Applicable Federal Rates - May 2017

IRS Issues Guidance Regarding Estate Tax Lien Discharge Process

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.

IRS Small Business/Self Employed Division Memo “Interim Guidance for Responsibility to Process all Requests for Discharge of the Estate Tax Lien”

Two Important New International Tax Filings

While not the only international reporting changes that are occurring, there are two significant ones that apply for the current filing season for 2016 returns.

First is the FBAR, which reports interests in foreign accounts. This used to be due on June 30, but is now due by April 18.

Second is the expansion of Form 5472 reporting - now to nonresidents with interests in U.S. single member limited liability companies that are otherwise treated as disregarded entities and that have transactions between the LLC and related people. Such LLCs are now treated as a domestic corporation for purposes of Section 6038A and Form 5472 reporting. Treas. Regs. §1.6038A-1(c)(1)’ Treas. Regs. §301.7701-(a)(2)(vi).

De minimis transfers of assets to or from such an LLC can trigger the reporting. The safe harbor de minimis reporting exceptions applicable to Form 5472 do NOT apply to this single member LLCs. Treas. Regs. §1.6038A-1(i)(1); T.D. 9796 (January 17, 2017). Thus it is likely that single member LLCs used in a U.S. real property holding structure with foreign owners (including foreign trusts) will be subject to this reporting.