As many people know, property received from another upon his or her death receives a stepped-up basis to the fair market value of the property at the time of that person’s death.  The purpose of this rule is to avoid the recognition of gain when receiving an inheritance. 

Conversely, when preparing an estate tax return, it is beneficial to value assets as low as possible to reduce any tax.

To prevent the same assets from being valued at different amounts for different purposes, Congress has passed a law requiring that the fair market value used for the stepped-up basis be the same value used on the return for estate tax purposes.  This imposes new reporting requirements on executors of large estates to disclose in statements to the IRS and in the identifying beneficiary information the assigned value of each item received.

Any underpayment in tax under this new law is subject to a 20% penalty.  These provisions are effective for estate tax returns filed after July 31, 2015.