4.25.1  Estate and Gift Tax Examinations

Manual Transmittal

January 09, 2014

Purpose

(1) This transmits revised IRM 4.25.1, Estate and Gift Tax, Estate and Gift Tax Examinations.

Background

IRM text pertains to Estate and Gift Tax examination procedures. This IRM provides direction which is Estate and Gift Tax specific.

Material Changes

(1) Eliminated IRM 4.25.1.1.1 Classification of Returns – General, (03-20-2013). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.3, Planning, Classification and Selection.

(2) IRM 4.25.1.1.2 Returns Selected for Examination – Survey, (07-31-2009) has been redrafted and renumbered to IRM 4.25.1.4, Survey Returns Selected for Examination.

(3) IRM 4.25.1.1.3 Protection of Returns, (07-31-2009) has been redrafted and renumbered to IRM 4.25.1.1.1, Protection of Returns (Physical).

(4) IRM 4.25.1.1.4, Limited Scope Examinations, (03-20-2013) has been redrafted and renumbered to IRM 4.25.1.2.1, Limited Scope Examinations.

(5) IRM 4.25.1.1.5, Inventory Management for Estate Tax Examiners, (03-20-2013) has been redrafted and renumbered to IRM 4.25.1.5.1, Inventory Management for Estate and Gift Tax Examiners.

(6) IRM 4.25.1.1.6, General Instructions Regarding Examinations, (03-20-2013) has been redrafted and renumbered to 4.25.1.5. IRM 4.25.1.1.6(4) has been renumbered to IRM 4.25.1.5.2, Efficient Resolution and Recommended Timeframes.

(7) Eliminated IRM 4.25.1.1.6.1 (1) through (7), Estate Tax Examinations (10-25-2011). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.5.1.2, Related Returns Necessary for Examinations.

(8) IRM 4.25.1.1.6.1 (8) and (9) Estate Tax Examinations (10-25-2011), has been redrafted and renumbered to IRM 4.25.1.5.5.1, Taxpayer Rights at Initial Contact.

(9) Eliminated IRM 4.25.1.1.6.2 (1) through (6), Gift Tax Examinations (03-20-2013). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.5, Technical Guidelines for Estate and Gift Tax Issues. IRM 4.25.1.1.6.2 (7) was renumbered to IRM 4.25.1.7(2). IRM 4.25.1.1.6.2(8) was redrafted and is being incorporated into the newly created IRM 4.25.5.1.1.1, Verify Statute Date and IRM 4.25.5.3.1.6. IRM 4.25.1.1.6.2 (9) and (10) Gift Tax Examinations (03-20-2013), has been redrafted and renumbered to IRM 4.25.1.5.5.1, Taxpayer Rights at Initial Contact.

(10) Eliminated IRM 4.25.1.1.6.3, Penalties Applicable to Estate and Gift Taxes (10-25-2011). This provision has been redrafted and is being incorporated in the newly created IRM 4.25.7.1, Penalties Applicable to Estate and Gift Taxes.

(11) Eliminated IRM 4.25.1.1.6.4, Return Preparer Penalties Program Procedures (10-25-2011). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.7.2, Return Preparer Penalties.

(12) IRM 4.25.1.6.5, Gift Tax Statute of Limitations in Estate and Gift Tax Examinations (03-20-2013) has be redrafted and renumbered to IRM 4.25.1.1.3.1, Estate Tax Statute of Limitations and IRM 4.25.1.1.3.2, Gift Tax Statute of Limitations.

(13) Eliminated IRM 4.25.1.1.14, Procedures at Conclusion of Examination−Agreed Cases (10-25-2011). This provision is being incorporated into the newly created IRM 4.25.10.2.4, Conclusion of Agreed Examination.

(14) IRM 4.25.1.1.7, Estate and Gift Tax Program Examination Process and Documentation (10-25-2011) has been redrafted and renumbered to IRM 4.25.1.6, Estate and Gift Tax Program Examination Process and Documentation.

(15) IRM 4.25.1.1.8, Inventory Management System and the Notebook Tool (10-25-2011) has been redrafted and renumbered to IRM 4.25.1.7, Issue Management System and Estate and Gift Notebook Job Aid.

(16) Eliminated the reserved IRM 4.25.1.1.9, Generation Skipping Transfer Tax (07-31-2009). Technical guidance for generation-skipping transfer tax cases is provided in the newly created IRM 4.25.5.3.4.14, Generation Skipping-Transfer Tax Lead Sheet.

(17) Eliminated IRM 4.25.1.1.10, Procedures for Referrals to the SBSE Lead Development Center and the Office of Professional Responsibility (07-31-2009). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.7.4, Referrals to the SBSE Lead Development Center and the Office of Professional Responsibility.

(18) IRM 4.25.1.2, Specialty Programs National Quality Review Program (07-31-2009) has been redrafted and renumbered to IRM 4.25.1.8, Specialty Programs National Quality Review Program.

(19) Eliminated IRM 4.25.1.3 and IRM 4.25.1.3.1, Estate Tax Credits and Deductions (07-31-2009). These provisions were redrafted and incorporated into the newly created IRM 4.25.5.3.4.33, State Death Tax Credit Deduction Lead Sheet.

(20) IRM 4.25.1.3.2, Personal Representative Commissions and Attorneys Fees (07-31-2009), was redrafted and renumbered as IRM 4.25.5.3.4.18, Schedule J – Personal Representative Commissions Lead Sheet and IRM 4.25.5.3.4.19, Schedule J – Attorney Fees Lead Sheet.

(21) Eliminated IRM 4.25.1.4, Estate and Gift Tax Examinations-Miscellaneous Report Writing Forms (12-31-2002). This provision has been redrafted and is being incorporated into newly created IRM 4.25.6, Report Writing Guide For Estate and Gift Tax Examinations.

(22) Eliminated IRM 4.25.1.4.2, Claims (10-25-2011). This provision has been redrafted and is being incorporated into the newly created 4.25.9, Abatement, Claims for Refund, Doubt as to Liability, and Offers in Compromise in Estate and Gift Tax cases.

(23) Eliminated IRM 4.25.1.5.3, Transferee Liability Cases (10-25-2011). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.11.5, Transferee Liability Cases.

(24) Eliminated IRM 4.25.1.5.1, Exchange of Information Pursuant to Death Duty and Gift Tax Treaties (12-31-2002) and 4.25.5.1.2, Issuance of Transfer Certificates in Estate Tax Cases (12-31-2002). These provisions have been redrafted and are being incorporated into the newly created IRM 4.25.4.9, Exchange of Information Pursuant to Death Duty and Gift Tax Treaties, and IRM 4.25.14.3, Issuance of Transfer Certificates in Estate Tax Cases. Territory Managers do not have the authority to issue transfer certificates in estate tax cases.

(25) Eliminated IRM 4.25.1.5.3, Processing of Requests for Discharge of Property Subject to the Estate Tax Lien (10-25-2011). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.14.2, Miscellaneous Procedures, Processing of Requests for Discharge of Property Subject to the Estate Tax Lien.

(26) Eliminated IRM 4.25.1.5.4, Processing Requests for Prompt Determination of Estate Tax and Discharge from Personal Liability for Estate, Income and Gift Taxes (07-31-2009). This provision has been redrafted and is being incorporated into the newly created 4.25.14.4, Miscellaneous Procedures, Processing Requests for Prompt Determination of Estate Tax and Discharge from Personal Liability for Estate, Income and Gift Taxes.

(27) Eliminated IRM 4.25.1.5.5, Signature Authority (07-31-2009). This provision has been redrafted and is being incorporated into the newly created 4.25.14.9, Miscellaneous Procedures, Signature Authority.

(28) Eliminated IRM 4.25.1.5.6, Form 6111, Notice of Special Use Valuation Election, (IRC section 2032A) (07-31-2002). This provision has been redrafted and is being incorporated into the newly created 4.25.11.1.1, Special Examination Procedures, Form 6111, Notice of Special Use Valuation Election, (IRC section 2032A).

(29) Eliminated IRM 4.25.1.5.7, Extensions of Time to File and/or Pay Estate Tax. (07-31-2009). This provision has been redrafted and is being incorporated into the newly created 4.25.14.1, Miscellaneous Procedures, Extensions of Time to File and/or Pay.

(30) Eliminated IRM 4.25.1.5.8, Valuation Assistance from the Headquarters and Field Offices (07-31-2009). This provision has been redrafted and is being incorporated into the newly created 4.25.12, Valuation Assistance.

(31) Eliminated IRM 4.25.1.5.9, Information Referrals to Cincinnati Campus (07-31-2009). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.14.6, Miscellaneous Procedures, Information Referrals.

(32) Eliminated IRM 4.25.1.5.10, Referrals to Estate & Gift (10-25-2011). This provision has been redrafted and is being incorporated into newly created IRM 4.25.14.7, Miscellaneous Procedures, Referrals to Estate & Gift.

(33) Eliminated IRM 4.25.1.5.11, Family Limited Partnerships (03-20-2013). This provision has been redrafted and is being incorporated into newly created IRM 4.25.11.3, Special Examination Procedures, Family Limited Partnerships.

(34) Eliminated IRM 4.25.1.5.12, IRC section 6166 Installment Election Procedures (10- 25-2011). This provision has been redrafted and is being incorporated into the newly created IRM 4.25.11.2, Special Examination Procedures, IRC section 6166 Installment Payment Election.

(35) Eliminated IRM 4.25.1.5.13, Ex Parte Communications (03-20-2013). This provision has been redrafted and is being incorporated into newly created IRM 4.25.13.1.1, Ex Parte Communications.

(36) Eliminated IRM 4.25.1.5.14, Appeals Pre-Conference Procedures (10-25-2011). This provision has been redrafted and is being incorporated into newly created IRM 4.25.13.1.2, Appeals Pre-Conference Procedures.

(37) Eliminated IRM 4.25.1.5.15, Fast Track Mediation (FTM) (07-31-2009). This provision has been redrafted and is being incorporated into newly created IRM 4.25.13.2, Fast Track Mediation (FTM).

(38) Eliminated IRM 4.25.1.5.16, Fast Track Settlement (FTS) (07-31-2009). This provision has been redrafted and is being incorporated into newly created IRM 4.25.13.3, Fast Track Settlement (FTS)..

(39) Eliminated IRM 4.25.1.6, Aging Reason Codes in Estate Tax Examinations (10-25-2011). This provision has been redrafted and is being incorporated into newly created IRM 4.25.14.10.2, Aging Reason Codes in Estate Tax Examinations.

(40) Eliminated IRM 4.25.1.7, Grade of Cases (10-25-2011). This provision has been redrafted and is being incorporated into 4.25.10.5.3, Case Closing Procedures for Managers, Grade of Cases.

(41) Eliminated Exhibit 4.25.1-1, Examination Process and Documentation Quick Reference Guide to Tools (07-31-2009). This exhibit has been redrafted and is now Exhibit 4.25.5-1, Examination Process and Documentation Quick Reference Guide to Tools.

(42) Eliminated Exhibit 4.25.1-3, Return Preparer Penalty Forms and Letter Preparation (10-25-2011). This exhibit has been redrafted and is now Exhibit 4.25.7-1, Return Preparer Penalty Forms and Letter Preparation.

Effect on Other Documents

IRM 4.25.1 dated March 20, 2013 is superseded.

Audience

This section contains instructions and guidelines for Small Business/Self Employed Estate and Gift Tax Specialty Programs employees.

Effective Date

(01-09-2014)

John H. Imhoff, Jr.
Director, Specialty Programs
Small Business/Self-Employed

4.25.1.1  (01-09-2014)
Estate and Gift Tax Examinations

  1. This section provides general instructions for protecting tax returns, protecting the statute of limitations, scope of examinations, surveying returns and general examination guidelines. This section also addresses the National Quality Review Program for the Estate and Gift Tax Program.

  2. Examiners should refer to the following examination chapters for guidance: IRM 4.10.1, Overview and Basic Examiner Responsibilities; IRM 4.11.55, Power of Attorney Rights and Responsibilities; and IRM 4.11.57, Third Party Contacts.

4.25.1.1.1  (01-09-2014)
Protection of Returns (Physical)

  1. Estate and gift tax returns are prepared under penalties of perjury. In the event of litigation it is important that the entire return, as originally filed and unaltered in any manner, be available for introduction into evidence. If the original return is not available for introduction into evidence, legal problems may arise prejudicing the Government's interest. For example, the absence of any part of the original return, or the presence of any writing or erasures made on the return after it was filed, makes it much more difficult to obtain a conviction for filing a fraudulent return. It is understood that ink and pencil marks may be made at the Campus during processing; however, E&G examiners do not have authority to mark a return.

  2. All data attached to the return when filed, including the appraisals, financial statements, probate records, etc., should remain with the return and not be separated, reorganized or filed in the workpapers. No marks are to be made on any attached data.

  3. The problem of alteration or defacement deserves special consideration. The return shall not be used as a workpaper and neither notes nor writings shall be recorded on the return by the examiner. Arguments may arise that the instrument is no longer the tax return which was filed by the taxpayer, and thus inadmissible as evidence.

  4. Instead of making marks on the original return, notes should be entered on separate workpapers or lead sheets, or a work copy of certain schedules of the return may be made and used to record examination information. A working copy of the return may be made by using colored paper, marking or stamping the copy as "copy" , or other means to identify it as a workpaper.

4.25.1.1.2  (01-09-2014)
Protection Against Unauthorized Disclosure

  1. In addition to protecting the return against alteration and loss, the return must be protected against unauthorized disclosure.

  2. The Form 56, Notice of Fiduciary Relationship, is filed to notify the IRS of the creation or termination of a fiduciary relationship under IRC 6903 and give notice of qualification under IRC 6036. A fiduciary assumes the powers, rights, duties, and privileges of the taxpayer, until notice is given that the fiduciary relationship terminated. Examples of fiduciaries include administrators, conservators, designees, executors, guardians, receivers, trustees of a trust, trustees in bankruptcy, personal representatives, or persons in possession of property of a decedent’s estate. There is no limit to the number of fiduciary relationships filed.

    1. The Form 56 should be filed where the taxpayer for whom the fiduciary is acting is required to file tax returns. The Form 56 is established or changed by Campus prior to the classification of the return. See IRM 3.13.2.13, Campus Document Services, Form 56, Notice Concerning Fiduciary Relationship. However a new fiduciary relationship or termination of an existing fiduciary relationship may occur during the examination.

    2. If a termination occurs, the examiner should request a copy of the new Form 56 filed with the Campus and document the new taxpayer contact information in the relevant portions of the examination file.

    3. If the new Form 56 is secured by the examiner, the Form 56 should be date stamped, or otherwise notated with the date of receipt. The examiner should verify the Form 56 for accuracy and completeness. The examiner should submit the new Form 56 to CAF by fax. See IRM 21.3.7.1.3 to obtain CAF unit fax number for submitting a new Form 56. The examiner should update the new taxpayer contact information in the relevant portions of the examination file. The Form 56 with CAF fax confirmation should be stapled to the reverse of the first page of the tax return.

  3. If working with someone other than the taxpayer, the examiner must verify and document in the file that they are authorized to communicate with the representative. Unauthorized disclosure is strictly prohibited.

    1. A properly executed authorization in Part 4 of the Form 706 grants third party authorization. See IRM 21.3.7.1, What is a Third Party Authorization. If Part 4 of the Form 706 is incomplete, a Form 2848, Power of Attorney and Declaration of Representative should be obtained.

    2. Upon receipt of a Form 2848, the examiner must review for accuracy. See IRM 21.3.7.5, Form 2848, Power of Attorney and Declaration of Representative and Form 8821, Taxpayer Authorization Overview.

    3. Third party authorizations must be submitted to the CAF unit within five workdays of receipt. See IRM 4.11.55.1.8.2 for processing procedures for the Form 2848 and IRM 21.3.7.1.3 to obtain CAF Unit fax numbers for submitting third party authorization requests.

    4. Even when a taxpayer is represented, it is IRS policy for examiners to send correspondence directly to the taxpayer and a copy to the authorized representative. See IRM 4.11.55.1.10, Examining Officer’s Guide, Notices and Communications.

4.25.1.1.3  (01-09-2014)
Protection of Statute of Limitations

  1. The group manager and examiner are responsible for verifying and protecting the statute of limitations on all assigned cases. As tax returns are received in the group, the manager is required to ensure policies are in place to verify the accuracy of the assessment statute expiration date (ASED). See IRM 25.6.23.6.1.2. This verification is required whether there is a filed return or non-filer controls have been established.

    Note:

    The Statute Verification Lead Sheet is a mandatory workpaper that must be completed during all examinations. See IRM 4.25.5.3.1, Mandatory Lead Sheets

  2. Statutes for Filed Returns: When a signed return is filed by a taxpayer, the statute of limitations begins to run. If there is uncertainty after review of the guidance on statute date determination, use of the earliest potential statute date is encouraged. The examiner should document a complete explanation of the statute of limitations uncertainty in the Statute Verification Lead Sheet. See IRM 4.25.5.3.1.6, Mandatory Lead Sheets, Statute Verification Lead Sheet.

  3. For returns filed without extensions, the statute starts running on the due date of the return if the return is postmarked on or before the due date, regardless of the receipt date of the return. If the return is postmarked after the due date, the statute date is the date the return is received.

  4. For returns filed with an extension, the statute date is as follows:

    • Return mailed and received on or before extension date, the statute date is the day the return is received.

    • Return mailed and received after the extension date, the statute date is the day the return is received.

    • Return mailed on or before extension date but received after the extension date, the statute date is the postmark date of the return.

  5. When the due date falls on a Saturday, Sunday, or a legal holiday, the filing of the return shall be considered timely if it is performed on the next succeeding day which is not a Saturday, Sunday or legal holiday. See IRM 25.6.1.6.15, When a Document is Treated as Filed.

  6. In rare circumstances, filing deadlines may be extended for Federal Emergency Declarations, military deployment or other situations. For more information, see Tax Relief and Disaster Situations. See IRM 25.6.1.9.6.5 , Presidentially Declared Disaster Area, and IRM 25.6.1.9.6.6 , Presidentially Declared Terroristic or Military Action.

  7. If it is determined that the statute date is incorrect, update the statute under the procedures of IRM 25.6.23 Exhibit 3, Instructions for Updating Statute on AIMS.

  8. Once the correct statute date has been determined and updated if necessary, the statute date must be closely monitored to ensure the Government’s interest is protected. The statute date will not change unless it is updated to reflect the execution of a Form 872, or because updating to an alpha statute code is appropriate. The manager and examiner must continue to monitor the statute using the monthly Inventory Validation List (IVL), ERCS Statute Reports and Table 4.1 to ensure statute control procedures are started within 180 days of the expiration of the statute.

4.25.1.1.3.1  (01-09-2014)
Estate Tax Statute of Limitations

  1. In general, IRC 6501(a) requires the IRS to assess an estate tax liability within three years after the filing date (or due date, if later) of the estate tax return.

    1. When a false or fraudulent return has been filed with the intent to evade tax, the tax may be assessed at any time. See IRC 6501(c).

    2. IRC 6501(e)(2) allows an extended six-year statute of limitations on assessment where omitted items includible in a gross estate exceed 25 percent of the total gross estate reported on the estate tax return IRC 6501(e)(2).

      Note:

      A statute extended under IRC 6501(e)(2), will have an alpha statute code of ‘NN’. See IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS for procedures. Due to the risk involved in letting the three year statute run, both Counsel and Territory Manager approval is required before updating the case to an ‘NN’ statute code.

  2. The statute of limitations on assessment of estate tax cannot be extended. See IRC 6501(c)(4). A deficiency must either be assessed, or a statutory notice of deficiency mailed to the taxpayer, prior to the expiration of the statute of limitations. See IRM 25.6.22.6.8, Statute of Limitations, Extension of Assessment Statute of Limitations By Consent, Decedent’s Estates (Estate Tax – Form 706 Series).

  3. Ample time must be allowed for the case to be processed before the expiration of the statute. For timeframe requirements for unagreed cases, refer to IRM 4.25.10.4.6, Case Closing Procedures for Unagreed Cases.

4.25.1.1.3.2  (01-09-2014)
Gift Tax Statute of Limitations

  1. In general, IRC 6501(a) requires the IRS to assess a gift tax liability within three years after the due date of the gift tax return, or three years after the gift tax return was actually filed, whichever is later.

  2. The statutorily-prescribed period for assessment of gift tax may be extended, if both the Secretary and the taxpayer agree to do so in writing. This written agreement by the taxpayer and the Service to extend the period of time for assessment of tax is often referred to as an extension or consent. See IRM 25.6.22, Statute of Limitations, Extension of Assessment Statute of Limitations By Consent.

  3. IRC 6501(c)(9) provides that if a gift is not shown on a gift tax return in a manner adequate to apprise the Secretary of the nature of the gift, then gift tax may be assessed at any time with respect to that gift. A gift may be inadequately disclosed if it is:

    1. Omitted completely from the return.

    2. Shown on the return, but the manner in which it is shown is not adequate to apprise the Secretary of the nature of the gift.

  4. If an examiner determines that a gift is inadequately disclosed on a gift tax return, and the three year statute of limitations has not expired on the return on which the gift should be shown, then the examiner must secure a consent to extend the statute of limitations on the entire return in order to protect the government’s interest in all items shown on the return.

  5. If the examiner is unable to secure a consent, the examiner may allow the three year statute to expire on that gift tax return, and rely on IRC 6501(c)(9). In cases in which a gift is omitted from a gift tax return the examiner will document the case file with adequate justification for permitting the assessment statute applicable to the entire return to expire in reliance on IRC 6501(c)(9), and obtain written approval from the group manager in advance of the statute expiration date. In cases in which a gift is disclosed on a gift tax return, the examiner will document the case file with adequate justification for allowing the assessment statute applicable to the entire return to expire in reliance on IRC 6501(c)(9), and obtain written approval from the Territory Manager in advance of the normal three year assessment statute expiration date.

  6. Following the receipt of appropriate managerial approval, the group manager should then ensure the statute date is updated on ERCS to reflect an alpha "VV" ASED date consistent with IRM Exhibit 25.6-23.3.

4.25.1.2  (01-09-2014)
Scope of Examinations

  1. At classification, all significant issues are to be identified and detailed on a classification sheet. Normally, all issues addressed on the classification sheet should be addressed during the examination and documented in the workpapers. Also, all mandatory lead sheets and issue specific lead sheets should be completed during the examination. The exceptions to the normal scope of examinations are Limited Scope Examinations, Limited Focus Examinations and Project Cases.

    Note:

    Refer to IRM 4.25.5.3, Estate and Gift Tax Exam Process and Documentation.

4.25.1.2.1  (01-09-2014)
Limited Scope Examinations

  1. During classification, returns may be identified as limited scope examinations.

  2. The Campus will input project code 0902 on AIMS/ERCS before shipping the return to field offices.

  3. The field offices may conduct limited scope examinations of items which are conducive to correspondence examinations and do not require significant substantiation by the taxpayer.

  4. Limited scope examinations do not require a probe for omitted assets and undisclosed transfers. Thus, the only lead sheet required for a limited scope examination is a Limited Scope Examination Lead Sheet. See IRM 4.25.5.3, Estate and Gift Tax Exam Process and Documentation.

  5. To make adjustments, complete reports in accordance with IRM 4.25.10, Case Closing Procedures.

4.25.1.2.2  (01-09-2014)
Limited Focus Examinations

  1. The group manager may assign returns for examination and direct the scope of items to be investigated, the depth of the examination, the records to be examined and examination techniques to be employed. The case file should be clearly documented to reflect such directions.

  2. Mandatory Lead Sheets are required for Limited Focus Examinations. Issue Specific Lead Sheets should be completed for each identified limited focus issue.

  3. The scope will extend to all unusual, large and questionable items necessary for a substantially correct determination of tax liability.

4.25.1.2.3  (01-09-2014)
Project Cases

  1. Occasionally, special issues or circumstances related to estate and gift are identified and Planning & Special Procedures (PSP) initiates project cases. Project cases may have a defined cycle time.

  2. Typically, specific directions and procedures are provided upon the assignment of the project case. Project case lead sheets are available in Notebook. See IRM 4.25.5.3.4.30, Project and Delinquent Return Workpapers.

  3. Refer to IRM 4.25.8, Project Cases, for detailed information regarding project codes, tracking codes and case procedures.

4.25.1.3  (01-09-2014)
Perfection of Returns

  1. Requesting information that should have been filed with the return is considered perfection of the return and shall not be considered contact.

  2. An estate tax return file perfection is limited to requesting information required to be disclosed by the return and/or instructions and to the following:

    • Certified copy of will, if decedent died testate

    • Certified copy of death certificate

    • Form 712, Life Insurance Statement, for all life insurance policies listed on return

    • If alternate valuation is elected, evidence of sale or distribution of assets made during the alternate period

    • If transfer is by trust, a copy of the instrument

    • Power of Appointment instruments

    • Appraisals on included real estate

    • Financial data on non-public enterprises

    • State certification of payment of state death taxes

    • Copies of Form 709, United States Gift (and Generation-Skipping Transfer) Tax Return, filed by and for decedent

    • Form 706-CE, Certificate of Payment of Foreign Death Tax

    • For non-resident citizens, copies of inventory and other documents filed in a foreign probate court

    • For non-resident, possibly a former citizen, documents relating to possible expatriation

    Note:

    Requesting and receiving items beyond those items enumerated or not required to be filed with the return will result in the start of an examination which requires an audit determination (change or no change decision). In this situation, the return cannot be surveyed.

  3. Perfection of a gift tax file is limited to requesting information required to be disclosed by the return and/or its instructions and to the following:

    • Information showing how the value of the gift was determined

    • Financial data on non-public enterprises

    • Form 712, Life Insurance Statement, for all life insurance policies listed on the return

    • If transfer is by trust, a copy of the instrument

    • Any appraisal used to determine the value of real estate or other property

    Note:

    If the donor is deceased or has been declared legally incompetent, verification that the person signing the return is the authorized representative of the donor or the donor's estate is considered perfection.

  4. Contact beyond the scope of perfection includes:

    1. Talking with or writing to the taxpayer, the taxpayer's personal representative, return preparer, or other authorized representative of the estate, or the donor, in such a manner that they are aware that the return is being examined, or

    2. Requesting information which is not required to be filed with the return. The instructions for the returns and Treasury Regulations 20.6018–4, 25.6019–3, and 25.6019–4 list required documents.

4.25.1.4  (01-09-2014)
Surveying Returns Selected for Examination

  1. The estate tax group manager may survey cases before assignment and contact if, after reviewing the return and evaluating the audit potential, workload considerations and the availability of personnel to conduct the examination, the manager determines that the examination of the return will not likely result in a material change in the taxpayer's tax liability, provided no records have been inspected and no contact has been made with the taxpayer or the taxpayer's representative other than for file perfection. The group manager should use Disposal Code 31 when surveying a case before assignment.

  2. The examiner may survey a case after assignment if no contact has been made and if, after reviewing the return and evaluating the audit potential, the examiner determines that the return will not likely result in a material change in the taxpayer's tax liability, provided no records have been inspected and no contact has been made with the taxpayer or the taxpayer's representative other than for file perfection.

4.25.1.4.1  (01-09-2014)
Time Reporting for Surveyed Returns

  1. Time spent reviewing a return and its attachments and/or perfecting the file may be shown as below-the-line time on Form 4502, Exam Technical Time Report, using Code 615, Survey. The number of hours spent reviewing the return and perfecting the file is not a consideration in determining whether the return was examined.

  2. If an examiner decides that a case is likely to result in a change in tax and there is a plan to examine the return, the case should be opened (AIMS status 12) and time charged to the case. This time may include time for further review and/or file perfection. If it is later determined that contact with the taxpayer or the taxpayer's representative will not be made, the examiner may survey the return, even with time charged to the case on ERCS, provided there has been no activity beyond that of a survey.

4.25.1.4.2  (01-09-2014)
Closing a Surveyed Case

  1. Refer to IRM 4.25.10.4.1, Case Closing Procedures for instructions on closing a surveyed case.

  2. If the estate has elected and qualifies for the election under IRC 6166 and there appears to be no substantive audit issues on the return, the return may be surveyed.

4.25.1.5  (01-09-2014)
General Guidelines for Estate and Gift Examinations

  1. Chief, Estate and Gift Tax Program, will establish guidelines for the estate and gift tax program.

  2. Examination of estate and gift tax returns should be conducted in a manner that will promote public confidence as stated in the Mission of the Service. Policy Statement 1-1. IRM 1.2.10.1.1.

  3. The Estate and Gift Tax Examination Job Aid is issued at the direction of the Estate and Gift Tax Policy Manager, and is the sole guide to the application and interpretation of the quality attributes. The Job Aid includes complete instruction, definitions, and examples of how cases should be evaluated. See MySBSE website .

    1. National Quality Reviewers and Estate Tax group managers will apply these standards to each case reviewed to determine whether the examination standards have been met.

    2. The Estate and Gift Tax Embedded Quality Review System (EQRS) and the National Quality Review System (NQRS) are discussed at IRM 4.25.1.8, Specialty Programs National Quality Review Program.

4.25.1.5.1  (01-09-2014)
Inventory Management for Estate and Gift Tax Examinations

  1. Generally, it is recommended that examination and processing of returns be completed within 18 months of the filing date.

    1. Returns will be examined in accordance with the required Examination Process and Documentation (EPD) tools and procedures.

    2. Cases assigned by a group manager to an examiner should be opened as an examination or surveyed within 45 days after assignment.

    3. Significant and meaningful examination activity and/or taxpayer contact is required at least every 45 days.

    4. When a taxpayer or a taxpayer's representative has failed to meet two deadlines to provide information or documentation requested by the examiner, the manager should be informed and should get involved in the examination to prevent further delays.

    5. Examinations extending beyond 18 months may require frequent managerial involvement.

    6. When an examination is beyond the 18 month cycle, managers should ensure that the Service does not become a party to the continuing delay in effecting the completion of the examination. See Policy Statement 4-52.

  2. Significant and meaningful examination activity and/or taxpayer contact includes but is not limited to:

    1. Discussions with the taxpayer or the taxpayer’s representative which significantly move the examination toward completion

    2. Contacts that inform the taxpayer of the progress of the examination

    3. Requests for record

    4. Contacts that specify issues to be discussed with the taxpayer

  3. While complexity of workload and conflicting demands are considered, the examiner should prioritize, plan, and schedule work in a logical and timely manner. Generally, examine estate tax returns in the order in which they are filed.

  4. Certain matters are considered priority work requiring immediate, prompt or preferred attention. The following list contains examples of matters that are considered priority work.

    • Cases where the statute of limitations is close to expiring

    • Cases returned after review

    • Cases where the 18 month cycle is about to run

    • Collateral examinations

    • Claims for refund

    • Limited Scope Examinations

  5. Instances also occur where it is more practical to advance a recently filed case. Factors to consider:

    • Program priorities or initiatives

    • Return complexity

    • Cases in similar geographic areas

  6. Examiners may be required to examine cases in states other than their own. Online resources are available to assist in understanding various state laws that may be encountered. The online resources below are meant to be a starting point for the research and not a comprehensive listing.

    1. Online resources for researching state law include LexisNexis, Accurint, CCH, Westlaw, IRM Online and the E&G SharePoint.

4.25.1.5.2  (01-09-2014)
Efficient Resolution and Recommended Timeframes

  1. Case actions should be completed in an efficient manner that does not unnecessary delay resolving the examination.

  2. The recommended national standard timeframes in which action should be taken are as follows:

    • 45 days from case assignment to start of examination or survey

    • 45 days from first action to initial contact with taxpayer

    • 45 days between significant activities. See IRM 4.25.1.5.1(2)

    • 1 day (next business day) to return telephone call to the taxpayer/representative

    • 14 days to follow up to correspondence and/or documents received from the taxpayer or the representative

    • 20 days for case closure for agreed or no-change examinations - from the date that the waiver is received, or the date that the no-change status is communicated to the taxpayer to the date the case is closed from the group

    • 20 days for case closures for unagreed examinations - from the date the 30-day letter defaults or the date that the request for appeals conference is received from the taxpayer or authorized representative to the date the case is closed from the group. The time period for closure is not extended while preparing the Rebuttal

    • Any IRM requirement for expedited processing will take precedence over these timeframes

      Note:

      All days are calendar days unless otherwise indicated.

  3. All delays should be documented on the Form 9984, Activity Record.

4.25.1.5.3  (01-09-2014)
Time Spent on Examination

  1. Examination activity should be commensurate with the time charged to the case. Factors to be considered in determining appropriate use of time are issue complexity and potential, condition of the books and records, depth of legal research required, taxpayer/representative cooperation, and other problems that affect use of time.

4.25.1.5.4  (01-09-2014)
Professional Communication

  1. Communications with taxpayers, authorized representatives, and third parties must be made in a timely fashion and in a firm, businesslike, and professional manner.

4.25.1.5.4.1  (01-09-2014)
Oral Communication

  1. In order to secure the taxpayer’s cooperation during the course of the audit, the examiner should use effective oral communication skills. The examiner should use communication methods appropriate to the listener, consider and evaluate the taxpayer’s assertions and use tact to explain findings and conclusions.

4.25.1.5.4.2  (01-09-2014)
Written Communication

  1. The examiner should ensure that all correspondence is businesslike and professional. Communication should be clear, concise and reflect a courteous tone and appearance. It should also be neat, legible, and grammatically correct. Proper IRS letterhead (Form 13038), which can be found in the E&G Notebook Job Aid, should be used for all correspondence.

4.25.1.5.4.3  (01-09-2014)
Information Document Requests (IDRs)

  1. The examiner’s initial request for information and documentation should be clear and concise and cover all issues that are apparent in the return.

  2. Requests for information should include a response date, such as a specific date or reference to a specific timeframe (e.g., "by May 24, 2013" or "within three weeks from the date on this letter" ).

  3. The examiner should discuss the expected receipt date with the taxpayer or authorized representative and there should be a "meeting of the minds" (i.e., a mutually agreed upon date), if possible.

  4. Subsequent document requests should be clear and concise with established response deadlines.

  5. Sample letters and IDRs can be found in the E&G Notebook Job Aid.

4.25.1.5.4.4  (01-09-2014)
Documents Obtained From Taxpayer

  1. Obtain omitted copies of documents and information required to be filed with the estate tax return. Upon receipt, these documents should be attached as exhibits in the case file.

  2. Information and copies of documents should not be obtained and made a part of the case file unless they are:

    1. Required to be filed with the return. See IRM 4.25.1.3

    2. Necessary to support adjustments.

    3. Necessary for a complete examination of the return.

    4. Needed for complete explanation of questioned items which resulted in a no-change.

4.25.1.5.5  (01-09-2014)
Taxpayer Rights and Notifications

  1. The examiner should advise the taxpayer of all rights and provide the taxpayer appropriate publications. The examiner should also keep the taxpayer or authorized representative informed throughout the examination process. Proper documentation regarding taxpayer rights and notification should be included in the case file.

4.25.1.5.5.1  (01-09-2014)
Taxpayer Rights at Initial Contact

  1. When the initial contact with the taxpayer or authorized representative is by telephone or in person, examiners will explain/discuss the taxpayer’s rights as outlined in Pub 1, Your Rights As A Taxpayer, and answer any questions the taxpayer may have concerning their rights. The examiner should document all discussions and explanations of the taxpayer’s rights in the Form 9984, Activity Record. See IRC 7801 and IRM 4.10.2.7.3, Making Initial Contact.

  2. When the initial contact is by correspondence, the following documents must be mailed to the taxpayer along with the initial letter addressed to the taxpayer and the enclosures noted:

    1. Pub 1, Your Rights As A Taxpayer

    2. Notice 609, Privacy Act and Paperwork Reduction Act

    Note:

    See IRM 4.10.2.7.4.2(4), Contacting the Taxpayer by Letter.

4.25.1.5.5.2  (01-09-2014)
Taxpayer Rights and Notifications During Examination

  1. Whenever a taxpayer is provided with a first report/notice of proposed deficiency that is not a formal 30-day letter, the Pub 3498, The Examination Process, must be provided. If subsequently a 30-day letter is issued to the taxpayer, this publication must also be enclosed. See IRM 4.25.10.1.1, Case Closing Procedures, Taxpayer Rights, for determining when a Publication 3498 should be sent.

  2. Any other rights should be addressed when appropriate, including a Letter 907, Request to Extend Assessment Statute, and Pub 1035, Extending the Tax Assessment Period.

  3. The taxpayer or authorized representative should be informed of delays due to examiner training, details, etc. This can be accomplished through letters, IDRs, reports, telephone calls, or interviews. The examiner should document that the taxpayer or authorized representative was informed of delays in the Form 9984, Activity Record.

  4. Written communications should be sent to both the taxpayer and representative to keep both apprised.

  5. The examiner should ensure all conclusions reached have been discussed with the taxpayer or authorized representative prior to case closure. The examiner should document this discussion on the Form 9984, Activity Record.

4.25.1.5.6  (01-09-2014)
Employee Case Documentation

  1. Form 9984, Activity Record, is used to document the hours charged to a case and briefly record the examiner’s actions.

  2. The Form 9984, Activity Record, should document:

    • When forms and documents were sent or received

    • Internal contacts

    • Taxpayers contact

    • Any other significant contacts or activities

    • Delays with explanations for the delay (i.e., leave, details)

    • Managerial involvement

4.25.1.6  (01-09-2014)
Estate and Gift Tax Program Exam Process and Documentation

  1. The Estate & Gift Tax Examination Process and Documentation (EPD) defines how cases are examined. It is a uniform system of planning, communication, risk analysis and documentation. The EPD provides guidelines to ensure case quality, employee satisfaction and customer satisfaction.

  2. The EPD is designed to foster good communications with the group manager, taxpayers and representatives. In addition, it has also been structured to assist the examiner in producing a quality work product. Furthermore, it improves planning and documentation of the file.

  3. A key component of the EPD is risk analysis. Risk analysis helps examiners make decisions on whether to proceed with an issue or to begin developing a new issue that was discovered during the examination.

  4. Adherence to the principles of the EPD results in a well-organized case that can be easily reviewed by subsequent users such as reviewers, Appeals, Counsel and other examiners.

  5. The Policy Manager is responsible for the ongoing monitoring of the system to make appropriate changes to the forms and procedures based on the needs of the system's users of the EPD.

4.25.1.7  (01-09-2014)
Issue Management System and Estate and Gift Notebook Job Aid

  1. The Issue Management System (IMS) application and the E&G Notebook Job Aid (Notebook) comprise the Estate and Gift Tax case management system. E&G examiners must use both IMS and Notebook to manage their case inventory and examinations.

    • See IRM 4.25.5.2, Technical Guidelines for Estate and Gift Tax Issues, Issue Management System (IMS), for IMS guidelines and procedures.

    • See IRM 4.25.5.3, Technical Guidelines for Estate and Gift Tax Issues, Estate and Gift Tax Exam Process & Documentation (EPD), for information regarding lead sheets found in the Notebook .

    • See IRM 4.25.6, Report Writing Guide for Estate and Gift Tax Examinations, for information regarding the report writing procedures in Notebook .

4.25.1.8  (01-09-2014)
Specialty Programs National Quality Review Program

  1. EQRS and NQRS are web-based systems for the collection of information. The purpose of this section is to provide an overview of the Specialty Programs National Quality Review Program. This program consists of the Embedded Quality Review System (EQRS) and National Quality Review System (NQRS).

  2. Quality attributes are defined in the same manner for both National Quality (NQ) Reviewers and Embedded Quality (EQ), which is used by managers. Specialty Programs National Quality Review Program is comprised of NQRS, the non-evaluative quality review portion, and EQRS, the evaluative quality review. EQRS is used by managers who monitor an employee's action on a work product. Thus, EQRS evaluates the employee and NQRS reviews the entire process.

  3. EQRS reviews are conducted by rating case actions against quality attributes that are linked to employee Critical Job Elements (CJEs).

  4. National Quality (NQ) Reviewers review a statistically valid sample of unagreed, agreed and no change estate and gift tax cases using the quality attributes.

  5. Quality data will be used by management to assess program performance.

  6. Management will also use quality data to identify system changes, training and educational needs, and to identify opportunities to improve work processes.

4.25.1.8.1  (01-09-2014)
Office of Policy Manager Responsibilities

  1. An attorney advisor on the Policy Manager's staff shall be assigned responsibilities for the E&G Embedded Quality Program.

  2. At the direction of the Policy Manager, such attorney advisor's responsibilities include:

    1. Establishing and providing guidance to meet program objectives

    2. Ensuring consistent application of the quality attributes

    3. Recommending updates to the quality attributes and process measures

    4. Maintaining instructional guides

  3. The attorney advisor's activities shall also include providing management with accurate information regarding case quality.

4.25.1.8.2  (01-09-2014)
Territory Manager and Field Group Manager Responsibilities

  1. Territory Manager responsibilities include:

    1. Conducting analysis of the territory's NQRS and EQRS results and identifying opportunities for improvement, and

    2. Conducting quality improvement initiatives to impact NQRS and EQRS results.

  2. Field group manager responsibilities include:

    1. Conducting quality reviews on case work and inputting the results into the EQRS system,

    2. Assist Territory Managers in conducting analysis of the territory's NQRS and EQRS results and identifying opportunities for improvement, and

    3. Conducting quality improvement initiatives to impact NQRS and EQRS results.

4.25.1.8.3  (01-09-2014)
Quality Attributes

  1. The quality attributes are concise statements of the E&G Tax Program's expectations for quality examinations and are guidelines to assist examiners in fulfilling their professional responsibilities. See Estate and Gift Tax Job Aid . The quality attributes provide objective criteria to evaluate case quality.

  2. Quality attributes are used to define quality in the NQ/EQ review. The attributes are categorized into the following groups:

    • Planning

    • Investigative/Audit Techniques

    • Timeliness

    • Customer Relations/Professionalism

    • Documentation/Reports

4.25.1.8.4  (01-09-2014)
Embedded Quality Estate and Gift Tax Examination Job Aid

  1. The Job Aid includes complete instructions, definitions, and examples of how cases should be evaluated by management and quality reviewers. See Estate and Gift Tax Job Aid .

4.25.1.8.5  (01-09-2014)
Completion of Data Collection Instrument (DCI)

  1. The DCI is used as a guide for the review process, to capture statistical data to be incorporated into the NQRS and EQRS databases.

  2. The DCI provides the principal documentation for the reviewer's case evaluation and conclusions.

  3. One DCI will be completed for each case selected for review.

  4. The DCI includes the following sections:

    1. Header information: identification of specific dates and completion of specific procedures relating to the examination phases.

    2. Evaluation of the quality attributes: each attribute is rated yes, no, or not applicable.

  5. The reviewers will prepare narratives for each attribute rated no. Narratives should be clear, concise and specific as to why the attribute was not passed. Narratives may also be made if an attribute is rated yes.

4.25.1.8.6  (01-09-2014)
National Quality Review System (NQRS) Reports

  1. NQRS includes standard reports designed to assist in the analysis of the data collected through case reviews.

  2. Ad hoc reports are also available in NQRS to allow a variety of queries to be made in order to analyze the data.

  3. Reports are available at the National and Territory levels. The data are statistically valid to the National level.

4.25.1.8.7  (01-09-2014)
Management Use of National Quality Review System (NQRS) Data

  1. NQRS data will be used to assess program performance, and will not be used to evaluate individual employee performance.

  2. The fundamental purpose of NQRS is the gathering of data and identifying trends for management's use regarding SBSE examination case quality. The emphasis is on providing management with information and analysis to determine root causes of quality concerns.

  3. No attempt should be made to identify an examiner or otherwise associate specific NQRS case results with an individual case.

  4. The case re-opening return criteria outlines the conditions under which cases will be returned to a group for additional work. See IRM 4.8.2.8, Returning Cases to the Field.


More Internal Revenue Manual