They look at the federal estate tax from perspectives of the gross estate, deductions, computing tax liability, carryover basis
rules applicable to some decedents dying in 2010, and limitation on stepped-up basis.
In a taxable transaction, the acquirer takes a fair value tax basis in the net assets acquired; in a nontaxable transaction, the acquirer takes a carryover basis
in the net assets but a fair value basis in any acquired stock; in a nontaxable exchange, the acquirer takes a carryover basis
in both the net assets and any acquired stock.
However, the target's assets carry over at their historic tax basis ("carryover basis
," or "inside basis"); the tax attributes (losses, credits, etc.) also carry forward but may be subject to certain limitations.
(22) The combination of enhanced record-keeping capabilities and third-party basis reporting now make a carryover basis
regime eminently more feasible than it was in years past.
If the transferor chooses to allow the transferee to have the deductions, then the rules for corporate carryover basis
* In general, the basis in the replacement property will be the same as the adjusted basis in the property sold, known as the "carryover basis
In these cases, the cost basis is "carryover basis
" and the transaction is tax free with no current income taxes due (IRC Section 1041 and IRC Section 72(e)(4)(C)(ii)).
In order to calculate the new tax basis in Vineyard B, the taxpayer would need to add the amount paid in cash for Vineyard B to its carryover basis
as shown in Figure 2.
If she sells the shares for $22,000, Pam will owe tax on a $12,000 gain, because of the carryover basis
, rather than owing tax on the $3,000 gain since the gift.
In a B reorganization, the acquirer's tax basis in the newly acquired Target stock is the surrendering transferor's basis in the stock (or carryover basis
under section 362(b)).
The Service recently released a notice providing guidance with regard to the time and manner in which the executor of an estate of a decedent who died in 2010 may elect to have the estate tax not apply, and to have the carryover basis
rules in IRC Section 1022 apply to property transferred as a result of the decedent's death.
(51) With the [section] 338 election, the acquiring corporation takes a cost basis in the target corporation's assets, (52) whereas if no election is made, the acquiring corporation takes a carryover basis
. (53) The purpose of [section] 338, in addition to replacing [section] 334(b)(2), was "to replace any nonstatutory treatment of a stock purchase as an asset purchase under the Kimbell-Diamond doctrine." (54)