8.7.4  Appeals Estate and Gift Tax Cases

Manual Transmittal

August 18, 2014

Purpose

(1) This transmits revised IRM 8.7.4, Technical and Procedural Guidelines, Appeals Estate and Gift Tax Cases.

Material Changes

(1) This entire IRM section has been reorganized, revised, and updated.

(2) Editorial and stylistic changes (including grammar, spelling, and minor clarification) were made throughout this IRM section.

(3) Obsolete subsections and exhibits have been removed.

(4) The most significant changes are listed in the table below:

IRM Reference Description of Change
IRM 8.7.4.1 Revised and updated the entire content of this subsection.
IRM 8.7.4.2 Revised and updated the entire content of this subsection. More specifically, created IRM 8.7.4.2.2, a subsection dedicated entirely to working IRC 6166 cases.
IRM 8.7.4.3 Revised and updated the entire content of this subsection.
IRM 8.7.4.4 This subsection was previously listed as IRM 8.7.4.2.6.
IRM 8.7.4.5 Created a new subsection titled Pre-conferences in Estate and Gift Tax Cases.
IRM 8.7.4.6 This subsection was previously listed as IRM 8.7.4.4. The subsection has been edited to include more accurate and detailed procedures on requesting valuation assistance in estate and gift tax cases.
IRM 8.7.4.7 This subsection was previously listed as IRM 8.7.4.5. The subsection has been edited to include more accurate and detailed procedures on preparing a notice of deficiency in estate and gift tax cases.
IRM 8.7.4.8 This subsection was previously listed as IRM 8.7.4.2.8.
IRM 8.7.4.9 This subsection was previously listed as IRM 8.7.4.7.
Exhibit 8.7.4-1 This exhibit was previously listed as IRM 8.7.4-3. Updated the content of the exhibit.
Exhibit 8.7.4-2 This exhibit was previously listed as IRM 8.7.4-4. Updated the content of the exhibit.
Exhibit 8.7.4-3 This exhibit was previously listed as IRM 8.7.4-5. Updated the content of the exhibit.
Exhibit 8.7.4-4 Created a flowchart to demonstrate how IRC 6166 cases sourced from the E&G Campus flow to and through Appeals.
Exhibit 8.7.4-5 Created a flowchart to demonstrate how cases sourced from E&G Field Exam with an undisputed IRC 6166 component flow to and through Appeals.
Exhibit 8.7.4-6 Created a flowchart to demonstrate how IRC 6166 cases in which E&G Field Exam issues either Letter 950-J or 950-K flow to and through Appeals.
Exhibit 8.7.4-7 Created a flowchart to demonstrate how IRC 6166 cases sourced from Advisory flow to and through Appeals.

Effect on Other Documents

IRM 8.7.4 dated October 29, 2013 is superseded.

Audience

Appeals

Effective Date

(08-18-2014)


John V. Cardone
Director, Policy, Quality and Case Support

8.7.4.1  (08-18-2014)
Introduction to Estate and Gift Tax Cases Worked in Appeals

  1. This section covers procedures used to process estate tax and gift tax cases in Appeals from the time the case is received in Appeals to the time the case is closed by Appeals.

  2. The first subsection, IRM 8.7.4.2, covers procedures used to process estate tax cases.

  3. The second subsection, IRM 8.7.4.3, covers procedures used to process gift tax cases.

  4. The remaining subsections, IRM 8.7.4.4 through IRM 8.7.4.9, address procedures that apply to both estate and gift tax cases.

8.7.4.1.1  (08-18-2014)
Issue Management System (IMS)

  1. Use of the Issue Management System (IMS) is mandatory for working Field SB/SE Estate and Gift Tax cases. Cases carded into the Appeals Centralized Database System (ACDS) after 02/06/12 must be worked in IMS in order to provide feedback to the originating function. However, ACDS remains the Appeals system of record for case management and recording time on cases.

  2. An OnLine 5081 is required to gain access to IMS. Each user should request the “IMS-PRODUCTION-LMSB USER ACCESS” application and add a statement indicating an Examination Return Control System (ERCS) ID is not required. Additional information on IMS and related training modules can be found on the Appeals BSP web page, Appeals BSP web page.

  3. The Appeals Technical Employee (ATE) must verify that each case assigned to him/her is on IMS. If the case is not on IMS, the ATE should ask the Appeals Team Manager (ATM) to search the missing case on the IMS Case Inventory and assign it to the ATE.

    Note:

    Not all E&G cases are on IMS. For example, IRC 6166 cases, penalty appeals cases, and cases sources from the Service Center are not on IMS

  4. When closing estate or gift tax cases, the ATE must upload all closing documents (such as Form 5402, Appeals Case Memorandum, computations, and agreements) on the IMS system.

8.7.4.2  (08-18-2014)
Estate Tax Cases Worked in Appeals

  1. This subsection provides information on procedures and issues that are unique to estate tax cases.

  2. Procedures for establishing and closing estate tax cases, acknowledging receipt of cases, setting up and holding the Appeals conference, preparing the Appeals Case Memorandum (ACM), securing agreement(s), and preparing settlement computations or statutory notices of deficiency are generally the same for estate tax cases as those used in income tax cases.

  3. Estate tax returns are filed on Form 706, U.S. Estate Tax Return. The IRC 6501 statute of limitations on assessment cannot be extended for estate tax cases. Therefore, Form 872, Consent to Extend the Time to Assess Tax, is not applicable to estate tax cases.

  4. When the ATE receives a newly assigned estate tax case, he/she follows the procedures outlined in IRM 8.2.1.4, Receipt of New Assignment by an Appeals Technical Employee (ATE). In addition, the ATE will verify the accuracy of the following data fields on ACDS:

    • Taxpayer's name and address

    • Taxpayer's TIN

    • Case type

    • MFT

    • Category and Subcategory

    • Key period

    • Statute Date

    • Statute Code

    • Deficiency/Penalty/Claim amounts

  5. If the case contains one or more valuation issues, the ATE should consult IRM 8.7.4.6, Requesting Valuation Assistance, to determine whether it is necessary to request valuation assistance.

8.7.4.2.1  (08-18-2014)
Disclosure Considerations in Estate Tax Cases

  1. Generally, information of a confidential nature is only disclosed when a taxpayer provides written authorization.

  2. Estates and trusts act through their fiduciaries (executors, personal representatives, trustees, or administrators). A person acting in a fiduciary capacity is required to file Form 56, Notice Concerning Fiduciary Relationship, upon the creation and termination of the fiduciary relationship. See IRC 6903. These persons are generally not required to execute Form 2848, Power of Attorney and Declaration of Representative. See Treas. Reg. 601.504(b).

    Note:

    IRC 2203 defines the term "executor" for estate tax purposes.

  3. The declaration on Form 706, U.S. Estate Tax Return, when executed by an attorney, accountant or enrolled agent meets the "duly authorized in writing" requirement of IRC 6103(e)(6). Therefore, when an attorney, accountant or enrolled agent executes the declaration on Form 706 , a separately executed Form 2848, Power of Attorney and Declaration of Representative, is not required.

8.7.4.2.2  (08-18-2014)
IRC 6166 Cases

  1. Cases arising under IRC 6166 involve an estate's election to pay the estate tax in installments over a period of two to fifteen years at a reduced rate of interest.

  2. Estates must meet the following eligibility criteria in order to make a valid election under IRC 6166:

    1. The decedent was a citizen or resident of the United States on the date of death.

    2. The fair market value of an interest in a closely held business exceeds 35% of the "Adjusted Gross Estate" .

    3. The term "Adjusted Gross Estate" refers to the fair market value of the gross estate less deductions under IRC 2053 and IRC 2054 as determined with reference to the earlier of (a) the due date of the return or (b) the date the return was filed. See IRC 6166(b)(6).

  3. The maximum amount of estate tax that can be deferred under IRC 6166 is determined by the following formula:

    [(Value of closely held business/Adjusted Gross Estate) * Estate Tax Due] = Amount Deferrable

  4. The non-deferrable portion of the estate tax must be paid by the due date of the return, unless the estate has an extension of time to pay under IRC 6161.

  5. Generally, most estates can defer payment of the first installment of tax for up to five years from the original due date for payment. IRC 6166(a)(3). In these cases, the estate will pay only interest on the deferred estate tax amount for the first five years of the deferral period. However, elections falling within the purview of IRC 6166(b)(7)-(10) do not qualify for this interest-only deferral period and must begin making installments payments of tax in the first year of the election.

  6. An election under IRC 6166(a) must be made with a timely filed return and the executor must attach a statement (aka Notice of Election) to the Form 706 with computations showing the deferred, non-deferred tax and closely held business amount. The statement should include the following information:

    • The decedent's name and taxpayer identification number.

    • The amount of tax that is to be paid in installments.

    • The date selected for payment of the first installment.

    • The number of annual installments including the first installment, in which the tax is to be paid.

    • The assets shown on the estate tax return which constitute the closely held business interest (identified by schedule and item number).

    • The facts that formed the basis for the executor's conclusion that the estate qualifies for payment of the estate tax installment.

      See Treas. Reg. 20.6166–1(b), which provides information necessary for the Notice of Election.

  7. Pursuant to IRC 6166(b) an interest in a closely held business is defined as:

    1. An interest in a proprietorship that carries on a trade or business.

    2. An interest in a partnership that carries on a trade or business if 20% or more of the total capital interest in the partnership is included in the gross estate or the partnership has 45 or fewer partners.

    3. Stock in a corporation carrying on a trade or business if 20% or more of the value of voting stock of the corporation is included in the gross estate, or the corporation has 45 or fewer shareholders.

  8. Indirect Ownership by a spouse or family member(s) are generally taken into account for purposes of calculating the estate’s interest in a closely held business. See IRC 6166(b)(2)(B) (attribution rules for a spouse); IRC 6166(b)(2)(D) (attribution rules for family members). However, in certain cases there may be additional eligibility requirements. See IRC 6166(b)-(h).

  9. If the estate owns two businesses that independently qualify for the IRC 6166 election, the executor may elect to bifurcate the installment payments. By contrast, if the estate owns two or more businesses that do not independently qualify for the IRC 6166 election, the interests may be treated as an interest in a single closely held business to determine eligibility. IRC 6166(c).

  10. Special rules apply to stock in a holding company. IRC 6166(b)(8)(A). Generally, the existence of a holding company can be disregarded as long as the stock in the holding company is not readily tradable. IRC 6166(b)(8)(B). Therefore, in most cases, stock in a holding company can be treated as stock in the underlying businesses. IRC 6166(b)(8)(A). Generally, estates that make an election under IRC 6166(b)(8) cannot defer the first installment under IRC 6166(a)(3) and are subject to a higher interest rate on the deferred tax. IRC 6166(b)(8)(A).

  11. Deferral is not available for passive assets. See IRC 6166(b)(9). IRC 6166 was intended to apply only with respect to a business such as a manufacturing, mercantile or service enterprise, as distinguished from management of investment assets.

  12. IRC 6166(b)(10) provides that an estate may elect to treat all the assets used in a "qualifying lending and finance business" as assets used in carrying on a trade or business. Thus, none of the assets in a "qualifying lending and finance business" will be considered passive assets under IRC 6166(b)(9). Estates that make an election under IRC 6166(b)(10) are allowed a maximum of 5 installments of tax, rather than the usual 10, and cannot defer the first installment under IRC 6166(a)(3).

  13. Certain events may cause the estate to lose the benefits of the election, thus accelerating the remaining installments.

    1. a. Under IRC 6166(g)(1), all remaining installments are accelerated upon notice and demand if 50% or more of the value of the interest in a qualifying business is distributed, sold, exchanged or otherwise disposed of. However, the following dispositions are disregarded:
      i. Transfers to heirs pursuant to a will, trust instrument or statute of descent and distribution. See IRC 6166(g)(1)(D).
      ii. Redemptions of stock to which IRC section 303 applies, where proceeds are used to pay IRC 6166 installments of tax.

    2. b. Under IRC 6166(g)(3), all remaining installments are accelerated upon notice and demand if any installment is not paid within six months of its due date.

  14. Where a tax deficiency is assessed and the estate had not previously made an IRC 6166 election on the original return, IRC 6166(h) provides that the estate may elect to pay the deficiency in installments if it meets eligibility criteria under IRC 6166(a). However, the estate cannot defer more than the deficiency amount. See Rev. Rul. 81-294. The election must be made within 60 days of the issuance of the notice and demand for payment of the deficiency. IRC 6166(h)(2).

  15. Where a tax deficiency is assessed and the estate had previously made an IRC 6166 election on the original return, IRC 6166(e) provides for the automatic proration of the deficiency attributable to the closely-held business to installments. The part of the deficiency prorated in installments the date for payment of which has past or arrived must be paid upon notice and demand.

8.7.4.2.2.1  (08-18-2014)
Processing Elections under IRC 6166

  1. The Cincinnati Campus Estate and Gift Tax Operations (aka "E&G Campus" ) reviews all estate tax returns with an election under IRC 6166. The returns are either accepted as filed or selected for field consideration.

  2. For returns that are accepted as filed, the E&G Campus adjudicates the validity of the IRC 6166 election. For returns referred for field consideration, the validity of the IRC 6166 election is adjudicated by E&G Field Exam.

  3. If E&G Campus or E&G Field Exam conclude that the election is valid, a lien package is sent to the Collection Advisory Estate Tax Group (aka "Advisory" ), which determines whether a bond or lien is required.

  4. If E&G Campus or E&G Field Exam determine that the election is not valid, or if Advisory determines that a bond or lien is required but the taxpayer fails to comply, the taxpayer is given the opportunity to appeal the respective determination.

    Note:

    If the decedent died before August 6, 1997, the estate does not have any appeal rights nor ability to petition the Tax Court. See IRC 7479.

8.7.4.2.2.2  (08-18-2014)
Sources of IRC 6166 Cases Worked in Appeals

  1. IRC 6166 cases are not controlled on AIMS.

  2. Appeals receives IRC 6166 cases from the E&G Campus, E&G Field Exam, or Advisory.

  3. The most common types of 6166 cases generated by the E&G Campus relate to the following issues:

    1. The estate does not meet general IRC 6166 eligibility criteria.

    2. The estate defaults on its installment payments.

    3. The estate sells or disposes of 50% or more of its interest in the closely held business.

  4. The most common types of 6166 cases generated by E&G Field Exam relate to the following issues:

    1. The estate does not meet general IRC 6166 eligibility criteria and Exam is proposing a tax deficiency.

    2. The estate made a valid 6166 election but Exam is proposing a tax deficiency.

    3. The estate made a valid 6166 election but the dispute revolves around the amount of deferrable tax or the applicable deferral term.

    4. The estate sells or disposes of 50% or more of its interest in the closely held business.

  5. The most common types of 6166 cases generated by Advisory stem from the taxpayer’s failure to comply with a request to post a bond or lien.

  6. Appeals is the only function that can issue a final adverse determination within the meaning of IRC 7479. Therefore, IRC 6166 cases come to Appeals in non-docketed status.

  7. Appeals may review the same 6166 election more than once. For example, the election may come to Appeals because there is a dispute with respect to its initial validity. Later, Appeals may review the same election again because the estate failed to post a required bond or defaulted on its installment payment obligations.

8.7.4.2.2.3  (08-18-2014)
Receipt of IRC 6166 Cases

  1. Letter 4141, Case Received in Appeals - Acknowledgement Letter, is used for IRC 6166 cases. The ATM is responsible for generating and issuing Letter 4141 on the date the case is assigned on ACDS, which cannot be later than 30 days from the ACDS Received Date. See IRM 1.4.28.3.1, Assignment of Work Units and Issuance of Letter 4141(CG), Uniform Acknowledgment Letter (UAL), for additional procedures on issuing a UAL. See also IRM 1.4.28–6, Pre-Selected Enclosures for the UAL Based Upon the Category and Type of Case, for required enclosures.

8.7.4.2.2.4  (08-18-2014)
Actions by the ATE upon Receipt of IRC 6166 Cases

  1. Upon receipt of a 6166 case, the ATE will follow ordinary intake procedures outlined in IRM 8.2.1.4, Receipt of New Assignment by an ATE; IRM 8.2.1.5 and IRM 8.2.1.6, Preliminary Review of a Case – ATE.

  2. In addition, the ATE must identify the source of the case as E&G Campus, E&G Field Exam, or Advisory. The source of the case may be found on the Form 3210, Document Transmittal, but should be verified by review of the case file. The source of the case will determine the set of procedures that apply to the case.

  3. The ATE will verify the case was established in ACDS following the same procedures used for income tax cases except for the following:

    • TYPE — 6166

    • MFT — MFT 52

    • KEYPER — Month and year of death

    • AIMS Indicator — "E" for exempt from AIMS

    • Statute Code — ASESD

    • Proposed $ Def/-OA — $0

  4. Generally, IRC 6166 cases are assigned to an Appeals Officer. However, a Settlement Officer may encounter a 6166 issue in the context of a collection case. A Settlement Officer should review IRM 5.5, Decedent Estates and Estate Taxes, and consult with an Estate and Gift Appeals Officer, as needed, when this occurs..

8.7.4.2.2.5  (08-18-2014)
Statute Review of IRC 6166 Cases

  1. Appeals employees should always be aware of the statute dates on cases in their physical possession. See IRM 8.21.3.1.3.2, Protecting Statutes on Estate Tax Cases.

  2. The IRC 6501 Assessment Statute Expiration Date (ASED) is not affected by an election under IRC 6166, regardless of whether the election is valid or timely.

  3. The IRC 6502 Collection Statute Expiration Date (CSED) is affected by an election under IRC 6166. An IRC 6166 election extends the CSED while the election is in effect. See IRC 6503(d). However, the running of the IRC 6324(a) inchoate estate tax lien is not suspended. See IRM 5.5.8.5, Special Lien Under IRC § 6324A for Estate Tax Deferred Under IRC § 6166.

8.7.4.2.2.6  (08-18-2014)
IRC 6166 Cases from E&G Campus

  1. If the E&G Campus determines that a 6166 election is not valid or ceased to apply, it will issue Letter 950-H, Preliminary Internal Revenue Code Section 6166 Determination Letter. See IRM 4.25.2.1.8, E&G Campus Determines Estate Does Not Qualify for the IRC Section 6166 Election.

  2. If, in response to Letter 950–H, the estate files a timely protest letter, the E&G Campus prepares an auxiliary file and sends the case to Appeals within 30 days from the postmark date on the protest letter.

  3. Case files generated by the E&G Campus should contain the following documents:

    • Copy of Parts 1, 2, 3, 4, 5, and 6 of the original Form 706 as well as the schedules related to the closely held business interest

    • Copy of Parts 1, 2, 3, 4, 5, and 6 of all supplemental Form 706 (if any) as well as the schedules related to the closely held business interest

    • The Notice of Election and any attachments

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

    • Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, if applicable

    • All correspondence between the Service and the taxpayer relating to the election

    • Case file history

    • Letter 950–H, Preliminary Internal Revenue Code Section 6166 Determination Letter

    • The taxpayer's protest letter (including responses to the protest, if any)

    • Form 2848, Power of Attorney and Declaration of Representative, if applicable

    • Certification of unchanged status for previous year (only applicable where the 6166 election has ceased to apply)

    • Prior notices and demands for payment (only applicable where the 6166 election has ceased to apply)

  4. Refer to Exhibit 8.7.4-4, Flowchart 1: IRC 6166 Cases Sourced from the E&G Campus, for a comprehensive case routing overview with respect to IRC 6166 cases sourced from the E&G Campus.

8.7.4.2.2.7  (08-18-2014)
IRC 6166 Cases from E&G Field Exam

  1. If E&G Field Exam determines that a 6166 election is not valid or ceased to apply, the examiner will issue Letter 950–J, Preliminary Section 6166 Determination Letter.

  2. If E&G Field Exam determines that a 6166 is valid, but the dispute revolves around the amount of deferrable tax or the applicable deferral term, the examiner will issue Letter 950–K, Preliminary Internal Revenue Code section 6166 Determination Letter.

  3. Regardless of whether E&G Field Exam issued Letter 950–K or Letter 950–J, the taxpayer may appeal the determination. If the estate files a timely protest letter, E&G Field Exam prepares an auxiliary file and sends the case to Appeals within 30 days from the postmark date on the protest letter.

  4. Case files generated by E&G Field Exam should contain the following documents:

    • Copy of Parts 1, 2, 3, 4, 5, and 6 of the original Form 706 as well as the schedules related to the closely held business interest

    • Copy of Parts 1, 2, 3, 4, 5, and 6 of all supplemental Form 706 (if any) as well as the schedules related to the closely held business interest

    • The examining attorney’s notes and report on the IRC 6166 qualification issue, plus any other documents that affect the IRC 6166 qualification

    • The Notice of Election and any attachments

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

    • Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, if applicable

    • All correspondence between the Service and the taxpayer relating to the election

    • Any state estate or inheritance tax returns that were filed, if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state death tax payment information

    • Form 9984, Examining Officer's Activity Record

    • Letter 950–J or Letter 950–K

    • The taxpayer's protest letter

    • Examiner’s response to the protest letter

    • Form 2848, Power of Attorney and Declaration of Representative, if applicable

  5. Unagreed IRC 6166 cases coming to Appeals from E&G Field Exam often include other unagreed issues generating an estate tax deficiency. Since the deficiency portion of the case can proceed to Tax Court under IRC 6312 while the 6166 portion can proceed to Tax Court under IRC 7479, these cases must have separate files and work units in Appeals. For this reason, E&G Field examiners will separate the estate tax examination portion of a case from the 6166 portion before forwarding either one to Appeals. If the case files are not bifurcated, the ATM or ATE should return the case to Exam as a premature referral.

    Note:

    It is not necessary to bifurcate the case file if the 6166 portion of the case is undisputed. Refer to Exhibit 8.7.4-5, Flowchart 2: Undisputed IRC 6166 Cases Sourced from E&G Field Exam, for a comprehensive case routing overview with respect to tax examination cases with an undisputed IRC 6166 component.

  6. It is possible that E&G Field Exam may issue a Notice of Deficiency with respect to the unagreed issues generating an estate tax deficiency, while the 6166 portion of the case is sent to Appeals. In these cases, Appeals will be unable to make any determination on the 6166 portion of the case until the Tax Court determines the value of the estate in the deficiency proceedings and the Tax Court’s decision becomes final. For this reason, Appeals should issue Letter 3570 or Letter 3571 in order to allow the estate to petition the Tax Court under IRC 7479. See CCA 201226027.

    Note:

    The ATE should inform the taxpayer that the case is being closed because the Office of Appeals is unable to make a determination. Since no administrative appeal is available, the taxpayer must petition the Tax Court to protest the 6166 portion of the case.

  7. Refer to Exhibit 8.7.4-6, Flowchart 3: Disputed IRC 6166 Cases Sourced from E&G Field Exam, for a comprehensive case routing overview with respect to IRC 6166 cases sourced from E&G Field Exam.

8.7.4.2.2.8  (08-18-2014)
IRC 6166 Cases from Advisory

  1. If the estate fails to comply with Advisory's request to post a bond or perfect a lien, Advisory will issue Letter 950–I, 30 Day Letter - Intent to Terminate IRC 6166 Election.

  2. If the estate files a timely protest letter, Advisory sends the case file to Appeals within 30 days from the postmark date on the protest letter.

  3. Case files generated by Advisory should contain the following documents:

    • Letter 4283, Notification Regarding IRC 6166 Security Requirements

    • Documentation considered in determining whether a bond or lien is required

    • Letter 950–I, 30 Day Letter - Intent to Terminate IRC 6166 Election

    • Case file history

    • Any correspondence with the taxpayer that directly or indirectly references the issues at hand

    • The taxpayer's protest letter (including responses to the protest, if any)

  4. Refer to Exhibit 8.7.4-7, Flowchart 4: IRC 6166 Cases Sourced from E&G Advisory, for a comprehensive case routing overview with respect to IRC 6166 cases sourced from Advisory.

8.7.4.2.2.9  (08-18-2014)
Reading and Interpreting IDRS transcripts in IRC 6166 Cases

  1. A TC 488 indicates that a 6166 election is in place. The date of the TC 488 indicates the effective date of the election.

  2. If the election ceases to apply for any of the reasons enumerated under IRC 6166(g), a TC 489 will be input on the account. The date of the TC 489 indicates the date on which the election has ceased to apply. The IRC 6502 CSED begins to run from the TC 489 date.

8.7.4.2.2.10  (08-18-2014)
ATE’s Case Closing Procedures for IRC 6166 cases

  1. Communicating Appeals’ determination to originating function is particularly critical in IRC 6166 because the account is maintained manually. For this reason, the ATE must provide special processing instructions to APS by using a customized Form 5402, Appeals Transmittal and Case Memo. The closing instructions will vary depending on the source and type of case.

8.7.4.2.2.10.1  (08-18-2014)
Closing IRC 6166 Cases Where Appeals Overturns the Preliminary Determination Made Through Letter 950-H, 950-J, or 950-K

  1. In cases where Appeals overturns the preliminary determination made through Letter 950-H, Letter 950-J, or Letter 950-K, no agreement form is necessary, but the ATE will prepare a closing letter that outlines the determination.

  2. The ATE will prepare a copy of the closing letter and an envelope pre-addressed to IRS, Cincinnati Campus, Attention: Campus E&G 6166, 201 West River Center Blvd, Stop 824G, Covington, KY 41011.

  3. The ATE will prepare a customized Form 5402 that includes special IRC 6166 closing procedures for APS. The ATE will identify the following special processing instructions on the Form 5402:

    • Under “APS Route Case To,” select “E&G Campus”

    • Check the box “Agreed Form #” and enter “none”

    • Check the box “APS Instruction for 6166 Election” and input the following information:
      Mail closing letter to E&G Campus in the pre-addressed envelope provided.
      Include a copy of the closing letter and Form 5402 in the administrative file.
      Close the case on ACDS.
      Forward the administrative file to IRS, Cincinnati Campus, 201 West River Center Blvd, Stop 824G, Covington, KY 41011, using a Form 3210.
      Cincinnati Campus will process the case.

8.7.4.2.2.10.2  (08-18-2014)
Closing IRC 6166 Cases Where Appeals Overturns the Preliminary Determination Made Through Letter 950-I

  1. In cases where Appeals overturns the preliminary determination made through Letter 950-I, no agreement form is necessary, but the ATE will prepare a closing letter that outlines the determination.

  2. The ATE will prepare a copy of the closing letter and an envelope pre-addressed to IRS, Cincinnati Campus, Attention: Campus E&G 6166, 201 West River Center Blvd, Stop 824G, Covington, KY 41011.

  3. The ATE will prepare a customized Form 5402 that includes special IRC 6166 closing procedures for APS. The ATE will identify the following special processing instructions on the Form 5402:

    • Under “APS Route Case To,” select “Advisory for 6166/2032A or 2057 bond/lien consideration”

    • Check the box “Agreed Form #” and enter “none”

    • Check the box “APS Instruction for 6166 Election” and input the following information:
      Mail closing letter to E&G Campus in the pre-addressed envelope provided.
      Include a copy of the closing letter and Form 5402 in the administrative file.
      Close the case on ACDS.
      Forward the administrative file to [INSERT THE NAME AND ADDRESS OF THE ADVISORY EMPLOYEE WHO SENT THE CASE TO APPEALS], using a Form 3210.

8.7.4.2.2.10.3  (08-18-2014)
Closing IRC 6166 Cases Where Appeals Sustains the Preliminary Determination Made Through Letter 950-H or 950-J

  1. In cases where Appeals sustains the preliminary determination made through Letter 950-H or Letter 950-J, the ATE must prepare either Letter 3570 or Letter 3571.

  2. Letter 3570, Notice of Determination As Provided in IRC 7479 That Extension of Time for Payment Under IRC 6166 Has Ceased to Apply, is used when Appeals determines that an IRC 6166 election is not valid. Letter 3570 requires the ATM’s signature and must be sent via certified mail.

  3. Letter 3571, Final Determination as Provided in IRC 7479 That Election Under IRC 6166 May Not Be Made, is used when Appeals determines that an otherwise valid IRC 6166 election has ceased to apply. Letter 3571 requires the ATM’s signature and must be sent via certified mail.

  4. Pursuant to IRC 7479(b)(3), the taxpayer may contest the determination made through Letter 3570 or Letter 3571 by petitioning the Tax Court within 90 days of the date of mailing. Therefore, the ATE should prepare Letter 3570 or Letter 3571 paying the same attention to details as if the ATE were issuing a notice of deficiency. See, e.g., IRM 8.17.4.8.7, Taxpayer's Last Known Address ; IRM 8.17.4.8.8, Power of Attorney in Notices; IRM 8.17.4.8.10, Taxpayer Identification Numbers on Notice of Deficiency Letters.

  5. The ATE will prepare a copy of Letter 3570 or Letter 3571 and an envelope pre-addressed to IRS, Cincinnati Campus, Attention: Campus E&G 6166, 201 West River Center Blvd, Stop 824G, Covington, KY 41011.

  6. The ATE will prepare a customized Form 5402 that includes special IRC 6166 closing procedures for APS. The ATE will identify the following special processing instructions on the Form 5402:

    • Under “APS Route Case To,” select “E&G Campus”

    • Check the box “SND Issued” and the box “Unagreed”

    • Check the box “APS Instruction for 6166 Election” and input the following information:
      Follow normal deficiency procedures for preparation, issuance and suspense of the case - follow the procedures in IRM 8.20.6.9, Appeals Issued Statutory Notice of Deficiency (SND).
      Update SNDATE to 090A – Appeals Issued Notice of Deficiency.
      Forward a copy of [Letter 3570/Letter 3571]to E&G Campus in the pre-addressed envelope provided.
      If the taxpayer petitions the Tax Court, follow the procedures in IRM 8.20.6.9.9, Tax Court Petition Filed During the Appeals Issued Statutory Notice of Deficiency Suspense Period.
      When the case is ready to close after Counsel resolution or if SND defaults, forward the administrative file to IRS, Cincinnati Campus, 201 West River Center Blvd, Stop 824G, Covington, KY 41011, using a Form 3210.
      Cincinnati Campus will process the case.

8.7.4.2.2.10.4  (08-18-2014)
Closing IRC 6166 Cases Where Appeals Sustains the Preliminary Determination Made Through Letter 950-I

  1. In cases where Appeals sustains the preliminary determination made through Letter 950–I, the ATE must prepare either Letter 3570 or Letter 3571.

  2. Letter 3570, Notice of Determination As Provided in IRC 7479 That Extension of Time for Payment Under IRC 6166 Has Ceased to Apply, is used when Appeals determines that an IRC 6166 election is not valid. Letter 3570 requires the ATM’s signature and must be sent via certified mail.

  3. Letter 3571, Final Determination as Provided in IRC 7479 That Election Under IRC 6166 May Not Be Made, is used when Appeals determines that an otherwise valid IRC 6166 election has ceased to apply. Letter 3571 requires the ATM’s signature and must be sent via certified mail.

  4. Pursuant to IRC 7479(b)(3), the taxpayer may contest the determination made through Letter 3570 or Letter 3571 by petitioning the Tax Court within 90 days of the date of mailing. Therefore, the ATE should prepare Letter 3570 or Letter 3571 paying the same attention to details as if the ATE were issuing a notice of deficiency. See, e.g., IRM 8.17.4.8.7, Taxpayer's Last Known Address ; IRM 8.17.4.8.8, Power of Attorney in Notices; IRM 8.17.4.8.10, Taxpayer Identification Numbers on Notice of Deficiency Letters.

  5. The ATE will prepare a copy of Letter 3570 or Letter 3571 and an envelope pre-addressed to IRS, Cincinnati Campus, Attention: Campus E&G 6166, 201 West River Center Blvd, Stop 824G, Covington, KY 41011.

  6. The ATE will prepare a customized Form 5402 that includes special IRC 6166 closing procedures for APS. The ATE will identify the following special processing instructions on the Form 5402:

    • Under “APS Route Case To,” select “Advisory for 6166/2032A or 2057 bond/lien consideration”

    • Check the box “SND Issued” and the box “Unagreed”

    • Check the box “APS Instruction for 6166 Election” and input the following information:
      Follow normal deficiency procedures for preparation, issuance and suspense of the case - follow the procedures in IRM 8.20.6.9, Appeals Issued Statutory Notice of Deficiency (SND).
      Update SNDATE to 090A – Appeals Issued Notice of Deficiency.
      Forward a copy of [Letter 3570/Letter 3571] to E&G Campus in the pre-addressed envelope provided.
      If the TP petitions the Tax Court, follow the procedures in IRM 8.20.6.9.9, Tax Court Petition Filed During the Appeals Issued Statutory Notice of Deficiency Suspense Period.
      When the case is ready to close after Counsel resolution or if SND defaults, forward the administrative file to [INSERT THE NAME AND ADDRESS OF THE ADVISORY EMPLOYEE WHO SENT THE CASE TO APPEALS], using a Form 3210.

8.7.4.2.2.10.5  (08-18-2014)
Closing IRC 6166 Cases Where Appeals Sustains the Preliminary Determination Made Through Letter 950-K

  1. In cases where Appeals sustains the preliminary determination made through Letter 950-K, the ATE must prepare Letter 5052, Final Determination Under IRC 6166 Decreased.

  2. Pursuant to IRC 7479(b)(3), the taxpayer may contest the determination made through Letter 5052 by petitioning the Tax Court within 90 days of the date of mailing. Therefore, the ATE should prepare Letter 5052 paying the same attention to details as if the ATE were issuing a notice of deficiency. See, e.g., IRM 8.17.4.8.7, Taxpayer's Last Known Address ; IRM 8.17.4.8.8, Power of Attorney in Notices; IRM 8.17.4.8.10, Taxpayer Identification Numbers on Notice of Deficiency Letters.

  3. The ATE will prepare a copy of Letter 5052 and an envelope pre-addressed to IRS, Cincinnati Campus, Attention: Campus E&G 6166, 201 West River Center Blvd, Stop 824G, Covington, KY 41011.

  4. The ATE will prepare a customized Form 5402 that includes special IRC 6166 closing procedures for APS. The ATE will identify the following special processing instructions on the Form 5402:

    • Under “APS Route Case To,” select “E&G Campus”

    • Check the box “SND Issued” and the box “Unagreed”

    • Check the box “APS Instruction for 6166 Election” and input the following information:
      Follow normal deficiency procedures for preparation, issuance and suspense of the case - follow the procedures in IRM 8.20.6.9, Appeals Issued Statutory Notice of Deficiency (SND).
      Update SNDATE to 090A – Appeals Issued Notice of Deficiency.
      Forward a copy of Letter 5052 to E&G Campus in the pre-addressed envelope provided.
      If the TP petitions the Tax Court, follow the procedures in IRM 8.20.6.9.9, Tax Court Petition Filed During the Appeals Issued Statutory Notice of Deficiency Suspense Period.
      When the case is ready to close after Counsel resolution or if SND defaults, forward the administrative file to IRS, Cincinnati Campus, 201 West River Center Blvd, Stop 824G, Covington, KY 41011, using a Form 3210.
      Cincinnati Campus will process the case.

8.7.4.2.2.10.6  (08-18-2014)
Closing Estate Tax Cases with an Undisputed 6166 Election

  1. The procedures outlined in this subsection apply to all estate tax cases with an undisputed election under IRC 6166, where the Appeals settlement impacts the IRC 6166 installment payments solely on computational grounds.

  2. The ATE will prepare a customized Form 5402 following the procedures outlined in IRM 8.7.4.2.6, Closing Estate Tax Cases. In addition, the ATE will identify the following IRC 6166 special processing instructions on the Form 5402:

    • Check the box “APS Instruction for 6166 Election” and input the following information:
      After assessing the deficiency on IDRS, fax the following documents to the Cincinnati Campus at (859) 669–3501: Form 5402, ACM, Form 4349, Appeals computations, and Exam audit report.
      After closing the case on ACDS and assessing the deficiency on IDRS, forward the administrative file to IRS, Cincinnati Campus, 201 West River Center Blvd, Stop 824G, Covington, KY 41011, using a Form 3210.
      Cincinnati Campus will verify the interest computation under the IRC 6166 election and, if necessary, will assess and bill the interest.

8.7.4.2.2.11  (08-18-2014)
ATM Case Closing Procedures for IRC 6166 Cases

  1. In all cases where Appeals overturns the preliminary determination made through Letter 950-H, Letter 950-J, Letter 950-K, or Letter 950-I, the ATM will verify that:

    • Form 5402 includes proper instructions for APS to process the case

    • The ATE prepared a copy of the determination or closing letter and an envelope pre-addressed to IRS, Cincinnati Campus, Attention: Campus E&G 6166, 201 West River Center Blvd, Stop 824G, Covington, KY 41011.

    • Form 5402 instructs APS to return the administrative file to E&G Campus or Advisory

  2. In all cases where Appeals sustains the preliminary determination made through Letter 950–H, Letter 950–J, Letter 950–K, or Letter 950–I, the ATM will verify that:

    • Form 5402 includes proper instructions for APS to process the case

    • The ATE prepared a copy of Letter 3570 or Letter 3571 and an envelope pre-addressed to IRS, Cincinnati Campus, Attention: Campus E&G 6166, 201 West River Center Blvd, Stop 824G, Covington, KY 41011.

    • Form 5402 instructs APS to follow normal deficiency procedures outlined in IRM 8.20.6.9, Appeals Issued Statutory Notice of Deficiency (SND)

    • Letter 3570 or Letter 3571 is addressed to the taxpayer's last known address as shown on the most recent IDRS account transcript.

8.7.4.2.3  (08-18-2014)
Special Use Valuation Elections under IRC 2032A

  1. IRC 2032A cases require a Form 6111, Notice of Special use Valuation Election, (IRC 2032A). The form is necessary to attach a lien under IRC 6324B.

  2. The originating function prepares Form 6111 and includes a copy in the case file. However, if the information contained on Form 6111 needs to change as a result of the Appeals settlement, the ATE will prepare a new Form 6111, which supersedes the one prepared by the originating function.

  3. When closing IRC 2032A cases, the ATE will prepare a customized Form 5402 that includes the following special instructions for APS:

    • APS instructions for IRC 2032A case

    • Make assessment/close case

    • Transfer control of the case by recharging the return to E&G putting an ESTAB on IDRS and

    • Send the entire case file back to the E&G Examiner whose name is on the Form 5402

8.7.4.2.4  (08-18-2014)
Settlement Computations in Estate Tax Cases

  1. Tax Computation Specialists (TCS) prepare the settlement computations for complex estate tax cases following the general procedures outlined in IRM 8.17.2, General Settlement and Rule 155 Computations.

  2. The TCS is responsible for completing the Form 5403 Worksheet at the time the computations are prepared. For more details on the Form 5403 Worksheet, see IRM 8.17.5.2, Form 5403 Instructions to APS Worksheet, and related subsections.

  3. In most estate tax cases, Form 3614-A, Estate Tax, and/or Form 1273, Report of Estate Tax Examination Changes are used for the computations. In addition, the TCS may also use Form 6180, Line Adjustments-Estate Tax.

  4. For estates of decedents who died on or before December 31, 2004, IRC 2011 provides a credit against the federal estate tax for death taxes paid to any State or the District of Columbia. The taxpayer must provide evidence to substantiate entitlement to this credit.

    1. When preparing Form 3614-A, Line 10 reflects the amount of credit already substantiated, whereas Line 19 reflects the amount of additional credit available once substantiated..

    2. The separation of substantiated versus unsubstantiated credit results in a "gross deficiency" amount on Line 18 and a "net deficiency" amount on Line 20.

8.7.4.2.4.1  (08-18-2014)
Preparing Form 3610 in Estate Tax Cases

  1. Form 3610, Audit Statement, may be used as the face or summary sheet in the settlement computation package, when needed.

  2. The settlement computation may omit Form 3610 provided that all needed information is clearly and adequately presented in other parts of the settlement computation.

  3. If Form 3610 is used, make the following selections:

    1. Enter "Estate" as kind of tax.

    2. Change "Tax Year Ended" to "Date of Death."

    3. Show gross deficiency and net deficiency amounts similar to the following:

    Gross deficiency and net deficiency format:
    Gross deficiency determined 125,000.00
    Additional credit allowable, if substantiated (35,000.00)
    Net deficiency 90,000.00
    =========

    Note:

    For more information about Form 3610 requirements for specific types of cases, click on the “Procedures and Resources” link on the TCS webpage, and then see the “Audit Statement Notations and Form 3610 Requirements” folder.

8.7.4.2.4.2  (08-18-2014)
Listing Estate Tax Adjustments

  1. If Form 3614-A, Estate Tax, is used for the computation, it is a good practice to list the estate tax adjustments in the same order they appear on the estate tax return (Form 706 ) schedules. For example:

    Example:

    Order of Estate Tax Adjustments

    a. Schedule A, Real Estate ($500,000)
    b. Schedule D, Life Insurance $100,000
    c. Schedule M, Marital Deduction $200,000

8.7.4.2.4.3  (08-18-2014)
Settlement Computations with IRC 6166

  1. A Form 4349, Computation of Estate Tax Due With Return and Annual Installment, is required on all cases with a valid 6166 election. See Exhibit 8.7.4-1 for an example of a completed Form 4349.

  2. The ATE is responsible for ensuring that Form 4349 is attached to the Form 5403 Worksheet and that both documents are attached to the inside left flap of the administrative file folder when the case is closed.

8.7.4.2.4.4  (08-18-2014)
Income Tax Deduction for Estate Tax Attributable to Income in Respect of a Decedent

  1. A person who is required to include in gross income an amount of Income in Respect of a Decedent (IRD) may deduct for the same taxable year that portion of the estate tax which is attributable to the inclusion of the IRD in the decedent's estate. Treas. Reg. 1.691(c)-1. This is an income tax deduction, but involves estate tax computations.

  2. Determining the deductible amount is quite technical. The TCS and the ATE should carefully read Treas. Reg. 1.691(c)-1 and related published guidance before preparing the computation.

8.7.4.2.4.5  (08-18-2014)
Restricted Interest in Estate Tax Cases

  1. Interest may be limited to specific time periods or rates, or it may be statutorily prohibited; this gives rise to the term "restricted interest." Restricted interest is subject to the same variables (time, rate, amount) as "normal" interest. The primary difference between normal and restricted interest is that the computer may not be able to identify all conditions involved in a restricted interest situation and therefore restricted interest computations may have to be performed manually.

  2. See Exhibit 8.7.4-2. for a table showing the restricted interest provisions that apply to estate tax cases.

  3. If the case involves any of the Code Sections listed in Exhibit 8.7.4-2., the ATE will alert TCS that restricted interest applies and that it is necessary to prepare Form 1366 , Tax Analysis Worksheet for Overassessment of Estate Tax Involving Restricted Interest.

  4. The TCS will prepare Form 1366 as part of the settlement computation. APS will use Form 1366 when computing the restricted interest.

  5. The TCS should also notate that restricted interest applies on the Form 5403 Worksheet. This alerts APS to look for the Form 1366.

  6. The ATE is responsible for ensuring that Form 1366 is attached to the Form 5403 Worksheet and that both documents are attached to the inside left flap of the administrative file folder when the case is closed.

  7. See IRM 20.2.8, Restricted Interest, for further information concerning restricted interest computations.

  8. See IRM 20.2.10.1.5, Interest on Estate Tax Returns, Combination Adjustments, for further information concerning Form 1366 .

8.7.4.2.4.6  (08-18-2014)
State Death Tax Deduction (or Credit)

  1. Many states have their own estate tax statutes that impose a tax on transfers at death. In the calculation of the federal estate tax, estates are allowed a deduction (or credit in 2004 and before) for some of the state death tax paid.

  2. The state death tax credit under IRC 2011 was repealed for estates of decedents dying after December 31, 2004. The credit has been replaced by a state death tax deduction under IRC 2058 .

  3. A field examiner's unagreed report only allows the state death tax deduction (or credit) for state death taxes actually paid at the time the original federal estate tax return was filed. If Appeals' resolution of the case results in any federal estate tax deficiency, there will likely be an increase in the state tax deduction (or credit), which in turn would cause the federal estate tax deficiency to decrease.

  4. The state death tax deduction is limited to a percentage of the state death taxes. That percentage will be determined by the ratio that the value of the property in the gross estate that is subject to the state death taxes bears to the value of the total gross estate subject to the federal estate tax.

  5. For purposes of IRC 2011 and IRC 2058 , deductible state death taxes are any estate, inheritance, legacy, or succession taxes paid to a state or to the District of Columbia, with respect to property included in the decedent's gross estate.

8.7.4.2.5  (08-18-2014)
Securing Agreements in Estate Tax Cases

  1. All settlements involving a change in estate tax and/or related penalties require an agreement form.

    1. When a settlement is reached on the basis of mutual concessions or hazards of litigation, or when the settlement otherwise necessitates finality, the ATE will secure a special agreement form. The special agreement form used for estate tax cases is Form 890-AD, Estate Tax Offer of Waiver of Restrictions on Assessment and Collection of Deficiency in Tax and of Acceptance of Overassessment.

    2. All other settlements require a general agreement form. The general agreement form used for estate tax cases is Form 890, Waiver of Restriction on Assessments & Collection of Deficiency & Acceptance of Overassessments.

  2. For a list of differences between general and special agreement forms, see IRM 8.6.4.3.1, Distinction Between General and Special Agreement Forms.

  3. In order to properly secure and execute agreements in estate tax cases, it is important to understand the difference between net deficiency and gross deficiency laid out in IRM 8.7.4.2.4, Settlement Computations in Estate Tax Cases.

  4. When a settlement is reached on the basis of the gross deficiency, the ATE will secure Form 890 or Form 890-ADfor the gross deficiency. In these cases:

    1. The taxpayer must file a claim within the statutory period of limitation and furnish credit evidence to the SB/SE Area Director for the amount of any subsequently allowable state or foreign death tax credit.

    2. The ATE should inform the taxpayer that interest is restricted on refunds resulting from credit for state and foreign death taxes subsequently allowed.

  5. When a settlement is reached on the basis of the net deficiency, the ATE will secure Form 890 or Form 890-ADfor the net deficiency. In these cases the ATE will follow these procedures:

    1. If using Form 890, the ATE will complete the paragraph in the center of the agreement form by filling in the appropriate blank spaces as follows:

      • In two of the three provided spaces, insert a date that allows the taxpayer a reasonable amount of time to furnish the SB/SE Area Director the required credit evidence. However, the specified date cannot be later than three months before the expiration of the statute of limitations on assessments.

      • Insert the difference between the gross deficiency and net deficiency in the other blank space provided.

    2. If using Form 890-AD, the ATE will add one or both of the following paragraphs to the agreement form:
      For state death taxes: "It is understood that evidence of payment of estate, inheritance, legacy, or succession taxes to any state, the District of Columbia, or any possession of the United States, as required by Section 20.2011 of the Estate Tax Regulations under the 1986 Code, will be filed with the SB/SE Area Director as soon as possible. If evidence is not filed on or before  ____________ , the undersigned executor(s) or administrator(s) waive(s) the restrictions provided in Section 6213(a) of the Internal Revenue Code of 1986, and consent(s) to the assessment and collection of a further deficiency in Estate Tax of $  ____________ , with interest at the statutory rate to the 30th day after  ____________ , or until the further deficiency is assessed, whichever is earlier."
      For foreign death taxes: "It is understood that evidence of payment of estate, inheritance, legacy, or succession taxes to any foreign country, as required by Section 20.2014 of the Estate Tax Regulations under the 1986 Code, will be filed with the SB/SE Area Director as soon as possible. If evidence is not filed on or before  ____________ , the undersigned executor(s) or administrator(s) waive(s) the restrictions provided in Section 6213(a) of the Internal Revenue Code of 1986, and consent(s) to the assessment and collection of a further deficiency in Estate Tax of $  ____________ , with interest at the statutory rate to the 30th day after  ____________ , or until the further deficiency is assessed, whichever is earlier."

8.7.4.2.6  (08-18-2014)
Closing Estate Tax Cases

  1. In all estate tax cases, the ATE will assemble the administrative file in chronological order and include all documents necessary for APS and the ATM to close the case.

  2. When closing agreed non-docketed estate tax deficiency cases, the ATE will prepare a closing folder with the following documents:

    • Case Summary Card(s)

    • Case Activity Record printed from ACDS

    • Signed Form 5402, Appeals Transmittal and Case Memo

    • Appeals Case Memorandum (ACM) and related schedule of adjustments

    • Settlement Computations, including the Form 5403 Worksheet

    • Agreement Form(s) and/or Closing Agreement(s)

    • Letter 913and Letter 914, with envelope(s)

    • Form 4421, Declarations - Executor's Commissioner's and Attorney's Fees, if applicable

  3. When closing unagreed non-docketed estate tax deficiency cases, the ATE will prepare a closing folder with the following documents:

    • Case Summary Card(s)

    • Case Activity Record printed from ACDS

    • Signed Form 5402, Appeals Transmittal and Case Memo

    • Appeals Case Memorandum (ACM) and related schedule of adjustments

    • Notice of Deficiency prepared following the guidelines outlined in IRM 8.7.4.7, Notices of Deficiency in Estate and Gift Tax Cases

    • Form 5403 Worksheet

    • Form 4421, Declarations - Executor's Commissioner's and Attorney's Fees, if applicable

  4. When closing agreed docketed estate tax deficiency cases, the ATE will prepare a closing folder with the following documents:

    • Case Summary Card(s)

    • Case Activity Record printed from ACDS

    • Signed Form 5402, Appeals Transmittal and Case Memo

    • Appeals Case Memorandum (ACM) and related schedule of adjustments

    • Settlement Computations, including the Form 5403 Worksheet and Form 3623, Statement of Account

    • Form 2828, Transmittal Memorandum

    • Decision Document

    • Letter 1645, Letter Informing Taxpayer of Approval of Settlement/Docketed Case, with envelope(s)

    • Letter 914 with envelope(s) and accompanying instructions to APS to mail the letter to the taxpayer only after the stipulated decision is entered by the Tax Court

    • Form 4421, Declarations - Executor's Commissioner's and Attorney's Fees, if applicable

  5. When closing unagreed docketed estate tax deficiency cases to Counsel to prepare for trial, the ATE will prepare a closing folder with the following documents:

    • Case Summary Card(s)

    • Case Activity Record printed from ACDS

    • Signed Form 5402, Appeals Transmittal and Case Memo

    • Appeals Case Memorandum (ACM) and related schedule of adjustments

    • Form 2828, Transmittal Memorandum

    • Letter 971, Letter Advising No Settlement Reached - Docketed Case, with envelope(s)

  6. For procedures on closing IRC 6161 cases, see IRM 8.7.4.4.11, Closing Non-Docketed IRC 6161 Cases, and IRM 8.7.4.4.12, Closing Docketed IRC 6161 Cases.

  7. For procedures on closing IRC 6166 cases, see IRM 8.7.4.2.2.10, ATE's Case Closing Procedures for IRC 6166 Cases.

  8. For procedures on closing IRC 2032A cases, see IRM 8.7.4.2.3, Special Use Valuation Elections Under IRC 2032A.

  9. For procedures on closing claim cases, see IRM 8.7.7, Claim and Overassessment Cases.

  10. Appeals will expedite the closing of certain "agreed and unpaid deficiency" or overpayment cases if the case meets the "large dollar" criteria described in IRM 4.4.18, AIMS Procedures and Processing Instructions - Large Dollar Cases. For additional procedures on closing "large dollar" cases, see IRM 8.2.1.11.1, Closing the Case to APS, and IRM 8.2.1.12.2, Expedite Processing for Certain Large Dollar Cases

    Note:

    The "large dollar" guidance does not apply to a deficiency and/or overpayment case that requires review by the Joint Committee on Taxation. See IRM 8.7.9.2, Cases Requiring Joint Committee Review

    .

8.7.4.3  (08-18-2014)
Gift Tax Cases Worked in Appeals

  1. This subsection provides information on procedures or issues that are unique to gift tax cases.

  2. Gift tax returns are filed on Form 709, United States Gift (and Generation - Skipping Transfer) Tax Return.

  3. Procedures for establishing and closing gift tax cases, acknowledging receipt of cases, setting up and holding the conference, preparing the Appeals Case Memo (ACM) and securing agreement, and preparing settlement computations or statutory notices of deficiency are generally the same for gift tax cases as those used in income tax cases.

  4. For information on determining the statute of limitations in gift tax cases, see IRM 8.21, Appeals Statute Responsibility.

  5. When the ATE receives a newly assigned gift tax case, he/she follows the procedures outlined in IRM 8.2.1.4, Receipt of New Assignment by an Appeals Technical Employee (ATE). In addition, the ATE will verify the accuracy of the following data fields on ACDS:

    • Taxpayer's name and address

    • Taxpayer's TIN

    • Case type

    • MFT

    • Category and Subcategory

    • Key period

    • Statute Date

    • Statute Code

    • Deficiency/Penalty/Claim amounts

  6. If the case contains one or more valuation issues, the ATE should consult IRM 8.7.4.6, Requesting Valuation Assistance, to determine whether it is necessary to request valuation assistance.

8.7.4.3.1  (08-18-2014)
Settlement Computations in Gift Tax Cases

  1. Tax Computation Specialists (TCS) usually prepare the settlement computations for gift tax cases following the general procedures outlined in IRM 8.17.2, General Settlement and Rule 155 Computations.

  2. The employee who prepares the settlement computations is responsible for completing the Form 5403 Worksheet at the time the computations are prepared. For more details on the Form 5403 Worksheet, see IRM 8.17.5.2, Form 5403 Instructions to APS Worksheet, and related subsections.

  3. In most gift tax cases, Form 3615-A, Gift Tax, and Form 3233, Report of Gift Tax Examination Changes are used for the computations. The starting point is usually the original return as filed or the latest processed amended return.

  4. A gift tax deficiency is computed by calculating the "gross gift tax" at current gift tax rates on the total amount of taxable gifts made during the current and all prior periods. See IRC 2502(b). The "gross gift tax" is then reduced by the portion of the gift tax attributable to taxable gifts for all prior periods to arrive at the gift tax attributable to taxable gifts made in the current period.

8.7.4.3.1.1  (08-18-2014)
Preparing Form 3610 in Gift Tax Cases

  1. Form 3610, Audit Statement, may be used as the face or summary sheet in the settlement computation package, when needed.

  2. The settlement computation may omit Form 3610 provided that all needed information is clearly and adequately presented in other parts of the settlement computation.

  3. If Form 3610 is used, make the following selections:

    1. Enter "Gift Tax" as type of tax.

    2. Change "Tax Year Ended" to "Calendar Year."

    Note:

    For more information about Form 3610 requirements for specific types of cases, click on the “Procedures and Resources” link on the TCS web site, and then see the “Audit Statement Notations and Form 3610 Requirements” folder.

8.7.4.3.1.2  (08-18-2014)
Listing Gift Tax Adjustments

  1. If Form 3615-A, Gift Tax, is used for the computation, it is a good practice to list the gift tax adjustments in the same order they appear on the gift tax return (Form 709) schedules. For example:

    Example:

    Order of Gift Tax Adjustments

    a. Schedule A, Part 1, Real Estate gifted to John Doe ($130,000)
    b. Schedule A, Part 2, Cash gifted to Jane Doe $80,000
    c. Schedule A, Part 3, Cash gifted to Josh Doe $120,000

8.7.4.3.2  (08-18-2014)
Securing Agreements in Gift Tax Cases

  1. All settlements involving a change in gift tax and/or related penalties require an agreement form.

    1. When a settlement is reached on the basis of mutual concessions or hazards of litigation, or when the settlement otherwise necessitates a pledge not to reopen the issues, the ATE will secure a special agreement form. The special agreement form used for gift tax cases is Form 870-AD, Offer to Waive Restrictions on Assessment and Collection of Tax Deficiency and to Accept Overassessment.

    2. All other settlements require a general agreement form. The general agreement form used for gift tax cases is Form 890, Waiver of Restriction on Assessments & Collection of Deficiency & Acceptance of Overassessments.

  2. For a list of differences between general and special agreement forms, see IRM 8.6.4.3.1, Distinction Between General and Special Agreement Forms.


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