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Regulation and Compliance > Federal Regulation > IRS

IRS Issues Estate Tax Return Notice

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The Internal Revenue Service says that, in some unusual cases, it will limit its own ability to look at estate tax and generation-skipping transfer tax forms.

The IRS describes and discusses the “limited administrative exception” in Notice 2009-84, which applies to some “protective claims for refund” filed on behalf of estates of taxpayers who die on or after Oct. 20, 2009.

The exception may affect taxpayers who meet filing deadlines and ask for refunds based on deductions taken under Section 2053 of the Internal Revenue Code, officials say.

IRC Section 2053 permits estates to deduct funeral and estate administration expenses. The rules governing when and how Section 2053 deductions should be valued are complicated, and the IRS has been working on Section 2053 valuation regulations for years.

In some cases, executors must file claims simply to preserve their right to take deductions later, then file requests for deductions when they are allowed to do so.

Some tax lawyers and accountants have complained that the IRS has the right to open up an estate’s entire Form 706 tax form when it is considering the requests for deductions, officials say.

The IRS is coming out with final regulations that should reduce the need to rely on the protective fund claim system, but meanwhile, the agency wants to help make the estate tax form system easier to administer, officials say.

“Accordingly,” officials write in the new notice, “if the period of limitations on assessment has expired and the service is notified that a timely-filed protective claim for refund of tax based on a deduction under Section 2053 has ripened and is ready for consideration, the service generally will refrain from exercising its authority to examine each item on the Form 706 to determine if there is an overpayment of tax.”

Instead, officials say, the IRS will focus on the evidence relating to the Section 2053 deduction requested in the protective claim.

This administrative exception does not apply when the IRS is considering one protective refund claim based on a Section 2053 deduction along with another type of refund claim, officials say.

The exception applies “only if the protective claim for refund ripens after the expiration of the period of limitations on assessment and does not apply if there is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact,” officials write.

A copy of the notice is available here.


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