Below are some of the more common questions and answers about Estate Tax issues. You may also find additional information in Publication 559 or some of the other forms and publications offered on our Forms page. Included in this area are the instructions to Forms 706 and 709. Within these instructions, you will find the tax rate schedules to the related returns. If the answers to your questions can not be found in these resources, we strongly recommend visiting with a tax practitioner.
If the decedent is a U.S. citizen or resident and decedent's death occurred in 2016, an estate tax return (Form 706) must be filed if the gross estate of the decedent, increased by the decedent's adjusted taxable gifts and specific gift tax exemption, is valued at more than the filing threshold for the year of the decedent's death. The filing threshold for 2020 is $11,580,000, for 2019 is $11,400,000, for 2018 is $11,180,000, 2017 is $5,490,000, for 2016 is $5,450,000, for 2015 is $5,430,000, for 2014 is $5,340,000, for 2013 is $5,250,000, for 2012 is $5,120,000, and for 2011 is $5,000,000.
An estate tax return also must be filed if the estate elects to transfer any deceased spousal unused exclusion (DSUE) amount to a surviving spouse, regardless of the size of the gross estate or amount of adjusted taxable gifts. The election to transfer a DSUE amount to a surviving spouse is known as the portability election.
An estate tax return may need to be filed for a decedent who was a nonresident and not a U.S. citizen if the decedent had U.S.-situated assets. Refer to Some Nonresidents with U.S. Assets Must File Estate Tax Returns to learn more.
In order to elect portability of the decedent's unused exclusion amount (deceased spousal unused exclusion (DSUE) amount) for the benefit of the surviving spouse, the estate's representative must file an estate tax return (Form 706) and the return must be filed timely. The due date of the estate tax return is nine months after the decedent's date of death, however, the estate's representative may request an extension of time to file the return for up to six months. An automatic six month extension of time to file the return is available to all estates, including those filing solely to elect portability, by filing Form 4768 on or before the due date of the estate tax return.
If the estate representative did not file an estate tax return within nine months after the decedent's date of death, or within fifteen months of the decedent's date of death (if a six month extension of time for filing the estate tax return had been obtained), the availability of an extension of time to elect portability of the DSUE amount depends on whether the estate has a filing requirement, based on the filing threshold.
If the filing threshold has been met, or in other words, if, independent of the portability election, the estate is required to file an estate tax return based on the total value of the gross estate and adjusted taxable gifts, no extension of time to elect portability is available and Revenue Procedure 2017-34 (PDF) does not apply.
However, if, based on the value of the gross estate and the amount of adjusted taxable gifts, the filing threshold has not been met, Revenue Procedure 2017-34 (PDF) provides a simplified method for certain taxpayers to obtain an extension of time under § 301.9100-3 of the Procedure and Administration Regulations to make a “portability” election under § 2010(c)(5)(A) of the Internal Revenue Code. The simplified method provided in this revenue procedure is to be used in lieu of the letter ruling process. No user fee is required for submissions filed under this revenue procedure.
Individuals taking advantage of the increased gift tax exclusion amount in effect from 2018 to 2025 will not be adversely impacted after 2025 when the exclusion amount is scheduled to drop to pre-2018 levels. For more information, see the related Tax Reform page.
Estate tax closing letters will only be issued upon request by the taxpayer or taxpayer’s representative. Based on current restrictions due to the declared National Emergency we will only accept a request for an estate tax closing letter by facsimile to 855-386-5127 or 855-386-5128.
The request requires a person authorized to receive information from the IRS to make the request. The following information must be provided with the request:
Decedent’s name, Social Security Number and Date of Death.
Requester’s name, address, and substantiation the requester is an authorized individual such as an Executor, Trustee, or Power of Attorney.
A copy of the will.
If the requester is an Executor, provide a copy of the Letters Testamentary issued by the Court.
If the requester is a Trustee, provide a Certificate of Trust or similar official documentation.
If the requester holds an IRS Power of Attorney (POA), provide the Centralized Authorization File (CAF) number.
Prior to faxing a request for a closing letter, please review a transcript to assure the TC 421 is present. Please refer to Transcripts in Lieu of Estate Tax Closing Letters for specific instructions on how to request an estate tax account transcript using TDS or by using Form 4506-T.
Please wait at least nine months after filing the return to make the closing letter request to allow time for processing. For examined returns, please allow up to 30 days after the examination is complete for processing.
The closing letter will be prepared and issued to the executor at the address of record. For questions about the status of an estate tax return, call 866-699-4083. Only authorized individuals will be provided information related to a taxpayer.
Yes. Notice 2017-12 (PDF) explains that an account transcript issued by the Internal Revenue Service (IRS) can be used in lieu of Letter 627, Estate Tax Closing Letter. The Transcript Delivery Service (TDS), which provides authorized practitioners the ability to view and print instant account transcripts for estate tax returns, is now available on IRS.gov. In addition, hardcopy account transcripts are available to authorized taxpayers making valid requests via mail or facsimile using Form 4506-T, Request for Transcript of Tax Return. Please refer to Transcripts in Lieu of Estate Tax Closing Letters for specific instructions on how to request an estate tax account transcript using TDS or by using Form 4506-T.
The Gross Estate of the decedent consists of an accounting of everything you own or have certain interests in at the date of death (Refer to Form 706 (PDF)). The fair market value of these items is used, not necessarily what you paid for them or what their values were when you acquired them. The total of all of these items is your "Gross Estate." The includible property may consist of cash and securities, real estate, insurance, trusts, annuities, business interests and other assets. Keep in mind that the Gross Estate will likely include non-probate as well as probate property.
Depending on how your 1/2 interest is held and treated under state law, and how it was acquired, you would probably only include 1/2 of its value in your gross estate. However, many other factors influence this answer, so you would need to visit with a tax or legal professional to make that determination.
Generally, the Gross Estate does not include property owned solely by the decedent's spouse or other individuals. Lifetime gifts that are complete (no powers or other control over the gifts are retained) are not included in the Gross Estate (but taxable gifts are used in the computation of the estate tax). Life estates given to the decedent by others in which the decedent has no further control or power at the date of death are not included.
Marital Deduction: One of the primary deductions for married decedents is the Marital Deduction. All property that is included in the gross estate and passes to the surviving spouse is eligible for the marital deduction. The property must pass "outright." In some cases, certain life estates also qualify for the marital deduction.
- Charitable Deduction: If the decedent leaves property to a qualifying charity, it is deductible from the gross estate.
- Mortgages and Debt.
- Administration expenses of the estate.
- Losses during estate administration.
- Copies of the death certificate
- Copies of the decedent's will and/or relevant trusts
- Copies of appraisals
- Copies of relevant documents regarding litigation involving the estate
- Documentation of any unusual items shown on the return (partially included assets, losses, near date of death transfers, others).
- If you are attaching to the Form 706 copies of a previously filed Forms 709, write at the top of each Form 709, “THIS PREVIOUSLY FILED FORM IS AN EXHIBIT TO FORM 706.”
Fair Market Value is defined as: "The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate." Regulation §20.2031-1.
Generally, the fair market value of such interests owned by the decedent are includible in the gross estate at date of death. However, for certain farms operated as a family farm, reductions to these amounts may be available.
In the case of a qualifying family farm, IRC 2032A allows an inflation-adjusted reduction from value of up to $1,090,000 for 2014, $1,100,000 for 2015, $1,110,000 for 2016, $1,120,000 for 2017, $1,140,000 for 2018, $1,160,000 for 2019, and $1,180,000 for 2020.
A similar deduction for a qualifying family owned business (IRC 2057) was repealed beginning in 2004.
The estate's representative may request an extension of time to file for up to six months from the due date of the return. However, the correct amount of tax is still due by the due date and interest is accrued on any amounts still owed by the due date that are not paid at that time.
The Internal Revenue Service cannot make recommendations about specific individuals, but there are several factors to consider:
- How complex is the estate? By the time most estates reach $1,000,000, there is usually some complexity involved.
- How large is the estate?
- In what condition are the decedent's records?
- How many beneficiaries are there and are they cooperative?
- Do I need an estate tax professional?
With these questions in mind, it is a good idea to discuss the matter with several estate tax professionals. Ask about how much experience they have had and ask for referrals. This process should be similar to locating a good physician. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on estate matters, make sure the lines of communication remain open so that there are no surprises during administration or if the estate tax return is examined.
Finally, most estates engage the services of both attorneys and CPAs or Enrolled Agents (EA). The attorney usually handles probate matters and reviews the impact of documents on the estate tax return. The CPA or EA often handles the actual return preparation and some representation of the estate in matters with the IRS. However, some attorneys handle all of the work. CPAs and EAs may also handle most of the work, but cannot take care of probate matters and other situations where a law license is required. In addition, other professionals (such as appraisers, surveyors, financial advisors and others) may need to be engaged during this time.
You do not have to be present during an examination unless an IRS representative needs to ask specific questions. Although you may represent yourself during an examination, most executors prefer that professional(s) they have employed handle this phase of administration. They may delegate authority for this by signing a designation on the Form 706 (PDF) itself, or executing Form 2848, Power of Attorney (PDF).
The sale of such property is usually considered the sale of a capital asset and may be subject to capital gains (or loss) treatment. However, IRC §1014 provides that the basis of property acquired from a decedent is its fair market value at the date of death, so there is usually little or no gain to account for if the sale occurs soon after the date of death. (Remember, the rules are different for determining the basis of property received as a lifetime gift). Refer to Gift Tax FAQ.
Complete the entries for Lines 1 through 3 in Schedule B on the second page of the return. Attach a statement to the return that refers to the particular treaty applicable to the estate, and write that the estate is claiming its benefits. Show your computation of the pro-rata unified credit in the statement, and enter that figure in the Tax Computation on Line 7 on the front page of the return. Attach to the Form 706-NA a copy of the return filed with the treaty partner. If no estate or inheritance tax return has been filed with the treaty partner, explain in your statement why no foreign return was due. If there was no foreign return, attach a copy of an inventory that sets forth the decedents assets and their values at the date of death, and explains how the figure shown on Line 3 of Schedule B was computed.
In Schedule A of the return, list the estates U.S. assets, but show no values for those that are exempt from U.S. estate tax pursuant to a treaty. Attach a statement to the return that refers to the particular treaty applicable to the estate, and write that the estate is claiming its benefits. Entries for the gross estate in the U.S., the taxable estate, and the tax amounts, should be "0" if all of the decedents U.S. assets are exempt from U.S. estate tax pursuant to the applicable treaty. Attach to the Form 706-NA a copy of the return filed with the treaty partner. If no estate or inheritance tax return has been filed with the treaty partner, explain in your statement why no foreign return was due.
Most information for this page came from the Internal Revenue Code: Chapter 11--Estate Tax (generally Internal Revenue Code §2001 and following, related regulations and other sources.)
For federal tax purposes, the terms “spouse,” “husband,” and “wife” includes individuals of the same sex who were lawfully married under the laws of a state whose laws authorize the marriage of two individuals of the same sex and who remain married. Also, the Service will recognize a marriage of individuals of the same sex that was validly created under the laws of the state of celebration even if the married couple resides in a state that does not recognize the validity of same-sex marriages.
However, the terms “spouse,” “husband and wife,” “husband,” and “wife” do not include individuals (whether of the opposite sex or the same sex) who have entered into a registered domestic partnership, civil union, or other similar formal relationship recognized under state law that is not denominated as a marriage under the laws of that state, and the term “marriage” does not include such formal relationships.
All property that is included in the gross estate and passes to the surviving spouse is eligible for the marital deduction. The property must pass "outright." In some cases, certain life estates also qualify for the marital deduction.
For further information, including the timeframes regarding filing claims or amended returns, see Revenue Ruling 2013-17 (PDF).
Revenue Ruling 2013-17 (PDF), along with updated Frequently Asked Questions for same-sex couples and updated FAQs for registered domestic partners and individuals in civil unions, are available today on IRS.gov. See also Publication 555, Community Property.
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