OUR THOUGHTS ON:

Estate Tax Closing Letters No Longer Automatic

Estate Planning|SD Medallion Services|Tax

By Michael Darpino

The Internal Revenue Service (the “IRS”) has recently changed its procedures regarding the issuance of closing letters upon the filing of a federal estate tax return. Historically, taxpayers could expect to automatically receive closing letters subsequent to filing unless the return was selected for audit or there were errors or other special circumstances. For returns filed on or after June 1, 2015, the IRS website now states that taxpayers who wish to receive estate tax closing letters must make a formal request to the IRS.            

An estate tax closing letter is a non-binding acknowledgement by the IRS that a federal estate tax return has been reviewed and accepted, and that all tax liability has been satisfied. Executors view receipt as a signal that it is reasonably safe to distribute assets to beneficiaries and close a probate estate.  In some states, such as Florida, an estate tax closing letter must be filed with the probate court before an estate can be officially closed.

It is important to remember that an estate tax closing letter is not a formal closing agreement.  Issuance of a closing letter does not legally preclude the IRS from assessing an estate tax deficiency within the applicable statute of limitations. The IRS may reopen a case following the issuance of a closing letter if there is evidence of fraud, misrepresentation, substantial error, or if other circumstances exist that the failure to reopen would be a serious administrative omission.1   

The IRS announcement also sets forth special guidelines for returns filed after January 1, 2015 but before June 1, 2015 to reflect the portability rules. In most cases, closing letters will automatically be issued as before. However, the IRS will not issue a closing letter if an estate does not meet the filing threshold ($5.43 million in 2015) and a portability election is denied due to a late filing. In addition, no closing letter will be forthcoming if the return was filed under the special rules for late portability elections as set forth in Revenue Procedure 2014-18, and the requirements of such rules were not met.  A portability election is an election by a deceased spouse’s executor to transfer the decedent’s unused estate tax exclusion to the surviving spouse. The election can only be made on a timely and accurately prepared federal estate tax return.  

Although the IRS makes clear that formal requests for closing letters must be made, it has not set forth a procedure for taxpayers to initiate such requests or whether a user fee will be charged to issue the letter. As of this writing, the IRS has not revealed whether a specific form will be forthcoming or whether a future version of Form 706 will include a box that can be checked to make the request.  For now, the only published guidance is that taxpayers are requested to wait four months after filing the estate tax return to allow for processing time before making the request.  Further guidance on this matter is expected in the coming months.

Contact us with questions regarding your estate planning and the closing letters and visit our Estate Planning Services page to learn about the services that Schneider Downs offers.

1Rev. Proc. 94-68.

You’ve heard our thoughts… We’d like to hear yours

The Schneider Downs Our Thoughts On blog exists to create a dialogue on issues that are important to organizations and individuals. While we enjoy sharing our ideas and insights, we’re especially interested in what you may have to say. If you have a question or a comment about this article – or any article from the Our Thoughts On blog – we hope you’ll share it with us. After all, a dialogue is an exchange of ideas, and we’d like to hear from you. Email us at contactSD@schneiderdowns.com.

Material discussed is meant for informational purposes only, and it is not to be construed as investment, tax, or legal advice. Please note that individual situations can vary. Therefore, this information should be relied upon when coordinated with individual professional advice.

© 2018 Schneider Downs. All rights-reserved. All content on this site is property of Schneider Downs unless otherwise noted and should not be used without written permission.

comments