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Part 5. Collecting Process

Chapter 5. Insolvencies, Decedents Estates and Estate Taxes

Section 7. Collecting Delinquent Estate Tax Accounts

5.5.7  Collecting Delinquent Estate Tax Accounts

5.5.7.1  (06-23-2005)
Section Overview Delinquent Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return

  1. This section covers specific actions to take when estate taxes are not paid as required, and when estate tax returns are not filed when due.

5.5.7.2  (06-23-2005)
Estate Tax Lien Under IRC § 6324(a)

  1. The key to successfully collecting delinquent estate tax is a thorough understanding of the estate tax lien under IRC § 6324(a). As explained in detail at IRM 5.5.8.2, the estate tax lien arises immediately upon the death of any United States citizen or resident, and attaches to all assets that comprise the gross estate of the decedent, i.e., those assets which must be reported on Form 706 and, the value of which on date of death, are the basis for the estate tax liability.

  2. The IRC § 6324(a) lien has an absolute life of 10 years beginning on the date of death. Although the lien may be foreclosed if accomplished within the 10-year period, no event can extend the lien. Notice of the lien cannot be recorded nor is any recording necessary in order for it to become choate. The lien has priority over all subsequent interests in the assets of the gross estate but for the exceptions detailed at IRM 5.5.8.2.

  3. In addition to the IRC §  6324(a) lien, after the estate tax has been assessed, a notice and demand is given, and there is a neglect or refusal to pay, the regular assessment lien under IRC § 6321 also arises. Although the IRC § 6321 lien can be extended, its effectiveness as a tool to secure the government's interest, is limited by the fact that on the date it arises it only attaches to property that is still titled in the name of the decedent or in the name of the estate.

5.5.7.3  (06-23-2005)
Initial Case Actions

  1. Form 706 Bal Due accounts are coded MFT 52. The ″period″ is always 000000. The Taxpayer Identification Number is the Social Security number of the decedent followed by definer code "V." Occasionally, the definer code on the Bal Due will be "W." This indicates that when the Form 706 was filed, the SSN - usually because of a transposition of numbers by whoever prepared the return - was found to be invalid. Subsequent payments may be located in a separate account under the correct SSN with a "V" definer awaiting transfer of the assessments from the "W" account.

  2. Accounts should be worked by the Area where the personal representative of the estate is located. See IRM 5.1.15.1 for transfer criteria.

  3. Determine the status of any Estate & Gift Tax (E&G) examination of the Form 706. Shortly after the Form 706 has been filed, Transaction Code (TC) 420, examination indicator, will post to the account. The TC 421 will post after the return has been reviewed by E&G and either accepted as filed or an examination has been completed. If TC 421 has not yet posted, check AMDIS to determine which E&G office has physical possession of the return and whether it is under examination. It is possible that the balance due that is assigned for collection may be in the process of being significantly adjusted by E&G.

  4. Obtain for review a copy of Form 706. If the return is still in possession of E&G, request a photocopy. If TC 421 has posted, ESTAB the return. In some cases it may be necessary to obtain a copy of the return from the estate representative.

  5. Identify Powers-of-Attorney (POA) by checking CFINK and page 2 of Form 706.

  6. Determine if the executor or other fiduciary received a discharge of liability under IRC § 2204. The application for discharge and the letter granting it, should be attached to the Form 706.

  7. Prior to making initial contact with the estate representative or POA, review Form 706 to determine the assets that comprised the gross estate. Unless payment of the balance due is made upon demand, it will be necessary to know what assets remain to be distributed or liquidated, who has received those assets already distributed or the proceeds of their sale, and who received assets that passed outside of probate.

  8. If enforcement action becomes necessary, the nature of the assets, whether they are probate (assets titled in the name of the decedent) or non-probate (assets titled in some other way), will determine what steps must be taken. Equally determinative is which lien will be enforced - the estate tax lien under IRC §  6324(a), or the assessment lien under IRC § 6321.

5.5.7.4  (06-23-2005)
Lien Filing Consideration

  1. The IRC § 6324(a) estate tax lien - The estate tax lien comes into existence upon death. No recording is necessary in order to perfect the estate tax lien, nor is recording possible since no form exists for this purpose. (See Revenue Ruling 69-23). Locally authored notices purporting to be notices of the estate tax lien should not be recorded.

  2. The IRC §  6321 assessment lien - At the time the IRC § 6321 lien arises, it attaches to all undistributed probate assets. It does not attach to probate assets that have already been distributed, nor does it attach to non-probate assets. Unless there are assets attached by the assessment lien, and all statutory requirements for the creation of the lien have been met, a Notice of Federal Tax Lien should not be recorded.

5.5.7.5  (06-23-2005)
Probate Assets

  1. Probate assets are those assets of the decedent, includible in the gross estate under IRC § 2033, that were held in his or her name at time of death. In order for ownership of the assets to be transferred, a probate proceeding is instituted in which a personal representative or executor is given the authority to convey ownership of the assets. With some exceptions (see IRM 5.5.8.2), the IRC § 6324(a) lien will survive the transfer of probate assets. Probate assets distributed after the IRC § 6321 lien arises will continue to be encumbered with that lien as well, subject to the exclusions under IRC § 6323.

5.5.7.5.1  (06-23-2005)
Collecting from Undistributed Probate Assets

  1. Before taking enforcement action it must be determined whether the undistributed probate assets are under the control of a probate court (custodia legis) as part of a formal proceeding. If under local law the probate proceeding has been designated as informal, the assets are considered not to be under the control of a probate court and enforcement action may be taken. However, first consult with Area Counsel to ensure that enforcement is allowable under local law.
    Example: An estate owes unpaid tax in the amount of $150,000. 7 years remain on the IRC § 6324(a) lien. The probate proceedings have been designated as informal and under local law enforcement action against the estate assets is permissible. Two parcels of real property each with a value of $200,000, remain undistributed because the heirs cannot agree on which property to sell in order to pay the estate tax. Either property can be administratively seized and sold.

  2. If the assets are under the control of a probate court as part of a formal proceeding, enforcement action may still be possible if it can be shown that levy or seizure of certain assets would not interfere with the work of the court, or if the court grants permission for such action. (See IRM 5.17.3.1.3.6). When it is necessary for an estate to liquidate probate assets in order to pay the estate tax, the usual reason for delay is the inability of the personal representative (who frequently is also an heir) and other heirs to agree on which property to sell. Frequently, intervention or the possibility of intervention by the Internal Revenue Service will cause the heirs to reach a consensus and take the necessary steps to liquidate property and pay the estate taxes

5.5.7.5.2  (06-23-2005)
Collecting from Distributed or Liquidated Probate Assets - Real Property

  1. But for the exceptions detailed at IRM 5.5.8.2, probate assets distributed without having been discharged from the estate tax lien, are subject to administrative levy or seizure and/or litigation to foreclose the lien.
    Example: An estate owes unpaid tax in the amount of $100,000. 5 years remain on the IRC § 6324(a) lien. An asset check reveals that the decedent's residence, which was titled in her name at time of death and valued at $150,000, was sold 3 years after death. The purchaser obtained a mortgage for $140,000 to finance the purchase. The sale was not done at the direction of a court and the executor had not received a discharge of liability under IRC § 2204 prior to the sale. The estate tax lien has priority over the interests of both the purchaser and the mortgagee and can be administratively seized from the purchaser and sold.
    Note:This example is common. Unless the seller of the property is the estate, and sometimes even then, title insurers frequently do not consider the possibility that an unrecorded estate tax lien may be attaching to the property for which the purchaser is paying them to insure title. When title to property is conveyed by the personal representative to an heir who then sells the property, the chance that the title insurer will not recognize the presence of the lien is greatly increased. In practice, a title insurer can only indemnify itself against an unrecorded estate tax lien by performing a 10-year deed search, looking to see if an estate conveyed the property during that period. If so, the title insurer should contact the representative of the estate that conveyed the property and obtain verification that any estate tax that may have been due has been paid, or that the personal representative transferred title to an heir only after first receiving a discharge of liability. As an alternative, some title insurers have a clause in their title insurance policies excluding coverage for unrecorded liens. Because of the cost involved in performing a 10-year deed search, title insurers normally perform searches only as far back in the chain of title as the last occasion when a title company insured title. If seizure of property from a purchaser is proposed, it is usually necessary for the purchaser to file a claim with the title insurer before the title company will pay over the government's lien interest. Direct contact by the Revenue Officer with the title company informing them of the existence of the estate tax lien and demanding payment, is rarely effective.

  2. Under IRC § 6324(a)(3), if a personal representative has received a discharge from liability under IRC § 2204 and then distributes property to an heir who subsequently sells the property to a valid purchaser, the property is divested of the IRC § 6324(a) lien. However a " like lien" then attaches to the consideration received from the purchaser and the consideration is subject to enforcement action. This lien does not attach to any other property of the heir unless it can be shown that the property was acquired with the consideration.
    Note: This provision for sale of property free of the IRC § 6324(a) lien after the personal representative has been discharged from liability, does not apply if the personal representative, in that capacity, is the seller of the property.

5.5.7.5.3  (06-23-2005)
Collecting from Distributed or Liquidated Probate Assets - Personal Property

  1. Cash or stock distributed to heirs are the usual items of probate personal property against which enforcement action will be taken. However, unless the cash, stock, or cash from the liquidation of the stock in possession of the heir is readily identifiable, it will be necessary to obtain an administrative or judicial transferee assessment against the heir in order to take enforcement action against other assets the heir may own.

  2. Any other items of distributed personal property, but for the exceptions described at IRM 5.5.8.2, are subject to enforcement action.

5.5.7.6  (06-23-2005)
Non-Probate Assets

  1. Non-probate assets under IRC § 6324(a)(2) are primarily those assets of the decedent, includible in the gross estate, that were transferred prior to death, or were held in such a way that ownership transferred automatically upon death. These assets are identified at IRC § 2034 through IRC § 2042. The most common non-probate assets against which enforcement action will be taken are -

    1. The IRC § 2038, Revocable Transfers - As a means of estate planning, a taxpayer will transfer assets into a trust. If at the time of death the taxpayer possesses the right to revoke, alter, amend, or terminate the transferred interest or right, then the property in question is includible in the gross estate. Frequently, the trust agreement provides that upon death assets in the trust automatically are distributed to beneficiaries. These assets, whether held by the trust or distributed to beneficiaries, are attached by the IRC § 6324(a) estate tax lien.

    2. The IRC § 2039, Annuities - The value of an annuity or other payment receivable by any beneficiary by reason of surviving the decedent, is includible in the gross estate and attached by the IRC § 6324(a) estate tax lien.

    3. The IRC § 2040, Joint Interests - The value of the decedent's interest in property held as joint tenants with right of survivorship, or as tenants by the entirety, is includible in the gross estate. The decedent's interest in these assets passes directly to the survivor with the IRC § 6324(a) estate tax lien attached

    4. The IRC § 2042, Proceeds of Life Insurance - If the life insurance policy owned by the decedent meets the criteria for inclusion in the estate, the benefits paid, either to the estate or directly to the beneficiaries, are attached by the IRC § 6324(a) estate tax lien.

5.5.7.6.1  (06-23-2005)
Collecting from Non-Probate Assets

  1. IRC § 6324(a)(2) provides that when estate taxes are not paid when due, any recipient of non-probate assets becomes personally liable for the taxes to the extent of the value at the time of the decedent's death, of such property. If the recipient transfers any of the non-probate property to a purchaser or holder of a security interest, the property is divested of the IRC § 6324(a) estate tax lien. However, a like lien, in other words a lien with all of the attributes of the IRC § 6324(a) estate tax lien, then attaches to all property owned by the recipient except that which is subsequently transferred to a purchaser or holder of a security interest.

  2. The like lien remains in effect until the estate taxes are paid or until the IRC § 6324(a) estate tax lien expires.

  3. As with the IRC § 6324(a) estate tax lien, no recording is necessary in order to perfect the like lien, nor is recording possible since no form exists for this purpose. Locally authored notices purporting to be notices of the like lien should not be recorded.

  4. It is not necessary to obtain a separate assessment against the recipient of the non-probate property in order to enforce the like lien.

  5. If the like lien expires before it can be enforced, the recipient of the non-probate property can still be made liable for the tax as a transferee under IRC § 6901 provided the Assessment Statute Expiration Date (ASED) for an administrative assessment has not expired. If the ASED has expired, a suit to establish a transferee liability will be necessary. Example: At the time of death, a decedent owned a one-half interest in an apartment building. Title to the building was held jointly with right of survivorship with his son. Upon death, the decedent's interest in the property ceased to exist and the son became the sole owner of the property. The decedent's one-half interest was valued at $500,000 on the estate tax return. Two years after death, the son sold the property for $1.25 million dollars and invested the proceeds in another commercial building. One year after the sale, $750,000 in additional estate tax was assessed as the result of an examination of the Form 706, and the account is assigned to a revenue officer to collect. Because the decedent's interest in the apartment building was a non-probate asset, the purchaser took title to the building free of the estate tax lien. However, a like lien in the amount of $500,000, the value of the decedent's interest in the property at the time of death, arose upon sale and attached to all other property that the son, the recipient of the sale proceeds, now owns. A separate assessment against the son is not necessary, and enforcement action can be taken against any property he owns in order to enforce the like lien and collect the delinquent estate tax.

5.5.7.7  (06-23-2005)
Fiduciary Transferee Liability

  1. Under 31 U.S.C. § 3713, the personal representative of an estate (a fiduciary) is personally liable to the extent of payments or distributions that are made before paying a claim of the government.

  2. If it is not possible to collect by enforcing the estate tax lien or the assessment lien against assets of the gross estate, or against the assets of the recipient of estate property or the proceeds from the sale of estate property, it may be possible to pursue an administrative or judicial transferee assessment against the personal representative of the estate who failed to pay the estate tax prior to paying other creditors or making distributions of property to heirs. In order to hold the fiduciary liable, it must be shown that:

    1. The assets in question were probate assets that were under the control of the fiduciary. Non-probate assets, although includible in the gross estate of the decedent for estate tax purposes, are not controlled by the personal representative acting in that capacity.

    2. The fiduciary was not given a discharge from personal liability under IRC § 2204. See IRM 5.5.7.3(6).

    3. If the tax due is from a defaulted election to defer payment under IRC § 6166 (see IRM 5.5.7.9), determine if a bond was posted to secure payment or if a special estate tax lien under IRC § 6324A was agreed to by the estate and recorded by the government. If so, acceptance of the bond or recording of the lien, acted to discharge the fiduciary from personal liability under IRC § 2204. See IRM 5.5.8.4 for additional information regarding bonds and the lien under IRC § 6324A.

5.5.7.8  (06-23-2005)
Pre-Levy and Pre-Seizure Actions and Notices

  1. Before taking enforcement action to collect an estate tax liability, comply with all pre-levy or pre-seizure actions and notice requirements described at IRM 5.10.1 or IRM 5.11.1 with the following variations:

    1. If the property to be levied or seized is probate property, Letter 1058, Notice of Intent to Levy and Notice of Your Right to a Hearing, will be issued to the personal representative of the estate. The estate may appeal the proposed enforcement action by exercising Collection Due Process (CDP) or Collection Appeals Program (CAP) rights. If the property has been distributed or sold, the owner of the property does not receive an L1058 and has no CDP appeal rights. However, the property owner does have CAP appeal rights and may file a wrongful levy claim.

    2. If the property to be levied or seized is non-probate property held by a transferee or other party personally liable under IRC § 6324(a)(2), a Letter 1058 will be issued to the estate and a separate Letter 1058 will be issued to the liable party whose property is the subject of the proposed enforcement action. Either or both may appeal the proposed enforcement action by exercising CDP or CAP rights. The transferee or other party personally liable also receives Publication 1 and Letter 3164.

  2. When using Form 668-A or Form 668-B to levy or seize non-probate assets owned by a transferee or other liable party under IRC § 6324(a)(2), or if the levy is being used to enforce the like lien against other property owned by the liable party-

    1. On Form 668-A or 668-B include the name, address, and TIN of both the estate and the liable party.

    2. Identify the liable party as the ″distributee or transferee of assets includible in the gross estate of ....″

    3. If the levy or seizure is intended to reach specific assets, describe the assets in the body of the levy or in a separate attachment.

    4. The estate tax liability will be described on Form 668-A or Form 668-B. If the liable party is responsible for a lesser amount than the total estate tax liability, note the amount in the body of the levy or in a separate attachment and instruct that the 3rd party should send no more than the lesser amount.

  3. If the levy or seizure action is being taken to enforce the IRC § 6324(a) estate tax lien, or the like lien under IRC §  6324(a)(2), it is not necessary to record a Notice of Federal Tax Lien (NFTL) unless the property to be levied or seized is also attached by the IRC § 6321 assessment lien.

5.5.7.9  (06-23-2005)
Collecting Balance Due Accounts Resulting from Defaulted IRC § 6166 Agreements

  1. As explained in detail at the IRM 5.5.8.4, IRC § 6166 provides that the executor of an estate may make an election to pay in as many as 10 annual installments, that portion of the estate tax attributable to assets used in a qualifying closely held business. Additionally, the installment payments can be deferred for up to 5 years from the original payment due date provided annual interest payments are made.

  2. IRC §  6166 allows heirs who inherit a qualifying farm or business, the opportunity to pay an estate's tax liability over time from the income of the farm or business, rather than liquidate assets needed for the continued operation of the farm or business. The fact that the gross estate may contain non-farm or non-business assets that could be liquidated to pay all of the tax that qualifies for deferral is immaterial. If an estate fails to make an annual installment payment it is usually because the qualifying property was sold without paying the deferred balance from the proceeds of the sale, or the farm or business has insufficient cash flow to make the payment.

5.5.7.9.1  (06-23-2005)
Initial Case Actions

  1. In addition to the initial case actions described at IRM 5.5.7.3, determine:

    1. If the taxes were deferred under IRC § 6166 - Because the election to defer the taxes is made at the time the Form 706 is filed, the Master File History Section on TXMOD will show that the first collection status of the account was status 14. Transaction code 488 should also be present on the module.

    2. How much time, if any, remains on the IRC § 6324 (a) lien - During the time the taxes were in status 14 the 10-year estate tax lien continued to run.

    3. The date the assessment lien under IRC § 6321 became choate - For IRC § 6321 lien purposes, the statutory lien is considered choate as of the date the account entered either status 14 or status 21, whichever occurred first.

    4. The Collection Statute Expiration Date (CSED) - During the time the account was in status 14 the CSED was suspended. TXMOD should reflect the correct extended CSED.

    5. If the estate posted a bond or agreed to the recording of estate tax lien, Form 668-J, for taxes deferred under IRC § 6166 (See IRM 5.5.8.4) - Technical Services will be able to provide you with information.

    6. If an estate tax lien(s) Form 668-H was recorded because of elections made under IRC § 2032A or IRC § 2057 - If so, estate tax may be subject to recapture. The property that qualified for the special use valuation may have been removed from special use if the farm or business has been discontinued. Enforcement action against the special use property in order to collect the deferred tax may also result in recapture tax becoming due. Technical Services will be able to provide you with copies of Forms 668-H that may have been recorded.

5.5.7.9.2  (06-23-2005)
Collection Techniques - Defaulted IRC § 6166 Agreements

  1. If Technical Services advises that the estate posted a bond securing payment of the deferred estate tax, arrange for payment by the bonding company.

  2. If in lieu of a bond, the estate agreed to the recording of a special estate tax lien, Form 668-J, obtain copies of the lien and the agreement to the lien from Technical Services. If enforcement action is necessary, the assets described on the lien will be looked to first for collection. Assets described on Form 668-J are not attached by the IRC § 6324(a) estate tax lien, but rather the lien provided for under IRC § 6324A. This lien remains in effect until the taxes are paid or the CSED expires.

  3. If the property described on Form 668-J is insufficient to pay the estate tax in full, than any other property that remains attached by the IRC § 6324(a) and/or IRC § 6321 liens are subject to enforcement action. Distributees of the estate property also may be held liable as transferees.

5.5.7.10  (06-23-2005)
Estate Tax Bal Dues - Technical Services Actions

  1. When the revenue officer determines that all assets from which collection can be made are under the control of a probate court, Counsel has advised that administrative or judicial collection action is not appropriate, no non-probate assets from which collection can be made are identified, and no transferee issues are present, the revenue officer will contact TS and arrange for transfer of the Bal Due to TS.

  2. Input TC 520, CC 81.

  3. The case will be assigned to an Advisor who will open an Other Investigation, Tech Action Code 198, Decedent Estate. The advisor will monitor the probate proceeding and the actions being taken by the estate to liquidate assets to pay the estate tax liability. If indicated, contact Counsel to determine if intervention in the probate proceeding is necessary.

  4. If the probate is closed without payment of the estate tax liability and assets are released by the court, TS will input TC 521, CC81 and STAUP 26 and reassign the case to the Field.

5.5.7.11  (06-23-2005)
Interrelated Payoff Computation

  1. When computing payoffs on estate tax accounts, be aware that the estate may qualify for an interrelated payoff computation, also referred to as a net payoff.

  2. When Form 706 is filed, deductions against the gross estate have been claimed for the expenses incurred in administering the estate. After the return has been filed, additional expenses are usually incurred for which the estate can claim a deduction by filing an amended return. In practice, most estates wait until the previously assessed estate tax has been paid and then file an amended Form 706 claiming all the additional expenses. Such expenses include attorney fees, accounting fees, interest due on federal and state estate tax liabilities unpaid at the time returns are filed, and state death tax credits that have been paid in installments.

  3. If all or a portion of the estate tax has been deferred under IRC § 6166, the estate usually requests a recomputation of the tax due after each annual installment payment has been made. The accrued interest is then brought current and assessed, and then allowed as an additional deductible expense reducing the remaining tax due. Estate tax examiners at the Cincinnati campus make these annual adjustments to the account.

    Note:

    Where the date of death is after December 31, 1997, estates qualifying for deferred payments under IRC § 6166 cannot deduct interest on the deferred balance of tax, however, in return interest charged is computed at a lesser rate. Any interest that may have been paid as the result of a delinquent installment payment is deductible.

  4. When an account is assigned for collection, one of the first steps is to compute the payoff balance. INTST will usually compute the payoff. After the estate pays the INTST balance due, it may file an amended return and claim as an additional expense the interest that was paid, along with any other allowable but previously unclaimed administrative expenses. However, there may be instances when either the estate requests an interrelated payoff computation, or it would aid collection to collect a lesser amount. For example, the sale of an asset will not generate sufficient funds to full pay the INTST balance but would full pay the account if the balance due was arrived at by computing an interrelated payoff.

  5. In computing an interrelated payoff, paid and accrued but previously undeducted interest and paid but previously undeducted state death tax payments are allowed. The following documentation is needed in order to perform the calculation:

    1. Pages 1, 2, and 3 of Form 706

    2. Schedules J, K, and L of Fomr 706, and if present M, O, and Q

    3. If IRC § 6166 was elected, the estate's calculation of which assets of the estate qualified for the election

    4. If the estate tax return was adjusted by Estate & Gift Tax, a copy of the Revenue Agents Report (RAR), and a copy of Form 4349, Computation of Estate Tax Due with Return and Annual Installment

    5. Signed Form 6290, Declaration - Deduction for Interest on Estate Tax, from the estate declaring that interest to be allowed has not and will not be claimed on any income tax return

    6. Verification of all state death taxes paid, and verification of amounts to be paid concurrent with full payment of the estate tax

      Note:

      Under IRC § 2058(b), for state death taxes to be deductible, they must be paid within 4 years from the date Form 706 is filed or by the expiration of any extension to pay under IRC § 6161 or § 6166, whichever date is later. If it is determined that death tax credits were previously claimed or allowed but were not paid timely, the estate does not qualify for an interrelated payoff.

    7. Transcript of account

  6. If after consulting with the Cincinnati Campus Estate & Gift Tax Department it is determined that the estate does qualify for an interrelated payoff calculation, the E&G Department will provide a payoff calculation upon receipt of the required documentation. After full payment of the net payoff has posted, the E&G Unit will abate the remaining assessed balance.

  7. After full payment of the interrelated payoff has been made, the estate may file an amended Form 706 to claim deductions for any other allowable administrative expenses not previously claimed.

5.5.7.12  (06-23-2005)
Delinquent Return Procedures

  1. Depending on the year of death, a Form 706 is required to be filed if the value of the decedent's gross estate exceeds the following amount:
    1998 ...................................$625,000
    1999 ...................................$650,000
    2000 and 2001.....................$675,000
    2002 and 2003 ....................$1,000,000
    2004 and 2005 ....................$1,500,000
    2006, 2007 and 2008 ...........$2,000,000
    2009 ...................................$3,500,000

  2. Delinquent Return Investigations (Del Rets) are resolved in one of the following ways:

    1. No Return is Required to be Filed - Given that the Form 706 is due 9 months from the date of death, it is not uncommon that a personal representative is unable to determine by the filing due date whether the gross estate of the decedent is large enough to require the filing of a return. If a 6 month extension to file is applied for a filing requirement for the decedent is established on IDRS. Often, by the expiration of the extension period the personal representative has determined that no return is due. When one is not filed and the service center receives no response to notices, the account eventually is updated to del ret status.
      An interview of the personal representative or his or her attorney or accountant can verify that no return is required to be filed. Review with the interviewee the different types of property in which the decedent may have had an interest. If necessary, review documentation such as inventories that were prepared for probate proceedings. The last few income tax returns filed by the decedent can also be reviewed. When it is established that no Form 706 is required to be filed because the gross estate did not total the required amount, close the del ret.

    2. A Return is Required to be Filed, but Little or no Tax is Due- Although the gross estate exceeds the amount requiring the filing of Form 706, allowable deductions result in there being little or no tax liability. Deductions against the gross estate include debts of the decedent, burial expenses, and expenses incurred in administering the estate, such as legal and accounting fees. If the decedent was married at the time of death, two available deductions make it much less likely that any estate tax will be due-
      1) The Unlimited Martial Deduction - Any interest in property left directly to the surviving spouse is not taxable. For example, if the decedent and spouse owned a $2 million dollar home jointly with right of survivorship, the decedent's $1 million dollar half interest in the property is part of the gross estate. However, since upon death the surviving spouse received the decedent's interest in the house, the estate tax return tax would reflect a $1 million dollar deduction against this asset. If other separate assets total $500,000.00 the value of the gross estate would be $1.5 Million dollars. For any years prior to 2006 a Form 706 would be required to be filed, but after deducting the $1 million dollar marital deduction, no tax would be due.
      2) Qualified Terminal Interest Property (QTIP) - This deduction is for the value of property that is left in trust for the benefit of a surviving spouse, although the surviving spouse may have very little or no interest in the property. For example, the decedent and spouse in 1 above may have owned the $2 million house jointly without right of survivorship. It may have been the decedent's preference that when he or she died the surviving spouse should not have the ability to sell the house because he or she wanted their daughter to eventually inherit his or her interest after the surviving spouse also dies. Therefore, the decedent would have put his or her interest into a trust with the spouse as beneficiary with the right to live in the house until death, but without the right to sell the decedent's interest. Terms of the trust would dictate that upon the death of the spouse, the house becomes the property of the daughter. As in 1 above, the value of QTIP property is a deduction against the value of the gross estate.

    3. A Taxable Return is Required to be Filed - If investigation reveals that a taxable return is required to be filed, secure it as expeditiously as possible because even though the return has not been filed, the 10-year estate tax lien continues to run. Under IRC § 6018, if the personal representative is unable to make a complete return as to any part of the gross estate due to lack of information, he or she is required to file a return giving all the information he or she does have, and a full description and the name of every person who holds a legal or beneficial interest in property for which he or she lacks sufficient information to complete the Form 706. If it is necessary to issue a summons to the personal representative for the return information, see exhibit 5.5.7-1 for the proper wording . Coordinate with Estate & Gift so that one of their attorneys is present at the time and place where the personal representative is required to appear. A request that Estate & Gift prepare a Substitute for Return may also be made. Evidence of the property comprising the gross estate can be compiled from public records, examining last returns filed by the decedent, IRPTR, probate files, any other sources revealed in the course of dealings with the personal representative and his or her attorney's and accountants.

  3. A full compliance check should be performed to ensure that all of the decedent's IMF and BMF filing requirements have been met. Be aware of the possibility that the decedent's estate may consist of undistributed income producing property that requires the filing of Form 1041. If non-probate income producing assets are held in trust, it is likely that the trust has a Form 1041 filing requirement.

Exhibit 5.5.7-1  (06-23-2005)
Summons Wording for Estate Tax Return Information

All documents and records in your possession or control reflecting the property and rights to property, comprising the gross estate of (name of decedent), including but not limited to: real estate; stocks and bonds; cash and bank accounts; mortgages; notes; life insurance; annuities; individual proprietorships; partnership interests; corporations; trusts; contracts for the sale of real estate; patents and copyrights; items relating to decedent's home and personal life, including but not limited to: household goods; clothing; automobiles; boats; aircraft; jewelry and gems; antiques; objects of art and collections; transfers of property or rights to property made within three years of death; transfers of property or rights to property in which the decedent had retained some right or control; transfers made since December 31, 1976, of present interests in property, real or personal, in which the market value of each transfer exceeded the allowable annual exclusion effective for the year of transfer; so that a Federal United States Estate Tax Return (for which no return has been made) may be prepared. A blank Federal United States Estate Tax Return is attached hereto to guide you in your production of the necessary documents and records.


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