United States

IRS issues new guidance on estate closing letters


Last August, the IRS issued a lengthy FAQ on estate taxes and Forms 706 and announced that it would no longer automatically issue closing letters. Instead, the taxpayer’s representative would have to request the closing letter after a four to six month period. Last week, the IRS updated the FAQ and suggested that obtaining a transcript of the IRS’ review of the Form 706 could be an alternative to requesting a closing letter. These new rules apply to estate tax returns filed on or after June 1, 2015. The new guidance states that a transcript marked with the Transaction Code 421 indicating the estate tax return has been accepted as filed or that the examination is complete, should be an acceptable substitute for a closing letter. The advice states that if the Code 421 is not present, the tax return remains under review.

As a taxpayer representative, to receive a transcript, you must have a properly executed Form 2848, Power of Attorney or Form 8821, Tax Information Authorization, on file. Tax professionals may register on irs.gov to receive transcripts online via the Transcript Delivery Service or submit Form 4506-T by fax or mail to receive a transcript by mail.

Step by step instructions for requesting transcripts can be found here on the IRS website. Multiple steps are required to register for the IRS e-services and the Transcript Delivery Service, so it is recommended to start the process prior to the end of the four to six month period.

Probate court procedures generally require that an IRS closing letter be submitted before the estate proceeding can be closed and the probate assets distributed. Whether probate court judges would accept an IRS transcript as a substitute for an IRS closing letter is an open question. Similarly, some executors may not accept an IRS transcript and will direct the taxpayer representative to obtain an actual closing letter. Nonetheless, obtaining a transcript could be a useful alternative for smaller estates where all of the assets are passing to a spouse or children.


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