regulation the income tax basis for the undisclosed asset is zero. Comment: As a general observation, it is preferable to file a Form 706 if the estate is close to the filing requirement to avoid penalties for late filing or late payment if facts including but not limited to later-discovered property or additional adjusted taxable gifts would compel the filing of the return, if known. The IRS recognizes that executors may want to file estate tax returns even if it appears that the return is not required under Code Reg expressly excludes such protective estate tax returns from the reporting and furnishing requirements (i.e., Form 8971 and Schedule(s) A) for estate tax returns the values of which are below the filing threshold of Code If assets are later discovered such that it is determined that a filing requirement did, in fact, exist for the decedent s estate, then all elements apply: basis consistency, filing the Information Return, and furnishing the Statement to the beneficiaries. 1.9 Post-Death Basis Adjustments and Impact of Other Law That Establish Income Tax Basis The final value determines the initial basis. Adjustments, however, to basis of property may arise from post-death events or other provisions of law. Such adjustments are not prohibited adjustments and do not result in accuracy-related penalties. Reg (a)(2) respects that basis adjustments subsequent to death or the determination of the final estate tax value may arise and should be respected for these purposes. Thus, the taxpayer s initial basis 18

20 in that property may be adjusted due to the operation of other provisions of the Code governing basis without violating the general rule of Reg (a)(1). For example, post-death adjustments may include gain recognized by the decedent s estate or trust upon distribution of the property, post-death capital improvements and depreciation, and post-death adjustments to the basis of an interest in a partnership or S corporation. In response to an issue raised by this author, the regulations conclude that the existence of recourse or non-recourse debt secured by property at the time of the decedent s death does not affect the property s basis, whether the gross value of the property and the outstanding debt are reported separately on the estate tax return or the net value of the property is reported. 7 Therefore, post-death payments on such debt do not result in an adjustment to the property s basis. Non-recourse debt and partnership or limited liability company (LLC) interests subject to debt provide examples in which the income tax basis can exceed the estate tax value. The problem created by Code 1014(f)(1) is its limitation of income tax basis to not exceed the estate tax value. To get around that result while enabling the recipient to receive the benefit from lawful basis adjustments, the regulations allow for the debt to be included on Schedule A value when the debt is non-recourse and is against the property owned by the estate; and the regulations allow the beneficiary to use debt with basis when allowed by income tax law in the situation of the partnership. As a general reference, the regulations direct that property in the gross estate to which non-recourse debt applies shall be reported on a net-asset value method. On the other hand, when recourse debt exists, the gross value is reported on the relevant schedule and the deduction is shown on Schedule K of Form 706. Reg and instructions to Form 706 (see Schedule A). If the beneficiary or estate is limited to the estate tax value, there would be no basis arising from the non-recourse debt. That would not be right. The regulations correct for that fact. A partnership or LLC interest may be valued on a net-asset value method to which debt reduces value. Debt, however, is added to basis when the partner or member bears the economic risk associated with that debt. Different rules apply under Code 742 and Reg for the determination of economic risk. Reg (e)(i) provides for the adjustment to basis for debt and availability for that debt in the determination of income tax basis by the beneficiary. The same result applies if the debt is recourse in the partnership or LLC setting and the partner/member bears the economic risk. The following three examples are included in Reg (e) to illustrate the foregoing points concerning (1) post-death events and (2) application of other law changing basis. (1) Partnership Interest with Non-Recourse Debt. The first example assumes that the decedent (D) owns 50% of a general partnership, which has $2 million of non-recourse debt, and that the partnership has a value of $8 million, and that D s interest has a reported (and accepted) estate tax value of $4 million. D s sole beneficiary is C, D s child. C sells the interest for $6 million in cash shortly after receipt of the partnership interest. Result: Under these facts, the final value of D s interest is $4 million. Under 742 and Reg , C s basis in the interest in the general partnership at the time of its sale is $5 million (the final value of D s interest [$4 million] plus 50% of the $2 million nonrecourse debt). Following the sale of the 7 Schiller, Estate Planning At The Movies : Due to Technical Difficulties, Your New Statute on Consistency with Basis Reporting Cannot Be Viewed in Its Entirety, Leimberg Information Services, Inc. Newsletter #2346, published 9/23/2015. See Crane v. Comr., 331 U.S. 1 (1947), aff'g 153 F.2d 504 (2d Cir. 1945), rev'g 3 T.C. 585 (1944). 19

21 interest, C reports a taxable gain of $1 million. C has complied with the consistency requirement of paragraph (a)(1) of Code 1014(f). Had the 50% interest been finally determined to have a value of $4.5 million (such as with an audit adjustment increasing in the value of the real property), C could claim a basis of $5.5 million at the time of sale and report gain on the sale of $500,000 in the foregoing example, as modified for the increase in value. (2) Additions Made to Property. The second example under this regulation considers post-death improvements to property. In this instance, D s unencumbered residence is left to C. D s executor reports the value of the residence on the estate tax return at $600,000 and pays the tax liability. The IRS timely contests the reported value and determines that the value of the residence is $725,000. The parties enter into a settlement agreement that provides that the value of the residence for estate tax liability is $650,000. The final value of the residence is $650,000. Some years later, C adds a master suite to the residence at a cost of $45,000. As a result of Code 1016(a), C s basis in the residence is increased by $45,000 to $695,000. Subsequently, C sells the residence to an unrelated third party for $900,000. C claims a basis in the residence of $695,000 and reports a gain of $205,000 ($900,000 $695,000). C has complied with the consistency. (3) Non-Recourse Debt. In this example, D s gross estate includes a residence valued with a gross value of $300,000 encumbered by nonrecourse debt in the amount of $100,000. Title to the residence is held jointly by D and C (D s daughter) with rights of survivorship, and under 2040 the property is fully included in D s gross estate since D provided all the consideration for the residence. The executor reports the value of the residence as $200,000 on the return and claims no other deduction for the debt. The Statement required by Code 6035 reports the value of the residence as $300,000. C sells the residence before the final value is determined for $375,000 and claims a gain of $75,000 on C s Federal income tax return. As a corollary to these facts, if the court subsequently determines that the value of the residence was $290,000 and the time for contesting this value in any court expires before the expiration of the period for assessing C s income tax for the year of C s sale of the property, the final value of the residence is $290,000, which is below the initially reported value. Because C claimed a basis in the residence that exceeds the final value, C would have a deficiency and underpayment arising from the increased gain over the corrected basis. The following comments apply to the foregoing example(s): First, example (1) does not address whether C is able to make depreciation deductions based on the $5 million value assuming that a Code 754 election or Code 732(d) election is in effect. It would appear that basis adjustment would be allowable for depreciation purposes because that is a post-death event of tax consequence. Second, Treasury and the IRS took the most direct approach in dealing with nonrecourse debt when a liability exists against an asset in the gross estate yet neither the decedent nor the estate is personally liable for the debt. In this example, the executor can report the gross value and is not left to report only net asset value. However, in example (1), in the foregoing regulation, the debt is not included in the reported value on the Information Return or Statement. Instead the beneficiary is provided that information as an item apart from what is required to be included on Schedule A. It is important for the executor to provide the information regarding debt to the beneficiary and the executor can refer the beneficiary to his or her tax advisor to determine the application of that debt to basis or other tax elections. In the 20

22 alternative, the executor could provide this information in a separate letter. The author prefers that the information be included in an attachment to the Schedule A so that the IRS is also aware of this fact. It may make life easier for the beneficiary to explain such treatment to the IRS and to make the information part of the permanent record under a reported form. Finally, the regulation s illustration of the partnership (or LLC debt) does not answer the question respecting whether the estate (or trust) can benefit from the increase in basis as a result of the debt. This consideration can apply both with respect to inside basis (for example if an election is made under 754 before the interest is distributed to the beneficiary) or in the event that the estate sells the entity interest. In both situations, the estate/trust is simply seeking to apply other provisions of the Code that allow for basis adjustment. The 754 election is a post-death event. The adjustment to the outside basis of the partnership/entity interest arises as a result of death. It appears to the author that the following sentence of Reg (a)(2) allows for the estate/trust to benefit from the basis adjustment arising from the application of 742 and Reg : The final value within the meaning of paragraph (c) of this section is the taxpayer s initial basis in the property. In computing at any time after the decedent s date of death the taxpayer s basis in property acquired from the decedent or as a result of the decedent s death, the taxpayer s initial basis in that property may be adjusted due to the operation of other provisions of the Internal Revenue Code (Code) governing basis without violating paragraph (a)(1) of this section. The author believes it would be helpful for Treasury or the IRS to clarify the allowance for the estate/trust to take advantage of the increase in basis irrespective of whether post-death events (such as a 754 election is made) when the basis adjustment arises under other sections of the Code irrespective of post-death events. The author believes the second sentence of the quote above supports a favorable interpretation and result of this issue as the intent of the new law is to promote consistency in basis reporting, not to deprive taxpayers of lawful basis adjustment Non-Resident Aliens The basis consistency and reporting requirements apply to the estates of non-resident aliens who are not United States citizens with respect to property situated in the United States under Code Reg (b)(1). Estate tax returns are required returns for nonresident aliens who are not United States citizens once the value of the gross estate of property situated in the United States is greater than $60,000 in value. Code 6018(b) Helpful Practice Tool As a practical matter, you will find it much easier to work with software that integrates the preparation of the Form 706 with Form The author understands that the software programs offered by The Lackner Group, Inc. ( ), GEMS ( and LaCerte contain this feature. Vince Lackner, President of the Lackner Group, was of assistance to this author with comments regarding limitations with the proposed regulations, and I provided comments for the inter-active work-flow tree offered by the Lackner Group (available at To view these valuable interactive forms, it works best if you use the internet browsers Chrome, Firefox, or Safari. Internet Explorer does not yet support the graphics that these charts require. Attached as Appendix 1 is a copy of the 13 elements in the flow-chart for your reference or that of the executor, the utility of which you will best experience on the inter-active platform: 21

23 (1) who must file (2) asset increases estate tax liability ( basis consistency ) (3) estate tax value (4) final value (5) after-discovered or omitted property (6) what property to include (7) beneficiary defined (8) beneficiary not an individual (9) beneficiary not determined (10) beneficiary not located (11) when to file (12) supplemental filing (13) subsequent transfers Inclusion of Exhibit 1 is with the permission of The Lackner Group, Inc., which holds the copyright on these materials. 22

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27 Basis Consistency Form 706 and 8971 Samples Proposed Regulations by Vincent F. Lackner, Jr., Esq. The Lackner Group, Inc. Pittsburgh, PA Strafford June 1, 2016

28 Table of Contents 706 and 8971 DOD Value... 1 All Cash Alternate Value Supplemental Proposed Regulations Table of Contents (unofficial) Introduction Background Basis of property acquired from a decedent Basis information to persons acquiring property

29 8971 (DOD Value) 1

30 706 United States Estate (and Generation-Skipping Transfer) Tax Return Form (Rev. August 2013) OMB No Department of the Treasury Estate of a citizen or resident of the United States (see instructions). Internal Revenue Service To be filed for decedents dying after December 31, a Decedent s first name and middle initial (and maiden name, if any) 1b Decedent s last name 2 Decedent s Social Security No a 3b Year domicile established 4 Date of birth 5 Date of death Part 1. Decedent and Executor Part 2. Tax Computation City, town, or post office; county; state or province; country; and ZIP or foreign postal code., PA a Name of executor (see instructions) 6b 6c 6d If there are multiple executors, check here 7a Name and location of court where will was probated or estate administered If decedent died testate, check here X and attach a certified copy of the will Executor s address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) and phone no. 3a Tentative taxable estate (subtract line 2 from line 1)... b Deduction for state death taxes... c Taxable estate (subtract line 3b from line 3a)... 4 Adjusted taxable gifts (see instructions)... 5 Executor s social security number (see instructions) Total gross estate less exclusion (from Part 5, Recapitulation, item 13)... Total allowable deductions (from Part 5, Recapitulation, item 24))... Add lines 3c and Tentative tax on the amount on line 5 from Table A in the instructions... 7 Total gift tax paid or payable (see instructions)... Phone no. 7b Case number 8 Gross estate tax (subtract line 7 from line 6) a Basic exclusion amount... 9a 5,450,00 9b Deceased spousal unused exclusion (DSUE) amount from predeceased spouse(s), if any (from Section D, Part 6 - Portability of Deceased Spousal Unused Exclusion)... 9b 9c 9d Applicable exclusion amount (add lines 9a and 9b)... Applicable credit amount (tentative tax on the amount in 9c from Table A in the instructions)... Adjustment to applicable credit amount (May not exceed $6,000. See instructions.) Prior payments. Explain in an attached statement ,125,80 11 Allowable unified credit (applicable credit amount) (subtract line 10 from line 9d) Subtract line 11 from line 8 (but do not enter less than zero) Credit for foreign death taxes (from Schedule(s) P). (Attach Form(s) 706-CE.) Credit for tax on prior transfers (from Schedule Q) Total credits (add lines 13 and 14)... Net estate tax (subtract line 15 from line 12)... Generation-skipping transfer (GST) taxes (from Schedule R, Part 2, line 10) Total transfer taxes (add lines 16 and 17) Balance due (or overpayment) (subtract line 19 from line 18) Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer other than the executor is based on all information of which preparer has any knowledge. 9c 9d 5,450, a b c 23,667,43 100,00 23,567,43 23,567,43 23,567,43 9,372, ,372, ,125,80 7,246, ,246, ,246, ,246, Sign Here Signature of executor Date Paid Preparer Use Only Signature of executor Print/Type preparer's name Firm's name Firm's address Preparer's signature Date Check if self-employed Firm's EIN Phone no. Date PTIN For Privacy Act and Paperwork Reduction Act Notice, see instructions. RGA Copyright 2015 form software only The Lackner Group, Inc. Form 706 (Rev ) 2

31 Form 706 Estate of: /01/2016 Part 3 -- Elections by the Executor 1 Decedent's Social Security Number Do you elect alternate valuation?... 2 Do you elect special-use valuation? If Yes, you must complete and attach Schedule A (Rev ) Note. For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Section A of Part 6-Portability of Deceased Spousal Unused Exclusion. Note. Some of these elections may require the posting of bonds or liens. Please check the Yes or No box for each question (see instructions). Do you elect to pay the taxes in installments as described in section 6166?... If Yes, you must attach the additional information described in the instructions. Note. By electing section 6166, you may be required to provide security for estate tax deferred under section 6166 and interest in the form of a surety bond or a section 6324A lien. Do you elect to postpone the part of the taxes attributable to a reversionary or remainder interest as described in section 6163?... Part 4 -- General Information (Note. Please attach the necessary supplemental documents. You must attach the death certificate.) (see instructions). Authorization to receive confidential tax information under Regs. sec (b)(2)(i); to act as the estate s representative before the IRS; and to make written or oral presentations on behalf of the estate: Name of representative (print or type) State Address (number, street, and room or suite no., city, state, and ZIP code) Yes No I declare that I am the attorney/ certified public accountant/ enrolled agent (check the applicable box) for the executor. I am not under suspension or disbarment from practice before the Internal Revenue Service and am qualified to in the state shown above. Signature CAF number Date Telephone number 1 Death certificate number and issuing authority (attach a copy of the death certificate to this return). 2 Decedent s business or occupation. If retired, check here and state decedent s former business or occupation. 3a Marital status of the decedent at time of death: Married Widow/widower 3b For all prior marriages, list the name and SSN of the former spouse, the date the marriage ended, and whether the marriage ended by annulment, divorce, or death. Attach additional statements of the same size if necessary. Single Legally separated Divorced 4a Surviving spouse s name 4b Social security number 4c Amount received (see instructions) None 5 Individuals (other than the surviving spouse), trusts, or other estates who receive benefits from the estate (do not include charitable beneficiaries shown in Schedule O) (see instructions). Name of individual, trust, or estate receiving $5,000 or more Identifying number Relationship to decedent Amount (see instructions) All unascertainable beneficiaries and those who receive less than $5, Total... If you answer Yes to any of the following questions, you must attach additional information as described. 6 7 Is the estate filing a protective claim for refund?... If Yes, complete and attach two copies of Schedule PC for each claim. Does the gross estate contain any section 2044 property (qualified terminable interest property (QTIP) from a prior gift or estate) (see instructions)?... 8a Have federal gift tax returns ever been filed?... If Yes, attach copies of the returns, if available, and furnish the following information: b Period(s) covered c Internal Revenue office(s) where filed Yes No 9a Was there any insurance on the decedent s life that is not included on the return as part of the gross estate?... b Did the decedent own any insurance on the life of another that is not included in the gross estate?... (continued on next page) Copyright 2015 form software only The Lackner Group, Inc. 3 Page 2

32 Form 706 Decedent's Social Security Number If you answer Yes to any of the following questions, you must attach additional information as described in the instructions. 10 Did the decedent at the time of death own any property as a joint tenant with right of survivorship in which (a) one or more of the other joint tenants was someone other than the decedent s spouse, and (b) less than the full value of the property is included on the return as part of the gross estate? If Yes, you must complete and attach Schedule E... b If Yes, was the value of any interest owned (from above) discounted on this estate tax return? If Yes, see the instructions on reporting the total accumulated or effective discounts taken on Schedule F or G... Did the decedent make any transfer described in section 2035, 2036, 2037, or 2038 (see the instructions)? If "Yes," you must complete and attach Schedule G"... If Yes, was there a GST taxable termination (under section 2612) on the death of the decedent?... Part 5 - Recapitulation Item no. Gross estate Alternate value Value at date of death 1 Schedule A Real Estate ,00 2 Schedule B Stocks and Bonds... 11,954,20 3 Schedule C Mortgages, Notes, and Cash ,00 4 Schedule D Insurance on the Decedent s Life (attach Form(s) 712) ,00 5 Schedule E Jointly Owned Property (attach Form(s) 712 for life insurance)... 6 Schedule F Other Miscellaneous Property (attach Form(s) 712 for life insurance)... 7 Schedule G Transfers During Decedent s Life (attach Form(s) 712 for life insurance) (Rev ) Estate of: /01/2016 Part 4 - General Information (continued) 11a Did the decedent, at the time of death, own any interest in a partnership (for example, a family limited partnership), an unincorporated business, or a limited liability company; or own any stock in an inactive or closely held corporation? a Were there in existence at the time of the decedent s death any trusts created by the decedent during his or her lifetime?... b Were there in existence at the time of the decedent s death any trusts not created by the decedent under which the decedent possessed any power, beneficial interest, or trusteeship?... c Was the decedent receiving income from a trust created after October 22, 1986 by a parent or grandparent?... d If there was a GST taxable termination (under section 2612), attach a statement to explain. Provide a copy of the trust or will creating the trust, and give the name, address, and phone number of the current trustee(s). e Did decedent at any time during his or her lifetime transfer or sell an interest in a partnership, limited liability company, or closely held corporation to a trust described in question 13a or 13b?... If Yes, provide the EIN number for this transferred/sold item. 14 Did the decedent ever possess, exercise, or release any general power of appointment? If Yes, you must complete and attach Schedule H Did the decedent have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? Was the decedent, immediately before death, receiving an annuity described in the General paragraph of the instructions for Schedule I or a private annuity? If Yes, you must complete and attach Schedule I Was the decedent ever the beneficiary of a trust for which a deduction was claimed by the estate of a pre-deceased spouse under section 2056(b)(7) and which is not reported on this return? If Yes, attach an explanation... Schedule H Powers of Appointment... Schedule I Annuities... Total gross estate (add items 1 through 10)... Schedule U Qualified Conservation Easement Exclusion... Total gross estate less exclusion (subtract item 12 from item 11). Enter here and on line 1 of Part 2 - Tax Computation... Item no. Deductions 14 Schedule J Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims Schedule K Debts of the Decedent Schedule K Mortgages and Liens Total of items 14 through Allowable amount of deductions from item 17 (see the instructions for item 18 of the Recapitulation) Schedule L Net Losses During Administration Schedule L Expenses Incurred in Administering Property Not Subject to Claims Schedule M Bequests, etc., to Surviving Spouse Schedule O Charitable, Public, and Similar Gifts and Bequests Estimated value of assets subject to the special rule of Reg. section T(a)(7)(ii) Tentative total allowable deductions (add items 18 through 23). Enter here and on line 2 of the Tax Computation 24 Copyright 2015 form software only The Lackner Group, Inc Yes 13,23 10,000,00 23,667,43 23,667,43 Amount No 100,00 100,00 100,00 100,00 Page 3 4

33 Form 706 (Rev ) Estate of: /01/2016 Decedent's Social Security Number Part 6 Portability of Deceased Spousal Unused Exclusion (DSUE) Portability Election A decedent with a surviving spouse elects portability of the deceased spousal unused exclusion (DSUE) amount, if any, by completing and timely-filing this return. No further action is required to elect portability of the DSUE amount to allow the surviving spouse to use the decedent's DSUE amount. Section A. Opting Out of Portability The estate of a decedent with a surviving spouse may opt out of electing portability of the DSUE amount. Check here and do not complete Sections B and C of Part 6 only if the estate opts NOT to elect portability of the DSUE amount. Section B. QDOT Are any assets of the estate being transferred to a qualified domestic trust (QDOT)? If Yes, the DSUE amount portable to a surviving spouse (calculated in Section C, below) is preliminary and shall be redetermined at the time of the final distribution or other taxable event imposing estate tax under section 2056A. See instructions for more details. Section C. DSUE Amount Portable TO the Surviving Spouse (To be completed by the estate of a decedent making a portability election.) Complete the following calculation to determine the DSUE amount that can be transferred to the surviving spouse Enter the amount from line 9c, Part 2 - Tax Computation... Reserved... Enter the value of the cumulative lifetime gifts on which tax was paid or payable (see instructions)... Add lines 1 and 3... Enter amount from line 10, Part 2 - Tax Computation... Divide amount on line 5 by 40% (0.40) (do not enter less than zero)... 7 Subtract line 6 from line Enter amount from line 5, Part 2 - Tax Computation... Subtract line 8 from line 7 (do not enter less than zero)... DSUE amount portable to the surviving spouse (Enter the lesser of line 9 or line 9a, Part 2-Tax Computation) Yes No Section D. DSUE Amount Received FROM Predeceased Spouse(s) (To be completed by the estate of a deceased surviving spouse with DSUE amount from predeceased spouse(s)) Provide the following information to determine the DSUE amount received from deceased spouses. A B C D E F G Name of Deceased Spouse (dates of death after December 31, 2010, only) Date of Death (enter as mm/dd/yy) Portability Election Made? Part 1 DSUE RECEIVED FROM LAST DECEASED SPOUSE If Yes, DSUE Amount Received from Spouse DSUE Amount Applied by Decedent to Lifetime Gifts Part 2 DSUE RECEIVED FROM OTHER PREDECEASED SPOUSE(S) AND USED BY DECEDENT Yes No Remaining DSUE Amount, if any (subtract col. E from col. D) Total (for all DSUE amounts from predeceased spouse(s) applied)... Add the amount from Part 1, column D and the total from Part 2, column E. Enter the result on line 9b, Part 2 - Tax Computation... Copyright 2015 form software only The Lackner Group, Inc. 5 Page 4

34 Form 706 (Rev ) Estate of: /01/2016 SCHEDULE A - Real Estate For jointly owned property that must be disclosed on Schedule E, see instructions. Real estate that is part of a sole proprietorship should be shown on Schedule F. Real estate that is included in the gross estate under section 2035, 2036, 2037, or 2038 should be shown on Schedule G. Real estate that is included in the gross estate under section 2041 should be shown on Schedule H. If you elect section 2032A valuation, you must complete Schedule A and Schedule A-1. Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Item Number Description Alternate valuation date Alternate Value Value at date of death 1 House #1 - Owned outright (See appraisal attached) 300,00 2 House #2 - Recourse debt (deducted on Schedule K-2) 300,00 3 House #3 - Non-recourse debt: Gross $300,000 Debt $100, Taxable $200, ,00 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 1.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 800,00 Schedule A - Page 5 6

35 Form 706 (Rev ) Estate of: /01/2016 SCHEDULE B - Stocks and Bonds (For jointly owned property that must be disclosed on Schedule E, see instructions.) Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last four columns. Item Number Description including face amount of bonds or number of shares and par value for identification. Give CUSIP number. If trust, partnership, or closely held entity, give EIN Unit Value Alternate valuation date Alternate Value Value at date of death CUSIP # or EIN, where applicable 1 2,500 shares of Aardvark - Name changed to Zebra on 4/1/ ,00 2 1,000 shares of Apple ,00 Accrued dividend on Item 2 through date of death 4,20 3 Charles Schwab - See EVP report attached 600, shares of IBM , Morgan Stanley Account # See EVP report attached TD Ameritrade - See EVP report attached 400,00 800,00 7 ABC Business 5,000,00 8 XYZ Business 4,000,00 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 2.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 11,954,20 Schedule B - Page 10 Form 706 Schedule B (Rev ) 7

36 Form 706 (Rev ) Estate of: /01/2016 SCHEDULE C - Mortgages, Notes, and Cash (For jointly owned property that must be disclosed on Schedule E, see instructions.) Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Item Number Description Alternate valuation date Alternate Value Value at date of death 1 Note Receivable 600,00 2 Cash 50,00 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 3.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 650,00 Schedule C - Page 11 8

37 Form 706 (Rev ) Estate of: /01/2016 SCHEDULE D - Insurance on the Decedent's Life You must list all policies on the life of the decedent and attach a Form 712 for each policy. Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Item Number Description Alternate valuation date Alternate Value Value at date of death 1 Life Insurance 250,00 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 4.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 250,00 Schedule D - Page 12 9

38 Form 706 (Rev ) Estate of: /01/2016 Decedent's Social Security Number SCHEDULE F - Other Miscellaneous Property Not Reportable Under Any Other Schedule (For jointly owned property that must be disclosed on Schedule E, see instructions.) (If you elect section 2032A valuation, you must complete Schedule F and Schedule A-1.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. 1 Did the decedent own any works of art, items, or any collections whose artistic or collectible value at date of death exceeded $3,000?... If "Yes," submit full details on this schedule and attach appraisals. Yes No 2 Has the decedent's estate, spouse, or any other person, received (or will receive) any bonus or award as a result of the decedent's employment or death?... If "Yes," submit full details on this schedule. 3 Did the decedent at the time of death have, or have access to, a safe deposit box?... If "Yes," state location, and if held in joint names of decedent and another, state name and relationship of joint depositor. If any of the contents of the safe deposit box are omitted from the schedules in this return, explain fully why omitted. Item Number Description. For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN Alternate valuation date Alternate Value Value at date of death CUSIP # or EIN, where applicable 1 Art Work 3,00 2 Diamond Ring 10,00 3 Tangible: Chair 8 4 Tangible: Desk 15 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 6.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 13,23 Schedule F - Page 14 Form 706 Schedule F (Rev ) 10

39 Form 706 (Rev ) Estate of: /01/2016 SCHEDULE G - Transfers During Decedent's Life (If you elect section 2032A valuation, you must complete Schedule G and Schedule A-1.) Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Item Number Description. For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN Alternate valuation date Alternate Value Value at date of death A. B. Gift tax paid by the decedent or the estate for all gifts made by the decedent or his or her spouse within 3 years before the decedent's death (section 2035(b))... Transfers includible under section 2035(a), 2036, 2037, or 2038: X X X X X X X See continuation schedule(s) attached Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 7.)... SCHEDULE H - Powers of Appointment (Include "5 and 5 lapsing" powers (section 2041(b)(2)) held by the decedent.) (If you elect section 2032A valuation, you must complete Schedule H and Schedule A-1.) 10,000,00 10,000,00 Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Item Number Description Alternate valuation date Alternate Value Value at date of death None Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 8)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. Schedules G and H - Page 15 11

40 Form 706 (Rev ) Estate of: /01/2016 Decedent's Social Security Number SCHEDULE G - Transfers During Decedent's Life (continued) Item Number Description For securities, give CUSIP number. Unit Value Alternate valuation date Alternate Value Value at date of death 1 Trust 10,000,00 Total... 10,000,00 Page 1 of Schedule G - Continued 12

41 Form 706 (Rev ) Estate of: /01/2016 Item Number SCHEDULE K - Debts of the Decedent, and Mortgages and Liens Use Schedule PC to make a protective claim for refund due to an expense not currently deductible. For such a claim, report the expense on Schedule K but without a value in the last column. Debts of the Decedent - Creditor and nature of claim, and allowable death taxes Decedent's Social Security Number Are you aware of any actual or potential reimbursement to the estate for any debt of the decedent, mortgage, or lien claimed as a deduction on this schedule?... If Yes, attach a statement describing the items subject to potential reimbursement. (see instructions) Are any of the items on this schedule deductible under Reg. section (b) and Reg. section (c)?... If Yes, attach a statement indicating the applicable provision and documenting the value of the claim. Yes Amount No None Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 15)... Item Number Mortgages and Liens - Description Amount See continuation schedule(s) attached Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 16) ,00 (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. Schedule K - Page 18 13

42 Form 706 (Rev ) Estate of: /01/2016 Decedent's Social Security Number Item Number SCHEDULE K2 - Mortgages and Liens Mortgages and liens - Description (continued) Amount 1 House #2 - Recourse debt 100,00 Total ,00 Page 1 of Schedule K2 - Continued 14

43 Estate of: Variance: ,667,43 22,490,00 1,177, Item # Sched Num Name Lot # Benys Cash IRD Exclude Resid Changed Form 706 Form 8971 Variance A 1 House # ,00 300,00 A 2 House # ,00 300,00 A 3 House # ,00 200,00 A 800,00 800,00 B 1 Aardvark 1 250,00 250,00 B 2 Apple 2 800,00 800,00 B 2a Apple 4,20 4,20 B 3 Charles Schwab 2 600,00 600,00 B 4 IBM 1 100,00 40,00 60,00 B 5 Morgan Stanley 1 400,00 400,00 B 6 TD Ameritrade 800,00 800,00 B 7 ABC Business 5 5,000,00 5,000,00 B 8 XYZ Business 2 4,000,00 4,000,00 B 11,954,20 11,090,00 864,20 C 1 Note Receivable 1 600,00 600,00 C 2 Cash 50,00 50,00 C 650,00 600,00 50,00 D 1 Life Insurance 250,00 250,00 D 250,00 250,00 F 1 F 2 F 3 F 4 Art Work 3,00 3,00 Diamond Ring 10,00 10,00 Tangible: Chair 8 8 Tangible: Desk F 13,23 13,23 G 1 Trust 2 10,000,00 10,000,00 G 10,000,00 10,000,00 23,667,43 22,490,00 1,177,

44 Estate of: Variance: (with sales history) 13,290,00 22,490, Item Sched Num Name Lot # Description # Units Form 706 Form 8971 A 1 House #1 Owned outright 300,00 300,00 Variance House #1 300,00 300,00 A 2 House #2 Recourse debt 300,00 300,00 House #2 300,00 300,00 A 3 House #3 Non-recourse debt: 200,00 200,00 House #3 200,00 200,00 A 800,00 800,00 B 1 Aardvark Name changed to 2,50 250,00 250,00 Aardvark 2,50 250,00 250,00 B 2 Apple Inventoried 1,00 800,00 800,00 Apple 1,00 800,00 800,00 B 3 Charles Schwab See EVP report 600,00 600,00 Charles Schwab 600,00 600,00 B 4 IBM Inventoried ,00 40,00 4 IBM Sold ,00 IBM 20 40,00 40,00 B 5 Morgan Stanley See EVP report 400,00 400,00 Morgan Stanley Account # ,00 400,00 B 6 TD Ameritrade See EVP report 800,00 TD Ameritrade 800,00 800,00 B 7 ABC Business Inventoried 5,000,00 5,000,00 ABC Business 5,000,00 5,000,00 B 8 XYZ Business Inventoried 4,000,00 4,000,00 XYZ Business 4,000,00 4,000,00 B 11,890,00 11,090,00 C 1 Note Receivable Inventoried 600,00 600,00 Note Receivable 600,00 600,00 G 0a C 600,00 600,00 Basis adjustment

45 Estate of: Variance: (with sales history) 13,290,00 22,490, Item Sched Num Name Lot # Description # Units Form 706 Form 8971 Variance Basis adjustment separately shown G 1 Trust 10,000,00 Trust G 10,000,00-10,000,00 10,000,00 Total 13,290,00 22,490,

46 8971 Form 8971 SCHEDULE A Grand total Sched Item # Description Beneficiary Y/N Valuation Date Percent A 28,240,000 Value Amount 300,000 House #1 - Owned outright Beny 1 Y 01/01/ % 300, % 300, Amount 300,000 House #2 - Recourse debt (deducted on Beny 1 Y 01/01/ % 300, % 300, Amount 200,000 House #3 - Non-recourse debt: Beny 1 Y 01/01/ % 300, % 300, ,000 B Amount 250,000 2,500 shares of Aardvark - Name changed Beny 1 Y 01/01/ % 250, % 250, Amount 800, shares of Apple Beny 1 Y 01/01/ % 400, shares of Apple Beny 2 Y 01/01/ % 400, % 800, Amount 600,000 Charles Schwab - See EVP report attached Beny 3 Y 01/01/ % 300,000 Charles Schwab - See EVP report attached Beny 4 Y 01/01/ % 300, % 600, Amount 100, shares of IBM Beny 1 Y 01/01/ % 40, % 40, Amount 400,000 Morgan Stanley Account # See EVP Beny 1 Y 01/01/ % 400, /30/2016 8:41:43 18

47 8971 Form 8971 SCHEDULE A Grand total Sched Item # Description Beneficiary Y/N Valuation Date Percent 1000% 28,240,000 Value 400, Amount 250,000 TD Ameritrade - Stock #1 Beny 3 Y 01/01/ % 250, % 250, Amount 550,000 TD Ameritrade - Stock #2 Beny 4 Y 01/01/ % 550, % 550, Amount 5,000,000 ABC Business Beny 1 Y 01/01/ % 1,000,000 ABC Business Beny 2 Y 01/01/ % 1,000,000 ABC Business Beny 3 Y 01/01/ % 1,000,000 ABC Business Beny 4 Y 01/01/ % 1,000,000 ABC Business Spouse N 01/01/ % 1,000, % 5,000, Amount 4,000,000 XYZ Business Beny 1 Y 01/01/ % 4,000,000 XYZ Business Beny 2 Y 01/01/ % 4,000, % 8,000,000 15,890,000 G 706 Amount Basis adjustment separately shown per Marital Trust 1000% 1000% Amount 10,000,000 Trust Credit Shelter Trust Y 01/01/ % 5,450,000 Trust Marital Trust N 01/01/ % 6,000, % 11,450,000 11,450,000 Grand total 28,240, /30/2016 8:41:43 19

48 Form 8971 (January 2016) Department of the Treasury Internal Revenue Service Information Regarding Beneficiaries Acquiring Property From a Decedent Information about Form 8971 and its separate instructions is at OMB No Check box if this is a supplemental filing Part I Decedent and Executor Information 1 Decedent s name 2 Decedent's date of death Decedent s SSN 4 Executor's Name (see instructions) 5 Executor's phone no. 6 Executor's TIN 7 Executor's address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) 8 If there are multiple executors, check here and attach a statement showing the names, addresses, telephone numbers, and TINs of the additional executors. 9 If the estate elected alternate valuation, indicate the alternate valuation date: Part II Beneficiary Information How many beneficiaries received (or are expected to receive) property from the estate? 7 For each beneficiary, provide the information requested below. If more space is needed, attach a statement showing the requested information for the additional beneficiaries. 1 Beny 1 A B C D Name of Beneficiary TIN Address, City, State, ZIP Date Provided PA 06/01/ Beny PA 06/01/ Beny PA 06/01/ Beny PA 06/01/ Credit Shelter Trust PA 06/01/2016 See continuation schedule attached Sign Here Paid Preparer Use Only Notice To Executors: Submit Form 8971 with a copy of each completed Schedule A to the IRS. To protect privacy, Form 8971 should not be provided to any beneficiary. Only Schedule A of Form 8971 should be provided to the beneficiary. Retain copies of all forms for the estate's records. Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, all information reported herein is true, correct, and complete. Signature of executor May the IRS discuss this return with the preparer shown below? See instructions... Yes X No Print/Type preparer's name Firm's name Firm's address Preparer's signature Date PTIN Check if self-employed Firm's EIN Phone no. Date For Paperwork Reduction Act Notice, see the separate instructions. RGA Copyright 2016 form software only The Lackner Group, Inc. Form (1-2016)

49 Beneficiary Information (Part II, continued)) Decedent's Name: 8971 A B C D Name of Beneficiary TIN Address, City, State, ZIP Date Provided 6 Marital Trust PA 06/01/ Spouse PA 06/01/

50 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule A, Item 1 Y 01/01/ ,000 1 House #1 - Owned outright [note: 706 language "See appraisal attached" removed for Form 8971/Schedule A purposes] Form 706, Schedule A, Item 2 Y 01/01/ ,000 2 House #2 - Recourse debt (deducted on Schedule K-2) Form 706, Schedule A, Item 3 Y 01/01/ ,000 3 House #3 - Non-recourse debt: Gross $300,000 Debt $100, Taxable $200,000 Form 706, Schedule B, Item 1 Y 01/01/ , ,500 shares of Aardvark - Name changed to Zebra on 4/1/2016 Form 706, Schedule B, Item 2 Y 01/01/ , shares of Apple Beneficiary Interest: 50% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 22

51 Form 8971 (1-2016) Page 2 of 2 Check box if this is a supplemental filing Part 1. General Information SCHEDULE A Continuation Sheet Use only if you need additional space to report property acquired (or expected to be acquired) by the beneficiary. 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 4 Y 01/01/ , shares of IBM Beneficiary Interest: 40% Form 706, Schedule B, Item 5 Y 01/01/ ,000 7 Morgan Stanley Account # See EVP report attached Form 706, Schedule B, Item 7 Y 01/01/2016 1,000,000 8 ABC Business Beneficiary Interest: 20% Form 706, Schedule B, Item 8 Y 01/01/2016 4,000,000 9 XYZ Business Beneficiary Interest: 100% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-2 23

52 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 2 Y 01/01/ , shares of Apple Beneficiary Interest: 50% Form 706, Schedule B, Item 7 Y 01/01/2016 1,000,000 2 ABC Business Beneficiary Interest: 20% Form 706, Schedule B, Item 8 Y 01/01/2016 4,000,000 3 XYZ Business Beneficiary Interest: 100% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 24

53 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 3 Y 01/01/ ,000 1 Charles Schwab - See EVP report attached Beneficiary Interest: 50% Form 706, Schedule B, Item 6 Y 01/01/ ,000 2 TD Ameritrade - Stock #1 Form 706, Schedule B, Item 7 Y 01/01/2016 1,000,000 3 ABC Business Beneficiary Interest: 20% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 25

54 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 3 Y 01/01/ ,000 1 Charles Schwab - See EVP report attached Beneficiary Interest: 50% Form 706, Schedule B, Item 6 Y 01/01/ ,000 2 TD Ameritrade - Stock #2 Form 706, Schedule B, Item 7 Y 01/01/2016 1,000,000 3 ABC Business Beneficiary Interest: 20% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 26

55 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Credit Shelter Trust Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule G, Item 1 Y 01/01/2016 5,450,000 1 Trust Beneficiary Interest: 54.5% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 27

56 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Marital Trust Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule G, Item Basis adjustment separately shown per Reg (a)(3). QTIP Marital Trust U/A Jane Q. Public Form 706, Schedule G, Item 1 N 01/01/2016 6,000,000 1 Trust Beneficiary Interest: 45.5% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 28

57 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Spouse Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 7 N 01/01/2016 1,000,000 1 ABC Business Beneficiary Interest: 20% Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 29

58 8971 (All Cash) 30

59 706 United States Estate (and Generation-Skipping Transfer) Tax Return Form (Rev. August 2013) OMB No Department of the Treasury Estate of a citizen or resident of the United States (see instructions). Internal Revenue Service To be filed for decedents dying after December 31, a Decedent s first name and middle initial (and maiden name, if any) 1b Decedent s last name 2 Decedent s Social Security No Cash Only 3a 3b Year domicile established 4 Date of birth 5 Date of death Part 1. Decedent and Executor Part 2. Tax Computation City, town, or post office; county; state or province; country; and ZIP or foreign postal code., PA a Name of executor (see instructions) 6b 6c 6d If there are multiple executors, check here 7a Name and location of court where will was probated or estate administered If decedent died testate, check here X and attach a certified copy of the will Executor s address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) and phone no. 3a Tentative taxable estate (subtract line 2 from line 1)... b Deduction for state death taxes... c Taxable estate (subtract line 3b from line 3a)... 4 Adjusted taxable gifts (see instructions)... 5 Executor s social security number (see instructions) Total gross estate less exclusion (from Part 5, Recapitulation, item 13)... Total allowable deductions (from Part 5, Recapitulation, item 24))... Add lines 3c and Tentative tax on the amount on line 5 from Table A in the instructions... 7 Total gift tax paid or payable (see instructions)... Phone no. 7b Case number 8 Gross estate tax (subtract line 7 from line 6) a Basic exclusion amount... 9a 5,430,00 9b Deceased spousal unused exclusion (DSUE) amount from predeceased spouse(s), if any (from Section D, Part 6 - Portability of Deceased Spousal Unused Exclusion)... 9b 9c 9d Applicable exclusion amount (add lines 9a and 9b)... Applicable credit amount (tentative tax on the amount in 9c from Table A in the instructions)... Adjustment to applicable credit amount (May not exceed $6,000. See instructions.) Prior payments. Explain in an attached statement ,117,80 11 Allowable unified credit (applicable credit amount) (subtract line 10 from line 9d) Subtract line 11 from line 8 (but do not enter less than zero) Credit for foreign death taxes (from Schedule(s) P). (Attach Form(s) 706-CE.) Credit for tax on prior transfers (from Schedule Q) Total credits (add lines 13 and 14)... Net estate tax (subtract line 15 from line 12)... Generation-skipping transfer (GST) taxes (from Schedule R, Part 2, line 10) Total transfer taxes (add lines 16 and 17) Balance due (or overpayment) (subtract line 19 from line 18) Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer other than the executor is based on all information of which preparer has any knowledge. 9c 9d 5,430, a b c 10,000,00 10,000,00 10,000,00 10,000,00 3,945,80 3,945,80 2,117,80 1,828,00 1,828,00 1,828,00 1,828,00 Sign Here Signature of executor Date Paid Preparer Use Only Signature of executor Print/Type preparer's name Firm's name Firm's address Preparer's signature Date Check if self-employed Firm's EIN Phone no. Date PTIN For Privacy Act and Paperwork Reduction Act Notice, see instructions. RGA Copyright 2015 form software only The Lackner Group, Inc. Form 706 (Rev ) 31

60 Form 706 Estate of: 8971 Cash Only 01/01/2015 Part 3 -- Elections by the Executor 1 Decedent's Social Security Number Do you elect alternate valuation?... 2 Do you elect special-use valuation? If Yes, you must complete and attach Schedule A (Rev ) Note. For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Section A of Part 6-Portability of Deceased Spousal Unused Exclusion. Note. Some of these elections may require the posting of bonds or liens. Please check the Yes or No box for each question (see instructions). Do you elect to pay the taxes in installments as described in section 6166?... If Yes, you must attach the additional information described in the instructions. Note. By electing section 6166, you may be required to provide security for estate tax deferred under section 6166 and interest in the form of a surety bond or a section 6324A lien. Do you elect to postpone the part of the taxes attributable to a reversionary or remainder interest as described in section 6163?... Part 4 -- General Information (Note. Please attach the necessary supplemental documents. You must attach the death certificate.) (see instructions). Authorization to receive confidential tax information under Regs. sec (b)(2)(i); to act as the estate s representative before the IRS; and to make written or oral presentations on behalf of the estate: Name of representative (print or type) State Address (number, street, and room or suite no., city, state, and ZIP code) Yes No I declare that I am the attorney/ certified public accountant/ enrolled agent (check the applicable box) for the executor. I am not under suspension or disbarment from practice before the Internal Revenue Service and am qualified to in the state shown above. Signature CAF number Date Telephone number 1 Death certificate number and issuing authority (attach a copy of the death certificate to this return). 2 Decedent s business or occupation. If retired, check here and state decedent s former business or occupation. 3a Marital status of the decedent at time of death: Married Widow/widower 3b For all prior marriages, list the name and SSN of the former spouse, the date the marriage ended, and whether the marriage ended by annulment, divorce, or death. Attach additional statements of the same size if necessary. Single Legally separated Divorced 4a Surviving spouse s name 4b Social security number 4c Amount received (see instructions) None 5 Individuals (other than the surviving spouse), trusts, or other estates who receive benefits from the estate (do not include charitable beneficiaries shown in Schedule O) (see instructions). Name of individual, trust, or estate receiving $5,000 or more Identifying number Relationship to decedent Amount (see instructions) All unascertainable beneficiaries and those who receive less than $5, Total... If you answer Yes to any of the following questions, you must attach additional information as described. 6 7 Is the estate filing a protective claim for refund?... If Yes, complete and attach two copies of Schedule PC for each claim. Does the gross estate contain any section 2044 property (qualified terminable interest property (QTIP) from a prior gift or estate) (see instructions)?... 8a Have federal gift tax returns ever been filed?... If Yes, attach copies of the returns, if available, and furnish the following information: b Period(s) covered c Internal Revenue office(s) where filed Yes No 9a Was there any insurance on the decedent s life that is not included on the return as part of the gross estate?... b Did the decedent own any insurance on the life of another that is not included in the gross estate?... (continued on next page) Copyright 2015 form software only The Lackner Group, Inc. 32 Page 2

61 Form 706 Decedent's Social Security Number If you answer Yes to any of the following questions, you must attach additional information as described in the instructions. 10 Did the decedent at the time of death own any property as a joint tenant with right of survivorship in which (a) one or more of the other joint tenants was someone other than the decedent s spouse, and (b) less than the full value of the property is included on the return as part of the gross estate? If Yes, you must complete and attach Schedule E... b If Yes, was the value of any interest owned (from above) discounted on this estate tax return? If Yes, see the instructions on reporting the total accumulated or effective discounts taken on Schedule F or G... Did the decedent make any transfer described in section 2035, 2036, 2037, or 2038 (see the instructions)? If "Yes," you must complete and attach Schedule G"... If Yes, was there a GST taxable termination (under section 2612) on the death of the decedent?... Part 5 - Recapitulation Item no. Gross estate Alternate value Value at date of death 1 Schedule A Real Estate... 2 Schedule B Stocks and Bonds... 3 Schedule C Mortgages, Notes, and Cash... 10,000,00 4 Schedule D Insurance on the Decedent s Life (attach Form(s) 712)... 5 Schedule E Jointly Owned Property (attach Form(s) 712 for life insurance)... 6 Schedule F Other Miscellaneous Property (attach Form(s) 712 for life insurance)... 7 Schedule G Transfers During Decedent s Life (attach Form(s) 712 for life insurance) (Rev ) Estate of: 8971 Cash Only 01/01/2015 Part 4 - General Information (continued) 11a Did the decedent, at the time of death, own any interest in a partnership (for example, a family limited partnership), an unincorporated business, or a limited liability company; or own any stock in an inactive or closely held corporation? a Were there in existence at the time of the decedent s death any trusts created by the decedent during his or her lifetime?... b Were there in existence at the time of the decedent s death any trusts not created by the decedent under which the decedent possessed any power, beneficial interest, or trusteeship?... c Was the decedent receiving income from a trust created after October 22, 1986 by a parent or grandparent?... d If there was a GST taxable termination (under section 2612), attach a statement to explain. Provide a copy of the trust or will creating the trust, and give the name, address, and phone number of the current trustee(s). e Did decedent at any time during his or her lifetime transfer or sell an interest in a partnership, limited liability company, or closely held corporation to a trust described in question 13a or 13b?... If Yes, provide the EIN number for this transferred/sold item. 14 Did the decedent ever possess, exercise, or release any general power of appointment? If Yes, you must complete and attach Schedule H Did the decedent have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? Was the decedent, immediately before death, receiving an annuity described in the General paragraph of the instructions for Schedule I or a private annuity? If Yes, you must complete and attach Schedule I Was the decedent ever the beneficiary of a trust for which a deduction was claimed by the estate of a pre-deceased spouse under section 2056(b)(7) and which is not reported on this return? If Yes, attach an explanation... Schedule H Powers of Appointment... Schedule I Annuities... Total gross estate (add items 1 through 10)... Schedule U Qualified Conservation Easement Exclusion... Total gross estate less exclusion (subtract item 12 from item 11). Enter here and on line 1 of Part 2 - Tax Computation... Item no. Deductions 14 Schedule J Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims Schedule K Debts of the Decedent Schedule K Mortgages and Liens Total of items 14 through Allowable amount of deductions from item 17 (see the instructions for item 18 of the Recapitulation) Schedule L Net Losses During Administration Schedule L Expenses Incurred in Administering Property Not Subject to Claims Schedule M Bequests, etc., to Surviving Spouse Schedule O Charitable, Public, and Similar Gifts and Bequests Estimated value of assets subject to the special rule of Reg. section T(a)(7)(ii) Tentative total allowable deductions (add items 18 through 23). Enter here and on line 2 of the Tax Computation 24 Copyright 2015 form software only The Lackner Group, Inc Yes Amount No 10,000,00 10,000,00 33 Page 3

62 Form 706 (Rev ) Estate of: 8971 Cash Only 01/01/2015 Decedent's Social Security Number Part 6 Portability of Deceased Spousal Unused Exclusion (DSUE) Portability Election A decedent with a surviving spouse elects portability of the deceased spousal unused exclusion (DSUE) amount, if any, by completing and timely-filing this return. No further action is required to elect portability of the DSUE amount to allow the surviving spouse to use the decedent's DSUE amount. Section A. Opting Out of Portability The estate of a decedent with a surviving spouse may opt out of electing portability of the DSUE amount. Check here and do not complete Sections B and C of Part 6 only if the estate opts NOT to elect portability of the DSUE amount. Section B. QDOT Are any assets of the estate being transferred to a qualified domestic trust (QDOT)? If Yes, the DSUE amount portable to a surviving spouse (calculated in Section C, below) is preliminary and shall be redetermined at the time of the final distribution or other taxable event imposing estate tax under section 2056A. See instructions for more details. Section C. DSUE Amount Portable TO the Surviving Spouse (To be completed by the estate of a decedent making a portability election.) Complete the following calculation to determine the DSUE amount that can be transferred to the surviving spouse Enter the amount from line 9c, Part 2 - Tax Computation... Reserved... Enter the value of the cumulative lifetime gifts on which tax was paid or payable (see instructions)... Add lines 1 and 3... Enter amount from line 10, Part 2 - Tax Computation... Divide amount on line 5 by 40% (0.40) (do not enter less than zero)... 7 Subtract line 6 from line Enter amount from line 5, Part 2 - Tax Computation... Subtract line 8 from line 7 (do not enter less than zero)... DSUE amount portable to the surviving spouse (Enter the lesser of line 9 or line 9a, Part 2-Tax Computation) Yes No Section D. DSUE Amount Received FROM Predeceased Spouse(s) (To be completed by the estate of a deceased surviving spouse with DSUE amount from predeceased spouse(s)) Provide the following information to determine the DSUE amount received from deceased spouses. A B C D E F G Name of Deceased Spouse (dates of death after December 31, 2010, only) Date of Death (enter as mm/dd/yy) Portability Election Made? Part 1 DSUE RECEIVED FROM LAST DECEASED SPOUSE If Yes, DSUE Amount Received from Spouse DSUE Amount Applied by Decedent to Lifetime Gifts Part 2 DSUE RECEIVED FROM OTHER PREDECEASED SPOUSE(S) AND USED BY DECEDENT Yes No Remaining DSUE Amount, if any (subtract col. E from col. D) Total (for all DSUE amounts from predeceased spouse(s) applied)... Add the amount from Part 1, column D and the total from Part 2, column E. Enter the result on line 9b, Part 2 - Tax Computation... Copyright 2015 form software only The Lackner Group, Inc. 34 Page 4

63 Form 706 (Rev ) Estate of: 8971 Cash Only 01/01/2015 SCHEDULE C - Mortgages, Notes, and Cash (For jointly owned property that must be disclosed on Schedule E, see instructions.) Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Item Number Description Alternate valuation date Alternate Value Value at date of death 1 Cash 10,000,00 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 3.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 10,000,00 Schedule C - Page 11 35

64 Form 706 (Rev ) Estate of: 8971 Cash Only 01/01/ Decedent's Social Security Number SCHEDULE F - Other Miscellaneous Property Not Reportable Under Any Other Schedule (For jointly owned property that must be disclosed on Schedule E, see instructions.) (If you elect section 2032A valuation, you must complete Schedule F and Schedule A-1.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Did the decedent own any works of art, items, or any collections whose artistic or collectible value at date of death exceeded $3,000?... If "Yes," submit full details on this schedule and attach appraisals. Has the decedent's estate, spouse, or any other person, received (or will receive) any bonus or award as a result of the decedent's employment or death?... If "Yes," submit full details on this schedule. Yes No 3 Did the decedent at the time of death have, or have access to, a safe deposit box?... If "Yes," state location, and if held jointly by decedent and another, state name and relationship of joint depositor. If any of the contents of the safe deposit box are omitted from the schedules in this return, explain fully why omitted. Item Number Description. For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN Alternate valuation date Alternate Value Value at date of death None Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 6.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. Schedule F - Page 14 36

65 Estate of: 8971 Cash Only 1. Variance: ,000,00 10,000, Item # Sched Num Name Lot # Benys Cash IRD C 1 Exclude Resid Changed Form 706 Form 8971 Variance Cash 10,000,00 10,000,00 C 10,000,00 10,000,00 10,000,00 10,000,

66 Form 8971 (January 2016) Department of the Treasury Internal Revenue Service Information Regarding Beneficiaries Acquiring Property From a Decedent Information about Form 8971 and its separate instructions is at OMB No Check box if this is a supplemental filing Part I Decedent and Executor Information 1 Decedent s name 2 Decedent's date of death Cash Only Decedent s SSN 4 Executor's Name (see instructions) 5 Executor's phone no. 6 Executor's TIN 7 Executor's address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) 8 If there are multiple executors, check here and attach a statement showing the names, addresses, telephone numbers, and TINs of the additional executors. 9 If the estate elected alternate valuation, indicate the alternate valuation date: Part II Beneficiary Information How many beneficiaries received (or are expected to receive) property from the estate? For each beneficiary, provide the information requested below. If more space is needed, attach a statement showing the requested information for the additional beneficiaries. A B C D Name of Beneficiary TIN Address, City, State, ZIP Date Provided Sign Here Paid Preparer Use Only Notice To Executors: Submit Form 8971 with a copy of each completed Schedule A to the IRS. To protect privacy, Form 8971 should not be provided to any beneficiary. Only Schedule A of Form 8971 should be provided to the beneficiary. Retain copies of all forms for the estate's records. Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, all information reported herein is true, correct, and complete. Signature of executor May the IRS discuss this return with the preparer shown below? See instructions... Yes X No Print/Type preparer's name Firm's name Firm's address Preparer's signature Date PTIN Check if self-employed Firm's EIN Phone no. Date For Paperwork Reduction Act Notice, see the separate instructions. RGA Copyright 2016 form software only The Lackner Group, Inc. Form (1-2016)

67 8971 (Alternate Value) 39

68 706 United States Estate (and Generation-Skipping Transfer) Tax Return Form (Rev. August 2013) OMB No Department of the Treasury Estate of a citizen or resident of the United States (see instructions). Internal Revenue Service To be filed for decedents dying after December 31, a Decedent s first name and middle initial (and maiden name, if any) 1b Decedent s last name 2 Decedent s Social Security No Alt Val 3a 3b Year domicile established 4 Date of birth 5 Date of death Part 1. Decedent and Executor Part 2. Tax Computation City, town, or post office; county; state or province; country; and ZIP or foreign postal code., PA a Name of executor (see instructions) 6b 6c 6d If there are multiple executors, check here 7a Name and location of court where will was probated or estate administered If decedent died testate, check here X and attach a certified copy of the will Executor s address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) and phone no. 3a Tentative taxable estate (subtract line 2 from line 1)... b Deduction for state death taxes... c Taxable estate (subtract line 3b from line 3a)... 4 Adjusted taxable gifts (see instructions)... 5 Executor s social security number (see instructions) Total gross estate less exclusion (from Part 5, Recapitulation, item 13)... Total allowable deductions (from Part 5, Recapitulation, item 24))... Add lines 3c and Tentative tax on the amount on line 5 from Table A in the instructions... 7 Total gift tax paid or payable (see instructions)... Phone no. 7b Case number 8 Gross estate tax (subtract line 7 from line 6) a Basic exclusion amount... 9a 5,430,00 9b Deceased spousal unused exclusion (DSUE) amount from predeceased spouse(s), if any (from Section D, Part 6 - Portability of Deceased Spousal Unused Exclusion)... 9b 9c 9d Applicable exclusion amount (add lines 9a and 9b)... Applicable credit amount (tentative tax on the amount in 9c from Table A in the instructions)... Adjustment to applicable credit amount (May not exceed $6,000. See instructions.) Prior payments. Explain in an attached statement ,117,80 11 Allowable unified credit (applicable credit amount) (subtract line 10 from line 9d) Subtract line 11 from line 8 (but do not enter less than zero) Credit for foreign death taxes (from Schedule(s) P). (Attach Form(s) 706-CE.) Credit for tax on prior transfers (from Schedule Q) Total credits (add lines 13 and 14)... Net estate tax (subtract line 15 from line 12)... Generation-skipping transfer (GST) taxes (from Schedule R, Part 2, line 10) Total transfer taxes (add lines 16 and 17) Balance due (or overpayment) (subtract line 19 from line 18) Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer other than the executor is based on all information of which preparer has any knowledge. 9c 9d 5,430, a b c 11,100,00 11,100,00 11,100,00 11,100,00 4,385,80 4,385,80 2,117,80 2,268,00 2,268,00 2,268,00 2,268,00 Sign Here Signature of executor Date Paid Preparer Use Only Signature of executor Print/Type preparer's name Firm's name Firm's address Preparer's signature Date Check if self-employed Firm's EIN Phone no. Date PTIN For Privacy Act and Paperwork Reduction Act Notice, see instructions. RGA Copyright 2015 form software only The Lackner Group, Inc. Form 706 (Rev ) 40

69 Form 706 Estate of: 8971 Alt Val 01/01/2015 Part 3 -- Elections by the Executor 1 Decedent's Social Security Number Do you elect alternate valuation?... 2 Do you elect special-use valuation? If Yes, you must complete and attach Schedule A (Rev ) Note. For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Section A of Part 6-Portability of Deceased Spousal Unused Exclusion. Note. Some of these elections may require the posting of bonds or liens. Please check the Yes or No box for each question (see instructions). Do you elect to pay the taxes in installments as described in section 6166?... If Yes, you must attach the additional information described in the instructions. Note. By electing section 6166, you may be required to provide security for estate tax deferred under section 6166 and interest in the form of a surety bond or a section 6324A lien. Do you elect to postpone the part of the taxes attributable to a reversionary or remainder interest as described in section 6163?... Part 4 -- General Information (Note. Please attach the necessary supplemental documents. You must attach the death certificate.) (see instructions). Authorization to receive confidential tax information under Regs. sec (b)(2)(i); to act as the estate s representative before the IRS; and to make written or oral presentations on behalf of the estate: Name of representative (print or type) State Address (number, street, and room or suite no., city, state, and ZIP code) Yes X No I declare that I am the attorney/ certified public accountant/ enrolled agent (check the applicable box) for the executor. I am not under suspension or disbarment from practice before the Internal Revenue Service and am qualified to in the state shown above. Signature CAF number Date Telephone number 1 Death certificate number and issuing authority (attach a copy of the death certificate to this return). 2 Decedent s business or occupation. If retired, check here and state decedent s former business or occupation. 3a Marital status of the decedent at time of death: Married Widow/widower 3b For all prior marriages, list the name and SSN of the former spouse, the date the marriage ended, and whether the marriage ended by annulment, divorce, or death. Attach additional statements of the same size if necessary. Single Legally separated Divorced 4a Surviving spouse s name 4b Social security number 4c Amount received (see instructions) None 5 Individuals (other than the surviving spouse), trusts, or other estates who receive benefits from the estate (do not include charitable beneficiaries shown in Schedule O) (see instructions). 1 2 Name of individual, trust, or estate receiving $5,000 or more Identifying number Relationship to decedent Amount (see instructions) Beny ,894,20 Beny ,262,80 All unascertainable beneficiaries and those who receive less than $5, Total... If you answer Yes to any of the following questions, you must attach additional information as described ,157,00 Is the estate filing a protective claim for refund?... If Yes, complete and attach two copies of Schedule PC for each claim. Does the gross estate contain any section 2044 property (qualified terminable interest property (QTIP) from a prior gift or estate) (see instructions)?... 8a Have federal gift tax returns ever been filed?... If Yes, attach copies of the returns, if available, and furnish the following information: b Period(s) covered c Internal Revenue office(s) where filed Yes No 9a Was there any insurance on the decedent s life that is not included on the return as part of the gross estate?... b Did the decedent own any insurance on the life of another that is not included in the gross estate?... (continued on next page) Copyright 2015 form software only The Lackner Group, Inc. 41 Page 2

70 Form 706 Decedent's Social Security Number If you answer Yes to any of the following questions, you must attach additional information as described in the instructions. 10 Did the decedent at the time of death own any property as a joint tenant with right of survivorship in which (a) one or more of the other joint tenants was someone other than the decedent s spouse, and (b) less than the full value of the property is included on the return as part of the gross estate? If Yes, you must complete and attach Schedule E... b If Yes, was the value of any interest owned (from above) discounted on this estate tax return? If Yes, see the instructions on reporting the total accumulated or effective discounts taken on Schedule F or G... Did the decedent make any transfer described in section 2035, 2036, 2037, or 2038 (see the instructions)? If "Yes," you must complete and attach Schedule G"... If Yes, was there a GST taxable termination (under section 2612) on the death of the decedent?... Part 5 - Recapitulation Item no. Gross estate Alternate value Value at date of death 1 Schedule A Real Estate... 2 Schedule B Stocks and Bonds... 15,000,00 3 Schedule C Mortgages, Notes, and Cash... 4 Schedule D Insurance on the Decedent s Life (attach Form(s) 712)... 5 Schedule E Jointly Owned Property (attach Form(s) 712 for life insurance)... 6 Schedule F Other Miscellaneous Property (attach Form(s) 712 for life insurance)... 7 Schedule G Transfers During Decedent s Life (attach Form(s) 712 for life insurance) (Rev ) Estate of: 8971 Alt Val 01/01/2015 Part 4 - General Information (continued) 11a Did the decedent, at the time of death, own any interest in a partnership (for example, a family limited partnership), an unincorporated business, or a limited liability company; or own any stock in an inactive or closely held corporation? a Were there in existence at the time of the decedent s death any trusts created by the decedent during his or her lifetime?... b Were there in existence at the time of the decedent s death any trusts not created by the decedent under which the decedent possessed any power, beneficial interest, or trusteeship?... c Was the decedent receiving income from a trust created after October 22, 1986 by a parent or grandparent?... d If there was a GST taxable termination (under section 2612), attach a statement to explain. Provide a copy of the trust or will creating the trust, and give the name, address, and phone number of the current trustee(s). e Did decedent at any time during his or her lifetime transfer or sell an interest in a partnership, limited liability company, or closely held corporation to a trust described in question 13a or 13b?... If Yes, provide the EIN number for this transferred/sold item. 14 Did the decedent ever possess, exercise, or release any general power of appointment? If Yes, you must complete and attach Schedule H Did the decedent have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? Was the decedent, immediately before death, receiving an annuity described in the General paragraph of the instructions for Schedule I or a private annuity? If Yes, you must complete and attach Schedule I Was the decedent ever the beneficiary of a trust for which a deduction was claimed by the estate of a pre-deceased spouse under section 2056(b)(7) and which is not reported on this return? If Yes, attach an explanation... Schedule H Powers of Appointment... Schedule I Annuities... Total gross estate (add items 1 through 10)... Schedule U Qualified Conservation Easement Exclusion... Total gross estate less exclusion (subtract item 12 from item 11). Enter here and on line 1 of Part 2 - Tax Computation... 11,100,00 11,100,00 11,100,00 Item no. Deductions 14 Schedule J Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims Schedule K Debts of the Decedent Schedule K Mortgages and Liens Total of items 14 through Allowable amount of deductions from item 17 (see the instructions for item 18 of the Recapitulation) Schedule L Net Losses During Administration Schedule L Expenses Incurred in Administering Property Not Subject to Claims Schedule M Bequests, etc., to Surviving Spouse Schedule O Charitable, Public, and Similar Gifts and Bequests Estimated value of assets subject to the special rule of Reg. section T(a)(7)(ii) Tentative total allowable deductions (add items 18 through 23). Enter here and on line 2 of the Tax Computation 24 Copyright 2015 form software only The Lackner Group, Inc Yes Amount No 15,000,00 15,000,00 42 Page 3

71 Form 706 (Rev ) Estate of: 8971 Alt Val 01/01/2015 Decedent's Social Security Number Part 6 Portability of Deceased Spousal Unused Exclusion (DSUE) Portability Election A decedent with a surviving spouse elects portability of the deceased spousal unused exclusion (DSUE) amount, if any, by completing and timely-filing this return. No further action is required to elect portability of the DSUE amount to allow the surviving spouse to use the decedent's DSUE amount. Section A. Opting Out of Portability The estate of a decedent with a surviving spouse may opt out of electing portability of the DSUE amount. Check here and do not complete Sections B and C of Part 6 only if the estate opts NOT to elect portability of the DSUE amount. Section B. QDOT Are any assets of the estate being transferred to a qualified domestic trust (QDOT)? If Yes, the DSUE amount portable to a surviving spouse (calculated in Section C, below) is preliminary and shall be redetermined at the time of the final distribution or other taxable event imposing estate tax under section 2056A. See instructions for more details. Section C. DSUE Amount Portable TO the Surviving Spouse (To be completed by the estate of a decedent making a portability election.) Complete the following calculation to determine the DSUE amount that can be transferred to the surviving spouse Enter the amount from line 9c, Part 2 - Tax Computation... Reserved... Enter the value of the cumulative lifetime gifts on which tax was paid or payable (see instructions)... Add lines 1 and 3... Enter amount from line 10, Part 2 - Tax Computation... Divide amount on line 5 by 40% (0.40) (do not enter less than zero)... 7 Subtract line 6 from line Enter amount from line 5, Part 2 - Tax Computation... Subtract line 8 from line 7 (do not enter less than zero)... DSUE amount portable to the surviving spouse (Enter the lesser of line 9 or line 9a, Part 2-Tax Computation) Yes No Section D. DSUE Amount Received FROM Predeceased Spouse(s) (To be completed by the estate of a deceased surviving spouse with DSUE amount from predeceased spouse(s)) Provide the following information to determine the DSUE amount received from deceased spouses. A B C D E F G Name of Deceased Spouse (dates of death after December 31, 2010, only) Date of Death (enter as mm/dd/yy) Portability Election Made? Part 1 DSUE RECEIVED FROM LAST DECEASED SPOUSE If Yes, DSUE Amount Received from Spouse DSUE Amount Applied by Decedent to Lifetime Gifts Part 2 DSUE RECEIVED FROM OTHER PREDECEASED SPOUSE(S) AND USED BY DECEDENT Yes No Remaining DSUE Amount, if any (subtract col. E from col. D) Total (for all DSUE amounts from predeceased spouse(s) applied)... Add the amount from Part 1, column D and the total from Part 2, column E. Enter the result on line 9b, Part 2 - Tax Computation... Copyright 2015 form software only The Lackner Group, Inc. 43 Page 4

72 Form 706 (Rev ) Estate of: 8971 Alt Val 01/01/2015 SCHEDULE B - Stocks and Bonds (For jointly owned property that must be disclosed on Schedule E, see instructions.) Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last four columns. Item Number 1 Description including face amount of bonds or number of shares and par value for identification. Give CUSIP number. If trust, partnership, or closely held entity, give EIN CUSIP # or EIN, where applicable Unit Value Alternate valuation date Alternate Value Value at date of death 10,000 shares of Apple ,000,00 3,000 shares sold on Jan. 2, /02/2015 2,400,00 1,000 shares distributed to legatees on Jan. 2, ,000 shares not disposed of within 6 months following death /01/ , /01/2015 3,000,00 2 2,000 shares of IBM /01/2015 5,000,00 Not disposed of within 6 months following death 5,000,00 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 2.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 11,100,00 15,000,00 Schedule B - Page 10 Form 706 Schedule B (Rev ) 44

73 Form 706 (Rev ) Estate of: 8971 Alt Val 01/01/ Decedent's Social Security Number SCHEDULE F - Other Miscellaneous Property Not Reportable Under Any Other Schedule (For jointly owned property that must be disclosed on Schedule E, see instructions.) (If you elect section 2032A valuation, you must complete Schedule F and Schedule A-1.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Did the decedent own any works of art, items, or any collections whose artistic or collectible value at date of death exceeded $3,000?... If "Yes," submit full details on this schedule and attach appraisals. Has the decedent's estate, spouse, or any other person, received (or will receive) any bonus or award as a result of the decedent's employment or death?... If "Yes," submit full details on this schedule. Yes No 3 Did the decedent at the time of death have, or have access to, a safe deposit box?... If "Yes," state location, and if held jointly by decedent and another, state name and relationship of joint depositor. If any of the contents of the safe deposit box are omitted from the schedules in this return, explain fully why omitted. Item Number Description. For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN Alternate valuation date Alternate Value Value at date of death None Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 6.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. Schedule F - Page 14 45

74 Estate of: 8971 Alt Val 1. Variance: ,100,00 3,100,00 3,000, Item # Sched Num Name Lot # Benys Cash IRD Exclude Resid Changed Form 706 Form 8971 Variance B 1 Apple 2 6,100,00 3,100,00 3,000,00 B 2 IBM 1 B 6,100,00 3,100,00 3,000,00 6,100,00 3,100,00 3,000,

75 Estate of: 8971 Alt Val 2. Variance: (with sales history) 12,000,00 3,100, Item Sched Num Name Lot # Description # Units Form 706 Form 8971 B 1 Apple Inventoried 10,00 6,100,00 3,100,00 B 1 Apple Sold -3,00-2,400,00 Variance Apple 7,00 3,700,00 3,100,00 600,00 B 2 IBM Inventoried 2,00 5,000,00 IBM 2,00 5,000,00 5,000,00 B 8,700,00 3,100,00 Total 8,700,00 3,100,

76 8971 Alt Val Form 8971 SCHEDULE A Grand total Sched Item # Description Beneficiary Y/N Valuation Date Percent B 8,100,000 Value Amount 6,100,000 10,000 shares of Apple Beny 1 Y 07/01/ % 1,033,333 10,000 shares of Apple Beny 2 Y 07/01/ % 1,033,333 10,000 shares of Apple Beny 3 Y 07/01/ % 1,033, % 3,100, Amount 5,000,000 2,000 shares of IBM Beny 1 Y 07/01/ % 5,000, % 5,000,000 8,100,000 Grand total 8,100, /30/2016 8:45:56 48

77 Form 8971 (January 2016) Department of the Treasury Internal Revenue Service Information Regarding Beneficiaries Acquiring Property From a Decedent Information about Form 8971 and its separate instructions is at OMB No Check box if this is a supplemental filing Part I Decedent and Executor Information 1 Decedent s name 2 Decedent's date of death Alt Val Decedent s SSN 4 Executor's Name (see instructions) 5 Executor's phone no. 6 Executor's TIN 7 Executor's address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) 8 If there are multiple executors, check here and attach a statement showing the names, addresses, telephone numbers, and TINs of the additional executors. 9 If the estate elected alternate valuation, indicate the alternate valuation date: Part II Beneficiary Information How many beneficiaries received (or are expected to receive) property from the estate? 3 For each beneficiary, provide the information requested below. If more space is needed, attach a statement showing the requested information for the additional beneficiaries. 1 Beny 1 A B C D Name of Beneficiary TIN Address, City, State, ZIP Date Provided PA 06/01/ Beny PA 06/01/ Beny PA 06/01/2016 Sign Here Paid Preparer Use Only Notice To Executors: Submit Form 8971 with a copy of each completed Schedule A to the IRS. To protect privacy, Form 8971 should not be provided to any beneficiary. Only Schedule A of Form 8971 should be provided to the beneficiary. Retain copies of all forms for the estate's records. Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, all information reported herein is true, correct, and complete. Signature of executor May the IRS discuss this return with the preparer shown below? See instructions... Yes X No Print/Type preparer's name Firm's name Firm's address Preparer's signature Date PTIN Check if self-employed Firm's EIN Phone no. Date For Paperwork Reduction Act Notice, see the separate instructions. RGA Copyright 2016 form software only The Lackner Group, Inc. Form (1-2016)

78 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Alt Val Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 1 Y 07/01/2015 1,033, ,000 shares of Apple Beneficiary Interest: % Form 706, Schedule B, Item 2 Y 07/01/2015 5,000, ,000 shares of IBM Not disposed of within 6 months following death Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 50

79 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Alt Val Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 1 Y 07/01/2015 1,033, ,000 shares of Apple Beneficiary Interest: % Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 51

80 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Check box if this is a supplemental filing Part 1. General Information Information about Form 8971 (including Schedule A) and its separate instructions is at 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Alt Val Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 1 Y 07/01/2015 1,033, ,000 shares of Apple Beneficiary Interest: % Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 52

81 8971 (Supplemental) 53

82 706 United States Estate (and Generation-Skipping Transfer) Tax Return Form (Rev. August 2013) OMB No Department of the Treasury Estate of a citizen or resident of the United States (see instructions). Internal Revenue Service To be filed for decedents dying after December 31, a Decedent s first name and middle initial (and maiden name, if any) 1b Decedent s last name 2 Decedent s Social Security No Supplemental 3a 3b Year domicile established 4 Date of birth 5 Date of death Part 1. Decedent and Executor Part 2. Tax Computation City, town, or post office; county; state or province; country; and ZIP or foreign postal code., PA a Name of executor (see instructions) 6b 6c 6d If there are multiple executors, check here 7a Name and location of court where will was probated or estate administered If decedent died testate, check here X and attach a certified copy of the will Executor s address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) and phone no. 3a Tentative taxable estate (subtract line 2 from line 1)... b Deduction for state death taxes... c Taxable estate (subtract line 3b from line 3a)... 4 Adjusted taxable gifts (see instructions)... 5 Executor s social security number (see instructions) Total gross estate less exclusion (from Part 5, Recapitulation, item 13)... Total allowable deductions (from Part 5, Recapitulation, item 24))... Add lines 3c and Tentative tax on the amount on line 5 from Table A in the instructions... 7 Total gift tax paid or payable (see instructions)... Phone no. 7b Case number 8 Gross estate tax (subtract line 7 from line 6) a Basic exclusion amount... 9a 5,450,00 9b Deceased spousal unused exclusion (DSUE) amount from predeceased spouse(s), if any (from Section D, Part 6 - Portability of Deceased Spousal Unused Exclusion)... 9b 9c 9d Applicable exclusion amount (add lines 9a and 9b)... Applicable credit amount (tentative tax on the amount in 9c from Table A in the instructions)... Adjustment to applicable credit amount (May not exceed $6,000. See instructions.) Prior payments. Explain in an attached statement ,125,80 11 Allowable unified credit (applicable credit amount) (subtract line 10 from line 9d) Subtract line 11 from line 8 (but do not enter less than zero) Credit for foreign death taxes (from Schedule(s) P). (Attach Form(s) 706-CE.) Credit for tax on prior transfers (from Schedule Q) Total credits (add lines 13 and 14)... Net estate tax (subtract line 15 from line 12)... Generation-skipping transfer (GST) taxes (from Schedule R, Part 2, line 10) Total transfer taxes (add lines 16 and 17) Balance due (or overpayment) (subtract line 19 from line 18) Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, it is true, correct, and complete. Declaration of preparer other than the executor is based on all information of which preparer has any knowledge. 9c 9d 5,450, a b c 200,00 200,00 200,00 200,00 54,80 54,80 2,125,80 Sign Here Signature of executor Date Paid Preparer Use Only Signature of executor Print/Type preparer's name Firm's name Firm's address Preparer's signature Date Check if self-employed Firm's EIN Phone no. Date PTIN For Privacy Act and Paperwork Reduction Act Notice, see instructions. RGA Copyright 2015 form software only The Lackner Group, Inc. Form 706 (Rev ) 54

83 Form 706 Estate of: 8971 Supplemental 01/01/2016 Part 3 -- Elections by the Executor 1 Decedent's Social Security Number Do you elect alternate valuation?... 2 Do you elect special-use valuation? If Yes, you must complete and attach Schedule A (Rev ) Note. For information on electing portability of the decedent's DSUE amount, including how to opt out of the election, see Section A of Part 6-Portability of Deceased Spousal Unused Exclusion. Note. Some of these elections may require the posting of bonds or liens. Please check the Yes or No box for each question (see instructions). Do you elect to pay the taxes in installments as described in section 6166?... If Yes, you must attach the additional information described in the instructions. Note. By electing section 6166, you may be required to provide security for estate tax deferred under section 6166 and interest in the form of a surety bond or a section 6324A lien. Do you elect to postpone the part of the taxes attributable to a reversionary or remainder interest as described in section 6163?... Part 4 -- General Information (Note. Please attach the necessary supplemental documents. You must attach the death certificate.) (see instructions). Authorization to receive confidential tax information under Regs. sec (b)(2)(i); to act as the estate s representative before the IRS; and to make written or oral presentations on behalf of the estate: Name of representative (print or type) State Address (number, street, and room or suite no., city, state, and ZIP code) Yes No I declare that I am the attorney/ certified public accountant/ enrolled agent (check the applicable box) for the executor. I am not under suspension or disbarment from practice before the Internal Revenue Service and am qualified to in the state shown above. Signature CAF number Date Telephone number 1 Death certificate number and issuing authority (attach a copy of the death certificate to this return). 2 Decedent s business or occupation. If retired, check here and state decedent s former business or occupation. 3a Marital status of the decedent at time of death: Married Widow/widower 3b For all prior marriages, list the name and SSN of the former spouse, the date the marriage ended, and whether the marriage ended by annulment, divorce, or death. Attach additional statements of the same size if necessary. Single Legally separated Divorced 4a Surviving spouse s name 4b Social security number 4c Amount received (see instructions) None 5 Individuals (other than the surviving spouse), trusts, or other estates who receive benefits from the estate (do not include charitable beneficiaries shown in Schedule O) (see instructions). Name of individual, trust, or estate receiving $5,000 or more Identifying number Relationship to decedent Amount (see instructions) All unascertainable beneficiaries and those who receive less than $5, Total... If you answer Yes to any of the following questions, you must attach additional information as described. 6 7 Is the estate filing a protective claim for refund?... If Yes, complete and attach two copies of Schedule PC for each claim. Does the gross estate contain any section 2044 property (qualified terminable interest property (QTIP) from a prior gift or estate) (see instructions)?... 8a Have federal gift tax returns ever been filed?... If Yes, attach copies of the returns, if available, and furnish the following information: b Period(s) covered c Internal Revenue office(s) where filed Yes No 9a Was there any insurance on the decedent s life that is not included on the return as part of the gross estate?... b Did the decedent own any insurance on the life of another that is not included in the gross estate?... (continued on next page) Copyright 2015 form software only The Lackner Group, Inc. 55 Page 2

84 Form 706 Decedent's Social Security Number If you answer Yes to any of the following questions, you must attach additional information as described in the instructions. 10 Did the decedent at the time of death own any property as a joint tenant with right of survivorship in which (a) one or more of the other joint tenants was someone other than the decedent s spouse, and (b) less than the full value of the property is included on the return as part of the gross estate? If Yes, you must complete and attach Schedule E... b If Yes, was the value of any interest owned (from above) discounted on this estate tax return? If Yes, see the instructions on reporting the total accumulated or effective discounts taken on Schedule F or G... Did the decedent make any transfer described in section 2035, 2036, 2037, or 2038 (see the instructions)? If "Yes," you must complete and attach Schedule G"... If Yes, was there a GST taxable termination (under section 2612) on the death of the decedent?... Part 5 - Recapitulation Item no. Gross estate Alternate value Value at date of death 1 Schedule A Real Estate... 2 Schedule B Stocks and Bonds ,00 3 Schedule C Mortgages, Notes, and Cash... 4 Schedule D Insurance on the Decedent s Life (attach Form(s) 712)... 5 Schedule E Jointly Owned Property (attach Form(s) 712 for life insurance)... 6 Schedule F Other Miscellaneous Property (attach Form(s) 712 for life insurance)... 7 Schedule G Transfers During Decedent s Life (attach Form(s) 712 for life insurance) (Rev ) Estate of: 8971 Supplemental 01/01/2016 Part 4 - General Information (continued) 11a Did the decedent, at the time of death, own any interest in a partnership (for example, a family limited partnership), an unincorporated business, or a limited liability company; or own any stock in an inactive or closely held corporation? a Were there in existence at the time of the decedent s death any trusts created by the decedent during his or her lifetime?... b Were there in existence at the time of the decedent s death any trusts not created by the decedent under which the decedent possessed any power, beneficial interest, or trusteeship?... c Was the decedent receiving income from a trust created after October 22, 1986 by a parent or grandparent?... d If there was a GST taxable termination (under section 2612), attach a statement to explain. Provide a copy of the trust or will creating the trust, and give the name, address, and phone number of the current trustee(s). e Did decedent at any time during his or her lifetime transfer or sell an interest in a partnership, limited liability company, or closely held corporation to a trust described in question 13a or 13b?... If Yes, provide the EIN number for this transferred/sold item. 14 Did the decedent ever possess, exercise, or release any general power of appointment? If Yes, you must complete and attach Schedule H Did the decedent have an interest in or a signature or other authority over a financial account in a foreign country, such as a bank account, securities account, or other financial account? Was the decedent, immediately before death, receiving an annuity described in the General paragraph of the instructions for Schedule I or a private annuity? If Yes, you must complete and attach Schedule I Was the decedent ever the beneficiary of a trust for which a deduction was claimed by the estate of a pre-deceased spouse under section 2056(b)(7) and which is not reported on this return? If Yes, attach an explanation... Schedule H Powers of Appointment... Schedule I Annuities... Total gross estate (add items 1 through 10)... Schedule U Qualified Conservation Easement Exclusion... Total gross estate less exclusion (subtract item 12 from item 11). Enter here and on line 1 of Part 2 - Tax Computation... Item no. Deductions 14 Schedule J Funeral Expenses and Expenses Incurred in Administering Property Subject to Claims Schedule K Debts of the Decedent Schedule K Mortgages and Liens Total of items 14 through Allowable amount of deductions from item 17 (see the instructions for item 18 of the Recapitulation) Schedule L Net Losses During Administration Schedule L Expenses Incurred in Administering Property Not Subject to Claims Schedule M Bequests, etc., to Surviving Spouse Schedule O Charitable, Public, and Similar Gifts and Bequests Estimated value of assets subject to the special rule of Reg. section T(a)(7)(ii) Tentative total allowable deductions (add items 18 through 23). Enter here and on line 2 of the Tax Computation 24 Copyright 2015 form software only The Lackner Group, Inc Yes Amount No 200,00 200,00 56 Page 3

85 Form 706 (Rev ) Estate of: 8971 Supplemental 01/01/2016 Decedent's Social Security Number Part 6 Portability of Deceased Spousal Unused Exclusion (DSUE) Portability Election A decedent with a surviving spouse elects portability of the deceased spousal unused exclusion (DSUE) amount, if any, by completing and timely-filing this return. No further action is required to elect portability of the DSUE amount to allow the surviving spouse to use the decedent's DSUE amount. Section A. Opting Out of Portability The estate of a decedent with a surviving spouse may opt out of electing portability of the DSUE amount. Check here and do not complete Sections B and C of Part 6 only if the estate opts NOT to elect portability of the DSUE amount. Section B. QDOT Are any assets of the estate being transferred to a qualified domestic trust (QDOT)? If Yes, the DSUE amount portable to a surviving spouse (calculated in Section C, below) is preliminary and shall be redetermined at the time of the final distribution or other taxable event imposing estate tax under section 2056A. See instructions for more details. Section C. DSUE Amount Portable TO the Surviving Spouse (To be completed by the estate of a decedent making a portability election.) Complete the following calculation to determine the DSUE amount that can be transferred to the surviving spouse Enter the amount from line 9c, Part 2 - Tax Computation... Reserved... Enter the value of the cumulative lifetime gifts on which tax was paid or payable (see instructions)... Add lines 1 and 3... Enter amount from line 10, Part 2 - Tax Computation... Divide amount on line 5 by 40% (0.40) (do not enter less than zero)... 7 Subtract line 6 from line Enter amount from line 5, Part 2 - Tax Computation... Subtract line 8 from line 7 (do not enter less than zero)... DSUE amount portable to the surviving spouse (Enter the lesser of line 9 or line 9a, Part 2-Tax Computation) Yes No Section D. DSUE Amount Received FROM Predeceased Spouse(s) (To be completed by the estate of a deceased surviving spouse with DSUE amount from predeceased spouse(s)) Provide the following information to determine the DSUE amount received from deceased spouses. A B C D E F G Name of Deceased Spouse (dates of death after December 31, 2010, only) Date of Death (enter as mm/dd/yy) Portability Election Made? Part 1 DSUE RECEIVED FROM LAST DECEASED SPOUSE If Yes, DSUE Amount Received from Spouse DSUE Amount Applied by Decedent to Lifetime Gifts Part 2 DSUE RECEIVED FROM OTHER PREDECEASED SPOUSE(S) AND USED BY DECEDENT Yes No Remaining DSUE Amount, if any (subtract col. E from col. D) Total (for all DSUE amounts from predeceased spouse(s) applied)... Add the amount from Part 1, column D and the total from Part 2, column E. Enter the result on line 9b, Part 2 - Tax Computation... Copyright 2015 form software only The Lackner Group, Inc. 57 Page 4

86 Form 706 (Rev ) Estate of: 8971 Supplemental 01/01/2016 SCHEDULE B - Stocks and Bonds (For jointly owned property that must be disclosed on Schedule E, see instructions.) Decedent's Social Security Number Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last four columns. Item Number 1 Description including face amount of bonds or number of shares and par value for identification. Give CUSIP number. If trust, partnership, or closely held entity, give EIN CUSIP # or EIN, where applicable Unit Value Alternate valuation date Alternate Value Value at date of death 500 shares of Google ,00 Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 2.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. 200,00 Schedule B - Page 10 Form 706 Schedule B (Rev ) 58

87 Form 706 (Rev ) Estate of: 8971 Supplemental 01/01/ Decedent's Social Security Number SCHEDULE F - Other Miscellaneous Property Not Reportable Under Any Other Schedule (For jointly owned property that must be disclosed on Schedule E, see instructions.) (If you elect section 2032A valuation, you must complete Schedule F and Schedule A-1.) Note. If the value of the gross estate, together with the amount of adjusted taxable gifts, is less than the basic exclusion amount and the Form 706 is being filed solely to elect portability of the DSUE amount, consideration should be given as to whether you are required to report the value of assets eligible for the marital or charitable deduction on this schedule. See the instructions and Reg. section T (a)(7)(ii) for more information. If you are not required to report the value of an asset, identify the property but make no entries in the last three columns. Did the decedent own any works of art, items, or any collections whose artistic or collectible value at date of death exceeded $3,000?... If "Yes," submit full details on this schedule and attach appraisals. Has the decedent's estate, spouse, or any other person, received (or will receive) any bonus or award as a result of the decedent's employment or death?... If "Yes," submit full details on this schedule. Yes No 3 Did the decedent at the time of death have, or have access to, a safe deposit box?... If "Yes," state location, and if held jointly by decedent and another, state name and relationship of joint depositor. If any of the contents of the safe deposit box are omitted from the schedules in this return, explain fully why omitted. Item Number Description. For securities, give CUSIP number. If trust, partnership, or closely held entity, give EIN Alternate valuation date Alternate Value Value at date of death None Total from continuation schedules (or additional sheets) attached to this schedule... TOTAL. (Also enter on Part 5, Recapitulation, page 3, at item 6.)... (If more space is needed, attach the continuation schedule from the end of this package or additional sheets of the same size) Copyright 2015 form software only The Lackner Group, Inc. Schedule F - Page 14 59

88 Estate of: 8971 Supplemental 1. Variance: ,00 200, Item # Sched Num Name Lot # Benys Cash IRD Exclude Resid Changed Form 706 Form 8971 Variance B 1 Google 1 200,00 200,00 B 200,00 200,00 200,00 200,

89 Estate of: 8971 Supplemental 2. Variance: (with sales history) 200,00 200, Item Sched Num Name Lot # Description # Units Form 706 Form 8971 B 1 Google Inventoried ,00 200,00 Variance Google ,00 200,00 B 200,00 200,00 Total 200,00 200,

90 8971 Supplemental Form 8971 SCHEDULE A Grand total Sched Item # Description Beneficiary Y/N Valuation Date Percent B 200,000 Value Amount 200,000 Description for supplemental filing, showing Beny 1 N 01/01/ % 200, % 200, ,000 Grand total 200, /30/2016 8:50:41 62

91 Form 8971 (January 2016) Department of the Treasury Internal Revenue Service Information Regarding Beneficiaries Acquiring Property From a Decedent Information about Form 8971 and its separate instructions is at OMB No Check box if this is a supplemental filing X Part I Decedent and Executor Information 1 Decedent s name 2 Decedent's date of death Supplemental Decedent s SSN 4 Executor's Name (see instructions) 5 Executor's phone no. 6 Executor's TIN 7 Executor's address (number and street including apartment or suite no.; city, town, or post office; state or province; country; and ZIP or foreign postal code) 8 If there are multiple executors, check here and attach a statement showing the names, addresses, telephone numbers, and TINs of the additional executors. 9 If the estate elected alternate valuation, indicate the alternate valuation date: Part II Beneficiary Information How many beneficiaries received (or are expected to receive) property from the estate? 1 For each beneficiary, provide the information requested below. If more space is needed, attach a statement showing the requested information for the additional beneficiaries. 1 Beny 1 A B C D Name of Beneficiary TIN Address, City, State, ZIP Date Provided PA 06/01/2016 Sign Here Paid Preparer Use Only Notice To Executors: Submit Form 8971 with a copy of each completed Schedule A to the IRS. To protect privacy, Form 8971 should not be provided to any beneficiary. Only Schedule A of Form 8971 should be provided to the beneficiary. Retain copies of all forms for the estate's records. Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge and belief, all information reported herein is true, correct, and complete. Signature of executor May the IRS discuss this return with the preparer shown below? See instructions... Yes X No Print/Type preparer's name Firm's name Firm's address Preparer's signature Date PTIN Check if self-employed Firm's EIN Phone no. Date For Paperwork Reduction Act Notice, see the separate instructions. RGA Copyright 2016 form software only The Lackner Group, Inc. Form (1-2016)

92 Form 8971 (1-2016) SCHEDULE A Information Regarding Beneficiaries Acquiring Property from a Decedent Information about Form 8971 (including Schedule A) and its separate instructions is at Check box if this is a supplemental filing X Part 1. General Information 1 Decedent's name 2 Decedent's SSN 3 Beneficiary's name 4 Beneficiary's TIN 8971 Supplemental Beny Executor's name 6 Executor's phone no. 7 Executor's address Part 2. Information on Property Acquired A Item No. B Description of property acquired from the decedent and the Schedule and item number where reported on the decedent's Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. If the beneficiary acquired a partial interest in the property, indicate the percentage acquired here. C Did this asset increase estate tax liability? (Y/N) D Valuation Date E Estate Tax Value (in U.S. dollars) Form 706, Schedule B, Item 1 N 01/01/ ,000 1 Description for supplemental filing, showing only items that have changed. Notice To Beneficiaries: You have received this schedule to inform you of the value of property you received from the estate of the decedent named above. Retain this schedule for tax reporting purposes. If the property increased the estate tax liability, Internal Revenue Code section 1014(f) applies, requiring the consistent reporting of basis information. For more information on determining basis, see IRC section 1014 and/or consult a tax professional. Page A-1 64

93 8971 Proposed Regulations March 4, 2016 Background 1. Overview Summary of new statutory framework... 5 A. Section 1014(f)... 5 B. Section C. Penalties under sections 6662, 6721, and Notice Notice Summary of Comments on Notice and Explanation of Provisions 1. Section 1014(f)(1) - Consistency of basis with estate tax return Effect of other provisions of the Code that govern basis Section 1014(f)(2) - Property that increases estate tax liability Section 1014(f)(3) - Final value of property acquired from a decedent After-discovered or omitted property Definition of executor for purposes of sections 1014(f) and Requirement to provide Information Return and Statement(s) under section Circumstances under which no Information Return or Statement(s) is required under section Property to be reported on an Information Return and Statement(s) Beneficiaries Due date for Information Return and Statements Supplemental Information Return and Statement(s) Subsequent transfers Surviving joint tenants or other recipients under section 6035(b)(2) Removal of regulations under former section Request for new process

94 8971 Proposed Regulations March 4, Basis of property acquired from a decedent must be consistent with Federal estate tax return (a) Consistent basis requirement (b) Property subject to consistency requirement (c) Final value (d) Executor (e) Examples (f) Effective/applicability date Basis information to persons acquiring property from decedent (a) Required Information Return and Statement(s) (b) Property for which reporting is required (c) Beneficiaries (d) Due dates (e) Duty to supplement (f) Subsequent transfers (g) Definitions (h) Penalties (i) Effective/applicability date Transition relief Inconsistent estate basis reporting

95 8971 Proposed Regulations March 4, Basis of property acquired from a decedent must be consistent with Federal estate tax return (a) Consistent basis requirement (1) In general (2) Subsequent basis adjustments (b) Property subject to consistency requirement (1) In general (2) Exceptions (marital/charitable deduction property; tangible ppty $3,000) (3) Application (c) Final value (1) Finality of estate tax value (2) No finality of estate tax value (3) After-discovered or omitted property (i) Return under section 6018 filed (A) Reporting prior to expiration of period of limitation on asssessment (B) No reporting prior to expiration of period of limitation on assessment (ii) No return under section 2018 filed (d) Executor (e) Examples Example 1 Partnership Example 2(i) Private residence; valuation changed per agreement Example 2(ii) Private residence; capital improvement Example 3(i) After-discovered asset; return required; final value = Example 3(i) After-discovered asset; no return required; final value upon filing Example 4(i) Residence with nonrecourse debt; report gross, not net Example 4(ii) Beny sells residence before final value is reduced; inc tax deficiency (f) Effective/applicability date

96 8971 Proposed Regulations March 4, Basis information to persons acquiring property from decedent (a) Required Information Return and Statement(s) (1) In general (2) Exception (GST allocation/election, portability election, protective filing) (b) Property for which reporting is required (1) Property for which reporting is required Exceptions: cash, IRD, tangible personal property $3,000, sales (2) Examples (i) Example 1. Tangible personal property ($3,000 threshold) (i) Example 2. Stock with fully taxable exchange (c) Beneficiaries (1) In general (2) Beneficiary not an individual (3) Beneficiary not determined (4) Beneficiary not located (d) Due dates (1) In general (2) Transition rule (e) Duty to supplement (1) In general (2) Adjustments requiring supplement (3) Adjustments not requiring supplement (i) In general

97 8971 Proposed Regulations March 4, 2016 (ii) Examples (uncertain distributions; report all assets to each beny) (A) Example 1. Stock, personal residence, three paintings (A) Example 2. Household effects (report only those > $3,000) (4) Due date of supplemental reporting (i) In general (ii) Probate property or property from decedent s revocable trust (f) Subsequent transfers (g) Definitions (1) Executor (2) Information Return (Form 8971 plus Schedules A) (3) Statement (Schedules A) (h) Penalties (1) Failure to timely file complete and correct Information Return (2) Failure to timely furnish correct Statements (i) Effective/applicability date Transition relief Inconsistent estate basis reporting (a) In general (b) Inconsistent estate basis (c) Applicable property (d) Effective/applicability date

98 This document is scheduled to be published in the Federal Register on 03/04/2016 and available online at and on FDsys.gov [ p] DEPARTMENT OF THE TREASURY Internal Revenue Service 26 CFR Parts 1 and 301 [REG ] RIN 1545-BM97 Consistent Basis Reporting Between Estate and Person Acquiring Property From Decedent AGENCY: Internal Revenue Service (IRS), Treasury. ACTION: Notice of proposed rulemaking, and notice of proposed rulemaking by crossreference to temporary regulations. SUMMARY: This document contains proposed regulations that provide guidance regarding the requirement that a recipient s basis in certain property acquired from a decedent be consistent with the value of the property as finally determined for Federal estate tax purposes. In addition, these proposed regulations provide guidance on the reporting requirements for executors or other persons required to file Federal estate tax returns. Temporary regulations in the Rules and Regulations section of this issue of the Federal Register provide transition relief to executors and other persons required to file or furnish certain statements. The text of those temporary regulations (TD 9757) published in the Rules and Regulations section of this issue of the Federal Register also serves as the text of the proposed regulations regarding the transition relief. These proposed regulations as well as TD 9757 published elsewhere in the Rules and Regulations section of this issue of this Federal Register affect executors or other 70