Ruth Ames died on January 10, 2012. In filing the estate tax return, her executo
ID: 2359926 • Letter: R
Question
Ruth Ames died on January 10, 2012. In filing the estate tax return, her executor, Melvis Sims, elects the primary valuation date and amount (fair market value on the date of death). On March 12, 2012, Melvin invests $30,000 of cash that Ruth had in her money market account in acquiring 1,000 shares of Orange, Inc. ($30 per share). On January 10, 2012, Orange was selling for $29 per share. The stock is distributed to a beneficiary, Annette Rust, on June 1, 2012, when it is selling for $33 per share. 1) Melvin wants you to determine the amount at which the Orange shares should appear on the estate tax return and 2) the amount of AnnetteExplanation / Answer
Under 2031(a), property is included in the gross estate based on the fair market value at the date of the decedents death (primary valuation date and amount). Section 2032(a) provides for the alternate valuation date and amount; that is, the fair market value six months after the date of the decedents death. Since the executor did not elect the alternate valuation date and amount, the primary valuation date (January 10, 2012) and amount are used. Section 1014
(a) provides that a beneficiary will assign a basis to inherited property based on the fair market value at the date of the decedents death unless the executor of the estate elects the alternate valuation date and amount. Since the executor did not make the alternate valuation election for Ruths estate, the fair market value on January 12, 2010 should be used. Based on the previous analysis, it appears that the cash of $30,000, rather than the Orange stock, should be included in Ruths gross estate. Since the stock was purchased by the executor, rather than being acquired by Ruth, it was not owned by Ruth on January 10, 2012
. Regulation 1.1014-3(c) clarifies this point by specifying that the $30 per share purchase price is the appropriate amount for Annette Rusts basis.
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