The federal agency quietly changed the procedure needed to receive a tax closing letter.
The Internal Revenue Service (IRS) made an unannounced change to their Frequently Asked Questions page on the Estate Taxes portion of their website. The change impacts the procedure used for closing letters received after filing a Form 706 Estate (and Generation-Skipping Transfer Tax) Return. An article on WealthManagement.com, a news source designed to provide wealth professionals with updates on financial planning strategies, notes that the change was significant and that the agency made the change quietly.
Role of the closing letter
A closing letter provides evidence that the IRS accepted the filing of Form 706 and that the federal tax liabilities are satisfied. This is an important step for executors of an estate, as it allows the estate to close the administration process. Without this letter, the estate is essentially frozen and the executor may not be able to move the distribution process forward.
These forms are generally required for estates that are taxable or in instances when the owner of the estate made significant gifts during his or her lifetime. A failure to file this form can lead to penalties if required taxes are not paid on time.
Tax closing letter procedure: Dates and details
For returns that are filed and accepted before June 1, 2015 and have no errors or other special circumstances, a closing letter should be sent anywhere from four to six months after the return is filed. However, the IRS states that estate tax returns that are filed on or after June 1 of 2015 will receive an estate tax closing letter only if the taxpayer makes an official request. The agency also notes that the taxpayer should wait four months after filing the return to make the request to better ensure there is sufficient time for processing the return.
There is currently no guidance for the request. No forms are available and no language is provided to guide the taxpayer in structuring a proper request.
Importance of legal counsel
The Wealth Management article briefly discusses potential reasons behind the change, stating the IRS may have been motivated by the increase in the number of returns filed. Regardless of the reason for the change, it does highlight the importance of utilizing an experienced estate planning lawyer to help better ensure an estate plan distributes assets according to the owner’s wishes and that the plan stays up to date. The laws governing estate plans change often, and changes can have a significant impact on the estate plan.