- 5.5.5 Processing Estate and Gift Tax Extensions
- 18.104.22.168 Section Overview Request for Extension of Time to Pay Estate Tax
- 22.214.171.124 Collection Statute Expiration Date under IRC 6503(d)
- 126.96.36.199 Processing Responsibility of Forms 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.
- 188.8.131.52 Evaluating Requests for Extensions of Time to Pay
- 184.108.40.206 Requests for Extension to Pay Tax Deferred under IRC 6166
- 220.127.116.11 Advisory Actions (Form 4768)
- 18.104.22.168 Approval of Requests for Extension of Time to Pay
- 22.214.171.124 Denial of Requests for Extension of Time to Pay
- 126.96.36.199 Extension Requests to Pay Gift Tax
- 188.8.131.52 Automatic Extensions for 2010 Forms 706
- 184.108.40.206 Extensions for 2011 Forms 706
Part 5. Collecting Process
Chapter 5. Decedent Estates and Estate Taxes
Section 5. Processing Estate and Gift Tax Extensions
October 01, 2012
(1) This transmits a complete revision to IRM 5.5.5, Processing Estate and Gift Tax Extensions
(1) The title of this IRM was changed to include Gift Tax extensions.
(2) IRM 220.127.116.11 (2) and (3) - revised to remove reference to preparing a rebuttal to avoid ex-parte communication.
(3) IRM 18.104.22.168 is a new section to address processing of extension requests for Form 709, United States Gift Tax Return. It incorporates SBSE Memorandum SBSE-05-0512-050, Procedures for Processing Form 1127 Applications for Extension of Time for Payment of Tax Due to Undue Hardship. Procedures for returns not related to estate and gift tax are incorporated into IRM 22.214.171.124, Cases Requiring Special Handling.
(4) IRM 126.96.36.199 is a new section to address automatic extensions for taxpayers who are filing 2010 Forms 706.
(5) IRM 188.8.131.52 is a new section to address extensions for taxpayers who are filing 2011 Forms 706.
Scott D. Reisher
Director, Collection Policy
Internal Revenue Code (IRC) § 6161 provides decedents' estates that file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, the option of securing an extension of time to pay when specific circumstances impede their ability to pay the total tax due by the return due date. This section provides background information and procedures for processing of IRC § 6161 extension requests.
Taxpayers submit Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, for an extension of time to file or pay Estate Tax. Advisory and the Estate & Gift tax unit of Cincinnati Compliance Services process Forms 4768 that request extensions of time to file and/or to pay.
Relevant provisions of IRC § 6161 and related regulations for extensions of time to pay estate tax are:
The maximum extension of time to pay that may be granted at one time is 12 months.
Additional extension requests can be granted for up to 12 months at a time for a maximum of 10 years, for tax determined by the taxpayer on the return. On amounts determined as deficiency, the extended time for payment cannot exceed four years from the date fixed for payment (see IRC § 6151(c)) of the deficiency, for up to one year at a time.
Different extension periods may apply for different assessments.
A request for extension of time to pay must be in writing and received no later than the due date of the return, or in the case of a subsequent extension request, the extended payment date.
Requests must include a statement of reasonable cause or undue hardship.
No extension shall be granted for any deficiency if the deficiency is due to negligence, to intentional disregard of rules and regulations, or to fraud with intent to evade tax.
The granting of an extension of time for payment of the tax will not relieve the estate from liability for the payment of interest during the period of the extension.
The application will be examined, and within 30 days, if possible, will be denied, granted, or tentatively granted subject to certain conditions of which the taxpayer will be notified.
For extensions of time to pay an installment of tax deferred under IRC § 6166, see IRM 184.108.40.206.
Under IRC § 6503(d) , the Collection Statute Expiration Date (CSED) is suspended for the period of any extension of time for payment that is granted (also see IRM 220.127.116.11.12).
TC 468 is input on IDRS to identify accounts that may have been granted additional time to pay estate taxes due under IRC § 6161.
Generally the CSED is extended for the period of time between the TC 468 date and the TC 469 date, which reflects expiration of the extended time to pay.
CSEDs should always be checked when working estate tax accounts. Different CSEDs may run on different assessments. IDRS does not update the CSED.
All requests for extension to file and pay involving unfiled tax returns in which the estate anticipates a cash shortage to pay taxes that will become due of $25,000 or more will be sent to Advisory for approval consideration.
Extension requests on unfiled returns where the estate sends payment of the estimated liability with the request (payment and estimated tax are equal) will not be sent to Advisory; requests where the estimated tax is not paid will be sent to Advisory if the estimated liability is $25,000 or more
All requests for extensions to pay on accounts in which the tax return has been filed and reflect a balance due over $50,000 will be sent to Advisory.
All extensions to pay where it is the third request, regardless of the dollar amount, will be sent to Advisory.
All requests for extension of time to pay annual installments that are deferred under IRC § 6166 will be sent to Advisory.
All other requests that do not meet the above criteria will be processed by the Estate & Gift Tax unit of Cincinnati Compliance Services.
Employees must determine on a case by case basis whether to allow a request for an extension of time to pay, and if so, the length of time for such extension.
Employees will be expected to evaluate reasonable cause statements on extension requests in which the estate has requested the automatic six month extension to file and a non-automatic twelve month extension to pay tax due upon filing.
If the reasonable cause statement sent by the estate provides details (see instructions to Form 4768) explaining why it is unable to determine the tax liability or the liquidity of assets, it may be reasonable to limit approval of the extension of time to pay to six months. This corresponds with the extended due date of the estate tax return; making it reasonable to expect that the executor will know the tax liability and liquidity of assets by the end of that six month period.
If the executor then needed additional time to pay the estate tax, another request could be made on Form 4768.
If the estate indicates no tax will be due it may be reasonable to deny a request for extension of time to pay when the taxpayer believes in good faith that no liability is owed. Although an estate's request for an extension of time to pay may state that no liability will be due with the return, consideration will be given to the reasonable cause explanation in evaluating these requests for an extension to pay.
Extension to pay requests that lack a reasonable cause statement will be allowed an additional fifteen calendar days to perfect the reasonable cause statement. The employee reviewing the request will send a letter to the executor requesting additional information and will document the extended time allowed in the case history. If a timely response is not provided from the estate the request will be denied.
An extension of time to pay may be granted for a reasonable period of time if an examination of all facts and circumstances discloses that such request is based upon reasonable cause. The following examples illustrate cases involving reasonable cause for granting an extension of time (also see Treas. Reg. 20.6161-1(a)(2) for undue hardship criteria):
The estate contains enough liquid assets to pay the tax but the assets are located in several places and the executor cannot take control of them in time to pay the tax by the due date.
Much of the estate consists of assets that provide for payment in the future (e.g., annuities, copyright royalties, contingent fees, or accounts receivable). Currently they do not produce enough cash to fully pay by the due date. Borrowing against these assets has proved not to be possible, and sale of these assets at a discount would greatly decrease the value of the estate.
The estate includes a claim to substantial assets which cannot be collected without litigation. The value of the gross estate is undetermined so tax cannot be paid (or even computed) when the tax is due.
The estate does not have enough money (without borrowing at a rate of interest substantially higher than that generally available) to pay all the tax and other claims against the estate while providing funds for the decedent’s dependents during the period of administration. The executor has made reasonable attempts to convert assets into cash.
In addition to establishing reasonable cause, these cases require an analysis of the progress of efforts being made to borrow or liquidate assets or to otherwise pay the amounts to be extended. Some suggested additional information required in this analysis include:
Balance sheets listing all assets, disbursements, liabilities and earnings for the estate. This documentation should be compared to any submitted for a prior extension period, to determine what has been liquidated during the extension period. Real estate should be listed with the value and location identified (city, county, and state).
An accounting of the actions taken during the past extension period to resolve the indebtedness. Examples include marketing property, resolving suits, or seeking loans.
Information on the executor’s proposal to make partial payments during the extension being requested.
Consideration should be made as to whether the estate has complied with the conditions set for granting prior extensions.
Evaluation of what assets remain under the protection of the IRC § 6324 lien; determine if assets have been distributed or discharged.
An analysis should be made to determine if there is sufficient value or equity in the remaining assets relative to the amount of tax remaining.
Most requests for an extension to pay are necessary because the estate representative or executor needs additional time to liquidate what are often very valuable properties that cannot be marketed within the nine month period following the death of the taxpayer. Provided the executors verify that all steps necessary to sell property to pay the tax are being taken in an expeditious manner, and that all liquid assets not needed for the payment of anticipated administrative expenses are paid over, extensions to pay may be granted only for the amount of the cash shortage.
When evaluating extension to pay requests bear in mind that denial of the request may have adverse financial ramifications to the estate far in excess of the failure to pay penalty which will begin to accrue if the request is denied. Under IRC § 2011(c), for state death taxes to be deductible as an expense on Form 706, they must be paid within four years from the date the Form 706 is filed, or until the expiration of any extension to pay under IRC § 6161 or § 6166, whichever date is later. If the estate tax liability has been in extension to pay status (status 14) for more than four years from the filing of Form 706, the estate will be unable to claim as a deduction any subsequent state death tax payments if further extension to pay requests are denied.
All requests for an extension to pay an annual installment of tax deferred under IRC § 6166 will meet the guidelines for referral to Advisory. The same reasonable cause criteria apply to these requests.
A request relating to the annual installment will not be considered unless the extension is applied for on or before the date fixed for payment of the tax or installment.
If the estate is unable to pay the annual installment payment or non-deferred tax this is an indicator/factor that the estate may be financially unstable. At this time the advisor will conduct an evaluation of the current assets, review time remaining on the IRC § 6324(a) lien (or any other lien that may be in effect such as the IRC § 6324A lien) and determine if the Government is adequately secured for the remaining tax due during the duration of the deferral period. Refer to acceleration procedures in IRM 5.5.6 if it is determined necessary to proceed with collection of the deferred portion of tax.
Revenue officers may continue collection actions on the non-deferred portion of estate tax while the deferred portion is being accelerated.
Advisory will analyze extension requests to ensure that the Government’s interests are protected before an additional extension of time is granted.
Treasury Regulation (Treas. Reg.) 1.6161-1(c) provides that applications will be examined, and within 30 days, if possible, will be denied, granted, or tentatively granted subject to certain conditions of which the taxpayer will be notified.
Create an ICS Non-Field Other Investigation (NFOI) with Action Requested type "199-Ext Time to Pay (4768)" upon receipt of the extension request.
Contact the executor within 30 calendar days of the date of the extension request to:
Advise them that you are reviewing the request,
Gather information to support your determination, and
Estimate the date of completion.
Generate an ICS Other Investigation (OI) to a revenue officer for cases that require field contact, valuation of property, or administrative remedies.
If, in the judgment of the Advisor evaluating the extension request, granting an extension to pay may put the interest of the government at risk, under IRC § 6165 granting of the extension can be conditioned upon the estate posting a bond.
The filing of a Notice of Federal Tax Lien should also be considered if there are assets attached by the IRC § 6321 lien, and if all of the statutory requirements for creation of the assessment lien have been met. See IRM 18.104.22.168 for further information on lien filing consideration. Letters such as 2568-C or CP 504 meet demand for tax due requirements and documentation of letters sent can be found in the TXMOD history of the IDRS account.
Maintain a file of all approved and rejected Forms 4768. Documents may be destroyed two years after the statutory period for collection has expired, according to the Records Control Schedule for Collection included in IRM exhibit 1.15.28.-1(#54).
Counsel may be consulted on cases with:
Requests for an extension of payment of interest on IRC § 6166 cases.
Provisions of 31 USC § 3713, fiduciary or transferee liability.
Administrative remedies based on the IRC § 6321 lien (e.g., filing of a Notice of Federal Tax Lien, Notice of Levy, and/or seizure of property or property rights).
If all issues are resolved in favor of an extension, complete part V of Form 4768 to notify the executor that the request has been approved and of any conditions/actions that are required. Forward to the Group Manager for review and approval.
Mail the approved original Form 4768 to the taxpayer and mail a copy, include Form 3210, to the Cincinnati Campus Estate & Gift tax unit for input of the TC 468 on IDRS. Retain a copy with the Advisory case file. Campus E&G will monitor the extension until expiration of the period granted, and the OI on ICS should be closed.
Document the ICS history with a summary history entry containing a statement of findings and any specified actions that were a condition of the decision to approve the extension request.
If the request is denied, complete part V of Form 4768 giving the reason for denial, appeal rights and the return address for the proper Advisory office. The statement concerning Appeal rights should include the following information:
Send your appeal to the address as advised on the second page of Form 4768,
Send your appeal by registered or certified mail, and
File your appeal within 10 calendar days after the denial is mailed to the executor.
Forward to the Group Manager for review and approval; after approval mail the estate representative the signed Form 4768. Retain a copy of the case file and keep the OI open, with a scheduled follow up for at least 25 calendar days after forwarding to allow time for the executor to appeal (10 days) and mailing time (15 days).
If the executor does not appeal the denied extension, mail a copy of the Form 4768, include Form 3210, to the Cincinnati Campus Estate & Gift tax unit for input of the TC 469. (For related information on transaction codes 468, 469 and closing codes see IRM 22.214.171.124.3(12) and (13)). The OI on ICS should be closed.
A written appeal may be made to the advisor within ten calendar days after the time the denial is mailed to the executor.
The appeal is considered filed on the date it is postmarked. If the due date falls on a Saturday, Sunday or legal holiday, it will be considered timely if postmarked by the next business day.
Advisory should not make any commentary in the ICS history regarding the merits of the protest. A narrative statement detailing the basis for the original extension denial is not required when transmitting the request to Appeals. The case actions documented in the ICS history should be sufficient for Appeals to review the issue regarding the determination to deny the extension request. The Group Manager must ensure that no prohibited ex parte communications are included before approving the transmittal of the case to Appeals. For additional information on case transmittal to Appeals or ex parte communication, see IRM 5.1.9,Collection Appeal Rights.
If an appeal is received in Advisory, the advisor will date stamp the protest and verify the protest was filed timely.
The advisor will forward a file containing the following information to Appeals:
Executor or power of attorney information,
Any forms 4768,
All correspondence between the Service and the estate representative relating to the extension request,
Protest from the estate representative, and
Copy of the ICS history
This file will be forwarded on a Form 3210 to the Office of Appeals for the state of the decedent's last domicile using the Case Routing List on the Appeals website, http://appeals.web.irs.gov/APS/bystate2.htm, with the understanding the case may be transferred to another Appeals office based on Appeals inventory needs.
Notify the Cincinnati Campus Estate & Gift tax unit that the estate has requested an appeal so that the account remains in status 14 and payment due notices are not sent during the appeals process.
The Appeals Office will send the case file and the Case Memorandum to the originating Advisor and a copy of the Case Memorandum to Campus once the decision is final, so that E&G Campus can proceed with billing. If no response Advisory or Campus will follow up with Appeals in 90 days. Contact can be made with the Appeals' Account Resolution Specialist to locate a case or update status (see website for contact information) .
Form 1127,Application for Extension of Time for Payment of Tax Due to Undue Hardship, is used to request extensions of time to pay the amount due on a gift tax return or a deficiency on Form 709, United States Gift Tax Return.
Requests for an extension of time to pay gift tax must be filed with the Estate and Gift Tax (E&G) unit in the Cincinnati Campus.
The E&G unit will determine whether the application is processable in accordance with the guidelines provided in IRM 126.96.36.199, Field Collecting Procedures - Cases Requiring Special Handling. Applications that are determined nonprocessable may be signed by the E&G unit manager and returned to the taxpayer along with a cover letter explaining why the application is nonprocessable. If it is determined that the application is processable, the following steps will be taken within seven calendar days of receipt:
Establish an entity under MFT 51, document the TXMOD history with the date the application was received and the date it was forwarded for consideration.
Forward the application and supporting documents to the Advisory Estate Tax Group.
Create an ICS Non-Field Other Investigation (NFOI) with Action Requested type "187 - Ext Time to Pay (1127)" upon receipt of the extension request.
The Advisory Estate Tax Group will determine whether the application should be approved or denied and will be responsible for sending the approval or denial letter to the taxpayer. Advisory will document the ICS history with the actions taken, and retain a copy of the Form 1127 and supporting documents in conformance with existing document retention guidelines.
Treasury Regulation (Treas. Reg.) 1.6161-1(c) provides that applications will be examined, and within 30 days, if possible, will be denied, granted, or tentatively granted subject to certain conditions of which the taxpayer will be notified. The revised Form 1127 includes check boxes for indicating whether the application is being approved, denied, or returned. The reason(s) for this determination should be included on the form and more specifically explained in a cover letter sent to the taxpayer.
If the application is denied, the Advisory Estate Tax Group will send to the E&G unit a copy of the denied application and a copy of the cover letter sent to the taxpayer; upon receipt, the E&G unit will document the TXMOD history that the extension request was denied. Advisory will follow procedures in IRM 188.8.131.52 for protests on denied extension requests.
If the application is approved, the Advisory Estate Tax Group will send to the E&G unit a copy of the approved application and a copy of the cover letter sent to the taxpayer, along with Forms 4844, requesting the E&G unit to input the TC 470, no closing code, for the appropriate number of cycles, and the TC 270 for $0.00; the E&G unit will document the TXMOD history that the extension request was approved and the new extension date.
Note that approval of the extension does not relieve the taxpayer from liability for interest that accrues during the period of the extension, but does provide relief from the failure to pay (FTP) tax penalty to the extended due date, even if the taxpayer fails to submit full payment by that date.
The E&G unit will monitor the account, reverse the TC 470 when necessary, and abate the failure to pay penalty if assessed for the period the extension was granted.
The E&G unit will associate a copy of the application and the cover letter sent to the taxpayer with the related Form 709 tax return.
Additional guidance concerning extension requests, sample forms and letters regarding Form 1127 are provided in IRM 184.108.40.206, Field Collecting Procedures - Cases Requiring Special Handling.
Under the Economic Growth and Tax Relief Reconciliation Act of 2001, the estate tax was repealed for persons who died in 2010. However, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 reinstated the estate tax for persons who died in 2010. This recent law allows executors of the estates of decedents who died in 2010 to opt out of the estate tax, and instead elect to be governed by the repealed carryover basis provisions of the 2001 Act. This choice was to be made by filing Form 8939, Allocation of Increase in Basis for Property Acquired From a Decedent. Notice 2011-66 explains the method for making election to apply carryover basis treatment
Notice 2011-76 allowed taxpayers who are filing 2010 Form 706 extensions to file and pay to March 19th, 2012. Timely filed extensions are automatic and do not need to be sent to Advisory for consideration.
Notice 2011-76, gave large estates, normally those over $5 million, more time to comply with key tax law changes enacted late last year. The following relief was provided:
Large estates, opting out of the estate tax, had until Tuesday, Jan. 17, 2012, to file Form 8939. This special carryover basis form, required of estates making this choice, was previously due on Nov. 15, 2011. Because this is a change in the specified due date rather than an extension, no statement or form needs to be filed with the IRS to have this new due date apply.
The 2010 estates that requested an extension on Form 4768 had until March 2012 to file their estate tax returns and pay any estate tax due. Normally, a six-month filing extension is automatically granted to estates filing this form, but extensions for time to pay are granted only for good cause. As a result, most 2010 estates that timely filed Form 4768 had until Monday, March 19, 2012 to file Form 706 or Form 706-NA. For estates of those dying late in 2010 (after Dec. 16, 2010 and before Jan. 1, 2011), the due date is 15 months after the date of death. No late-filing or late-payment penalties will be due, though interest still will be charged on any estate tax paid after the original due date.
Special penalty relief is provided to many individuals, estates and trusts that already filed a 2010 federal income tax return, or obtained an extension and filed by the Oct. 17, 2011 extended due date. Late-payment and negligence penalty relief applies to persons inheriting property from a decedent dying in 2010, who then sells the property in 2010, but improperly reports gain or loss because they did not know whether the estate made the carryover basis election.
Notice 2012-21 provides guidance that allows certain estates of married individuals who died during the first six months of 2011 an extension of the deadline to make the portability election. The portability election passes along a decedent’s unused estate and gift tax exclusion amount to a surviving spouse. An extension is available to estates of married individuals with assets of $5 million or less, but only if the decedent died in the first six months of 2011, and the executor files Form 4768 requesting an extension no later than 15 months after the decedent's date of death.
This notice grants to qualifying estates, for the purpose of electing under section 2010(c)(5)(A) of the Internal Revenue Code (a “portability election”), a six-month extension of time for filing Form 706. This extension applies when the executor of a qualifying estate did not file a Form 4768 within nine months after the decedent’s date of death, and therefore the estate did not receive the benefit of the automatic six-month extension. An executor of a qualifying estate that wants to obtain the extension granted by this notice must file the application for a six-month extension (Form 4768) no later than 15 months after the decedent’s date of death. With the extension granted by this notice, the Form 706 of a qualifying estate will be due 15 months after the decedent’s date of death.
Thus, the first estate tax returns for estates eligible to make the portability election (because the date of death is after Dec. 31, 2010) are now due as early as Monday, April 2, 2012.