Monday, June 22, 2015

IRS No Longer Is Sending The Necessary "Closing Letter" for Form 706's?

During my 32 year career at the Internal Revenue Service, I saw numerous changes in the tax laws. Most of these were designed to reflect changes in income, deductions, or credits implemented by Congress. There were also a number of new forms and devices created to assist the IRS in gathering information about US taxpayers, their domestic accounts, and more importantly, to expose and report the income from overseas accounts.

There were also a few administrative changes which, to those of us who worked in the examination area, seemed to have no purpose other than to annoy and make life a little bit more difficult for taxpayers. 

Again, the IRS has come up with one of these "annoy the taxpayer" changes of which we should all be aware. For those of us who file federal estate tax returns (forms 706, 706NA), the modus operandi was always the same. We would file an estate tax return it with the IRS, the IRS would review the tax return and either accept it as filed or choose it for examination. In every case, however, at the end of the IRS processing, an IRS "closing letter" would be automatically sent to the estate notifying the estate that the IRS had reviewed the return, and this was the final amount of the estate's liability. 

This closing letter, other than simply notifying the estate that the IRS was finished with its review, is necessary to show banks, brokerage houses, real estate companies etc. that the estate had filed a tax return with the IRS, the IRS had reviewed the documentation, and was now satisfied that all tax problems had been resolved between the IRS and the estate. Often these bankers, brokerage houses, realtors, etc. refuse to release funds relating to the estate until they receive a copy of the closing letter to prove to them that the IRS has in fact reviewed this tax return and approved these final numbers. 

Now however, the IRS has changed its methodology. It will no longer automatically send out estate tax closing letters. For all tax returns filed after June 1, 2015, the estate must send, more than four months after the filing of the tax return, a letter to the IRS requesting a closing letter. Why this change was implemented no one knows. For most of us who operate within this venue, it will be another nuisance which many of us will initially forget and eventually get used to filing.

For form 706 filers, the sending of this letter should not create much of a problem since all 706's list the Social Security number of the taxpayer in the upper right-hand corner. The problem will come for people who file form 706-NA's, the estate tax return for nonresident aliens. Most of these nonresident aliens do not have Social Security or tax identification numbers. The tax returns are filed leaving the upper right-hand corner space empty and the IRS eventually assigns a tax identification number to the estate. In almost every case, unless there is some type of correspondence from the Service, the estate does not learn the assigned ID number until the estate receives the closing letter.

The issue then becomes, for nonresident alien estates is how to request an IRS closing letter if you have no tax identification number or SSN to refer to?

Who knows what evil lurks in the hearts of men? The Shadow Knows...Virtually all the computerized records at the IRS are kept by SSN or tax ID numbers. To try to correspond with the IRS in areas where there is no such number is to initiate a long, frustrating dialogue. This new requirement of the request for closing letters will present a new challenge in terms of patience for those of us whose primary function is filing 706 NA's. 

Why did the IRS implement this change? 

Only The Shadow knows and he isn't talking :)

Have a US Estate Tax Problem?

Estate Tax Problems Require 
an Experienced Estate Tax Attorney

Contact the Tax Lawyers at
Marini & Associates, P.A.

 for a FREE Tax Consultation Contact US at
or Toll Free at 888-8TaxAid (888 882-9243).

Robert S. Blumenfeld  - Estate Tax Audit Counsel
Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.


No comments:

Post a Comment