In Notice 2017-12, the IRS provides guidance on the methods available to confirm that an examination of an estate tax return has been closed and announces that an account transcript may be used as a substitute for an estate tax closing letter.

Background

Until June 1, 2015, the IRS issued an estate tax closing letter for every estate tax return filed, stating for each return the amount of the net estate tax, the state death tax credit or deduction, and any applicable generation skipping transfer tax liability. Although an estate tax closing letter indicates that IRS examination of the estate tax return has closed, the IRS may nonetheless reopen or reexamine the estate tax return if: (1) there is evidence of fraud, concealment or misrepresentation; (2) a clearly defined, substantial error based on an established IRS position has occurred; or (3) failure to reopen the case would be a serious administrative omission.

Further, if an estate elects portability of the deceased spousal unused exclusion (DSUE) amount, the IRS may examine the estate tax return of the decedent to determine transfer tax liability of the surviving spouse, even if the estate has received an estate tax closing letter (Section 2010(c)(5)(B)).

On June 1, 2015, the IRS began issuing estate tax closing letters only if asked to do so by the estate, at least four months after the estate tax return is filed.

Account transcript as substitute for closing letter

Acknowledging that "executors, local probate courts, state tax departments, and others have come to rely on estate tax closing letters to confirm that the IRS examination of the estate tax return has been completed and the IRS file has been closed," the IRS announces in Notice 2017-12 (the Notice) that "an account transcript may substitute for an estate tax closing letter and is available at no charge."

An account transcript is computer-generated and shows current account data, including: return received date, payment history, refund history, penalties assessed, interest-assessed balance due, and date the examination was closed. If the IRS examination of the estate tax return has been closed, the estate's account transcript will include the code 421 and the explanation "Closed examination of tax return." The IRS explains that "an account transcript showing a transaction code of '421' can serve as the functional equivalent of an estate tax closing letter."

To request an account transcript, an estate representative must file Form 4506-T, Request for Transcript of Tax Return, with the IRS by mail or facsimile at least four months after filing the estate tax return. An estate may request an estate tax closing letter by calling the IRS (866-699-4083) at least four months after filing the estate tax return.

Implications

As the Notice acknowledges, the IRS realizes that executors rely on estate tax closing letters to confirm that the IRS examination of the estate tax return has been completed and the IRS file has been closed. When an estate tax return is required to be filed, an executor, administrator or personal representative (hereinafter, "executor") of the estate would be remiss in not obtaining such a letter before closing an estate and being relieved of liability as a representative of the estate. The IRS's practice of no longer automatically issuing a closing letter puts the duty on the executor to obtain the information necessary to close the estate. The Notice presents two ways in which an executor may request an acknowledgement from the IRS regarding its acceptance of the decedent's estate tax return — the traditional estate tax closing letter and now the account transcript containing transaction code 421. Either way, the executor must make an affirmative request for confirmation and also must wait at least four months before making such a request. For agencies or entities that require proof of the IRS's acceptance of the decedent's estate tax return, it might be a best practice to ask the agency or entity whether they will accept the account transcript.

The Transactions section of the account transcript contains details of the entire account. Each line shows a transaction code with an explanation of the code, the date of the transaction and the dollar amount, if appropriate. Transaction code 421 indicates an Estate Tax Return (Form 706) has been accepted as filed or that the examination is complete. Please note that the transaction code 421 explanation will display "Closed examination of tax return" in all instances. If transaction code 421 is not present, the tax return remains under review. In this case, allow additional time before checking again.

Keep in mind that transaction code 421 only deals with estate tax and not with income taxes or any other tax matter.

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