5.5.8  Estate Tax Liens

5.5.8.1  (06-23-2005)
Section Overview Characteristics of Estate Tax Liens

  1. This section covers estate tax liens. Before filing a lien on an estate tax case, give careful thought to the advantages and limitations of each type of estate tax lien.

  2. In many cases, the general IRC § 6324(a) lien is the best tool to protect the government's interest. It is automatically created when any resident of the United States dies. No recorded notice is required for it to become effective. It attaches to all of the assets that are part of the decedent's gross estate and are required to be reported on Form 706, U.S. Estate Tax Return, and is security for any estate taxes that may be determined to be due. If a probate asset (assets in the name of the decedent at time of death) is transferred or liquidated without payment of the tax, but for the exceptions detailed at IRM 5.5.8.2(2), the lien continues to attach to the asset. If a non-probate asset (property described under IRC § 2034 to § 2042) is transferred or liquidated without payment of the tax, a liability equal to the value of the asset at the time of the decedent's death becomes due from the transferee. A separate assessment against the transferee is not needed. Assets of the gross estate can be sold or encumbered free of the IRC § 6324(a) lien if the proceeds from the sale or loan are used for the payment of charges against the estate or expenses of its administration that are allowed by any court having jurisdiction.

  3. A limitation of the general estate tax lien is that it has an absolute life of 10 years. It cannot be extended. Estate tax attributable to an estate's interest in a closely held business may be paid over a 14-year period if an extension of time to pay under IRC § 6166 is in effect which could potentially leave the Service without lien protection for four years if a notice of lien is not recorded before the 10 years have elapsed.

  4. The filing of Form 668-J (the special IRC § 6423A lien for taxes deferred under IRC 6166) will secure the deferred taxes for the duration of the extension. The collection statute of limitations under IRC § 6502 is suspended during the period of the extension.

    1. The lien attaches only the property specified on the recorded lien and in the IRC § 6166 agreement. A lien on property with equivalent value can be substituted for the actual IRC § 6166 property upon agreement between the Service and all parties with an interest in the property.

    2. When estate property is listed on the recorded Form 668-J, it is automatically released from the effects of the general IRC § 6324(a) estate tax lien.

    3. The IRC § 6324A lien is a negotiated lien that is created only when both the Service and all persons and/or entities with an ownership interest in the property listed on the notice of lien agree to it's recording.

  5. The filing of Form 668-H - the special IRC § 6324B lien for special use valuations under IRC § 2032A or qualified family owned business interest property under IRC § 2057 will secure the potential recapture tax during the required 10 year holding period. IRC § 2057 elections may be made only on estates of decedents dying before December 31, 2003.

5.5.8.1.1  (06-23-2005)
Comparison Chart Federal Estate Tax Liens

  1. The following table briefly describes the characteristics of Federal tax liens associated with federal estate tax liabilities.

    Code Section How Created Attributes Form Title
    6321 assessment, balance owed, notice & demand
    • attaches to all right, title and interest of the decedent in any probate property undistributed at time lien arises

    • 10 year life can be extended

    Form 668 Notice of Federal Tax Lien
    6324(a) at death
    • attaches to estate assets listed on the Form 706 the value of which are the basis of the tax liability

    no form
       
    • recording not required to be choate

     
       
    • absolute life of 10 years

     
       
    • follows the probate assets if transferred or liquidated, a lien of comparable value arises upon any property of the party who received proceeds from sale or encumbrance of non-probate property

     
    6324A Upon election by the estate and signed agreement by all parties with an interest in the property on the lien
    • attaches the specific property shown on the lien

    • must be recorded

    • recorded notice lists all parties of interest and the specific property that is subject to the lien

    Form 668J Notice of Estate Tax Lien under Internal Revenue Laws
           
    6324B Upon election by estate of the special use 2032A or qualified family owned business interest 2057
    • pertains to farm or business real estate only (2032A) or family owned business property

    • notice must be recorded

    • recorded notice lists all qualified heirs and has a complete legal description of the subject real property

    Form 668H Notice of Federal Estate Tax Lien Under Internal Revenue Laws

5.5.8.2  (06-23-2005)
General Estate Tax Lien under IRC § 6324(a)

  1. The estate tax lien provided for by IRC § 6324(a) is similar in character to the lien imposed by IRC § 6321. The general lien imposed by IRC § 6321 and the special lien for estate tax are not necessarily exclusive of each other, but can be cumulative. Whereas the IRC § 6324(a) lien arises upon death and attaches to all probate and non-probate assets comprising the gross estate, after the tax liability has been assessed, notice and demand is given, and there is a neglect or refusal to pay, the IRC § 6321 lien arises and also attaches to all as yet undistributed probate assets. Neglect and refusal to pay is generally inferred from notice and demand and an unpaid balance.

  2. Even though no notice is recorded, the lien has priority over all subsequent interests in the property.

    Except Unless
    purchaser of or holder of a security interest in probate property at the direction of a court having jurisdiction and proceeds are used to pay charges against the estate no exception
    purchaser or holder of a security interest in probate property after executor has been released from personal liability under IRC § 2204 if seller is an heir, legatee, devisee, or distributee no exception
    purchaser of or holder of a security interest in non-probate property no exception
    purchaser of or holder of a security interest in securities knowledge of lien exists
    purchaser of a motor vehicle knowledge of lien exists
    retail purchaser of tangible personal property purchaser buying with the intent to hinder, evade, or defeat collection
    purchaser of personal property (defined at IRC § 6334(a)) valued at less than $1,000 at a casual sale knowledge of lien exists or is one in a series intended to liquidate most of the assets
    local law lien securing the price of repairs or improvements lienor gives up possession of property after lien arises
    local real estate tax & special assessment local law does not give them priority over other liens that are filed first
    residential property subject to a lien for repairs & improvements the contract price is more than $5,000
    attorney's liens fees are unreasonable, the lien is not valid under local law, or is subject to offset
    certain insurance contracts knowledge of lien exists
    deposit-secured loans knowledge of lien

  3. The IRC § 6324(a) estate tax lien attaches at the date of death to every part of the gross estate, even when the property has not yet been placed under the control of the fiduciary. It attaches to the extent of the estate tax shown due on the return, and of any deficiency in estate tax found due upon review and audit. The estate tax lien continues for a maximum period of ten years after the decedent’s death or until the tax is paid.

  4. IRC § 6324(a)(2) provides that when the estate tax is not paid when due, any spouse, transferee, trustee, surviving tenant, person in possession of the property by reason of the exercise, nonexercise, or release of a power of appointment, or beneficiary, is liable for the payment of the estate tax to the extent of the value of any non-probate estate assets held by, or passing to such person.

  5. There is no need to assess the liability against the person liable under IRC § 6324(a)(2). The collection statute under IRC § 6502 applies. IRC § 6324(a)(2) also makes all of the property of such person subject to a lien just like the estate tax lien if their transfer of estate assets divests the assets of the estate tax lien. This ″like-lien″ continues until the IRC § 6324(a) estate tax lien expires or the estate tax is paid.
    Example: A beneficiary of a decedent's trust receives real property valued at $100,000 on the Form 706. The beneficiary sells the property for $125,000 and invests the proceeds. Because the property was non-probate property, the purchaser takes title free of the IRC § 6324(a) estate tax lien. However, a like-lien in the amount of $100,000 now attaches to all of the property of the beneficiary as long as the IRC § 6324(a) lien has not expired. A separate assessment against the beneficiary is not necessary.

5.5.8.3  (06-23-2005)
Processing Requests for Release, Discharge of Property From, or Subordination of Unrecorded IRC § 6324(a) Lien

  1. Release - Advisory occasionally receives requests for release of the unrecorded estate tax lien. However, just as there is no provision for recording a notice of the unrecorded estate tax lien, there is no provision for recording a release. Applicants should be instructed to provide documentation to potential purchasers of the decedent's property that either there was no Form 706 filing requirement, or, if Form 706 was filed and a closing letter has been provided to the estate by Estate & Gift Tax (E&G), a copy of the return, the Estate Tax Closing Letter ( Letter 627, and verification of payment, are evidence that the IRC § 6324(a) lien has been satisfied.

  2. Discharge -

    1. Applications for discharge under IRC § 6325(c) are usually submitted on Form 4422 , Application for Certificate Discharging Property Subject to Estate Tax Lien. These applications will be processed by E&G if Form 706 has not been filed or if a closing letter has not been issued. If Form 706 has been filed and a closing letter has been issued, applications for discharge under IRC § 6325(c) will be processed by Advisory. Form 792 , United States Certificate Discharging Property Subject to Estate Tax Lien, is used to discharge property under IRC § 6325(c).
      Example:An estate submits Form 4422 requesting a discharge under IRC § 6325(c). Form 706 has been filed and the reported estate tax has been paid, but a closing letter has not been issued. Because the final amount of estate tax that may be due has not yet been determined, E&G will process the application.
      Example: An estate submits Form 4422 requesting a discharge under IRC § 6325(c). Form 706 has been filed and reported estate tax has been paid, but a closing letter has not been issued. Because the estate representative believes she has paid the estate tax in full, she proposes to use the proceeds from the sale of the probate property to pay other creditors. Because the final amount of estate tax that may be due has not yet been determined, E&G will process the application.
      Example: An estate submits Form 4422 requesting a discharge under IRC § 6325(c). Form 706 has been filed and a closing letter has been issued, but a balance remains due for which a extension of time to pay has been granted. The estate is selling a parcel of probate real property but needs the proceeds to pay necessary administrative expenses. The estate has provided for the payment of the taxes by listing a second parcel of real property for sale. Because the final amount of the estate tax due is known, Advisory will process the application.

    2. Applications for discharge under IRC § 6325(b) will be processed by Advisory. If Form 706 has not been filed or if a closing letter has not been issued, Advisory will consult with E&G in order to determine the government's lien interest.

  3. Subordination - Applications for subordination under IRC § 6325(d) will be processed by Advisory. If Form 706 has not been filed or if a closing letter has not been issued, Advisory will consult with E&G in order to determine the government's lien interest.

5.5.8.4  (06-23-2005)
Special Valuation Estate Tax Lien Under IRC § 6324B

  1. IRM § 2032A provides for special valuation for certain farms and closely held family business real property if the qualified heirs decide to continue operating the farm or business for at least 10 years. Because the property is valued at less then its fair market value, less estate tax is due. IRM § 2057 provides for a special valuation for certain qualified family owned business interests and also results in less estate tax being due. If the criteria for the IRC § 2032A or IRC § 2057 valuations do not continue during the required holding period, the savings in tax attributable to the special valuation is "recaptured" and must be repaid by the heirs who inherited the property.

  2. IRC § 6324B imposes a lien attaching to the specific property valued under IRC § 2032A. IRC § 2057(h)(3)(p) imposes a lien identical to the IRC § 6324B lien to the specific property valued under IRC § 2057.

5.5.8.4.1  (06-01-2010)
IRC § 6324B Form 668-H (Advisory Actions)

  1. When the executor elects the special valuation under IRC § 2032A or IRC § 2057, and secures an agreement to the election signed by all parties having an interest in the specially valued property, Estate & Gift Exam (E&G) will complete and forward Form 6111, Notice of Election Under IRC § 2032A and/or IRC § 2057, to Advisory with copies of the following documents:

    1. First 3 pages of Form 706

    2. Schedule A-1 and/or Schedule T

    3. Agreement to special valuation signed by all parties with an interest in the property to be shown on the lien. Only the decedent's interest in the property is shown on the lien. If the decedent co-owned the property, the co-owner's interest is not shown on the lien and the co-owner is not required to sign the agreement.

    4. Complete legal descriptions of property to be shown on the lien

    5. Any power of attorney

  2. Verify that each Form 6111 includes a copy of the agreement signed by all ″qualified heirs″ and all other parties having an interest in the property covered by the election. The agreement must designate:

    1. an agent for dealings with the Internal Revenue Service, and

    2. a complete legal description of the property to be shown on the lien

  3. Contact the E&G group manager to resolve any inconsistencies.

  4. Prepare and file Form 668-H, Notice of Federal Estate Lien Under Internal Revenue Laws, (see Exhibit 5.5.8-1) in the name of the estate and all qualified heirs as shown on Form 6111. Only one Form 668-H will be used unless a local jurisdiction requires separate forms. Recording a copy of the agreement to Form 668-H is not necessary. If the qualifying property consists of the decedent's interest in a closely held corporation, partnership, LLC, etc., consult with Area Counsel to determine if evidence of ownership, such as a stock certificate, must be held as collateral in order for the lien to be effective under local law.

    Note:

    When preparing estate tax liens, the SSN of the decedent and any qualified heirs whose names are shown on the lien will be redacted using the format XXX-XX-1234. Do not redact EINs.

  5. If elections were made under both IRC § 2032A and IRC § 2057, one Form 668-H reflecting the combined maximum tax subject to recapture may be used.

  6. Form 668-H must be prepared manually. However, a PDF version of the form is available on the intranet at http://publish.no.irs.gov/catlg.html

  7. Mail the completed Form 668-H to the Centralized Case Processing Lien Operation (CLU) for recording on a Form 3210.

  8. All documents sent with the lien to the recording office will be returned to CLU. The CLU will be responsible for inputting lien indicators; applicable lien fees and forwarding the recorded lien document back to the originating advisor on Form 3210, Document Transmittal, to maintain with the lien file. If a lien is returned to the Advisor due to insufficient funds, return it to the CLU for corrective action. All liens will be sent to:

    Internal Revenue Service
    Attn: Manager Team 208 - Stop 8420G
    P.O. Box 145595
    Cincinnati, OH 45250-5595

  9. This CLU FORT has responsibility for logging in receipt of the estate tax liens; monitoring the recording process and forwarding the recorded liens to the advisor on a Form 3210. CLU FORT will send acknowledgement of receipt of the lien by returning the Form 3210.

  10. Within 7 business days of receipt, the CLU FORT will mail the lien to the recording office for filing. See IRM 5.19.12.10.2 , for CLU FORT processing procedures and lost lien research procedures.

  11. Advisory is responsible for sending the lien to the lien unit on Form 3210, including the estate name, complete SSN, lien type and request for input of TC 582, TC 583 and TC 360 as applicable. Advisory is also responsible for determining if there is an open module on IDRS and will instruct CLU to input applicable lien indicator/fees. In the case of Form 668-H liens, if there is no open module on IDRS, do not request input of lien indicator/fees on the Form 3210.

  12. Advisors are responsible for ensuring receipt of the recorded lien from CLU and that lien fees have been input, if applicable.

  13. At local option, after coordinating payment of recording fees with the CLU, advisors may mail liens for recording directly to recording offices. However, except for exigent circumstances, advisors may not issue OI's requesting that a revenue officer deliver an estate tax lien to a recording agency for filing.

  14. Advisory will maintain an ICS case in the name of the estate until the lien is released. Advisory will also maintain a file of retained lien copies with Form 6111 and associated documentation.

5.5.8.4.2  (03-01-2006)
Processing Requests for Release of IRC § 6324B Form 668-H

  1. Requests for release of Forms 668-H will be processed by Advisory.

  2. If the qualified heir(s) is requesting a release of lien because the 10 year special use period has elapsed, and assuming no recapture tax is due, instruct the designated agent to submit a written request that the lien be released, including a statement that during the 10 year period no events occurred that would cause recapture of any portion of the tax. The letter should be signed under penalty of perjury. Advisory will consult with the Estate & Gift Tax group manager to determine if any further verification should be secured prior to releasing the lien.

  3. The qualified heir(s) may also request a release of lien because all of the property described on the lien is being sold or removed from special use. In order to receive a release of the lien, the qualified heir(s) must report the recapture event by filing Form 706-A, United States Additional Estate Tax Return (if the section 2032A election was made), or Form 706-D, United States Estate Tax Return Under Code Section 2057, and all tax and interest due must be paid in full. Interest on the Form 706-A begins to accrue at the regular underpayment rate on the date the return is due. Interest on the Form 706-D at the regular underpayment rate is computed from the original due date of the Form 706, not taking into account any extensions of time to file that may have been granted, until the date the recapture tax is paid. Each qualified heir must file a Form 706-A or Form 706-D reporting and paying the tax and interest due that is attributable to their share of the inherited property.

  4. Secured Forms 706-A or 706-D, with any payments and or approved extensions, are forwarded via Form 3210 , overnight mail, to: IRS, Cincinnati Submission Processing Center, 201 W. Rivercenter Blvd., Covington, KY, 41011, Attn: Mail Stop 31. Preparation of a posting voucher is not necessary unless penalties are applicable and being paid. Ensure that the return and check are identified as belonging to the heir and indicate NMF by placing "N" behind the heir's SSN on the return and the check. Enter the tax period in YYYYMM format at the top of the return. The period ended is the earliest date shown on schedule A, column C. For example, if the property disposition date is 3/10/2005, the tax period would be 200503.

  5. Releases of estate tax liens are prepared by advisors and the procedures for recording described in IRM 5.5.8.4.1. However, follow up to obtain a copy of a recorded release is not necessary.

    Note:

    Whenever contact is made with an estate representative who is requesting a release of an estate tax lien, the advisor should give the representative the option of recording the release, making the representative aware that if they choose to do so, it is their responsibility to pay the recording fees.

5.5.8.4.3  (06-23-2005)
Processing Requests for Discharge of Property from IRC § 6324B Lien, Form 668-H

  1. Requests for discharge of property described on Form 668-H will be processed by Advisory.

  2. A discharge is necessary if part of the property described on the lien is being sold or removed from special use.

  3. If issuance of a conditional commitment to discharge property from the effects of the lien is necessary, Advisory should request a draft of Form 706-A or Form 706-D from each heir who owns a share of the property being sold or removed from special use. Upon review and approval of the draft(s) by the Estate & Gift Tax (E&G) group manager, Advisory will conditionally commit to the discharge. Upon filing of the Form 706-A or Form 706-D, with full payment of any tax and interest due, the discharge certificate will be provided.

  4. See IRM 5.5.8.4.2(4) for instructions on processing the returns and payments.
    Example: A Form 668-H has been recorded in the names of an estate and 4 heirs. The property listed on the lien consists of 6 parcels of real property for which special valuation was elected under IRC § 2032A. The heirs want to convert 1 of the parcels to a non-qualified use and submit an application for discharge under IRC § 6325(b)(2)(A), along with draft copies of each of their required Forms 706-A showing the recapture tax that will be due. E&G reviews the returns and advises that they reflect the correct amount of recapture tax. Advisory issues a commitment to discharge conditioned upon the receipt of original Forms 706-A and payment of the tax and interest due.

5.5.8.4.4  (03-01-2006)
Processing Requests for Subordination of IRC § 6324B Lien, Form 668-H

  1. Requests for subordination of property described on Form 668-H will be processed by Advisory.

  2. Although it is possible that the qualified heir(s) may apply for a certificate of subordination under IRC § 6325(d)(2), almost all requests for subordination will be made under IRC § 6325(d)(3) which directly addresses IRC § 6324B, and provides for the issuance of a certificate of subordination if it is determined that the lien interest of the United States will continue to be adequately secured.

  3. Instructions for applying for a subordination under IRC § 6325(d)(3), are contained in Publication 1153, How to Apply for a Certificate of Subordination of Federal Estate Tax Lien Under Section 6325(d)(3) of the Internal Revenue Code.

  4. If it is determined that the lien interest of the United States will continue to be adequately secured, issue Form 669-F , Certificate of Subordination of Federal Estate Tax Lien.
    Example: A Form 668-H has been recorded in the names of an estate and 2 heirs securing potential recapture tax of $200,000. The property shown on the lien is an apartment building for which special valuation was elected under IRC § 2057. The fair market value of the property is $1.5 million, and it is unencumbered but for the Form 668-H. The heirs want to borrow $250,000 in order to make renovations to the building and use the property as security for the loan. They apply for a subordination under IRC § 6325(d)(3). Since the United States will be adequately secured after the subordination, Advisory may issue Form 669-F.

5.5.8.5  (06-01-2010)
Special Lien Under IRC § 6324A for Estate Tax Deferred Under IRC § 6166

  1. 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. Estate & Gift (E&G) Exam personnel or E&G Campus personnel make the determination if the estate qualifies for this special election. If property qualifies for installments, only interest on the unpaid balance is due on the first four anniversary dates after the due date. The first tax payment along with interest is due on the fifth anniversary of the due date of the return. This election to pay in installments must be made at the time the Form 706 is filed. Late filing of the return invalidates the election. If the deferred tax due is the result of an examination deficiency, the estate must make the election within 60 days after issuance of notice and demand.

  2. Under IRC § 6503(d) the Collection Statute Expiration Date is suspended for the period during which payment of the tax is deferred. However, running of the IRC § 6324(a) estate tax lien is not suspended.

  3. Collection field function will utilize Form 668(Y) when recording liens on balance due accounts. Advisory has the responsibility of securing a lien using Form 668-J, which is typically secured during the installment period.

  4. Key elements of the lien include:

    1. A lien describing the agreed upon property is recorded using Form 668-J, Notice of Federal Estate Tax Lien Under Internal Revenue Laws (see Exhibit 5.5.8-2).

    2. An agreement to the lien under IRC § 6324A is filed with the Internal Revenue Service on Form 13925, IRC Section 6324A Lien Agreement Form. The agreement must be signed by all of the persons having an interest in the designated property (whether or not in possession) described on the lien.

    3. Although real property is preferred, any property, either real or personal, with equity equal to the deferred taxes plus interest, and that can be expected to survive the deferral period, may be designated in the agreement. Property, other than property that was part of the gross estate, may be used to secure the lien. If at any time the value of the property covered by the agreement becomes less than the deferred taxes plus interest, the IRS can require the addition of property to the agreement.

      Note:

      Even though the property offered by the estate as security for the lien may be, if necessary, difficult to enforce against (such as stock in a closely held corporation), distrainability is not a factor in determining the adequacy of the value of the property offered. As long as the requirements under IRC § 6166A(b) as to the value of the property are met, and there are no indications that the property will not survive the deferral period, whatever property the estate offers as security for the lien is acceptable.

    4. Any property that is part of the decedent's gross estate that is part of the agreement and described on the recorded lien is no longer subject to the unrecorded IRC § 6324(a) estate tax lien.

    5. Recording of the lien acts as a discharge of the executor and/or or fiduciary under IRC § 2204. See Treas. Reg. 20.2204-3.

5.5.8.5.1  (06-01-2010)
Advisory Bond/Lien Determinations for Estate Tax Deferred Under IRC § 6166

  1. Advisory will receive a lien package, as described below, and set up an ICS case control.

    1. Pages 1, 2 and 3 of Form 706 and schedules A, B, F & G and any attachments thereto (but not appraisals unless specifically requested by an Advisor) including other pertinent schedules listing assets.

    2. Form 4349, Computation of Estate Tax Due With Return and Annual Installment.

    3. Form 1273, Report of Estate Tax Examination Changes, and Form 3228, Adjustments to Taxable Estate or Form 6180, Line Adjustments - Estate Tax. (These forms will not be provided if the case is surveyed or accepted as filed.)

    4. The examiner’s narrative report of examination changes. (e.g. Form 886A, Explanation of Items, or similar documentation.) (This form will not be provided if the case is surveyed or accepted as filed.)

    5. Any Form 2848, Power of Attorney and Declaration of Representative.

    6. IRC § 6166 election and attachments to the election.

    7. Listing of all businesses listed on the Estate tax return including name and EIN. This information may be listed separately or on the related schedule.

  2. The Estate & Gift (E&G) Exam group will be responsible for sending lien packages to Advisory when the case has been assigned to the group for examination. When returns are accepted as filed or surveyed during classification, Campus will be responsible for preparing and forwarding the lien package to Advisory. E&G Campus will hold the original tax return for 90 days once the lien package is sent to Advisory, in case additional information is needed.

  3. Advisory shall contact the estate’s executor or representative within 60 days of receipt of lien package and request the estate voluntarily provide a bond, or in the alternative an IRC § 6324A lien, to secure the deferred estate tax. If the executor or representative agrees to provide the bond or lien, proceed with processing procedures to get the bond or lien recorded. Send a copy of the lien agreement to E&G Campus for association with the IRC § 6166 file. Encumbrances must be checked to determine adequacy of collateral. The advisor may utilize sources such as Accurint, Secretary of State, UCC filings, etc. to verify encumbrances. It may be necessary to request the estate representative provide encumbrance information. Document the above action in the case history.

  4. If the estate declines to provide a bond or lien, Advisory shall review all information available to it before requesting any information from the taxpayer. Advisory shall review the following:

    1. The lien package provided by E&G Exam,

    2. Any information that the IRS may have such as extension requests (Form 4768), compliance with current installment/interest payments, tax returns or tax compliance information with respect to the decedent (1040), the estate or trust (1041) and closely held business (1040, 1041, 1120, 1120s, 1065, 941’s),

    3. Any information available by public record or on the Internet, such as filings with the Secretary of State.

  5. Advisory will determine what additional information is required to make a determination regarding whether security is required in that case.

  6. Advisory shall send a letter to request any additional information needed to determine whether security should be required. The deadline for additional document request shall be kept to 30 days. If within the 30 day period, the estate requests an extension of time, the Advisor may grant an extension for up to 30 days. Any additional extension must be approved by the Advisory Group Manager. Such approval and the reason for granting the additional extension must be documented in the case history.

  7. Advisory shall determine whether a bond or lien should be required in a case based on a review and analysis of applicable factors listed below and any other pertinent information. This is not an exclusive list and no single factor will be determinative of whether to require security in any particular case.

    1. Duration and stability of the business: This factor considers the nature of the closely held business and of the assets of that business, the relevant market factors that will impact the business’s future success, its recent financial history, and the experience of its management, in an effort to predict likelihood of its success and survival through the deferred payment period. This information may be found in the appraisal, financial statements, and SEC filings. Facts relevant to this factor are information regarding any outstanding liens, judgments, or pending or anticipated lawsuits or other claims against the business, if any; age of business; and continuity and stability of management. The estate may use a sworn affidavit or other probative documents to provide this information. When considering this factor, determine whether the decedent owned a majority interest in the business. If the decedent owned a minority interest, the financial information pertaining to the business may not be as relevant because the estate may not force distributions to pay the estate tax. In this case, consider whether other assets in the estate or other income are available to pay the estate tax.

    2. Ability to pay the installments of tax and interest timely: This factor considers how the estate expects to be able to make the annual payments of tax and interest as due, and the objective likelihood of realizing that expectation. Facts relevant to this factor may include the nature of the business’s significant assets and liabilities, type of debts (subordinated, related party, guaranteed, payment terms), and the business’s cash flow (both historical and anticipated). An appraisal, the business’ tax return, or SEC filings may provide this information.

    3. Compliance history: This factor addresses the business’s, estate’s and decedent’s history regarding compliance with all federal tax payment and tax filing requirements, in an effort to determine whether the business, its management and the executor respect and comply with all tax requirements on a regular basis. The relevance of the closely held business’s filing and payment compliance is proportional to the estate’s ownership interest and control of the business. This factor also addresses the estate’s compliance history with respect to federal tax payment and filing requirements. Review frequency of requests for extension of time to pay, amount, and ultimate payment.

  8. Advisory shall fully document in the case file history:

    1. The factors and information considered in making the determination,

    2. A brief history outlining taxpayer’s response to request for bond or lien, and;

    3. A detailed explanation regarding why a bond or a lien was required in this case in order to protect the government’s interest, and the amount of bond or lien required.

  9. After Advisory has made its determination, Advisory will send the estateLetter 4283, Notification Regarding Internal Revenue Code Section 6166 Security Requirement. When preparing the letter, select the optional paragraph (1) to notify the estate that no bond is required; optional paragraph (2) to notify the estate that a bond is required after reviewing the information provided by the estate; or optional paragraph (3) to notify the estate that a bond is required when the estate did not provide the requested information within 30 days. If option (2) or (3) is selected, include the IRC § 6324A Lien Agreement, Form 13925, and Form 8821. If the estate provides a lien form other than Form 13925, Advisory will consult Area Counsel for the state of the decedent’s domicile for approval of the lien form. If the designated agent on the Form 13295 or lien agreement is someone other than the executor, ensure Form 8821 is received. Fax a copy of the lien agreement and Form 8821, if applicable, to E&G Campus to associate with the file.

  10. Maintain a copy of the Letter 4283 in the case file and schedule a follow up date in ICS.

  11. In the case of any proposed bond, Advisory will consult with Area Counsel for drafting, if needed, and review of the bond agreement.

  12. Area Counsel will also be consulted when unusual assets are pledged on the lien agreement, such as art or collectibles.

  13. The Letter 4283 allows 30 days from the date of the letter to negotiate the bond or lien property. If the estate refuses to provide a bond or lien after Advisory sends Letter 4283 notifying the estate that a bond or lien is required, the Advisor will send the case to the Advisory Group Manager for preparation, selection of the appropriate optional paragraph, and issuance of a Letter 950-I – Preliminary Internal Revenue Code § 6166 Determination Letter. The Letter 950-I is the letter that notifies the estate of its right to appeal the preliminary determination. If the estate does not appeal within the time period, the IRC § 6166 election terminates. Send Letter 950-I by certified mail and maintain one copy in the case file, notating the date it is sent, also schedule a follow up date in ICS.

  14. If decedent died before August 6, 1997, the estate should not be sent the 950-I letter because the estate does not have the right to appeal or go to Tax Court. Provide a narrative to the E&G Campus stating the reason for proposed termination and request the Letter 6335-F be sent.

  15. Advisory will send a copy of the Letter 950-I to E&G Campus to associate with the file.

  16. After the Letter 950-I is issued, the case will be controlled and monitored for expiration of the 30-day period by the Advisory Group Manager.

  17. If within the 30 day period allowed in Letter 950-I the estate requests an extension of time to request Appeals consideration, the Advisory Group Manager may grant an extension for up to 30 days. In unusual cases if circumstances warrant, the Advisory Group Manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the case history.

  18. If the estate does not appeal the preliminary determination within the 30-day period allowed in Letter 950-I, or as extended, or if the estate sends an untimely post-marked protest, Advisory shall terminate the election 15 days (to allow for mail time) after the expiration of the 30-day period or the extended period. Advisory must send to the E&G Campus a narrative indicating that the time for appeal has expired and that the account should be accelerated. Advisory shall instruct E&G Campus to send Letter 6335-F to the estate, certified mail, return receipt requested. E&G Campus will compute interest on the Letter 6335-F, 30 days from the date of the Letter 950-I, and will prepare the Letter 6335-F showing the total balance on the account and all additional interest.

  19. If the estate requests Appeals consideration, Advisory will date stamp the protest and document in the case file history that the protest was received and forward the protest letter and the following to Appeals 30 days from the postmark date of the protest letter:

    1. Letter 4283,

    2. Documentation considered in analyzing whether the bond or lien was required,

    3. Letter 950-I,

    4. Case file history, and;

    5. Any pertinent correspondence with the Taxpayer.

  20. If the estate submits a protest containing new IRC § 6166 related issues with its request for Appeals consideration, Advisory shall determine the validity of the new issue. If Advisory disagrees with the estate on the new issue, it shall prepare a response to the protest which includes the determination reached on the new issue. Advisory shall send the response to the protest to the estate and include it in the package to be transmitted to Appeals.

  21. Prepare Form 3210 forwarding case to Appeals notating "Type of Case IRC § 6166 – Termination Case, Lien Determination – This is an emerging issue. Please check the Appeals Technical Guidance issue locator on the Appeals webpage for further information" . Advisory will route their protest cases based on the state in which the decedent was last domiciled using the case routing list on the Appeal’s website, http://appeals.web.irs.gov/APS/bystate2.htm, with the understanding the case may be transferred to another Appeals Officer based on inventory needs. Notify E&G Campus by secure e-mail that a protest has been forwarded to Appeals so that the Letter 6335-F is not sent prematurely.

  22. If no new issues are raised by the estate in its request for Appeals consideration, Advisory will not prepare a response to the protest. Appeals will consider the documentation in the case file history containing all prior analysis.

  23. The Appeals Office will send the case file with the Appeals Case Memorandum (ACM) to Advisory once a decision is final, so that Advisory can proceed. Advisory shall notify E&G Campus if the election under IRC § 6166 is terminated, and shall instruct E&G Campus to send Letter 6335-F certified mail, return receipt requested. If Appeals allows the election to continue, notify E&G Campus that Appeals has determined the estate is entitled to the election. If no response is received, Advisory will follow-up with Appeals in 90 days. Advisory may contact the Appeals’ Account Resolution Specialist at (559) 456-5931 to locate case or update status.

5.5.8.5.2  (06-01-2010)
Miscellaneous Documentation From Campus or Appeals

  1. Advisory will receive documentation from E&G Campus concerning IRC § 6166 payments or installment payments that have not been paid. E&G Campus is sending this information to be associated with the case file. E&G Campus will forward for informational purposes copies of billings and/or protest letters that are sent to Appeals. OI’s will be maintained in ICS on accounts where informational documents are sent to Advisory from the E&G Campus.

  2. This information should be used in considering creditworthiness of estate, necessity for a bond or lien, and/or necessary enforcement action.

  3. Advisory may receive a courtesy investigation from the E&G Campus to collect non-deferred tax, penalties and interest. The following actions should be taken:

    1. Contact the estate representative and demand payment of the non-deferred tax. Provide a deadline for payment and document the ICS history.

    2. If payment is not made send final demand letter (Letter 1058) for only the non-deferred portion of tax due plus penalties and interest.

    3. After expiration of the 30 day final demand letter the advisor will issue a courtesy investigation to initiate enforced collection (such as levy or suit referral) as necessary against assets or initiate such action themselves, as appropriate. The Advisor will coordinate collection action with the revenue officer involved.

    4. If full payment is still not made, the IRC § 6321 lien should be recorded by the field revenue officer to attach to the remaining undistributed probate property for the non-deferred portion of the estate tax due. Document the ICS history concerning your action to protect the Government’s interest. Revenue Officers must comply with collection due process rights in IRM 5.1.9.3 when utilizing the IRC § 6321 lien.

    5. If estate is unable to pay the non-deferred tax this is an indicator/factor that the estate may be financially unstable. At this time the advisor will conduct an evaluation of the current assets, review time remaining on the IRC § 6324(a) lien (or any other lien in effect such as the IRC § 6324A lien) and determine if the Government is adequately secured for the remaining tax due during the duration of the deferral period.

    6. If the advisor determines the Government is not adequately secured for the remaining portion of deferred estate tax, Letter 4283 will be sent to the executor/designated agent. Follow procedures in IRM 5.5.8.5.1(9).

    7. If estate still does not pay non-deferred portion of tax and refuses to provide a lien or bond on the IRC § 6166 portion, issue letter 950-I and proceed with acceleration of the deferred portion of tax.

    8. Revenue Officers may continue collection actions on the non-deferred portion of estate tax while the deferred portion is being accelerated.

  4. Advisory will also receive documentation (copies of Letter 6335 or 6335(T)) from the E&G Campus when estates are delinquent in paying installments timely, Advisory should review the account to determine if a lien or bond has been secured. If a lien or bond has not been secured a re-evaluation of collection risk is appropriate action to ensure the Government is adequately protected. This information and advisor actions must be documented in the ICS history because a pattern of delinquency is a factor in determining credit risk.

  5. Advisory will receive from the E&G Campus documentation (copies of Letter 6335(F)) indicating installment payments have not been made and the acceleration of the tax due is in process. Advisory must upon receipt review the account and determine if a lien or bond has been secured. Advisory should review, recommend and document the ICS history regarding the most appropriate collection action based on information in their lien file. Considerations to be addressed:

    1. what assets remain that are encumbered by the IRC § 6324(a) lien

    2. are there specific assets pledged on the IRC § 6324A lien,

    3. equity in assets

    4. is there a bond,

    5. does a seizure or levy need to be done on pledged assets, and

    6. should a suit referral be completed.

  6. Advisory shall take such action or coordinate enforced collection action.

  7. Advisory will receive from the E&G Campus documentation indicating the case is in litigation contesting the termination of the election. The collection statute is not suspended during the time the case is in litigation. Advisory should determine based on the facts and circumstances of the case whether collection should be pursued during litigation and handle the case accordingly. If Advisory determines collection should be pursued during litigation, before collecting Advisory must contact the Chief Counsel attorney assigned to the case.

  8. When Appeals makes a determination that an estate may continue to elect an IRC § 6166 installment election, the entire case file, including the original return shall be sent to Advisory to copy information necessary for bond or lien determination. This file should be copied within 30 days, and the return should be sent to E&G Campus to complete the installment account set-up.

  9. Advisory will be responsible to set follow-ups through ICS to check status of cases that were sent to Appeals for resolution either by utilizing the Appeals Account Specialist or contacting the E&G Campus to determine if they have received the Appeals Case Memorandum (ACM) from Appeals.

5.5.8.5.3  (06-01-2010)
Monitoring Accounts During The Deferral Period (Advisory)

  1. Informational documents received from the E&G Campus should be reviewed within 30 days of receipt. The advisor’s evaluation of impact or harm to the Government’s interest should be documented in the ICS history. This documentation may dictate frequency of monitoring an account.

  2. Notice of late installment payments, preliminary IRC § 6166 election terminations or extensions to pay on IRC § 6166 installment payments should be considered as a factor in lien determination and monitoring. Accounts should be re-evaluated if any of the above actions occur.

  3. Encumbrances must be checked to determine adequacy of collateral. The advisor may utilize sources such as Accurint, Secretary of State, UCC filings, etc. to verify encumbrances.

  4. (4) All IRC § 6166 accounts will be re-evaluated six years into the deferral period. Schedule a follow up through the ICS system. Advisors will consider the factors described in IRM 5.5.8.5.1(7) and should also look at subsequent actions below to determine if additional action should be taken to protect the Government’s interest:

    1. What assets have been distributed?

    2. Has the estate distributed, sold, exchanged, or otherwise disposed of 50 percent or more of the value of the estate’s interest in the closely held business?

    3. What assets have been discharged or subordinated?

    4. Has the estate made installment payments timely and in the full amount due?

    5. Has the estate requested extensions to pay installments?

    6. Has the estate defaulted on other financing?

    7. Has the estate made additional payments toward the tax liability?

    8. Does the closely held business appear to be financially stable and able to make future installment payments?

    9. Is the estate in compliance with filing and paying requirements?

  5. Annual monitoring, considering the above factors should be conducted as the Service nears expiration of the IRC § 6324(a) lien. Each year that Advisory conducts a review, the Advisor must document their analysis and recommendations to adequately protect the Government’s interest. As the Service gets closer to expiration of the IRC § 6324(a) lien, the advisor must consider securing a "replacement lien" (IRC § 6324A lien or bond) to cover the additional deferral period and the amount of deferred tax due in order to protect the Government’s interest.

  6. Advisory must be aware that if a determination is made that the Government is at risk of not collecting the remaining tax due, appropriate action (for example, a bond or lien or enforced collection action) must be taken and completed prior to expiration of the IRC § 6324(a) lien. Consideration must be given to allow time for the executor to exhaust any allowable appeals and potential litigation time if the estate petitions the Tax Court under IRC § 7479. If the account is accelerated, this process generally requires a minimum of six months to be completed. Timeframes of acceleration, appeals and litigation must be considered in order to complete collection actions prior to expiration of the IRC § 6324(a) lien.

  7. If the advisor determines that a lien is required the advisor will send the executor Letter 4283. Follow procedures in IRM 5.5.8.5.1(9) .

  8. In consideration of accounts where the estate has been in compliance with timely payment of installments, as the Service gets closer to expiration of the IRC § 6324(a) lien, the advisor must consider securing a "replacement lien" (IRC § 6324A lien or bond) to cover the additional deferral period and the amount of deferred tax due in order to protect the Government’s interest.

  9. Advisory must ensure annually that the value of the collateral securing the lien is equal to the outstanding IRC § 6166 balance on the account. In accordance with the Form 13925, the designated agent is required to send current valuation information annually with respect to the pledged property listed in the agreement. If the executor has provided an IRC § 6324A lien, Advisory must review the annual valuation information report from the designated agent to confirm that the value of the collateral securing the lien is equal to the outstanding IRC § 6166 balance on the account. If the financial information is not received from the designated agent, the Advisor may contact the designated agent to request that information.

5.5.8.5.4  (06-01-2010)
Processing of IRC § 6324A Form 668-J (Advisory Actions)

  1. Follow the procedures found at IRM 5.5.8.4.1 for recording of estate tax liens.

  2. When preparing estate tax liens, the SSN of the decedent and any qualified heirs whose names are shown on the lien will be redacted using the format XXX-XX-1234. Do not redact EINs.

  3. Actual lien fees will be manually posted by CLU FORT when the lien is received back from the recording office, see IRM 5.19.12.10.2 .

  4. Advisors are responsible for ensuring receipt of the recorded lien from CLU and that lien fees have been input, if applicable.

  5. Advisory will maintain an ICS case in the name of the estate for which the Form 668-J was recorded until such time as the lien is released. Advisory will also maintain a file of retained lien copies and associated documentation.

  6. The Cincinnati Campus Estate & Gift Tax Department, will, upon receipt of full payment of the liability secured by Form 668-J, coordinate with the Advisory Estate Tax Group to ensure that the 668-J lien is released in a timely manner. Campus will notify the Advisory, Estate Tax Group within 10 working days after receiving notification of payment, through secure e-mail, to release any Form 668-J that may have been recorded.

  7. Form 669-J must be prepared manually. However, a PDF version of the form is available on the intranet at http://publish.no.irs.gov/catlg.html.

  8. If the estate representative chooses to post a bond rather than consent to the recording of a lien, follow the procedures for processing bonds found at IRM 5.6.1.2.1, Bonds and IRM 5.6.1.2.3, Estate Tax Bonds and Other Collateral.

  9. If stock certificates are pledged as collateral, the advisor will secure the actual stock certificate. This would prevent the sale of such certificates to third parties.

  10. Prepare Form 2276, Collateral Deposit Record classifying the stock certificates as ″safekeeping″ and reflecting a zero value for revenue accounting system (RACS) purposes. The certificates must be stored in an approved safe. Follow procedures in IRM 5.6.1.8, Preparing Form 2276, Collateral Deposit Record.

  11. Stock, in most instances, will be considered personal property by most state law. With respect to personal property, a lien must be filed in the office designated by state law in which the property subject to the lien is situated.

5.5.8.5.5  (03-01-2006)
Processing Requests for Release, Discharge of Property From, or Subordination of IRC § 6324A Form 668-J

  1. Requests for release of Form 668-J, and discharge and subordination applications will be processed by Advisory.

  2. Releases- The criteria under IRC § 6325(a) for issuance of a certificate of lien release - liability satisfied or unenforceable or bond accepted - are applicable to Form 668-J. Follow the procedures found at IRM 5.5.8.4.2 for processing estate tax lien releases.

  3. Discharge - Requests for discharge will normally be made under IRC § 6325(c). Provided property equal to the amount of the remaining deferred balance of tax and interest will remain subject to the lien, a certificate may be issued discharging a portion of the property listed on Form 668-J from the lien. As an alternative, under IRC § 6324A(d)(5), the estate representatives may substitute other property in order to obtain a discharge of all or part of the property listed on the lien. If the disposition of property will result in accelerated payment of all or part of the deferred tax, or if the equity in the remaining property will not equal the remaining deferred balance of tax and interest, the application should be made under IRC § 6325(b)(2).

  4. Subordination - Requests for subordination will normally be made under IRC § 6325(d)(2). Provided it is determined that the amount realizable by the United States from the property will ultimately be increased, or that the ultimate collection of the tax liability will be facilitated by the subordination, a certificate may be issued.

5.5.8.6  (06-23-2005)
Gift Tax Lien Under IRC § 6324(b)

  1. The provisions of the gift tax lien are also delineated in IRC § 6324 and parallel those for the general estate tax lien.

  2. The special gift tax lien imposed by IRC § 6324(b) attaches to all gifts made during the calendar year for the amount of the gift tax imposed upon the gifts made during such year. If the gift tax is not paid by the donor when due, the donee of any gift becomes personally liable for the tax to the extent of the value of the gift. The gift tax lien extends for a period of ten years from the time the gifts were made or until or the tax is paid, whichever date is sooner.

Exhibit 5.5.8-1 
Form 668-H, Notice of Federal Estate Tax Lien Under Internal Revenue Laws

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  1. SB/SE Area __

  2. Leave blank

  3. Name of estate from ENMOD

  4. Qualified Heirs: Names & TINs

  5. From Form 6111

  6. Amount of tax subject to recapture (from Form 6111)

  7. Complete legal description of property

  8. Add this statement: "This notice of lien is filed for the purpose of giving notice that the United States has lien rights against any rights, title or interest that the above named may have in the above described property. This notice of lien does not attach to any other real or personal property in which the above named may have an interest except the property described herein."

  9. Name and location of office where lien is recorded

  10. City and state of Advisory office where lien is prepared

  11. Title of person signing lien

Exhibit 5.5.8-2 
Form 668-J, Notice of Federal Estate Tax Lien Under Internal Revenue Laws

This image is too large to be displayed in the current screen. Please click the link to view the image.
  1. SB/SE Area __

  2. Leave blank

  3. Name of estate from ENMOD

  4. Owners of Record: Names & TINs

  5. From lien agreement

  6. TC 150 date

  7. Current unpaid balance of assessments, plus or minus any unassessed TC 300 or TC 301 from Form 1273, Report of Estate Tax Examination Changes

  8. Complete legal description of property

  9. Add this statement: "This notice of lien is filed for the purpose of giving notice that the United States has lien rights against any rights, title or interest that the above named may have in the above described property. This notice of lien does not attach to any other real or personal property in which the above named may have an interest except the property described herein."

  10. Name and location of office where lien is recorded

  11. City and state of Advisory office where lien is prepared

  12. Title of person signing lien


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