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Understanding more about the IRS’ recent reversal on closing letters

As you may have surmised, those individuals appointed to serve as the executor of an estate are tasked with a myriad of responsibilities from identifying and preserving the assets of the deceased to providing notice to creditors.

Yet another of the executor’s primary responsibilities is ensuring that any tax debts are paid off and the necessary returns are filed. For example, executors must file Form 706 with the Internal Revenue Service, a document that calculates the decedent’s federal estate tax liability.

In general, the IRS issues what is known as an estate tax closing letter after receiving and analyzing the Form 706.

This letter of closing serves as evidence that IRS has accepted the filing and found that there are no outstanding federal tax liabilities, meaning that the executor can feel confident making the necessary distributions to beneficiaries and otherwise closing out the estate, as there is very little chance of the agency reopening the case.

Historically, the practice has been that the IRS will automatically issue letters of closing upon receipt of the Form 706. This changed this past summer, however, as agency officials indicated that for all returns filed on or after June 1, 2015, letters of closing would only be issued upon taxpayer request.

The agency claimed the move was necessitated in large part by new portability rules, which have resulted in a flood of estate tax filings and strained already limited resources.

According to the IRS website, estates can anticipate letters of closing to be issued anywhere from four to six months after filing the Form 706 provided there are no errors or special circumstances present in the return.

What this means from a practical perspective, say experts, is that it may now take even longer for distributions to be made to beneficiaries and for estates to be closed as cautious executors may elect to wait until the letter is available and file the necessary request.

It’s worth noting, however, that earlier this month, the IRS announced that going forward “account transcripts” would be viewed as acceptable substitutes for letters of closing, and available online to both authorized representatives and tax professionals.

It’s thought that these documents, which outline transactions relating to the Form 706 such as its acceptance and the completion of its examination, will be easier to obtain and help cut back on closing times for estates.

What all of this serves to highlight is how the estate administration process can rapidly become incredibly complicated for those unfamiliar with the legal system. As such, those who find themselves appointed executors of an estate should strongly consider retaining the services of an experienced legal professional who can explain the law and help guide them through the entire process.



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