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Wednesday, January 18, 2017

IRS Formalizes Transcripts as Substitute for Estate Tax Closing Letters

In 2005, I discussed here how the IRS had posted information on its website that an account transcript notation bearing transaction code “421” could be used to determine that the IRS had concluded its review of a filed estate tax return and has accepted the return as filed (or after an adjustment by the IRS to which the estate agreed to), in lieu of obtaining a closing letter. The IRS indicated that closing letters would no longer be automatically issued, but could be requested 4 months or later after the return was filed.

The IRS has now formalized this information into a Notice. The Notice is helpful, and presumably was promulgated, to educate probate courts that have relied on closing letters in the probate process that they can now rely on an IRS estate tax transcript if it bears the ‘421’ transaction code.

The Revenue Procedure indicates that the estate tax closing letters can still be requested. It also notes that an account transcript can be obtained by estates and their authorized representatives by filing Form 4506-Request for Transcript of Tax Return with the IRS via mail or fax.

It would seem that the transcript request process can be more cumbersome than a request for a closing letter, since if the closing code is not shown on the transcript then the request process will need to be repeated until the IRS concludes its review and enters the closing code on its computer system.

The Revenue Procedure points out that after such a closing of review, the IRS can still reopen the review if there is (1) evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact, (2) a clearly-defined, substantial error based upon an established IRS position, or (3) another circumstance indicating that a failure to reopen the case would be a serious administrative omission. Further, if portability of a decedent’s DSUE (deceased spousal unused exclusion) amount is elected on the estate tax return, the IRS may later review the return as to whether a proper DSUE amount was reported.

Notice 2017-12

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