When an individual dies, an estate tax lien attaches automatically to all of the property included in the gross estate. It arises prior to tax assessment, and is not recorded.
Persons inheriting property, or purchasers of property, are interested in having the lien released. As to real property that an estate seeks to sell, a discharge of the lien can be applied for with a Form 4422. A Form 792 is issued to discharge particular property.
In the past, if accepted the IRS would release the lien within a few days. Starting in 2016, the procedures changed, and all applications are now processed through Specialty Collection, Offers, Liens and Advisory. Once the IRS accepts the Form 4422, if the IRS requires it the net proceeds of the sale are deposited with the IRS or in escrow, to be held (less amounts used to pay estate taxes) until after a closing letter is issued or the IRS determines the return will not be audited.
The IRS' Small Business/Self Employed Division has issued interim guidance to its Special Advisory group regarding procedures for handling lien discharge requests. The guidance addresses:
- Consultation with and requesting assistance from other IRS departments, including Estate & Gift Tax Examinations
- What Code Sections and Regulations should be consulted for guidance;;
- The issuance of Letter 1352 when there is no estate tax return filing requirement;
- Procedures to substantiate facts when an estate tax return will be nontaxable (such as the viability of asserted deductions); and
- Circumstances when an escrow/payment will or will not be required (for example, one will not be required if an adequate estimated or actual tax payment has been made.
Practitioners who administer estates and/or are involved with lien releases should review this guidance.