- 5.5.7 Collecting Estate and Gift Tax Accounts
- 126.96.36.199 Section Overview
- 188.8.131.52 Entity Case Codes and Sub Codes
- 184.108.40.206 Internal Progression of Estate Tax Accounts
- 220.127.116.11 Unfiled Estate Tax Returns
- 18.104.22.168 Nature of the Assessment
- 22.214.171.124 Collection Statute Expiration Date (CSED)
- 126.96.36.199.1 Suspension of the CSED
- 188.8.131.52.2 TC 468/469 Transaction Code
- 184.108.40.206.3 Accounts with Two Different Extension Dates
- 220.127.116.11.4 IRC 6166 Accounts
- 18.104.22.168 Initial Analysis
- 22.214.171.124 Dependent and Independent Administration of Probate Proceedings
- 126.96.36.199 Probate Assets
- 188.8.131.52.1 Non-Probate Assets
- 184.108.40.206 Ordering 706 Returns
- 220.127.116.11 Finding Estate Assets
- 18.104.22.168 Notice of Tax Due
- 22.214.171.124 CDP and Appeal Rights
- 126.96.36.199 Options to Collect Tax Due
- 188.8.131.52 Amended Returns
- 184.108.40.206 Claim for Refund
- 220.127.116.11 Protective Claim
- 18.104.22.168 Offers in Compromise
- 22.214.171.124 Penalties on Extended Payment Dates
- 126.96.36.199 Manual Assessment of Penalties and Interest
- 188.8.131.52 Requests for Abatement of Penalties
- 184.108.40.206 Unfiled Gift Tax Returns
- 220.127.116.11 Requests for Extension of Time to Pay Gift Tax
- 18.104.22.168 Ordering Gift Tax Returns
- 22.214.171.124 Gift Tax Information Sources
- 126.96.36.199 Gift Tax Collection - Donor's Liability for Gift Taxes
- 188.8.131.52 Donees Personal Liability for Gift Taxes
- 184.108.40.206 Collecting Generation Skipping Taxes
- 220.127.116.11 International Estate Tax Accounts
- 18.104.22.168 Transfer Certificates
- 22.214.171.124 Collection Statutes on International Estate Tax Accounts
- 126.96.36.199 Trusts
- 188.8.131.52 Collecting Estate Taxes from Trusts
- 184.108.40.206 Trust Assets Not Subject to Estate Tax Lien
- 220.127.116.11 The Governments State Law Rights under Trusts
- 18.104.22.168 Pertinent Documents to Collecting From Trusts
Part 5. Collecting Process
Chapter 5. Decedent Estates and Estate Taxes
Section 7. Collecting Estate and Gift Tax Accounts
September 16, 2013
(1) This transmits a complete revision to IRM 5.5.7, Collecting Estate and Gift Tax Accounts. This IRM section has been completely rewritten to provide direction on investigating, securing pertinent documentation, effective contact with a executor and technical guidance related to collection of estate and gift tax accounts.
(1) The former title of this section was Collecting Delinquent Estate Tax Accounts. The title is being changed to reflect that this section has been expanded to address gift tax accounts, in addition to estate tax accounts.
(2) Due to the substantial revisions, all of the subsection dates have been changed to reflect the current date.
(3) Added new information on the following topics:
IRM 22.214.171.124 - collection statutes
IRM 126.96.36.199 - finding estate assets
IRMs 188.8.131.52, 184.108.40.206 and 220.127.116.11 amended returns, claims for refund, protective claims
IRM 18.104.22.168 - penalties
IRM 22.214.171.124 - gift tax collection
IRM 126.96.36.199 - collecting generation skipping taxes
IRM 188.8.131.52 - international estate tax accounts
IRM 184.108.40.206 - trusts
Scott D. Reisher
Director, Collection Policy
This IRM section provides guidance on initial analysis and working various types of estate and gift tax accounts. It includes information to identify the nature of estate and gift tax assessments, computation of CSEDs, who is responsible to pay the tax, appeal rights and enforcement of the various tax liens for effective resolution of an estate or gift tax account.
It does not cover all case scenarios, due to variations in each case based on Code provisions, lien law and issues unique to each estate and gift tax account.
Group Managers and Revenue Officers are responsible for reviewing the case code and its sub code, changing codes as warranted.
Estate Decedent Case Code 501 will be used for:
Form 706 Estate Tax Return, MFT 52
Form 709 Gift Tax Return, MFT 51
Estate Fiduciary Case Code 502 will be used for:
Form 706-GS Estate Generation Skipping Tax Returns, MFT 77 and 78
Form 1041, Estate and Trust Income Tax Return, MFT 05
If an estate or gift tax case is assigned to an ATAT Revenue Officer it should be sub coded 323.
Transaction code (TC) 971 action code (AC) 281 may be used to stop the aging on suit development cases. Group managers must document approval to input the TC 971 AC 281 in the ICS case history.
See IRM 5.20, Abusive Tax Avoidance Transactions, for more information on aging of ATAT and suit development cases.
In general, managers should assign taxpayer cases related to a present assignment to the same revenue officer. Related cases may include individual income tax, estate income tax or gift tax accounts. Estate assets may be levied upon for payment of related accounts assessed prior to death.
In most estate tax collection cases, executors have already had contact with employees from a specialized group within Examination, the Campus or Advisory. Information pertinent to your collection investigation may be available from files of other Service personnel who have had previous contact with representatives of the estate.
Audits of estate tax returns are handled by the Estate and Gift tax section of Specialty Tax (E&G Exam). Examination determines adjustments for amended returns and makes decisions on allowance of special elections such as installment payments under Internal Revenue Code section 6166. To find an E&G Exam office, check the intranet webpage at http://mysbse.web.irs.gov/Specialty/eg/default.aspx. Click on “Contacts” and one of the four territory links to find the address and phone number of the E&G Exam offices. If the account is undergoing an audit, coordinate with the examiner on the status and potential impact on the balance due of your account.
The Estate and Gift Tax unit in the Cincinnati Campus monitors accounts that are granted the IRC section 6166 installment election and extensions to pay. The Campus E&G unit is responsible for sending notices of tax due on monitored accounts. The extension unit can provide copies of requests for extensions to pay made under IRC section 6166 and determinations made concerning acceptance or rejection of the requests. The 6166 unit can provide copies of billings for annual 6166 installment payments, late notices or acceleration notices, if applicable, and payoffs on 6166 accounts that require special calculations. These accounts are put in status 14 to prevent notices from being generated systemically. A special software program is used to perform interrelated interest calculations; a payoff cannot be computed on IDRS using command code INTST. These units may be able to provide assistance with payoffs or questions regarding penalty and/or interest assessments. For contacts at the campus, see http://mysbe.web.irs.gov/Collection/toolsprocesses/EstateTax/default.aspx.
The Cincinnati Campus also has a separate unit to monitor international estate tax returns. International estate tax accounts result from assessments for Form 706-NA, U.S. Estate Tax Return for Nonresident Aliens. The Service provides a transfer certificate upon payment of taxes in full which permits the transfers of property of non-resident decedents without liability. Transfer certificates release the Federal estate tax lien on a decedent’s property. This unit may be able to provide pages of the Form 706-NA return that reflect estate assets or information regarding transfer certificates.
The Advisory Estate Tax lien group has the responsibility of making a determination to approve requests for extensions of time to pay, working lien discharge or subordination requests, and filing or releasing liens when special elections are granted. Advisory can provide copies of liens which identify property they attach to, commitment letters and discharges when estate property is being sold. For contacts in the Advisory Estate Tax lien group, see http://mysbe.web.irs.gov/Collection/toolsprocesses/EstateTax/default.aspx.
Appeals has a centralized area to handle estate tax issues. Information is located on the E&G webpage at http://appeals.web.irs.gov/tech_services/estate_gift/estate_gift.htm.
You may receive a delinquent return investigation to secure unfiled estate tax returns, this may result from an expired extension to file. If investigation reveals that a taxable return is required to be filed, secure it as expeditiously as possible because even though the return has not been filed, the 10 year estate tax lien continues to run. Under IRC section 6018, if the personal representative is unable to make a complete return as to any part of the gross estate due to lack of information, he or she is required to file a return giving all the information he or she does have, and a full description and the name of every person who holds a legal or beneficial interest in property for which he or she lacks sufficient information to complete the Form 706.
The following investigative actions should be taken:
Contact the executor, inquire about assets the decedent owned at date of death and solicit voluntary filing of the tax return.
Summons the work papers of the executor or the attorney or accounting firm that prepared the extension request.
Conduct a county records check on the decedent for assets owned at date of death, or any assets transferred prior to death.
Check probate records to see if there is any inventory and appraisement of estate assets. Also see if there is any litigation of estate assets.
Determine if property was transferred to trusts.
Check Information Returns Processing Transcripts (IRPTR) for decedent's interest or dividend income from stock or a savings account or C.D. IRPTR may reflect changes in income, sales, or mortgage interest reported.
Check the decedent's Form 1040, before and in the year of death for assets owned.
Review Accurint for any information on decedent's assets.
Check BMFOL to see if gift tax returns were filed for gifts made.
Contact your local estate tax attorney group - ask questions about how they find assets when auditing an estate tax return.
Once you gather sufficient documentation to support the filing requirement for the tax year in question (see the form instructions for filing requirements) you can submit a Specialist Referral System application, https://srs.web.irs.gov/, it will be assigned to an estate tax group to evaluate. Another option is to forward a referral form, with supporting documentation, directly to E&G Exam see http://mysbse.web.irs.gov/Collection/toolsprocesses/EstateTax/EstateTax/default.aspx, under the IRM Guidance & Resource tab for more information.
Issues regarding if discounts on value of property included in the gross estate are appropriate or that liabilities, expenses or deductions are allowable should be documented in the referral for determination by E&G Exam. Allow E&G Exam to make the decision if there is a taxable estate or not.
Due to estate tax law changes in 2010, estates had the option of filing a Form 706, Estate Tax Return, or filing Form 8939, Allocation of Increase in Basis for Property Acquired from a Decedent, to report information about property acquired from a decedent. Make a referral to E&G Exam through the Specialist Referral System for assistance in determining if an estate tax return should be filed for 2010. E&G Exam maintains a database for filed Forms 8939.
For suggested summons language for estate tax returns see IRM 220.127.116.11, Using a Summons for Estate and Gift Tax Information.
As part of your initial analysis, review IDRS to determine the nature of the assessment. By reviewing IDRS, you can see if someone internally is working on the account and may be able to provide assistance or documentation to help you work your account. Below is a list of transaction codes (TCs) to assist you in analyzing your account.
TC Description 150 The original assessment for a return filed. 290 Additional tax as a result of an adjustment to a module which contains a TC 150 transaction. The assessment could be from an amended return or a math error. Check freeze codes. 291 Abates a previously posted 150 and/or 290 or 300 in whole or in part. Generates abatements (TC 197) of computer-generated interest where applicable. Releases same freezes and holds as TC 290. 300 Reflects an audit has been completed and an additional deficiency is assessed. You will have a different CSED for this assessment that the TC 150. 301 Reflects an abatement of tax. 420 All Form 706 returns are reviewed for audit potential, but may not be selected for an audit. TC 420 indicates the return is either being classified at the campus to review the return (status code 06 on AMDIS) or has been assigned to an exam group for audit (status code 10 or 12 on AMDIS). The TC 420 will generate the "-L" freeze. If the 706 is accepted as filed a TC 300 will post for zero with DC (disposal code) 20, then a TC 421 will post. 421 Reflects the audit is closed (status code 90 on AMDIS). 460 Indicates an extension of time for filing the return and generates the extended filing date. 462 Corrects erroneous posting of TC 460 and restores prior status. 468 Reflects the account had an extension to pay. The extended due date is reflected on the module. This changes the CSED. Closing codes identify denied extensions, an extension or denial on just the TC 300 assessment, or if the denial was appealed. 469 Corrects erroneous posting of TC 468 and restores prior status. 488 Indicates the account was granted an installment agreement for annual payments under IRC section 6166 and is put into status 14. 489 Is input when this special election is terminated. The module will be updated to status 21 for assignment. 520 Indicates some type of litigation is pending. 971 TC 971 action code 700 indicates a protective claim has been filed. 976 Reflects receipt of an amended return or TC 971 with action code 010. The module should have an “–A” freeze. If an amended return has been worked, a TC 290 or TC 291 will reflect the tax adjustment and the “–A” freeze will drop off.
For more information on these transaction codes, see Document 6209, IRS Processing Codes and Information, Chapter 8.
Always check the Collection Statute Expiration Date (CSED) when working estate tax accounts. IDRS may not accurately reflect the CSED when multiple assessments are involved.
Different CSEDs may run on different assessments. You can have a different CSED for the original TC 150 assessment and for the tax deficiency reflected as a TC 300 or an adjustment to tax under TC 290. These CSEDs generally expire 10 years from the date of assessment. Extension of the CSED does not extend the estate tax lien. The estate tax lien runs for 10 years from the date of death and cannot be extended or tolled.
TC 520’s also can extend CSEDs, input as a result of CDPs or OICs filed. The following transaction Codes for judgment/litigation impact CSEDs:
TC 520 with closing code 70 through 75 and closing code 84 does not suspend the CSED.
TC 520 with closing code 76 through 81 suspends the CSED, unless a TC 550 (new CSED) is posted with a later transaction date. When a judgment is entered in a case where assessments were reduced to judgment, request input of TC 550, definer code 04, using 20 years from the date the judgment was entered as the new CSED.
See 5.1.19, Collection Statute Expiration, for additional information.
Once you determine the correct CSED, document your ICS history with the new CSED and how you arrived at the date. Update the ICS CSED. See the ICS User Guide Chapter 7, Module Summary-Module Detail, for detailed information on updating the CSED on ICS.
Under IRC section 6503(d), the CSED is suspended for the period of any extension of time for payment granted under IRC section 6161, 6163 or 6166. Typically a Form 4768, Request for Extension of Time to Pay Estate Tax, is used for this type of request on estate tax liability. An extension can be granted on either or both of the TC 150 and TC 300 assessments.
TC 468 is input on IDRS to identify accounts that have been granted additional time to pay estate taxes due under IRC section 6161.
Generally, the CSED is extended for the period of time from the original due date of the return to the extended payment date reflected with the TC 468 on the tax module. Under IRC section 6161, payment may be deferred for a reasonable amount of time not to exceed 12 months. Requests for extension to pay tax reported on an estate tax return may be applied for up to 10 years if payment imposes an undue hardship upon the estate. Amounts due as the result of a deficiency may be extended for a reasonable amount of time not to exceed 12 months. Requests for extension to pay tax due as a result of a deficiency may be applied for up to four years from the date fixed for payment of the deficiency if payment imposes an undue hardship upon the estate.
The IRS may extend the time for payment of the amount of the gift tax reported on a return for a reasonable period not to exceed six months from the date the payment is due. Amounts due as the result of a deficiency of gift tax may be extended for a reasonable amount of time not to exceed 18 months from the date fixed for payment, and in exceptional cases, for a further period of 12 months. An extension may be granted only where it is shown that payment of the deficiency will result in an undue hardship to the donor. Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship, is used to request additional time to pay gift tax liability. The TC 468 is not used to reflect gift tax extensions, the TXMOD history of the account will reflect if the extension was approved and to what date.
The TC468/469 transaction codes came into effect in January 2003. Closing codes were added in January 2004 to reflect the following:
CC01 = denied extension on TC 150 assessment
CC02 = extension on TC 300 assessment
CC03 = denied extension on TC 300 assessment
CC04 = appeals case
On accounts that had extensions prior to 2003, all were put into status 14 to be manually monitored. This transaction code changed IDRS programming to monitor the extension period and calculate penalties and interest after expiration to send a computer generated bill. Again if the extension periods do not match IDRS cannot monitor, the account has to be manually monitored. In older cases review TXMOD history for information that an extension to pay was granted, you may also find the TC 489 indicating the last extension expired removing the account from status 14.
You may see a TC 468 that reflects an extension date to the original due date of the return – this indicates the extension was denied.
Another source to check is ENMOD. Any correspondex letters that are sent through IDRS, automatically show on the Entity portion of ENMOD a couple of days after they are input on IDRS. ENMOD will indicate the letter number (Letter 297-C, Extension of Time to File and/or Pay (IMF/BMF); Denial Explained ) and for which tax period (52 000000).
Accounts that have two different extension dates for the TC 460 (extension to file) and TC 468 (extension to pay) have to be put into status 14 to be manually monitored. IDRS does not know which extension date to monitor. TC 488 is input to update the module status to 14.
In cases where you have two different extension dates you need to ignore the TC 488 and TC 489 – the time period the account was in status 14 does not get added to the CSED. Unless there is indication (possibly in the TXMOD history) there was a 6166 election also that would defer payment even longer. An indicator of an IRC 6166 account is annual TC 340 assessments, made when the estate is billed for the installment payment. To calculate the CSED use the extended payment date on the TC 468 to determine additional time the payment of tax was deferred.
Once the status 14 is input, you can no longer get a payoff through IDRS. So FTP and interest need to be calculated and manually input. See IRM 18.104.22.168, Notice of Tax Due, regarding payoffs.
For accounts with an approved IRC section 6166 election, the CSED is suspended for the period during which payment of the tax is deferred. However, running of the IRC section 6324(a) estate tax lien is not suspended. Generally the additional time to add to the CSED is the period of time between the input TC 488 (or status 14) and the TC 489. See IRM 22.214.171.124,Collection Statute Expiration Date, for more information specific to IRC 6166 accounts.
If an extension to pay (IRC 6161) was granted for the annual installment due under IRC section 6166, the extended time for payment would also be calculated into the CSED.
Any tax due (reported on return or deficiency) that was not deferred under IRC 6166 will have a different CSED date. The Form 4349,Computation of Estate Tax Due With Return and Annual Installment, will show what tax was deferred under IRC 6166. The Campus E&G unit may have this information on its database or the form may be with the tax return.
Initial analysis involves examining the overall case to understand the issues involved and the steps necessary to move the case to resolution. Following are steps to be taken to develop and refine initial case actions to prepare for the initial contact.
When receiving an account for estate taxes due, you must determine whom to contact. The contact can be:
The executor named on the ICS case summary screen, ENMOD or CFINK
Designated representative on Form 706 (may have signed the return) or
A person named in probate records.
The Executor, in his or her official capacity for the Estate is responsible for handling estate affairs, gathering estate assets and paying creditors of the estate. You will always first seek payment from the executor and the estate assets first. In some cases a successor executor may be appointed to handle estate matters; in this situation your contact should be with the successor that has assumed executor responsibilities.
If there is no executor or administrator appointed, qualified, and acting within the United States, then the executor is any person in actual or constructive possession of any property of the decedent. The term "person in actual or constructive possession of any property of the decedent " includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding, as collateral, securities belonging to the decedent; and debtors of the decedent in this country. See Treas. Reg. § 20.2203–1 Definition of executor. You may seek payment of the estate tax from a section 2203 "statutory" executor to the extent of the value of the estate property within his or her possession. Such executor, may not represent the estate unless appointed by a court.
Check IDRS to determine what generated the assessment, has another function worked on the account, if so what actions were taken and compute the CSED. Document the ICS history with your findings.
A full compliance check should be performed to ensure that all of the decedent's IMF and BMF filing requirements have been met. Be aware of the possibility that the decedent's estate may consist of undistributed income producing property that requires the filing of Form 1041. If non-probate income producing assets are held in trust, it is likely that the trust has a Form 1041 filing requirement. Any related accounts should be consolidated to the same revenue officer. Estate assets may be levied upon for payment of related accounts assessed prior to death.
Probate records may provide information concerning litigation of estate assets and the parties making a claim against estate assets. Probate records tell the story of what the executor has done with the estate assets. You must always seek payment from the estate assets and the executor first. You must determine who has priority to the estate assets and protect the Government’s lien position.
Check court and other county records to:
Determine if a probate is open, type of proceeding and if any property is under the control of the court.
Obtain copies of any inventory and appraisement of estate assets filed by the executor.
Determine if property title has been transferred and if discharges from the estate tax lien were issued by Advisory or E&G Exam.
Determine if there is pending litigation of any estate assets.
Determine if there are creditor claims that reflect encumbrances against assets.
Review any annual accountings for distributions and creditors paid.
Obtain copies of any trust documents for any related trust which had assets included in the gross estate on Form 706, and which may be liable for the estate tax.
Review the Form 706 return and schedules to determine:
What estate assets the estate tax lien attaches
If there are special elections
What assets remain in the estate to be liquidated or distributed
If there are assets that can be easily secured as payment such as cash, savings bonds, stock certificates, or real property
If heirs have received assets
Next determine what the estate tax lien attaches:
Document what assets the lien attaches.
Determine what happened to assets that the estate tax lien attached.
Determine if IRS received funds for its interest in property and if discharges of property from the lien were issued.
Prepare a time line of distribution of assets and knowledge of tax due.
Once you have completed initial fact finding you are ready to make contact with the executor to determine how the taxes will be paid. During your contact with the executor review the Form 706 and notate what the executor indicates has happened to the estate assets listed on the schedules. Additional facts you gather will help you decide the next collection avenue to pursue (levy, suit, etc.) and against whom (transferee or executor).
If you need to order an account transcript follow these steps:
Sign into the Employee Portal Login.
Go to Request Transcript, select INDIVIDUAL, type in TIN and TP's name (no "V" indicator).
Under Product Type select ACCOUNT TRANSCRIPT, under request purpose select FEDERAL TAX.
At this point under MFT CODE 52 type in the year return was received or year of death (Do not input 000000 for tax period).
You must determine from the probate records if the proceeding is dependent, supervised or formal. The term differs by state, but all indicate that assets of the deceased are under the control of the probate court. Administrative enforcement actions are prohibited, while the assets are subject to the probate courts control. Enforcement action may be possible if it can be shown that levy or seizure of certain assets would not interfere with the work of the court, or if the court grants permission for such action. Treas. Reg. § 301.6331-1(a)(3). Consult Counsel before taking any enforced collection action. The Government may have cause to proceed if the estate tax lien is in jeopardy of expiring before all related collection actions can be completed. Additionally, you may request judicial assistance from the Department of Justice to file a motion for payment of the estate tax in the probate case if the executor refuses to pay.
A Notice of Federal Tax Lien (NFTL) may be recorded because probate proceedings are not subject to an automatic stay as are bankruptcy proceedings.
If the probate proceeding is under dependent administration, demand letters may be sent to the executor. You should continue your investigation regarding liens against non-probate assets, transferee liability and fiduciary liability. If there are non-probate or other assets not subject to the court's jurisdiction or under the control or custody of the court, then the IRS may levy on those assets.
If the proceeding is independent, unsupervised or informal, then assets of the deceased are not under control of the probate court. Administrative collection may be pursued.
To determine if the proceeding is independent or dependent, look at the will or letters testamentary, it is typically stated in these documents. The docket sheet or other filed documents usually designate the type of administration.
Both probate and non-probate assets are included in the gross estate. The manner in which title passes determines whether an asset is a probate asset or a non-probate asset. Both are included in the gross estate, but the distinction is the way it creates liens and personal liability.
Generally, probate assets are listed on schedules A, B, C, and D. Non-Probate assets are listed on schedules D, E, F, G, H and I. Schedule D deals with life insurance that is payable to the estate and to beneficiaries. Life insurance is probate if it is payable to the estate. It is non-probate if it is payable to a third party beneficiary. The associated Form 712 should reveal which type of beneficiary you have. Form 712, Part 1 lists insurance that is a probate asset, while Part 2 lists insurance that will be a non-probate asset.
Probate property is property the deceased owned at the time of their death or that is payable to the estate. For example: if a house, car, recreational vehicle, and bank account are all in the name of the deceased at the time of death, those items of property will have to be included in the probate estate and go through the probate proceeding before they can be legally transferred to the beneficiaries. Salary and benefits due to the deceased and money collected from debts owed to the deceased are part of the probate estate as well. These assets will be reported on the Form 706 return as part of the gross estate on Schedules A, B or C – the statutory lien attaches to these assets.
Probate assets that were held in the decedent's name at time of death are includible in the gross estate under IRC section 2033. The IRC section 6324(a) lien will survive the transfer of probate assets. Probate assets distributed after the IRC section 6321 lien arises will continue to be encumbered with that lien as well, subject to certain priorities under IRC section 6323.
See IRM 5.5.1,Decedent and Estate Tax Accounts, for additional information on probate and non-probate assets and IRM 5.5.2, Probate Proceedings.
Non-probate property is primarily those assets of the decedent that were transferred prior to death or were held in a way that ownership transferred automatically upon death. These assets are identified in IRC sections 2034 through 2042. Non-probate assets do not come under control of the court. They may be distributed without court approval by the executor.
Some examples of non-probate property include:
Transfers taking effect at death (payable on death accounts such as checking or savings accounts).
IRA’s and retirement accounts that are payable to a designated spouse or survivor rather than the decedent’s estate.
Property held jointly with rights of survivorship by decedent and any other person (such as a spouse).
Remainder interest where the decedent held a life estate.
Life insurance proceeds paid to a designated beneficiary other than the decedent’s estate.
Property held in a revocable or living trust, with a designated beneficiary.
You may find non-probate assets listed on Schedules E, F, G and I of the Form 706 return. These assets, whether held by the trust or distributed to beneficiaries, are attached by the IRC section 6324(a) estate tax lien.
Additionally a recipient of non-probate property can be held personally liable to pay delinquent estate tax or the decedent's delinquent individual income tax to the extent of the date of death value of all non-probate property received.
The Form 706 is your financial statement. It provides all the assets the taxpayer owned as of the date of death. One of your first steps is to secure a copy of the return. You may be able to secure a copy from Examination if the account is undergoing an audit or from the estate representative.
All estate and gift tax returns are now filed at the Cincinnati Campus. Older returns may have been filed at the various campuses that related to last domicile of the decedent. First order the return from the Cincinnati Campus. In some cases you may need to send Form 2275, Records Request, Charge and Recharge, for a special search to all campuses.
All 706 returns are reviewed in classification to determine if there are potential audit issues. If you are looking for a return, below is information concerning the status or location of returns after classification:
TC 420s post 1 cycle after TC 150 posts
Must go to AMDIS to see if 706 got assigned to a group after classification
If 706 is accepted as filed a TC 300 will post for zero with DC (disposal code) 20, then a TC 421 will post
706 returns are filed by DLN, typically they are re-filed under the DLN with an “X”.
All 706 returns that need to be re-filed after you close your case are sent back to the Cincinnati Campus on Form 3210. See the estate tax page on mysbse.web for the address of the refile unit in Cincinnati Campus.
When a case goes to litigation the original return is pulled and sent with the case to Counsel and possibly DOJ if they are involved. After resolution of the litigation the original return is sent back to Appeals for the final assessment/adjustment process. After, the original return should be sent to the Cincinnati Campus with the documents related to adjustments resulting from the litigation.
If you have difficulty finding a return, sending a special search request to all Campuses may result in finding the return.
Page 1 of the Form 706 provides the computation of the gross estate, deductions, credits and tax due. It provides information concerning:
Date of death - to determine when the statutory lien expires
Last domicile - for lien filing purposes
Executor name, address and SSN - responsible party to contact for payment of taxes
Probate court information - for records research
If the taxpayer died with a will - will outlines who gets estate assets and who is responsible to pay taxes
Total gross estate - reported value of assets at date of death
Page 2 provides information on special elections taken, beneficiaries who receive benefits, and
If a special election was taken, such as IRC section 2032A, 2057 or 6166 - a special lien may have been recorded
Estate representative information - for contact with the return preparer
Spousal information - the spouse may be joint owner on property or receiving estate assets
Information on beneficiaries who receive distributions from the estate, including the amount and beneficiaries’ SSNs - who might have transferee liability
If Form 709 gift tax returns were filed - who received gifts from the decedent
Page 3 of the 706 has general questions inquiring about assets owned by the decedent, partnerships, trusts, annuities and foreign bank accounts. It also provides a quick overall recapitulation of the schedules attached to the return.
Various schedules are filed to support the entries in the Recapitulation on Page 3. The schedules identify the estate assets, including details such as location of real estate and bank accounts. Generally estate assets are listed on:
Schedule A, Real Estate
Schedule B, Stocks and Bonds
Schedule C, Mortgages, Notes and Cash
Schedule D, Insurance on Decedent’s Life
Schedule E, Jointly Owned Property
Schedule F, Other Miscellaneous Property
Schedule I, Annuities
Encumbrances or debts are typically listed on Schedule K, Debts of the Decedent and Mortgages and Liens.
Use these schedules to identify estate assets the estate lien attaches to at the date of death. You will need to track the present status of those assets by checking probate records or courthouse records, or by questioning the executor to determine what is still available to pay outstanding taxes.
Probate records will reflect litigation over estate assets, sale of assets, distributions of estate assets or funds that may not be reflected in the 706 return.
Form 1041, U.S. Income Tax Return for Estates and Trusts, reports the income of the estate or trust and may provide levy sources.
Income and assets are reported on the first page of the Form 1041 on lines 1 through 9. You will find various types of income paid to the estate, such as dividends, business income, and rents.
The Schedule C, Profit or Loss from Business, provides information such as type of business, income and expenses deducted for assets owned.
The Schedule K-1 reports the beneficiary’s share of the estate or trust. It gives names and SSNs, which is helpful if they need to be contacted concerning distributions received. The amounts on the K-1s flow to the beneficiaries’ individual Forms 1040.
IRPTR documents can help identify assets owned prior to death and whether those assets have been distributed. IRPTR should be checked for the year prior to death, the year of death and the year after death. Check the SSN for the decedent and the trust EIN, as income may have been reported under either number.
Once you determine an executor, successor executor or any other party has estate assets in their possession (for an asset you intend to levy or seize for payment on taxes) give them Form 10492, Notice of Federal Taxes Due, and a copy of the NFTL to notify them outstanding taxes have not been paid. This form is notice of tax due but has no CDP appeal rights. It gives the person in possession of an estate asset an opportunity to pay before enforcement action is taken.
This form provides the amount of tax due and a caution to fiduciaries of personal liability under 31 U.S.C. section 3713 if the taxes are not paid. Provide the Form 10492 to recipients of estate assets and explain that assets they received before taxes were paid are subject to levy to pay the unpaid taxes.
If a notice of levy will be issued, Letter 1058, Final Notice, must be sent to the estate administrator or executor, or if there is no executor or administrator, to the last known address of the decedent. Letter 1058 will not be sent to third parties in possession of estate assets. If a third party obtains the authorization of the probate court to serve as executor, he or she may represent the estate in a CDP proceeding. Provide any publications or notices as required in IRM 126.96.36.199.1,Required Notices.
See IRM 188.8.131.52,Styling and Mailing of Notices, for additional guidance on styling of notices and liens. Tax periods on notices or liens should match those reflected on IDRS.
Check the payoff amount to ensure accurate penalty and interest are provided on ICS letters. If status 14 was input on an account, you can no longer get a payoff through IDRS, in such case ICS may not compute accurals. FTP and interest need to be calculated and manually input. The last TC 340 on the account will reflect to what date the interest has been updated. If IRC 6166 is not involved you can use COMPA to calculate accrued penalties and interest.
You can also send a payoff request for an IRC 6161 account to e-mail address: *SBSE CCS RESTINT. This is a restricted interest group in Philadelphia that handles these types of request. If you receive only an interest calculation use COMPAF to calculate the FTP from the extended payment date on the TC 468, to your payoff date. Payoffs for IRC 6166 accounts will need to be secured from the Campus E&G unit.
The manual assessment of penalties and interest can be requested on Form 3244, Payment Posting Voucher, when posting funds received or if the funds have posted request the assessment on Form 4844, Request for Terminal Action.
Submit a Form 4844, to the CCP Fort to request assessment of accruals once the balance due is paid. If there is a TC 421 beginning with a DLN 17 on the account, send your request to the Cincinnati CCP Unit at *SBSE CCP Exam Cincinnati. If the return has not been examined, send your request to CCP Fort in Philadelphia.
Do not abate penalties or interest assessments made by the Campus E&G unit in accordance with their IRM provisions - unless you verify there was a Service error.
A person must be a "taxpayer" to be entitled to a hearing under the CDP regulations. The "taxpayer" for estate tax accounts is the estate, as represented by the executor. Persons (such as beneficiaries) holding "property subject to a lien with respect to the taxpayer" are not entitled to a CDP hearing. The CDP regulation states "The person described in section 6330(a)(1) is the same person described in section 6331(a)--i.e., the person liable to pay the tax due after notice and demand who refuses or neglects to pay (referred to here as the taxpayer). A pre-levy or post-levy CDP notice therefore will be given only to the taxpayer. " The taxpayer is the estate. See Treas. Reg. section 301.6330-1(a)(3) Q&A A1.
If collection action is being pursued against estate assets in the hands of beneficiaries, the beneficiaries do not have CDP rights since they are not the "taxpayer" . The beneficiary is holding an estate asset that the estate tax lien attached. Collection is being pursued against the estate asset to satisfy the estate’s tax liability. In these circumstances, do not issue the Letter 1058 to the beneficiary or holder of estate assets. See IRMs 184.108.40.206 through 220.127.116.11, for special language for levies used to seize the estate assets.
However, although not entitled to CDP rights, such party would be entitled to collection appeal program (CAP) rights to propose collection alternatives and raise any other issues pertaining to the levies or proposed levies.
In lieu of the Letter 1058, give Form 10492, Notice of Federal Taxes Due, and a copy of the NFTL to the executor, estate administrator or beneficiary holding the decedent’s assets to notify them outstanding taxes have not been paid. The Form 10492 puts recipients of estate assets on notice that assets they received before taxes were paid are subject to levy to pay the unpaid taxes. This form has no CDP or appeal rights; it is a notice of tax due.
You must mail notices to the executor. If no executor is appointed, mail notices to the decedent’s last known address. The executor has the authority to exercise CDP rights on the behalf of the estate.
If a CDP lien request or equivalent hearing request is filed, levy action may be appropriate if collection is at risk, see IRM 18.104.22.168.5,Levy Action during the Period of the CDP or EH. The expiration date of the estate tax lien needs to considered when determining whether any levy action would be appropriate since all collection action (levy, seizure, sale) must be completed prior to the expiration of the IRC 6324 estate or gift tax lien. Follow procedures in IRM 22.214.171.124.5(4) if collection is at risk, such as it appears that the taxpayer is dissipating assets. Contact Counsel to determine if a jeopardy levy is appropriate and for approval of the jeopardy levy.
If the estate tax is not paid after demand for payment to the Executor, available collection options against estate, fiduciaries and beneficiaries include:
Giving Notice of Federal Taxes Due to all persons holding assets that were included in the gross estate.
Filing notice of the IRC 6321 assessment lien.
Levy and seizure of undistributed probate estate assets.
Levy and seizure of non-probate assets in hands of trusts or initial distributees/transferees.
Levy and seizure, using the like lien, from those who received non-probate property.
Suit referral to foreclose the estate tax, gift tax or general lien.
Preparing a referral for Section 6901 transferee assessment or suit to obtain judgment for personal liability by Department of Justice.
Investigating and determining whether 31 U.S.C. § 3713 or fiduciary liability should be asserted against executors or trustees.
See IRM 5.5.9, Administrative and Judicial Actions for Estate Taxes, for further discussion on the above topics.
You may be assigned an estate tax account in which the executor indicates they have filed or want to file an amended return. If the executor wants to change something on a filed Form 706 return, another Form 706 should be filed with "Supplemental Information " entered on the top of page 1. An amended return may be filed to increase or decrease the tax balance reflected on the original return. Any documentation supporting the changes should be attached. See instructions to Form 706 for more information concerning necessary documentation. E&G Exam processes amended returns for Form 706.
Depending upon the issues, the amended return may be worked by the Campus E&G unit or may be sent back to E&G Exam for review. If the return has been selected for examination, the additional information should be provided directly to the office conducting the examination. Check command code AMDIS to see if the amended return has been assigned to an E&G examination group. If the return has been assigned, contact the examiner to determine the status and how the changes may impact collection of the balance due on your account. Until a determination on an amended return is made by Examination, the tax is still due.
See the estate tax page of mysbse.web for an address of the Cincinnati campus to send amended returns for processing.
In some cases when you are trying to collect estate tax accounts, an executor may indicate a claim for refund will be filed. Generally, a claim for a credit or refund must be filed within:
three years from the date the original return was filed, or
two years from the date the tax is paid, whichever is later.
If the claim is not filed within this period, the estate is no longer entitled to a credit or refund. If an executor indicates a refund claim has been filed, determine if it is timely filed before considering delaying collection. See IRC 6511, for additional information regarding limitations on credit or refund.
Check the Refund Statute Expiration Date (RSED) indicator on the IDRS module.
A protective claim is filed to protect the estate’s rights to file a claim for refund, usually because the estate's entitlement to the claim for refund is contingent upon the resolution of litigation. An example would be a protective claim that is timely filed within 3 years of the date the original return was filed, but the litigation is not resolved until after that 3 year period has run.
Once litigation is concluded, depending on the outcome of the litigation and its impact on the tax due, the estate must either file a Form 706 amended return or file a perfected claim for refund. Once an amended return or perfected claim is filed, it is reviewed and a determination made on the allowance.
TC 971 action code 700 on the account indicates a protective claim has been filed.
IRC section 6404(b) does not permit the taxpayer to file a claim for abatement of estate and gift taxes.
Offers may be filed on estate or gift tax cases. If an offer is submitted the revenue officer will complete and submit with the offer Form 657,Offer in Compromise - Revenue Officer Report. Document in Item 14 the recommendation to continue or withhold collection action during offer in compromise investigations and explain the Government's recourse to collect the tax due, such as:
Ability to foreclose the IRC 6324 lien on estate assets if it is in effect and if no discharge from the lien was secured. This lien attaches as of date of death, before taxes were assessed, to estate assets identified on the Form 706 return schedules.
Ability to foreclose liens recorded as the result of special elections granted in certain estate tax cases. The specific property pledged as collateral in the event of default or termination of the special election may be foreclosed upon for payment of taxes.
The Government's recourse to pursue seizure, or use administrative or judicial transferee remedies if any estate assets were distributed, transferred or sold.
The Government's recourse to hold the executor personally liable (similar to the trust fund recovery penalty) if the estate is insolvent, the executor had knowledge of the taxes due or the executor made distributions of funds/assets prior to paying the tax liability. Describe what the executor did with estate assets once he had knowledge taxes were due.
Address any estate income from Form 1041 that can be considered in the ability to pay the estate taxes.
Address any non-probate distributions. The estate’s reasonable collection potential (RCP) includes the amount the Service may collect under IRC 6324(a)(2) from a beneficiary who had received non-probate distributions.
Address any estate assets that have been dissipated with a disregard of the outstanding tax liability, the value may be included in the RCP calculation. List beneficiaries who received estate assets, they may be able to pool their resources from assets received to pay taxes and avoid transferee liability or seizure.
It is important to notate the expiration date of the estate or gift tax lien and the need for any collection action to be completed before expiration of these liens. The CSED may be extended when an offer is filed but the estate and gift tax liens are of a fixed 10 year duration and cannot be extended or tolled.
See IRM 126.96.36.199.2, ATAT Revenue Officer Case Actions, for additional information concerning offers.
Penalties exist to encourage voluntary compliance by supporting the standards of behavior required by the Internal Revenue Code. For most taxpayers, voluntary compliance consists of preparing an accurate return, filing it timely, and paying any tax due. Efforts made to fulfill these obligations constitute compliant behavior. Most penalties apply to behavior that fails to meet any or all of these obligations.
Due dates for payment and due dates for filing tax returns are specified in the related tax form instructions. Review the instructions to determine if late penalties were applied appropriately in accordance with due dates.
An extension to pay gives the taxpayer relief from failure to pay penalty, but not from interest, from the due date until the approved extended payment date. Form 4768 instructions state interest must be paid on any estate tax not paid in full by the original due date. See the section titled “Interest.” An approved extension also extends the CSED, see IRM 188.8.131.52.
The Form 4768 must be filed timely and payment made timely to avoid additional assessments. The penalty abatement request does not meet reasonable cause criteria unless the Form 4768 is timely filed or the tax is paid by the extended payment date. See IRM 184.108.40.206.4,Consideration of Denials to Extensions under IRC 6166 Elections, for information on penalty consideration.
If the annual installment payment for the IRC section 6166 election is paid late, the late installment penalty will be assessed. See 220.127.116.11.14, IRC Section 6166 Principal Installment Period – Paid Late. A TC 240 is used to input the late installment penalty. There is no reasonable cause exception that allows the IRS to abate a late installment penalty, see IRC section 6166(g)(3). The estate may not appeal this penalty.
If the election is terminated and the tax due accelerated, the late installment penalty associated with this delinquent period is abated. A TC 241 will reflect the abated late installment penalty. The failure to pay penalty is then assessed on the account. Late installment penalty is not applicable for accounts that are accelerated.
Determine if the penalty was assessed in accordance with IRM and IRC guidelines when considering abatement of penalties.
If IDRS reflects manual assessments of penalty and interest, accrued penalties and interest need to be computed. This impacts payoffs and letters printed using ICS templates. Always check payoff amounts on letters generated through ICS before they are sent.
Command code COMPA can be used to compute accrued penalties and interest. The Campus E&G unit may be able to provide assistance if the account had a special election.
Refer to IRM 18.104.22.168, Notice of Tax Due, for more information on manual assessment of accruals.
In working your case, you may receive a request for abatement of penalties. If the account has been assigned to E&G Exam for audit, send the request by Form 3210 to the Examination group conducting the audit. See IRM 22.214.171.124.6.3,Penalties Applicable to Estate and Gift Tax, for information on how Examination processes penalty abatement requests.
If the examination is closed, the penalty was addressed during the audit and a determination made that applicable penalties apply. The revenue agent’s report (RAR) will state what penalties are assessed. The RAR is attached to the Form 706.
Documentation with the return may reflect penalty abatement was already addressed by the examiner, the Campus E&G unit, Appeals or the Tax Court. You may find an indication of the request in the IDRS TXMOD history.
There are many court cases sustaining assessment of penalties. Westlaw, E&G Examination personnel, Counsel, or the RAR may provide references to court cases. Below are a few examples:
Estate of John R.H. Thouron et al. v. United States, 2012-2 USTC ¶ 50,660 (E.D.Pa.) - A U.S. district court denied an estate a refund of a late-payment penalty, finding that reliance on the estate's attorney who advised that the estate didn't need to file a request for an extension to pay the taxes wasn't reasonable cause for the late payment because the executor was obligated to confirm the statutory payment deadline.
Estate of Marion Derksen v. United States, 2012-2 USTC ¶ 50,668 (E.D. Pa.) - A U.S. district court held that an estate wasn't entitled to a section 2053 deduction for a debt allegedly owed to the estate of the decedent's late husband under an informal agreement to maintain equal estates and that the estate wasn't entitled to an abatement of late-filing penalties.
Margaret V. Stine v. United States, 2012-2 USTC ¶ 50,641 (Fed. CI.) - The Court of Federal Claims dismissed an individual's suit for a refund of a penalty and interest assessed against her for failing to timely file a gift tax return, finding that her health problems didn't provide reasonable cause for her failure to file since she was able to complete other significant financial transactions during that time.
Estate of Nancy P. Young v. United States, 2013-1 USTC ¶ 50,104 - in upholding the penalty for the late filing the Judge determined that the estate was aware of the deadline but deliberately filed the return late.
Peter Knappe et al. v. United States, 713 F.3d 1164 (9th Cir. 2013) -The Ninth Circuit, affirming a district court, held that an estate was liable for a late-filing penalty, finding no reasonable cause for the missed deadline because the executor failed to exercise ordinary business care and prudence by relying on the accountant's advice regarding the filing deadline, which was a non-substantive matter.
Section 6512(a) bars taxpayers from obtaining a subsequent administrative abatement, refund claim or refund suit regarding a penalty that was determined by the Tax Court. To clarify – based on this code section you cannot abate a penalty determined by the Tax Court.
Be cautious when deciding if you should abate a penalty, however that penalty is determined.
Reasonable cause is based on all the facts and circumstances in each situation and allows the IRS to provide relief from a penalty that would otherwise be assessed. Reasonable cause relief is generally granted when the taxpayer exercised ordinary business care and prudence in determining their tax obligations but nevertheless failed to comply with those obligations.
If the return was not audited, consider the following guidance from IRM 126.96.36.199.2,Reasonable Cause:
What happened and when did it happen?
During the period of time the taxpayer was non-compliant, what facts and circumstances prevented the taxpayer from filing a return timely or paying tax due?
How did the taxpayer handle the remainder of their affairs during this time?
Once the facts and circumstances changed, what attempt did the taxpayer make to comply?
Reasonable cause does not exist if, after the facts and circumstances that explain the taxpayer’s noncompliant behavior cease to exist, the taxpayer fails to comply with the tax obligation within a reasonable period of time.
Taxpayers have reasonable cause when their conduct justifies the non-assertion or abatement of a penalty.
If the estate files an appeal of a denied abatement request, date stamp the protest and document in the case file history that the protest was received and forward the protest letter to Appeals within 30 days from the postmark date of the protest letter. Also include:
Documentation considered in analyzing reason for penalty assessment,
Case file history, and
Any pertinent correspondence with the taxpayer.
Route protest cases based on the state in which the decedent was last domiciled using the case routing list on the Appeals’ website at http://appeals.web.irs.gov/APS/bystate2.htm. The case may be transferred to another Appeals Officer based on inventory needs.
You may receive a delinquent return investigation to secure unfiled gift tax returns, this may result from an expired extension to file.
The following actions should be taken:
Contact the donor and question what asset(s) were transferred that they thought required filing of a gift tax return.
Summons the work papers of the executor or the attorney or accounting firm that prepared the extension request.
Conduct a county records check on the donor for transferred assets, such as real property transferred in the year of the gift. If deceased also check probate records to see if there is litigation concerning gifts heirs may have received.
Determine if property was transferred to trusts.
Check donor's IRPTR, was there a decline in interest or dividend income - maybe stock was given away, or a savings account or C.D. (gifts of cash may decrease size of these accounts). IRPTR may reflect changes in income, sales, or mortgage interest reported.
Check the donor's Form 1040, did it reflect that stock was sold or a gain on Schedule D or was that income no longer reported - maybe it was sold and not gifted or just transferred (check several years for changes in assets).
Accurint may provide property changes or relatives that may be donees.
Check BMFOL to see if gift tax returns were filed in other years.
Contact your local estate tax attorney group - ask questions about how they find gifts when auditing the estate tax return.
Once you gather sufficient documentation to support the filing requirement for the tax year in question (see the form instructions for filing requirements) you can submit a Specialist Referral System application, https://srs.web.irs.gov/, it will be assigned to an estate tax group to evaluate. Another option is to forward a referral form, with supporting documentation, directly to E&G Exam see mysbse.web under the IRM Guidance & Resource tab for more information.
For suggested summons language for gift tax returns see IRM 188.8.131.52,Using a Summons for Estate and Gift Tax Information.
For requests of extensions of time to pay gift tax the Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship, is used. This form is also used for many other types of returns.
These requests are sent to Campus E&G unit for monitoring but the determination to approve or disapprove the application is made by the Advisory Estate Tax Lien group. Any account which is granted an extension to pay will have an extended CSED for the period that payment of the tax was deferred. The gift tax lien is 10 years from the date of the gift and cannot be extended or tolled.
Advisory will open a NFOI (non field open investigation) and maintain an ICS history of their actions. Check prior ICS history for information regarding the donor’s ability to pay and Advisory files for related correspondence. You can also look at TXMOD history for notes from the Campus E&G unit on actions they have taken.
You will not find a TC 468 on a gift tax account, the programming of this transaction code is specifically for estate tax accounts only. For more information on processing Form 1127 see IRM 184.108.40.206, Extension Requests to Pay Gift Tax.
The Form 709 will identify the donor and will include a description gifts. One of your first steps is to secure a copy of the return. You may be able to secure a copy from Examination if the account is undergoing an audit or from the estate representative.
Historical gift tax returns are stored at the C-Site in Independence, Missouri and are filed in alpha order based on the original Service Center in which they were filed, or in other words in 10 separate alpha systems.
A Document Locator Number (DLN) is assigned to a Form 709 at the time of processing, the return is not stored in DLN order since a taxpayer may have filed more than one gift tax return. However, a DLN is helpful in locating a historical Form 709 because the first two digits of a DLN define the Service Center in which a return was filed. The taxpayer may have changed their address and filed in different Service Centers. Therefore, when requesting a taxpayer’s complete historical gift tax file, it is necessary to conduct IDRS research to secure the DLN for each historical tax return. Form 709 accounts are assessed under MFT 51, the tax period is the year the gift was made.
Complete Form 2275 using the DLN data from the MFTRA, BMFOL or the Retention Register. Provide all names used by the taxpayer (per MFTRA).
Fax Form 2275 requests to the Cincinnati Campus for action. For more detailed information on ordering 709 returns and fax numbers see http://mysbse.web.irs.gov/Collection/toolsprocesses/EstateTax/EstateTax/default.aspx.
Below are sources of information that should be considered when investigating assets for which there is a gift tax lien or the donees, which are personally liable, and the extent of such donee liability.
In cases where a gift tax return has been filed, Page 1 of the Form 709 will identify the Donor, while Page 2, Schedule A of Form 709 should contain all of the necessary information to determine gift tax liens and donee liability, including:
Donee’s name and address
Relationship to donor
Description of the gift, including any CUSIP numbers for securities, or EIN’s for closely held stock
Date and value of the gift
There are 3 Parts on Schedule A. Part 1 concerns gifts for which there is no additional Generation Skipping Transfer Tax Liability. Parts 2 and 3 contain information on gifts that have, or may have, additional Generation Skipping Transfer Tax Liabilities. Thus, all of the gifts listed on Parts 1, 2 and 3 of Schedule A of the Form 709 will need to be reviewed to identify all gifts and their donees.
If the gift tax account has been audited, the examination files and work papers should be reviewed to identify additions or changes in the donees and the values of the gifts received by each.
If an examination has been challenged in the Tax Court, the petition filed by the Donor, stipulations of fact filed by one or both of the parties, and the Tax Court’s decision should reflect a final determination of the names of the donees and the value of the gifts they received. Many Tax Court records are available online at www.ustaxcourt.gov/docket.htm. For those which are not available online, Chief Counsel’s files for the case can be consulted, or the Clerk’s office for the Tax Court can be contacted for copies of specific documents.
If a Tax Court case has been appealed, then the appellate decision must also be consulted to determine if any changes were made to the Tax Court’s decision. Check with Counsel to obtain a copy of any appellate decisions.
Court decisions can also be used to prevent the donor and the donee from challenging the identity of the donee, the property subject to the gift tax lien, and the value of a gift once collection efforts have begun.
Estate tax returns and estate tax examination files can also be a source for identifying gifts and the donees to which they were made.
Under Section 2501 a gift tax is imposed on all gifts. The person who made the gift is known as the "donor" . The donor has the primary responsibility for paying the gift tax, and all penalties and interest on the gift tax. See, 26 U.S.C. § 2502(c).
If the donor dies before paying the gift tax owed, his estate will become liable for paying the gift tax debt. Treas. Reg. § 25.2502-2.
The CSED is 10 years from date of assessment, plus any extensions provided by law (on Form 1127).
Seizure and levy on the property and rights to property currently held by the donor may be used to collect any gift taxes assessed against the donor. See IRM 220.127.116.11,Levy to Enforce Gift Tax Liens, for special levy language.
Additionally, the general lien against the donor’s assets and the gift tax lien against the gifted property may be used to collect the gift tax account.
See IRM 18.104.22.168,The Gift Tax Lien, for an explanation of the section 6324(b) gift tax lien, assessment lien, attachment to assets and duration.
The recipient of the gift is known as the "donee" . When the donor fails to pay the gift tax owed, Section 6324(b) also makes each donee of any gift made during that tax period personally liable for the unpaid gift tax up to the amount of the value of the gift received by such donee.
The CSED for the donee’s personal liability is the same as the donor’s CSED on the gift account. However, this donee liability under Section 6324(b) is a type of transferee liability that must be assessed directly against the donee under Section 6901, or reduced to a judgment through a suit in district court before administrative collection actions can be taken against a donee’s property that is not subject to one of the liens described above.
The statute of limitations for the United States to assert personal liability on transferees or donees under Section 6324(a) and (b) through a suit in district court is not limited by the term of the 10 year liens described in those subsections. Instead, the applicable statute of limitations is the period for collection against the estate or the donee under Section 6502 and runs for 10 years from the date the taxes were assessed. See United States v. Degroft, 539 F. Supp. 42 (D. Md.1981); United Sates v. Botefuhr, 309 F.3d 1263 (10th Cir. 2002).
The donee’s liability is not limited to the gift tax owed on his specific gift. Instead, the donee is liable for all of the gift tax owed by the donor in the year his gift was made - up to the value of the gift he received. See La Fortune v. Commissioner, 263 F. 2d 186, 194 (10th Cir. 1958).
The donee’s liability may also include penalties assessed against the donor so long as the combined tax and penalties still fall within the value of the donee’s gift.
A donee’s personal liability may also include interest. In some cases a donee’s liability for interest can exceed the value of the gift received. Although Collection does not need to determine whether a donee has additional liability for interest, all referrals for Section 6901 assessment or a suit for a judgment of donee liability should include information on all donees, even if they have fully paid the value of the gift they received. This is so that Exam and Counsel can evaluate whether or not the donee has additional liability for interest.
Thus, where gifts have been received by multiple donees within a given year, each donee is personally liable for the entire gift tax debt (including penalties and interest) arising out of that tax year - up to the value of the gift he received. This is so even though the donee’s liability might result in his payment of taxes, penalties and interest attributable to other donees’ gifts.
In cases where a gift has been made to a trust, donee liability may be asserted against beneficiaries of a trust. Generally, the law treats a gift to a trust as a gift to the beneficiaries of the trust who held a present interest rather than a gift to the trustee or the trust itself. Because these cases are often fact dependent, you should consult with Counsel before asserting donee liability against the beneficiary of a trust.
The gift tax lien and donee liability can also be asserted on gifts that did not generate any part of the gift tax liability because they were subject to annual exclusion or were subject to marital exemption, charitable exemption or unified credit. However, caution should be used when collecting unpaid gift taxes from charities.
The Government is not required to pursue the donor before attempting to collect the unpaid account from the donee to extent of his liability. The Government is not required to pursue the donees in any particular order, or to pursue all of the donees. See United States v. Davenport, 484 F. 3d 321, 325 (5th Cir. 2007) and United States v. Botefuhr, 309 F.3d 1263, 1281, n. 13 (10th Cir. 2002) (declined to follow on other issues by Davenport).
The requirement of proceeding under Section 6901 or a suit under Section 7402 to establish a donee’s personal liability under Section 6324(b) should not be confused with the government’s independent right to immediately collect the donor’s liability by enforcement of its separate in rem lien rights under Sections 6321 and 6324(b). See Ripley v. Commissioner, 102 T.C. 654(1994) (IRS is not required to issue a notice of transferee liability under 26 U.S.C. § 6901(a) or otherwise assess a transferee before taking steps (including levy and seizure) to enforce gift tax lien arising under 26 U.S.C. § 6324).
See IRM 22.214.171.124,Levy to Enforce Gift Tax Liens, for special levy language.
The Generation Skipping Transfer Tax (GST) is a tax in addition to the estate and the gift tax. It was enacted to close a perceived loophole in the estate and gift tax system where property could be transferred to successive generations without intervening estate or gift tax consequences. There are two basic forms of generation-skipping transfers; the indirect skip, where the generation one level below the decedent receives some beneficial interest in the property before the property passes to the generation two or more levels below, and the direct skip, where the property passes directly to the generation two or more levels below the decedent.
Generation Skipping Taxes can be owed as the result of a gift, or as the result of a distribution from a trust or termination of a trust. Depending on the circumstances, the Generation Skipping Tax will be reported on:
Form 706 Estate Tax Return
Form 709 Gift Tax Return
The GST tax is collected in the same manner as the estate tax or the gift tax account – depending on the type of transfer which created the GST tax. In other words, the transferee/donee liability provisions of Section 6324(a) and (b) will apply to the GST tax just as though it were an estate or gift tax liability. See Sections 2603(c) and 2661. See also, O’Neal v. Commissioner, 102 T.C. 666, 675 n. 5 (CCH 1994). How GST arises determines its collection.
GST arises under MFT 52:
As part of estate tax on Form 706
For decedent's revocable trust transfers at death
Is combined with estate tax on MFT 52
It is reported under estate's TIN
Collect like the estate tax, IRC Sections 2603(a)(2), 2661(2) and 6324(a)
IRC 6324(a) lien and transferee rules apply
When the GST tax is reported or should have been reported on the estate tax return, it will be included in the estate tax account and treated as though it were part of the estate tax for internal module purposes.
GST arises under MFT 51:
As part of gift tax on Form 709
Results from direct gift by donor to grandchildren or persons two or more generations below the donor, IRC Sections 2613(a) and 2651
Is reported under donor’s TIN
Collect like the gift tax, IRC Sections 2603(a)(2), 2661(1) and 6324(b)
IRC 6324(b) lien and transferee rules apply
Similarly, when the GST has been or should have been reported on a Form 709, it will be included in the gift tax module for the donor’s gift tax liability, under MFT 51.
GST arises under MFT 77:
From separate Form 706-GS(T), Generation-Skipping Transfer Tax Return For Terminations
For the taxable termination of a GST trust
Form 706-GS(T) is filed by the trustee, assessed under MFT 77, under an EIN only
The return is due April 15 of the year following the year in which the termination occurred
Trust has primary liability for tax due
Collect like the gift tax, IRC Sections 2603(a)(2), 2661(1) and 6324(b).
IRC 6324(b) lien and donee rules apply
The trust is the donor (trustee in their official capacity), beneficiary is the donee
GST arises under MFT 78:
From separate Form 706-GS(D) Generation-Skipping Transfer Tax Return for Distributions
For a taxable distribution from a GST trust
Form 706-GS(D) is filed by beneficiary, assessed under MFT 78
If the skip-person distributee is an individual, the return is filed under the distributee’s SSN; if the skip-person distributee is a trust, the return is filed under the distributee’s EIN
The return is due April 15 of the year following the calendar year when the distribution was made.
Trustee files a Form 706(GS (D–1)), Notification of Distribution From A Generation-Skipping Trust with IRS. It may be recorded on Non-Master File. It is similar to Form 1099 that identifies the trust and distribution to the beneficiary. Beneficiary then has to file Form 706-GS(D).
Beneficiary has primary liability for tax due
Collect like gift tax, IRC Sections 2603(a)(1), 2661(1) and 6324(b)
IRC 6324(b) lien and donee rules apply
International accounts result from assessments for Form 706-NA, United States Estate (and Generation- Skipping Transfer) Tax Return. These accounts have a " W" indicator behind the SSN. The " W" indicator may also reflect an invalid SSN, possibly due to a transposition of numbers.
Non-resident aliens are subject to U.S. estate tax on certain assets situated within the United States, when the date of death value of the gross estate exceeds the filing limit of $60,000. Generally, the calculation of this estate tax begins with the "gross estate " situated within the United States (U.S.) which is then reduced for certain U.S. property that is not subject to the estate tax, and certain expenses, mortgages and debts, to arrive at a "taxable estate " on which the U.S. estate tax is calculated. All of the assets in the gross estate are subject to collection even if they created no part of the estate tax due.
The executor of the estate of a non-resident decedent is liable for paying the U.S. estate tax, and once the tax is assessed, it can be collected from the assets in the non-resident decedent's estate or from a transferee who received the assets of the estate under section 6901. For assets located in the United States, the normal collection rules apply. However, there may be additional difficulties in serving and giving notice to executors who live outside of the United States. Check Part 1, lines 9 and 10 of the Form 706-NA, for U.S. addresses for purposes of contacting the executor and or the attorney for the estate.
Additionally, the estate tax lien and personal liability transferee provisions of Section 6324(a)(1) and (2) apply to estate taxes owed by non-resident aliens. Here, the starting point for any collection efforts should be those assets in the non-resident decedent's gross estate listed on Schedule A of Form 706-NA that are located in the United States.
Section 2103 of the IRC provides that the gross estate for non-residents is calculated the same way as the gross estate for residents and citizens under section 2031, but provides that the gross estate will include only assets which at the time of death are situated in the United States. Therefore, the value of all assets forming the non-resident decedent's gross estate situated in the United States should have been listed on the total line of Schedule A of Form 706-NA, and on line 1 of Schedule B.
Accordingly, the assets included on Form 706-NA, Schedule A are the assets against which the Section 6324(a) estate tax lien and transferee liability apply.
Once these assets have been identified, the enforcement of the estate tax lien against these assets can proceed under the rules for collecting an estate tax owed by a U.S. citizen or resident.
If the assets are located outside of the United States, collection of the tax is more difficult. Once it is determined that there are insufficient assets located in the United States to satisfy the estate tax liability of a non-resident decedent, it may be possible to seek recovery of the assets located outside of the United States through domestic judicial actions. For example, the following options may be available:
Suit to Appointment of a Receiver under Section 7402. A receiver may be able to repatriate assets of the taxpayer and then pay taxes owed. (IRM 126.96.36.199, Appointment for a Receiver).
Suit for a Repatriation Order. Such an order would require the taxpayer who transferred U.S. based assets offshore to transfer those assets back to the U.S. where they will be subject to tax collection. If the taxpayer refuses, an order for civil contempt of court can be enforced with the possible sanction of incarceration . (IRM 188.8.131.52, Suit to Repatriate Property).
Only in the case of assets located in either France or Canada and after all available domestic actions regarding collection of the estate tax liability are exhausted, the IRS may also pursue a Mutual Collection Assistance Request (MCAR) pursuant to the US-France Estate Tax Convention (signed 11/24/1978, amended by Protocol 12/8/2004) or the US-Canada Income Tax Convention (signed 09/26/1980, amended by Protocol 9/21/2007), as applicable. (See IRM 184.108.40.206.7, Incoming Mutual Collection Assistance Requests, IRM 220.127.116.11, Outgoing Mutual Assistance Collection Requests, and IRM 18.104.22.168.3 Contacts with Foreign Governments).
The Service provides a transfer certificate upon payment of taxes in full which permits the transfers of property of nonresident decedents without liability. Transfer certificates are releases of the Federal estate tax lien on a decedent’s property.
The Campus E&G international unit monitors these accounts and issues transfer certificates. Their files may contain the original Form 706NA tax return or parts of the return, correspondence with the executor concerning payment of taxes, audit reports or transfer certificates that will assist in your collection investigation.
If a transfer certificate has been issued review the language on the form, it should describe exactly what property is being released - similar to a discharge of property from a lien.
In addition to the normal 10 year CSED statutes, the CSED may be further extended if the executor is out of the country. Per Treas. Reg. § 301.6503(c)–1, the running of the period of limitations on collection after assessment prescribed in section 6502 (relating to collection after assessment) is suspended during which the taxpayer (executor) is absent from the United States if such period is a continuous period of absence from the United States extending for six months or more.
In a case where the running of the period of limitations has been suspended under the first sentence of this paragraph and at the time of the taxpayer's (executor's) return to the United States the period of limitations would expire before the expiration of six months from the date of his return, the period of limitations shall not expire until after six months from the date of the taxpayer's return.
The taxpayer (executor) will be deemed to be absent from the United States for purposes of this section if he is generally and substantially absent from the United States, even though he makes casual temporary visits during the period.
To summarize, the executor is primarily liable for payment of the federal estate tax. Failure of executor to pay the federal estate tax results in individual liability of the executor. If the executor is out of the country for six months or more that period of time is added to the calculation of the CSED. When there is less than six months left on the CSED and the executor leaves the U.S. and then returns to the U.S., the CSED does not expire until after six months after the taxpayer has returned.
The use of different trusts in estate tax planning is a continually developing area. The following is a non-exclusive list of the common types of trusts you may encounter when attempting to collect estate taxes. As explained below, collection of estate taxes from such trusts is dependent on whether the trust’s assets were included in the "gross estate " on the estate tax return or after an examination, and not on the particular name used by the trust.
Revocable Trusts: A revocable trust is any trust that the settlor (creator) can revoke and take the assets back for themselves.
Irrevocable Trusts: An irrevocable trust is a trust that the settler cannot revoke and reclaim the assets for themselves.
Living Trusts: A living trust is a trust created during the decedent’s lifetime. Typically, is it some form of grantor trust in which the decedent retains the right to the use of income from all of the assets. When the decedent dies, the assets go to designated remainder beneficiaries who are commonly the decedent’s heirs.
Grantor Trusts: Grantor trust is a term used in the Internal Revenue Code to describe any trust over which the grantor or other owner retains the power to control or direct the trust's income or assets. If a grantor retains certain powers over or benefits in a trust, the income of the trust will be taxed to the grantor, rather than to the trust. (Examples, the power to decide who receives income, the power to vote or to direct the vote of the stock held by the trust or to control the investment of the trust funds, the power to revoke the trust, etc.) All "revocable trusts " are by definition grantor trusts. An "irrevocable trust " can be treated as a grantor trust if any of the grantor trust definitions contained in Internal Code Sections 671, 673, 674, 675, 676, or 677 are met.
Grantor Retained Annuity Trusts (GRAT): In a grantor retained annuity trust, the grantor creates an irrevocable trust and retains the right to receive, for a specified term, an annuity based on specified sum or fixed percentage of the value of the assets transferred to the trust. A grantor retained annuity trust is specifically authorized by Internal Revenue Code Section 2702(a) (2) (B) and 2702(b). For federal income tax purposes, this trust is treated as a grantor trust.
Grantor Retained Income Trusts (GRIT): In a grantor retained income trust, the grantor creates an irrevocable trust and retains the right to all trust income for the earlier of a specified term or the death of the grantor. If the grantor survives the specified term, the trust principal passes to others according to the terms and provisions of the trust instrument. For federal income tax purposes, this trust is treated as a grantor trust.
Grantor Retained Unitrusts (GRUT): A grantor retained unitrust is similar to a grantor retained annuity trust. However, in a grantor retained unitrust, the grantor creates an irrevocable trust and retains, for a specified term, an annual right to receive a fixed percentage of the annually determined net fair market value of the trust assets (Treasury Regulation Section 25.2702-(c)(1)). For federal income tax purposes, this trust is treated as a grantor trust.
Personal Residence Trust (PRT): A personal residence trust involves the transfer of a personal residence to a trust with the grantor retaining the right to live in the residence for a fixed term of years. Upon the earlier of the grantor's death or the expiration of the term of years, title to the residence passes to beneficiaries of the trust. This is an irrevocable trust with gift tax implications.
Qualified Personal Residence Trust (QPRT): A qualified personal residence trust involves the transfer of a personal residence to a trust with the grantor retaining a qualified term interest. If the grantor dies before the end of the qualified term interest, the value of the residence is included in the grantor's estate. If the grantor survives to the end of the qualified term interest, the residence passes to beneficiaries of the trust. A QPRT is a grantor trust, with special valuation rules for estate and gift tax purposes, governed under IRC 2702.
Intentionally Defective Grantor Trust (IDGT): An intentionally defective grantor trust (IDGT) is a complete transfer to a trust for estate tax purposes but an incomplete, or "defective " , transfer for income tax purposes. Because the trust is irrevocable for estate and gift tax purposes and the grantor has not retained any powers that would cause estate tax inclusion, the future value of the assets transferred is removed from the grantor’s gross estate on the date of the trust’s funding. However, because the grantor retains certain other powers, the trust is treated as a grantor trust for income tax purposes. As a result, the grantor is taxed on all the trust’s income, even though he or she is not entitled to any trust distributions. If structured properly, the IDGT will receive the gross income generated from the trust’s income-producing assets, which will accrue to the benefit of the trust’s beneficiaries. The trust also allows the grantor the opportunity to remove future appreciation from the grantor’s estate while maintaining control over the assets.
Charitable Remainder Annuity Trusts (CRAT): A CRAT is a trust which is to pay its income beneficiaries a specified sum each year that cannot be less than 5% of the initial net fair market value of all property placed in trust. Other amounts may be paid to a charity.
Charitable Remainder Unitrusts (CRUT): A CRUT is a trust which is to pay the income beneficiaries a fixed percentage each year, not less than 5% of the net fair market value of its assets, as valued annually.
Charitable Lead Annuity Trusts (CLAT): A charitable lead annuity trust is a charitable lead trust paying a fixed percentage of the initial value of the trust assets to the charity for the charitable term.
Charitable Lead Unitrust (CLT): A charitable lead unitrust is a charitable lead trust paying a percentage of the value of its assets, determined annually, to a charity for the charitable term.
Although there are many different types of trusts, there are generally only two ways in which trusts affect the collection of estate taxes. Trusts which are revocable by the decedent, and trusts in which the decedent retained some interest at the date of death that will be included in the "gross estate " for purposes of calculating the estate tax.
Generally, if the estate tax return (Form 706) has been prepared properly, or has been audited, the Schedule G of that return or the Schedule G audit adjustments should provide a starting list of the trusts whose assets are included in the gross estate. The assets of these trusts are subject to the 10 year estate tax lien under Section 6324(a)(1). The trust is considered a Section 6324(a)(2) transferee. Additionally, the trustee of such trusts is personally liable for any unpaid estate tax under Section 6324(a)(2) up to the amount of the trust’s assets included in the "gross estate" .
As a general rule if the decedent retained a right to revoke the trust, or retained any powers, or economic interests in an irrevocable trust before death, then under Sections 2036 through 2038, all of the assets of the trust (in contrast to the decedent’s interest in the trust) are included in the "gross estate " for purposes of calculating the estate tax and are subject to the 10 year estate tax lien.
While the traditional tools of fraudulent transfers, alter ego, nominee and state law provisions that allow creditors to reach assets of self-settled or grantor trusts may be of some use in collecting unpaid estate taxes in unusual circumstances, Section 6324(a) provides strong collection tools for the government when it seeks to collect unpaid estate taxes.
Generally, assets transferred to an irrevocable trust in which the decedent retained no interest, will not be part of the gross estate, but may have resulted in a taxable gift that should have been reported on Form 709 or that may be picked up on Form 706 if no gift tax return was previously filed. In this way, the estate tax and the gift tax support each other by preventing untaxed transfers of wealth without consideration. In such cases, there may be an uncollected gift tax account to collect. See discussion of collecting gift taxes.
The estate tax lien does not attach to assets of trusts that were not included in the value of the "gross estate " but which were disclosed on the Form 706 for other reasons. For example, Schedule O on Form 706 may reveal the name of trusts which are to be funded as part of bequests made in the decedents will. Additionally, prior gifts to trusts are sometimes disclosed on Form 706 and may not have been included in the "gross estate " .
It is common for Living Trusts to include language that obligates the trustee to pay the Decedent’s last debts and any estate or gift taxes that may arise upon the decedent’s death. This language can be very useful when collecting a decedent’s pre-death income taxes, employment taxes, gift taxes, or a trustee’s fiduciary liability arising from an insolvent trust.
Such language may also be useful in establishing transferee liability of the trust for unpaid estate taxes. However, in most estate tax cases, reliance on such language will not be necessary because Section 6324(a) (1) already makes the trust (through its trustee) liable for unpaid estate taxes - up to the value of the trust assets that have been included in the gross estate. Thus, reliance on these trust provisions for the payment of the decedent’s estate taxes would be an additional benefit to the government in cases where there is no value limit on the trust’s liability.
Here is an example of language to look for:
"In the event that the assets of this trust are included in the Settlor’s estate for federal estate tax purposes or for purposes of any state, inheritance estate, succession, or other taxes which become payable by reason of the Settlor’s death, Trustee shall pay the executor, administrator or other legal representative of the estate of the Settlor any federal estate tax, state inheritance tax, estate, succession or other taxes which become payable by reason of the Settlor’s death and which are attributable to the trust assets. "
The language above, limits the trustee’s obligation to the extent that the trust’s assets were included in the estate, and therefore, reliance on any state law rights the government may have to enforce the provisions of this trust in its favor are no better than the remedies provided by Section 6324(a) (2) which makes the trust liable to the government to the same extent.
However, if the trust’s assets have grown in value or new assets were added to the trust, and the words " and which are attributable to the trust assets " were not included in the trust instrument, the government might be able to bring a Section 6901 assessment or a suit against the trust for an amount greater than the value of its assets included on the Form 706.
Some states permit creditors to sue the trust directly. If the Section 6901 transferee assessment is based on the state law rights of creditors making the trust (Trustee in his official capacity) liable to those creditors in accordance with its own terms and not IRC 6324(a) or (b), the government will be able to seek an assessment of the entire estate for gift tax liability if the trust document does not limit liability to the value of the trust assets.
When dealing with trusts as a source of collection for unpaid estate taxes, the Form 706 estate tax return should be considered first. The estate tax return will reveal which trust assets were included in the gross estate, and therefore, are subject to the estate tax lien and trust liability for the estate tax. Forms 706 often contain numerous attachments – each documenting one of the underlying assets or debts reported on the estate tax return. These attachments are a valuable starting place to gather information and documentation about the trust and its assets. In some cases, the identity of banks, brokerage firms and account information regarding the trust’s assets are listed on one or more attachments to the Form 706 estate tax return.
If litigation was involved, Tax Court records and Chief Counsel files may contain documentation about the trust and its assets.
Unlike corporations and partnerships, trusts are not required to file their organization documents or register in most states. Therefore, is may be difficult to obtain the trust instrument or the identity of the trustees and beneficiaries. It may become necessary to use a summons to obtain the actual trust instrument and records regarding its assets. Check name and address records for the last known trustee of the trust to serve a summons. Alternatively, the executor of the estate and any person who prepared the Form 706 may be summoned to identify the trusts included in the gross estate and the names of their respective trustees for service of a second summons.
In addition to the information regarding historical trust assets which have been included on the Form 706 estate tax return and audit files, additional information regarding potential collection sources can be found in various income tax records and returns.
The decedent’s previous income tax returns may reveal assets or income sources that were not accounted for on the Form 706 estate tax return. Information regarding a trust’s current assets and distributions to its beneficiaries can often be found by reviewing IRS internal records regarding IRPTR information, Form 1099 and K-1 information regarding the estate, the trusts and their heirs and beneficiaries. The income tax returns and related Forms K-1 filed by the estate and by the trusts may provide additional information on probate estate and trust assets. It is common for one or more related trusts to report their income and income tax liability on the same Form 1041 used by the probate estate, Section 642 of the Internal Revenue Code permits this election in certain cases. Trusts holding non-probate assets that were included in the gross estate may choose to file a separate income tax return on their own Form 1041.
State court records can also be a valuable source of information regarding trust assets. Each state’s court system will be different in the type of court where trust issues are litigated. While many states rely on their probate courts to handle suits regarding the administration of trusts, other courts may handle suits between trusts and other parties.