4.25.1 Estate and Gift Tax Examinations

Manual Transmittal

July 20, 2018

Purpose

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

Material Changes

(1) The terms, definitions and acronyms set forth in the two tables located in IRM 4.25.1.1.4 were re-ordered from context order to alphabetical order.

(2) Additional and updated IRM citations were added to IRM 4.25.1.1.5.

(3) IRM 4.25.1.8 was renamed from Specialty Programs National Quality Review Program to Manager Embedded Quality Review and Specialty Exam National Embedded Quality Review Programs.

(4) IRM 4.25.1.8 paragraphs (1) through (4) were revised or deleted. This introductory content is now located in the new subsection IRM 4.2.8, Guidelines for SB/SE National Quality Review.

(5) IRM 4.25.1.8.3, Quality Attributes, was removed. This content is located in the new subsection IRM 4.2.8.6, Quality Attributes.

(6) IRM 4.25.1.8.4, Embedded Quality Estate and Gift Tax Job Aid, was moved in its entirety to IRM 4.25.1.8.3 and renamed Estate and Gift Tax Embedded Quality.

(7) IRM 4.25.1.8.5, Completion of Data Collection Instrument (DCI) was removed. This content is located in the new IRM 4.2.8.7, Completion of Data Collection Instrument (DCI).

(8) IRM 4.25.1.8.6, National Quality Review System (NQRS) Reports was removed. This content is located in the new IRM 4.2.8.11, National Quality Review System (NQRS) Reports.

(9) Minor editorial changes have been made throughout this IRM. Web page links, legal references, and IRM references were reviewed and updated as necessary.

Effect on Other Documents

IRM 4.25.1 dated October 30, 2017 is superseded.

Audience

Small Business/Self Employed Estate and Gift Tax Specialty Programs employees.

Effective Date

(07-20-2018)

Daniel R. Lauer
Director Examination-Specialty Policy
Small Business/Self-Employed

Program Scope and Objectives

  1. General Overview - This IRM provides general information about basic estate and gift examiner responsibilities, estate and gift IRM sections, and forms used in the examination of estate, gift and generation-skipping transfer tax returns and claims.

  2. Purpose - This IRM explains Estate and Gift examiner responsibilities so that managers, senior-level officials and estate, gift and generation-skipping transfer tax return examiners will be better equipped to prepare and submit accurate reports.

  3. Audience - This IRM is for Estate and Gift Specialty Tax managers, examiners and personnel at the campus who process estate, gift and generation-skipping transfer tax returns, refunds and claims.

  4. Policy Owner - Director, Examination - Specialty Policy is responsible for the administration, procedures and updates related to the technical guidance and information processing steps and methods specific to Estate and Gift Tax examiner responsibilities, IRM subsections, and forms created for the examination of returns and claims.

  5. Program Owner - Director, Examination - Specialty Examination owns Estate and Gift Tax Examination.

  6. Primary Stakeholders - Advisory Collections, Appeals, Counsel, Estate and Gift Tax Workload Selection and Delivery, Specialty Examination, and SB/SE Examination Quality & Technical Support are the primary stakeholders for this IRM.

Background

  1. This section provides general instructions for protecting tax returns, protecting the statute of limitations, scope of examinations, surveying returns and general examination guidelines.

  2. This section also addresses the National Quality Review Program for the Estate and Gift Tax Program. Examiners should refer to the following examination chapters for guidance: IRM 4.10.1, Examination of Returns, Overview and Basic Examiner Responsibilities; IRM 4.11.55, Examining Officers Guide (EOG), Power of Attorney Rights and Responsibilities; and IRM 4.11.57, Examining Officers Guide (EOG), Third Party Contacts.

Authority

  1. Estate and gift tax examiners and managers assigned to examine and oversee the examination of estate and gift tax returns and issues are responsible for complying with servicewide policies and authorities set forth in IRM 1.2.13, Servicewide Policies and Authorities, Policy Statements for the Examining Process.

  2. Examination of estate and gift tax returns should be conducted in a manner that will promote public confidence as stated in the Mission of the Service. See IRM 1.2.10.2, Policy Statement 1-1.

  3. Policy Statement 4-52 established a general guideline that examination and processing of returns should be completed within 18 months of the filing date. See IRM 1.2.13.1.18, Policy Statement 4-52.

  4. Estate and gift examiners and managers assigned to examine and oversee the examination of international estate and gift tax returns and issues are responsible for complying with all applicable servicewide examination delegation orders and SB/SE delegation orders. A table summarizing estate and gift delegation orders is available at IRM 4.25.14.10, Estate and Gift Tax, Miscellaneous Procedures, Signature Authority.

  5. Section 3504 of RRA 98, Public Law 105-206 requires the Service to include an explanation of the examination and collection process, as well as information about assistance from the Taxpayer Advocate with any first report/notice of proposed deficiency. Pub 3498, The Examination Process, must be used for this purpose.

  6. Statement of Procedural Rules 601.506 requires that examiners must forward any correspondence (or copy), discussions, reports and/or other material to the taxpayer at the same time it is sent to the representative.

  7. The Form 706 return instructions and CFR 20.6018-4, CFR 25.6019-3, and CFR 25.6019–4 list required filing documents.

Program Objectives and Review

  1. The National Quality Review System (NQRS) is a web-based review system used by Estate and Gift Tax Policy, Estate and Gift Tax Examination Management and Estate and Gift Tax Quality Measures and Analysis (QMA) to generate and review reports analyzing national quality performance based upon standardized quality attributes set forth in Document 12499, Estate and Gift Tax Examination Embedded Quality Job Aid. NQRS report data is compiled by QMA on a quarterly basis, but ad hoc reports may be obtained monthly. The use of NQRS is explained in additional detail in IRM 4.25.1.8, Manager Embedded Quality Review and Specialty Exam National Embedded Quality Review Programs.

  2. Operational Reviews and related NQRS reports are conducted by Territory Managers and the Chief of Estate and Gift to measure national adherence to quality standards and managerial performance and/or oversight.

  3. Customer (i.e. taxpayer) satisfaction reports are generated by SB/SE Operation Support Research on a quarterly basis. These reports provide masked taxpayer narratives that are responsive to a pre-defined set of survey questions. The quarterly survey reports are to be used to identify areas for examination quality improvement.

  4. Frequent Front-line manager reviews are conducted under the Examination Quality Review System (EQRS), with the frequency based on annual personnel requirements.

Terms/Definitions/Acronyms

  1. The following table sets forth the Estate and Gift Tax program specific terms and definitions:

    Term Definition
    classification The process whereby a team of Campus and field estate tax attorneys, estate tax managers, lead estate tax attorneys, paralegals and transfer tax technicians review all schedules on all estate and gift tax returns that met the initial selection criteria to identify any issues for examination. See IRM 4.25.3, Estate and Gift, Planning, Classification and Selection, for additional information.
    issue lead sheet Issue lead sheets must reflect the issue name, adjustments (when applicable), conclusion, audit steps, facts, law, and taxpayer's position in the body. This information should be presented in a logical order so reviewers can easily determine what audit steps and actions were taken to support the conclusion. Issue Lead sheets are provided to examiners through the Estate and Gift Tax Notebook Job Aid. The lead sheets provided to examiners meet the SBSE formatting and content requirements set forth in IRM 4.10.9.6.2.1, Issue Lead Sheet Format.
    mandatory lead sheet The mandatory lead sheets are provided to examiners through the Estate and Gift Tax Notebook Job Aid. The mandatory lead sheets document Servicewide and SBSE examination requirements. These examination requirements include but are not limited to: verifying and protecting the statute of limitations; pre-planning and identifying the scope of the examination; conducting filing checks; providing taxpayer rights documentation; considering appropriate penalties, and soliciting payments.
    Notebook Job Aid (Estate and Gift) This is a proprietary combination of Access databases and Excel spreadsheets used by Estate and Gift Tax to generate reports and examination process and documentation (EPD). It is similar to RGS.
    perfection of return The process of contacting the taxpayer, representative or preparer (when appropriate) for the sole purpose of obtaining information and documentation that is required as part of the return filing. The specific return instructions explains the form filing requirements.
    significant activity Any activity where the examiner performed substantial work that moved the case toward a conclusion. This does not include phone calls to or from the taxpayer to cancel or change appointments. It would include phone calls that discussed items which helped move the case toward a conclusion, such as appointments, requests for information, research, etc. Significant activity would also include follow-up contacts either to or from Engineers or other specialists.
    workpaper Workpapers support the information included on the lead sheets and, when applicable, should reflect what the examiner reviewed, requested and inspected to audit the issue. See IRM 4.10.9.7, Examination of Returns, Workpapers, for formatting requirements. Examples of workpapers are:
    • photocopies of relevant documents secured from the taxpayer and/or representative

    • internal source documents (e.g., transcripts used to support the examination process and conclusions reached)

    • correspondence

  2. The following table sets forth common Estate and Gift Tax program acronyms:

    Term Acronym
    Estate and Gift Tax Embedded Quality Review System EQRS or EQ
    Estate and Gift Tax Exam Process and Documentation EPD
    Estate and Gift Tax Notebook Job Aid Notebook
    Fraud Technical Advisor FTA
    Generation-Skipping Transfer Tax GSTT
    Issue Management System IMS
    National Quality Review System (NQRS) NQRS or NQ
    Plan to Close Meeting PTC
    Substitute for a Return SFR

Related Resources

  1. The Estate and Gift Tax program is required to follow all servicewide examination procedures and those set forth in SBSE examining process IRM. The following IRM subsections provide additional information relating to the processing, classification and examination of Estate and Gift Tax program returns and claims:

    • IRM 4.25.2, Campus Procedures for Estate Tax

    • IRM 4.25.3, Planning, Classification and Selection

    • IRM 4.25.4, International Estate and Gift Tax Examinations

    • IRM 4.25.5, Technical Guidelines for Estate and Gift Tax Issues

    • IRM 4.25.6, Report Writing Guide for Estate and Gift Tax Examinations

    • IRM 4.25.7, Estate and Gift Tax Penalty and Fraud Procedures

    • IRM 4.25.8, Delinquent Returns and SFR Procedures

    • IRM 4.25.9, Requests for Abatement, Claims for Refund and Doubt as to Liability in Estate and Gift Tax Cases

    • IRM 4.25.10, Case Closing Procedures

    • IRM 4.25.11, Special Examination Procedures

    • IRM 4.25.12, Valuation Assistance

    • IRM 4.25.13, Appeals, Mediation and Settlement Procedures

    • IRM 4.25.14, Miscellaneous Procedures

    • IRM 4.2.8, Guidelines for SB/SE National Quality Review

    • IRM 4.10, Examination of Returns

    • IRM 25.6.1, Statute of Limitations Processes and Procedures

    • IRM 25.6.2, Extension of Assessment Statute of Limitations By Consent

    • IRM 25.6.3, Examination Process-Assessment Statute of Limitations Controls

  2. Document 12499, Estate and Gift Tax Examination Embedded Quality Job Aid, is issued by Estate and Gift Tax Policy, and is relied upon for the application and interpretation of the quality attributes. The Job Aid includes complete instructions, definitions, and examples of how cases should be evaluated.

Scope of Examinations

  1. The scope of the examination of a return is prescribed on a classification check sheet that is maintained by Estate and Gift Policy. The classification check sheet is completed during the classification process. The scope of an examination should not be limited to the classified issues if other significant issues are revealed during the examination. At classification, significant examination issues are identified and detailed on a classification sheet. Normally, issues addressed on the classification sheet should be addressed during the examination and documented in the workpapers. Lead sheets should be completed during the examination. Exceptions to the normal scope of examinations are Limited Scope Examinations, Project Cases, and cases with documented managerial direction. See IRM 4.25.5.4, Estate and Gift Tax Exam Process and Documentation (EPD).

  2. Determining the scope of an examination is the process by which an examiner selects issues warranting examination. Examiners should thoroughly review the classification sheet, if applicable, and select issues so that, with reasonable certainty, items necessary for a substantially correct determination of the tax liability have been considered.

  3. Whenever possible, examiners should consult with their manager before raising new issues and document these conversations using the Form 9984, Activity Record.

  4. Examiners must assess the facts and apply judgment in determining the scope of the examination. Examiners are expected to continually exercise judgment throughout the examination process to expand or contract the scope as needed and document these decisions in both the IMS electronic case file and the hard copy administrative case file.

  5. If during the course of the examination, the scope is expanded to include additional tax period(s), the taxpayer should be notified in writing of the expansion and provide all required taxpayer rights documentation. If the taxpayer has a power of attorney and it does not cover the tax period(s) being picked up for examination, the taxpayer must be given time to secure a power of attorney for the additional tax period(s). Also, the examiner must allow the taxpayer time to submit records on the newly added year(s).

Limited Scope Examinations

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

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

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

  4. Limited scope examinations do not require a probe for omitted assets and undisclosed transfers. The only lead sheets that are required for a limited scope examination are the Limited Scope Examination Mandatory Lead Sheet, the Statute Verification Lead Sheet and the Form 9984, Activity Record. See IRM 4.25.5.4, Estate and Gift Tax Exam Process and Documentation (EPD).

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

Project Cases

  1. Occasionally, special issues or circumstances related to estate and gift are identified and Estate and Gift Workload Selection and Delivery (WSD) initiates project cases. Project cases may have a defined cycle time.

  2. Typically, specific directions and procedures are provided upon the assignment of the project case. Project Case Lead Sheets are available in Notebook.

  3. Refer to IRM 4.25.8, Delinquent Returns and SFR Procedures, for detailed information regarding project codes, tracking codes and case procedures.

Limiting the Scope of an Examination After Assignment

  1. In pre-planning an examination, the examiner should use sound judgment to determine the significant issues to be examined. This may necessitate declassifying issues and or adding issues in lieu of those classified. The scope of the examination should be documented in the workpapers.

  2. When a classification sheet (e.g., gift tax return picked up during the course of an estate tax return examination) is not included with the return, the scope of the examination should be documented in the workpapers.

  3. Depth is the extent to which an issue is developed. It demonstrates the degree of intensity and thoroughness applied in order to make a determination as to the correctness of an item.

  4. Examiners must exercise judgment in determining the depth required for the examination. Determining the depth for different issues will help to estimate the time needed to complete the examination. The following factors should be considered:

    1. Type of evidence available or expected for the issue

    2. Complexity of the issue

    3. Materiality of the issue

    4. Internal controls and accuracy of the books and records

Perfection of Returns

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

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

    • Certified copy of will, if decedent died testate

    • Certified copy of death certificate

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

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

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

    • Power of Appointment instruments

    • Appraisals on included real estate

    • Financial data on non-public enterprises

    • State certification of payment of state death taxes

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

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

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

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

    Note:

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

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

    • Information showing how the value of the gift was determined

    • Financial data on non-public enterprises

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

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

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

    Note:

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

  4. Perfection of a Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent and/or a Form 8971 Schedule(s) A is limited to requesting information required to be disclosed by the return and/or its instructions, and to requesting the information noted in a) through d), below.

    Note:

    Review the Form 8971 carefully to determine whether information required by the form or instructions is missing. If required information is missing, the form may be subject to perfection.

    1. If the executor has not determined which beneficiary is to receive an item of property as of the due date of the Form 8971 and Schedule(s) A, the executor must list all items of property that could be used, in whole or in part, to fund the beneficiary’s distribution on that beneficiary’s Schedule A.

      Note:

      The same property may be reflected on more than one Schedule A.

    2. Where any field on the Form 8971 or Schedule(s)A, including any TIN field, has the response “unknown”, the form will be considered an incomplete return. Perfection includes asking for “unknown” fields to be properly completed.

    3. Descriptions of property to be acquired by the beneficiary that state "see Form 706" are subject to perfection. Similarly, a bare description without the Form 706 Schedule and Item reference (e.g., "as shown on Schedule A" ), is also subject to perfection.

    4. If the executor is unable to locate a beneficiary, the executor must so report that on the return and explain the efforts undertaken to locate the beneficiary. Perfection includes asking for more complete information.

  5. Contact beyond the scope of perfection includes:

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

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

Surveying Returns Selected for Examination

  1. The estate tax group manager may survey cases before assignment and contact using Disposal Code 31 if, after reviewing the return and evaluating audit potential, workload considerations and resource availability, the manager determines that the examination of the return will likely not result in a material change in the taxpayer's tax liability, provided no records have been inspected and no contact has been made with the taxpayer or the taxpayer's representative other than for file perfection. Managers will ensure that an explanation (e.g., memo, notes to the file, etc.) supporting the decision to survey a case after assignment is included in the case file prior to case closure.

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

  3. For surveyed case IRC 6166 processing procedures see IRM 4.25.11.3.2.1, IRC 6166 Installment Procedure for Surveyed Cases.

Time Reporting for Surveyed Returns

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

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

Closing a Surveyed Case

  1. See IRM 4.25.10.4.1, Case Closing Procedures for Survey After Assignment for instructions on closing a surveyed case.

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

General Guidelines for Estate and Gift Examinations

  1. Examination of estate and gift tax returns should be conducted in a manner that will promote public confidence as stated in the Mission of the Service. See IRM 1.2.10.2, and Policy Statement 1-1.

  2. Document 12499, Estate and Gift Tax Examination Embedded Quality Job Aid, is issued by Estate and Gift Tax Policy, and is relied upon for the application and interpretation of the quality attributes. The Job Aid includes complete instructions, definitions, and examples of how cases should be evaluated.

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

    2. The Estate and Gift Tax Embedded Quality Review System (EQRS) and the National Quality Review System (NQRS) are discussed at IRM 4.25.1.8, Manager Embedded Quality Review and Specialty Exam National Embedded Quality Review Programs and IRM 4.2.8, Guidelines for SB/SE National Quality Review.

Inventory Management for Estate and Gift Tax Examinations

  1. Policy Statement 4-52 established a general guideline that examination and processing of returns should be completed within 18 months of the filing date. See IRM 1.2.13.18, Policy Statement 4-52.

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

    2. An examiner will make initial taxpayer contact or survey the assigned case within 45 days measured from case receipt.

    3. Significant activity is required at least every 45 days.

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

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

    6. When an examination is beyond the 18 month cycle, managers should ensure that the Service does not become a party to the continuing delay affecting the completion of the examination.

  2. The term significant activity is defined as any activity where the examiner performed substantial work that moved the case toward a conclusion. This does not include phone calls to or from the taxpayer to cancel or change appointments. It would include phone calls that discussed items which helped move the case toward a conclusion, such as appointments, requests for information, research, etc. Significant activity would also include follow-up contacts either to or from Engineers or other specialists. Examples of significant activity include but are not limited to:

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

    2. Researching classified examination issues.

    3. Reviewing documentation provided by the taxpayers.

    4. Discussing the case with your manager for guidance, including workload or open case reviews.

    5. Documenting the Plan to Close (PTC) meeting in your activity record.

    6. Verifying the statute of limitations and filling out the necessary paperwork to change the ASED date to the correct SOL date.

    7. Reviewing the classification sheet, tax return, related returns, and attached documentation in order to conduct an examination pre-plan.

    8. Reviewing income tax returns to identify potential omitted assets and to verify consistent reporting amongst transfer tax returns.

    9. Holding in-depth conference call(s) with an IRS Engineering or Outside Fee Appraiser to discuss the scope of a potential referral, documentation needed, examination strategies, etc. Reviewing rough draft of an engagement letter and discussing the scope of the engagement with group manager to determine whether the proposed Engineering hours were reasonable given the valuation issues present in the case.

    10. Having discussions with management regarding potential badges of fraud and whether or not to seek Fraud Technical Advisor (FTA) assistance.

    11. Preparing a third party summons to obtain specific documentation or information not in the possession of the taxpayer or the taxpayer’s representative.

    12. Writing a memorandum to the file to eliminate a classified issue using approved risk analysis techniques.

  3. The group manager may assign returns for examination and direct the scope of items to be investigated, the depth of the examination, the records for examination and examination techniques employed consistent with IRS Policy Statements. The case file should be clearly documented to reflect such directions.

  4. While complexity of workload and conflicting demands are considered, the examiner should prioritize, plan, and schedule work accordingly. Generally, estate tax returns are examined in the order in which they are filed.

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

    • Cases where the statute of limitations is close to expiring

    • Cases returned after review

    • Cases where the 18 month cycle is about to run

    • Collateral examinations

    • Claims for refund

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

    • Program priorities or initiatives

    • Return complexity

    • Cases in similar geographic areas

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

    1. Online resources for researching state law include LexisNexis, Accurint, Commercial Clearing House (CCH), Westlaw, IRM Online, the Estate and Gift MySBSE website, and the Estate and Gift SharePoint.

Efficient Resolution and National Standard Timeframes

  1. Case actions should be completed in an efficient manner that does not unnecessarily delay resolution of the examination.

  2. The national standard timeframes (unless noted, measured in calendar days) by which action should be taken are as follows:

    Days Measured From Measured To
    45 Examiner’s receipt of case
    • Examiner sends an initial contact letter to the taxpayer with a copy to the representative, or surveys the assigned case. Examiner will also upload a signed copy of the letter to IMS and maintain a copy in the hard copy administrative file.

    • Examiner verifies the statute, completes and uploads the Statute Verification Lead Sheet to IMS.

    45 Last significant action (See IRM 4.25.1.5.1, Inventory Management for Estate and Gift Tax Examinations, for a definition and examples of significant activity. Next significant activity
    1 business day Taxpayer or representative telephone message Return telephone call to the taxpayer or representative
    14 Receipt of correspondence or documentation from taxpayer or representative Provide follow up response to taxpayer or representative. The content required in the follow up response will depend upon the volume of information and documentation received from the taxpayer or representative. See Document 12499, Estate and Gift Tax Embedded Quality Job Aid for further explanations and examples.
    5 Review and process Form 2848 Receipt
    30 Close agreed case from group Receipt of signed Form 890, Waiver
    30 Close no change case from group Date no-change status is communicated to the taxpayer
    20 Close unagreed case from group Receipt of 30-day letter default or taxpayer’s timely protest is received. The time period for closure is not extended while preparing the Rebuttal.
  3. All delays should be documented on the Form 9984, Activity Record.

Time Spent on Examination

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

Professional Communication

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

  2. RRA ‘98 section 3705(a) requires that all oral and written communication with a taxpayer or authorized representative of a taxpayer shall include the name, telephone number and the unique identifying number (e.g., Smart-ID badge number) of the IRS employee the taxpayer may contact . The examiner will document the case Form 9984, Activity Record, to show that the taxpayer and/or representative was provided with the required identifying information during oral communications.

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

  2. The examiner may not make an initial examination contact with the taxpayer or representative via telephone.

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

  2. All written correspondence sent to and received from the taxpayer must be maintained as part of the case file.

  3. All initial contacts with the taxpayer and representative must be in writing. See IRM 4.25.1.5.5.1, Taxpayer Rights Included with Initial Contact Letter.

  4. Publications sent to the taxpayer(s) should always agree with the enclosures identified on the letter. Blank forms and publications available on IRS.gov should not be included when sending copies of letters, examinations reports, waivers, etc. with Letter 937, Transmittal Letter for Power of Attorney, or other cover letter sent to representatives or appointees. For example, Publication 3498, The Examination Process, should not be included with a representative or appointee’s copy of the examiner’s report transmittal cover letter.

    Note:

    This guidance is consistent with the Form 2848, Power of Attorney and Declaration of Representative, and Form 8821, Tax Information Authorization, instructions which state that representatives and appointees will not receive forms, publications or other related materials with notices.

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

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

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

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

  5. Sample letters and IDRs can be found in the Estate and Gift Notebook Job Aid Forms Library Folder.

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

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

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

    2. Necessary to support adjustments

    3. Necessary for a complete examination of the return

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

  3. Documents received from taxpayers or representatives (including correspondence) should not be used as workpapers. Instead of marking the original taxpayer provided documents, notes should be entered on separate workpapers or lead sheets, or a working copy of documents may be made and used to record examination information. A working copy of taxpayer provided documents may be made by using colored paper, marking or stamping the working copy as "copy", or other means to identify the copy as a workpaper.

Taxpayer Rights and Notifications

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

Taxpayer Rights Included with Initial Contact Letter
  1. All initial examination contacts with taxpayers must be made by mail, instead of by telephone. When a valid Form 2848, Power of Attorney and Declaration of Representative, or Form 8821, Tax Information Authorization, is on file for the taxpayer, or, in the case of estates, when page 2, part 4 of the Form 706 is properly signed, the appropriate initial contact letter will be mailed (i.e. postmarked) to the taxpayer and a copy of the letter will be mailed to the representative with Letter 937, Transmittal Letter for Power of Attorney. A sample of an appropriate initial contact letter is available in the Estate and Gift Tax Notebook Communications file. Prior to mailing the initial contact letter, examiners must review CC ENMOD or IMFOLE for an identity theft (IDT) indicator. IDT indicators are explained in IRM 4.10.27.8.1, Identity Theft Tracking Indicators. If an IDT indicator exists, examiners will send the initial contact letter to the last known address on Master File.

  2. You must enclose the following taxpayer rights documents with your initial contact letter to the taxpayer:

    1. Pub 1, Your Rights As A Taxpayer, and

    2. Notice 609, Privacy Act and Paperwork Reduction Act.

  3. Examiners should mail the initial contact letter to the taxpayer’s last known address. The Service is required to exercise due diligence to find and use the taxpayer’s last known address. Generally, the last known address is the address on Master File unless the taxpayer has provided "clear and concise" notification. For a definition of what constitutes "clear and concise" notification, see IRM 4.10.2.11

    Note:

    The IRS receives weekly address updates from the United States Postal Service National Change of Address (NCOA) database. The NCOA helps maintain the most current taxpayer addresses. Address changes due to the NCOA database are identified by a TC 014 on IMFOLE/BMFOLE/ENMOD with special document locator numbers (DLNs). See IRM 5.1.18.12, United States Postal Service, for additional information about the NCOA database.

  4. If the taxpayer doesn’t respond to the initial contact letter and it is not returned as undeliverable, follow the procedures in IRM 4.10.2.8.3, No Response/No Show Procedures.

  5. If the letter is returned undeliverable, follow the procedures in IRM 4.10.2.8.4, Undeliverable Initial Contact Letters.

Taxpayer Rights and Notifications During Examination
  1. Whenever a taxpayer is provided with a first report/notice of proposed deficiency that is not a formal 30-day letter, the Pub 3498, The Examination Process, must be provided. If subsequently a 30-day letter is issued to the taxpayer, this publication must also be enclosed. See IRM 4.25.10.3.1, Case Closing Procedures, Taxpayer Rights, for determining when a Publication 3498 should be sent.

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

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

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

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

Employee Case Documentation

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

    • When forms and documents were sent or received

    • Internal contacts

    • Taxpayers contact

    • Any other significant contacts or activities

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

    • Managerial involvement

Estate and Gift Tax Program Exam Process and Documentation

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

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

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

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

  5. Estate and Gift Tax Policy is responsible for the ongoing monitoring of the EPD system, and will make appropriate changes to the forms and procedures based on the needs of the Estate and Gift Tax program.

Issue Management System and Estate and Gift Notebook Job Aid

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

    • See IRM 4.25.5.3, Technical Guidelines for Estate and Gift Tax Issues, Issue Management System (IMS), for IMS guidelines and procedures.

    • See IRM 4.25.5.4, Technical Guidelines for Estate and Gift Tax Issues, Estate and Gift Tax Exam Process and Documentation (EPD), for information regarding lead sheets found in the Notebook .

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

Manager Embedded Quality Review and Specialty Exam National Embedded Quality Review Programs

  1. Field and Specialty Exam Quality supports the Embedded Quality (EQ) program for the Estate and Gift Tax program in SB/SE. Embedded quality is designed to create a connection between individual performance and organizational goals. This connection is achieved through a common set of attributes that both national quality reviewers and Estate and Gift Tax managers use to rate the quality of case work.

  2. Policies and procedures relating to the national embedded quality review process are located in IRM 4.2.8, Guidelines for SB/SE National Quality Review.

  3. EQRS is used by managers who monitor an employee's action on a work product. EQRS reviews are conducted by rating case actions against quality attributes that are linked to employee Critical Job Elements (CJEs).

  4. Field and Specialty Exam Quality review staff conduct national quality reviews on a statistically valid sample of unagreed, agreed and no change Estate and Gift tax cases using the quality attributes.

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

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

Office of Policy Manager Responsibilities

  1. An attorney advisor on the Policy Manager's staff shall be assigned responsibilities for the Estate and Gift Embedded Quality Program.

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

    1. Establishing and providing guidance to meet program objectives

    2. Ensure the consistency of the Estate and Gift Job Aid and training materials with the IRM and other guidelines

    3. Recommending updates to the quality attributes and process measures

    4. Maintaining instructional guides, forms, letters and the EPD system as needed

    5. Host embedded quality summit to discuss quality trends with affected stakeholders, as needed

Territory Manager and Field Group Manager Responsibilities

  1. Territory Manager responsibilities include:

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

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

  2. Field group manager responsibilities include:

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

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

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

Estate and Gift Tax Embedded Quality Job Aid

  1. Document 12499, Embedded Quality Job Aid, includes complete instructions, definitions, and examples of how cases should be evaluated by management and quality reviewers.

Protection of Returns (Physical)

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

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

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

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

Protection Against Unauthorized Disclosure

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

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

    1. The Form 56 should be filed where the taxpayer for whom the fiduciary is acting is required to file tax returns. The Form 56 is established or perfected by Campus prior to classification of the return. See IRM 3.13.2.18, Form 56, Notice Concerning Fiduciary Relationship. A new fiduciary relationship or termination of an existing fiduciary relationship may occur during the examination.

    2. If a fiduciary relationship is terminated or a new fiduciary is substituted for an existing fiduciary, the examiner should request a copy of the new Form 56 filed with the Campus and document the new taxpayer contact information in the relevant portions of the examination file.

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

  3. If working with someone other than the taxpayer, the examiner must verify the taxpayer’s authorization and document the administrative file that they are authorized to communicate with the specified individual. Unauthorized disclosure is strictly prohibited.

    1. A properly executed authorization in Part 4, Form 706, U.S. Estate Tax Return grants third party authorization. See IRM 21.3.7.2.1, Third Party Research Guidelines. If Part 4 of the Form 706 is incomplete, a Form 2848, Power of Attorney and Declaration of Representative should be obtained.

    2. Upon receipt of a Form 2848, the examiner must review for accuracy. See IRM 21.3.7.5, Form 2848, Power of Attorney and Declaration of Representative and Form 8821 , Taxpayer Authorization Overview. Form 8821, Tax Information Authorization, permits the third party to receive and inspect information provided by the examiner. The authorization does not allow for representation.

    3. Third party authorizations must be submitted to the CAF unit within five workdays of receipt. See IRM 4.11.55.1.8.2, Processing of the POA for processing procedures and IRM 21.3.7.1.3, Processing Sites (CAF Function) for CAF Unit fax numbers.

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

Protection of the Statute of Limitations

  1. The group manager and examiner are responsible for verifying and protecting the statute of limitations on all assigned cases. As tax returns are received in the group, the manager is required to ensure controls verifying the accuracy of the assessment statute expiration date (ASED) are in place. See IRM 25.6.23.6.1.2, Screening for Statute Accuracy. Controls are for filed returns and non-filer examinations.

    Note:

    The Statute Verification Lead Sheet is a mandatory workpaper that must be completed and uploaded to the Issue Management System (IMS) case administrative issue within 45 days of examiner’s case receipt. See IRM 4.25.5.4.1, Statute Verification Lead Sheet.

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

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

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

    • Return mailed (i.e. postmarked) and received on or before extension date, the statute date begins to run from the day the return is received.

    • Return mailed (i.e. postmarked) and received after the extension date, the statute date begins to run from the day the return is received.

    • Return mailed (i.e. postmarked) on or before extension date but received after the extension date, the statute date begins to run from the postmark date of the return.

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

  6. In rare circumstances filing deadlines may be postponed. IRM 25.6.1.9.6, Assessment Periods - Taxpayers in Special Situations, which contains guidance for taxpayer impacted by Presidentially declared disaster areas and Presidentially declared terroristic or military actions, and IRM 25.6.1.9.6.7 , Service in a Combat Zone, a Contingency Operation, or a Qualified Hazardous Duty Area, or Service Certified by the Department of Defense.

  7. If it is determined that the ASED is incorrect, update the ASED date as instructed in IRM Exhibit 25.6.23-3, Instructions for Updating Statute on AIMS.

  8. Once the correct ASED is determined and updated, if necessary, the statute date must be closely monitored to ensure the Government and Taxpayer's interests are protected. The statute date will not change unless it is updated to reflect the execution of a Form 872, Consent to Extend the Time to Assess Tax or when input of an alpha statute code is appropriate. The manager and examiner must continue to monitor the statute using the monthly Inventory Validation List (IVL), ERCS Statute Reports and Table 4.1, Returns with Statute Date Pending (Status Codes 10, 12, 13, 17, and 18), to ensure statute control procedures are started within 180 days of the expiration of the ASED.

Estate Tax Statute of Limitations

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

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

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

      Note:

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

Gift Tax Statute of Limitations

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

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

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

    1. Omitted completely from the return.

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

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

  5. If the examiner is unable to secure a consent, the examiner may allow the three year statute to expire on that gift tax return, and rely on IRC 6501(c)(9).

    1. In cases in which a gift is omitted from a gift tax return the examiner will document the case file with adequate justification for permitting the assessment statute applicable to the entire return to expire in reliance on IRC 6501(c)(9), and obtain written approval from the group manager in advance of the statute expiration date.

    2. In cases in which a gift is disclosed on a gift tax return, the examiner will document the case file with adequate justification for allowing the assessment statute applicable to the entire return to expire in reliance on IRC 6501(c)(9), and obtain written approval from the Territory Manager in advance of the three year assessment statute expiration date.

  6. Following receipt of the required managerial approval, the group manager should ensure the statute date is updated on ERCS to reflect an alpha "VV" ASED date. See IRM Exhibit 25.6.23-3, Instructions for Updating the Statute on AIMS.