Joint-Tenant-Heirs basis in Mom's house

[captnamo]

Mom owned and lived in house. For estate planning purposes, mom had included two daughters on deed and joint tenants WROS. Mom died. Daughters sold house and each received 1099-S for their half.

Form: The daughters got a gift of a share of ownership of the house when their name was added to the deed. Basis in their 1/3 is same as 1/3 Mom's basis. Basis in Mom's third they inherited is FMV at date of death.

Substance: Daughters really didn't have ownership until Mom died, thus inheriting the house, so basis would be fully the FMV of the house at date of death. I've talked to practitioners that have gone each way.

I didn't see anything in Pub. 551 that specifically addresses this combination of scenarios, but fear the first one is the more correct. Can anyone offer a site that I can hang my hat on?

[captnamo]

Not 'site'......

....cite? i.e., publication?

[Koss]

Incomplete Gift

Beat this to death last year on another message board.

If the daughters did not occupy the house, did not pay any expenses to maintain the house, did not make any mortgage payments, and did not pay any property taxes, then there is at least a coherent argument that the donor never really gave up ownership or control.

We couldn't reach any final conclusion or consensus on this last year.

There was a significant, and very interesting, debate about the extent to which the US Code for estate taxes affects the US Code for income taxes. The argument that the gift was incomplete until death, and that the daughters' basis was the parent's basis (and not FMV on date of death) was grounded in the estate tax law, which says that if the transfer takes place too close to death, that the total value of the property is included in the decedent's estate.

What we couldn't agree on was whether this had any effect on the basis of the property as determined by the US Code for income tax. Estate Tax and Income Tax are found in two totally different titles of the Internal Revenue Code.

Unlike my complex argument on UDC, in which I have argued that IRC 152 may govern IRC 24, IRC 32, IRC 2, and IRC 21, because IRC 152 contains the definition of a qualifying child and the other sections merely refer to it, I cannot find any reason to believe that the code for estate tax governs the code for income tax or vice versa.

This may be an open issue that has yet to be resolved by the courts. Is the gift incomplete for purposes of estate tax, but complete for purposes of calculating basis, and gain or loss, for purposes of income tax?

If so, is this inconsistent treatment somehow inequitable or contrary to Congressional intent?

To complete this return, you need to find out what kind of cojones your client has.

Oh, wait a minute, they're daughters, right?

Burton