IRS Tell Estates No Closing Letters - Pull Transcripts Yourself!

The IRS is the federal agency which has the most direct contacts with Americans. Dealing with the IRS is never easy. The starting point is 75,000 pages (in fine print) of the Internal Revenue Code and Regulations which Americans must somehow master to file accurate tax returns.

To make life even more difficult, irrespective of the IRC and Regulations, the IRS creates a number of procedural requirements necessary to complete various tasks involving the IRS' contacts with taxpayers. One such situation involving the filing of Federal Estate Tax Returns (forms 706 and 706-NA) has been the automatic issuance of closing letters (IRS Letter 627, catalogue # 40285J) when the IRS has completed reviewing these forms. Under Section 6324 of the IRC, the IRS has a 10 year lien on all property which appears on an estate tax return. In order to avoid personal liability, the executor of the estate and anyone else who had contact with either the assets or proceeds of the estate (see Section 2203) can be held liable for any unpaid tax unless one receives a form 5173, Federal Transfer Certificate which frees everyone from this potential liability.  Form 5173 was always issued in tandem with with the automatic issuance of the federal closing letter.

This was too simple for taxpayers so the IRS, in its infinite wisdom, decided to make life a little bit more complex with one of its procedural requirements. For estate tax returns filed after June 1, 2015, if the estate wished to receive a closing letter and form 5173, the personal representative or power of attorney had to send a letter to the IRS more than four months after the filing of the tax return requesting the issuance of both the closing letter and form 5173.   

This procedural change unleashed a firestorm of complaints directed toward the IRS. In lieu of going back to the old procedure where a closing letter was automatically issued when the IRS closed an estate, the IRS came up with a completely new procedure which is, leave it to the IRS, even more complex. The new procedure requires the taxpayer to request an account transcript from the IRS Transcript Delivery System. Tax professionals can register with the government to obtain secure tax transcripts; only registered professionals, accompanied by form 2848 (Power Of Attorney) can receive these transcripts. 

This new  methodology will send the tax professional something called a transcript delivery system page, from which one must request a transcript option utilizing this option which can then generate the closing letter. Such a letter cannot be issued until the transcript shows an IRS Transaction Code  421 which indicates that a 706/706-NA has been accepted by the IRS or the the IRS examination is complete. In order to learn more about how to work the system, there is a tutorial program to which one can refer by clicking on "TDS Tutorial." 

This having been said, one wonders about how one gets the required form 5173 (transfer certificate) which is not mentioned in the IRS material. This certainly presents an opportunity to demonstrate how the IRS can create unnecessary complexities (and accompanying misery) for people wishing to receive Federal Closing Letters. Lots of luck!

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Robert S. Blumenfeld  - 

 Estate Tax Counsel

Mr. Blumenfeld concentrates his practice in the areas of International Tax and Estate Planning, Probate Law, and Representation of Resident and Non-Resident Aliens before the IRS.

Prior to joining Marini & Associates, P.A., he spent 32 years as the Senior Attorney with the Internal Revenue Service (IRS), Office of Deputy Commissioner, International.

While with the IRS, he examined approximately 2,000 Estate Tax Returns and litigated various international and tax issues associated with these returns.As a result of his experience, he has extensive knowledge of the issues associated with and the preparation of U.S. Estate Tax Returns for Resident and Non-Resident Aliens, Gift Tax Returns, Form 706QDT and Qualified Domestic Trusts.