The following was written by Luke Lantta of Bryan Cave’s fiduciary litigation team and originally posted here.
When the IRS enacted the portability election provisions in 2011, which allowed estates of married taxpayers to pass along the unused part of their estate and gift tax exclusion amount to their surviving spouse, it remarked that it “expect[ed] that most estates of people who are married will want to make the portability election. . . .” But, to elect portability, an estate tax return must be filed in order to pass along the exclusion. So, what happens when an executorrefuses to elect portability? Take them to court, of course. (more…)
IRS Notice 2017-12
The Service issued FAQs in June of 2015 to let practitioners know that they were no longer routinely issuing closing letters. The Service instructed practitioners that they would now have to request such a closing letter, but could not do so until 4 months after filing the estate tax return. Their goal was to reduce the amount of work the Service needed to complete as a cost cutting measure. However, taxpayers need closure and the requests for closing letters almost became routine. Because so many practitioners were routinely requesting closing letters, the Service let it be known informally, with a posting on its website, that a transcript could be requested, and would be an acceptable substitute for an estate tax closing letter. But requesting such a transcript has not been a simple matter, with many groans of frustration along the way. The Service has now provided guidance in this Notice 2017-12 on this alternative method of confirming that an estate tax return examination is closed.
Although practitioners may prefer to obtain a closing letter, the Service points out in this Notice that an estate tax closing letter does not foreclose the Service from reexamining an estate tax return at a later date. Instead, a closing letter simply indicates that the estate tax return has been accepted, either as filed or after an adjustment to which the estate has agreed. After an estate tax closing letter has been sent to the taxpayer, for example, the Service may still audit the estate tax return that makes a portability election up until the statute of limitation has run on the estate tax return of the surviving spouse to determine the surviving spouse’s applicable exclusion amount.
After receiving so many requests for a closing letter, the Service began to realize that executors, state taxing authorities and probate courts want to know that an estate tax return has been accepted by the Service. Therefore, the Service now formally announced in this Notice that an “account transcript” is an alternative method of obtaining that finality without the need for the Service to issue a closing letter. An account transcript is a computer generated report that contains detailed information about the procedures that have been undertaken by the Service in handling a given estate tax return. Among the many details contained in this transcript is the date on which the estate tax examination was closed, identified by the computer code of “421”. In the Service’s view, the account code “421” on an account transcript is the functional equivalent to an estate tax closing letter, and should provide the same level of finality required by some state taxing authorities and probate courts.
This Notice instructs the practitioner that an account transcript can be obtained without charge by faxing Form 4506-T, Request for Transcript of Tax Return, to the Service at the fax number provided on the Form. (This is the same Form that is used to request a transcript for any type of tax return.) This Form should not be filed any earlier than four months after the estate tax return has been filed. Letters testamentary or of administration showing the authority of the executor must be provided with the Form. If the account transcript is being requested by a taxpayer’s representative, a Form 2848, signed by the taxpayer specifically authorizing the representative to request the account transcript, must also be sent with the Form. Even though there is a place on the IRS.gov website under “Tools” to “Get a Tax Transcript”, the taxpayer cannot currently obtain either an estate tax closing letter or an account transcript online. The remaining question is whether state courts and financial institutions will accept the account transcript or whether these entities will continue to require an estate tax closing letter to evidence acceptance of an estate tax return. If an estate tax closing letter is required, an estate tax closing letter may still be requested, and this Notice instructs that the way to do so is by calling the IRS at 866-699-4083.
In a recent Tax Court decision, Harry H. Falk, and Steven P. Heller, Co-Executors, v. Commissioner of the Internal Revenue, the United States Tax Court ruled that in the case of the Madoff Ponzi scheme, an estate which paid estate tax on Madoff assets which subsequently have become worthless can claim a theft deduction.
James Heller, a New York state decedent, died in January 2008 owning a 99% interest in James Heller Family, LLC (the “LLC”). The only asset held by the LLC was an account with Bernard L. Madoff Investment Securities, LLC. In November of 2008, the Executors of Mr. Heller’s estate withdrew some money from the LLC’s Madoff account in order to pay estate taxes and other administrative expenses. Shortly thereafter, the news of the Madoff Ponzi scheme became public. Suddenly, the LLC’s interest and the estate’s interest in the LLC became worthless.
In April 2009, the Executors of the Estate filed an estate tax return which included the decedent’s 99% interest in the LLC – as valued at the date of his death – in his gross estate. But the estate also claimed a theft loss deduction relating to the Ponzi scheme in an amount equal to the difference between the values of the estate’s interest in the LLC at death and the estate’s share of the amount withdrawn from the LLC’s Madoff account. The Internal Revenue Service issued a notice of deficiency, claiming the estate was not entitled to the theft loss deduction because the estate did not incur a theft loss.
Internal Revenue Code Section 2054 allows a deduction from the value of a gross estate of “losses incurred during the settlement of estates arising from…theft.” The Internal Revenue Service argued that the LLC incurred the loss, not the estate, and as such the theft deduction is not appropriate. However, the Court determined that the loss suffered by the estate related directly to its LLC interest, the worthlessness of which arose from the theft. The theft extinguished the value of the estate’s LLC interest, thereby diminishing the value of the property available to the decedent’s heirs. As such, the Court determined a theft deduction appropriate.
Back in August, we wrote about how the IRS would no longer automatically issue closing letters for filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Returns. Instead, the IRS will only issue closing letters upon request by the taxpayer.
However, on December 4, the IRS updated its Frequently Asked Questions on Estate Taxes website to provide estates with an alternative to requesting and obtaining an IRS closing letter:
“Account transcripts, which reflect transactions including the acceptance of Form 706 and the completion of an examination, may be an acceptable substitute for the estate tax closing letter.”
Further, transcripts are easily available:
“Account transcripts are available online to registered tax professionals using the Transcript Delivery System (TDS) or to authorized representatives making requests using Form 4506-T.”
The IRS issued final regulations for electing portability and use of a deceased spousal unused exclusion amount (DSUE) on June 12, 2015. Though the final regulations are fairly technical, they are worth understanding as applying them correctly can mean a $5,430,000 difference in the amount that passes through an estate tax free. The final regulations adopt the temporary regulations that were issued in 2012, with several changes and clarifications:
1. Upon request, the proposed regulations allowed for an extension of time to elect portability for those estates that did not meet the requirements for an automatic extension. It was unclear whether estates that exceed the basic exclusion amount (currently $5,430,000 indexed for inflation) could request such an extension because the filing deadline for such estates is prescribed by statute and thus cannot be modified by regulation. The final regulations clarify that (more…)
The Treasury Green Book provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning is found on page 206 of the Green Book and is re-printed here for your convenience:
EXPAND APPLICABILITY OF DEFINITION OF EXECUTOR
The Code defines “executor” for purposes of the estate tax to be the person who is appointed, qualified, and acting within the United States as executor or administrator of the decedent’s estate or, if none, then “any person in actual or constructive possession of any property of the decedent.” This could include, for example, the trustee of the decedent’s revocable trust, an IRA or life insurance beneficiary, or a surviving joint tenant of jointly owned property. (more…)
The Treasury Green Book provides explanations of the President’s budget proposals. One such proposal (remember…these are just proposals, not actual changes in the law) that may affect your estate planning is found on page 202 of the Green Book and is re-printed here for your convenience:
EXTEND THE LIEN ON ESTATE TAX DEFERRALS WHERE ESTATE CONSISTS LARGELY OF INTEREST IN CLOSELY HELD BUSINESS
Section 6166 allows the deferral of estate tax on certain closely held business interests for up to fourteen years from the (unextended) due date of the estate tax payment (up to fourteen years and nine months from date of death). This provision was enacted to reduce the possibility that the payment of the estate tax liability could force the sale or failure of the business. Section 6324(a)(1) imposes a lien on estate assets generally for the ten-year period immediately following the decedent’s death to secure the full payment of the estate tax. Thus, the estate tax lien under section 6324(a)(1) expires almost five years before the due date of the final payment of the deferred estate tax under section 6166.
Reasons for Change
In many cases, the IRS has had difficulty collecting the deferred estate tax, often because of business failures during that tax deferral period. The IRS sometimes requires either an additional lien or some form of security, but these security interests generally are prohibitively expensive and damaging to the day-to-day conduct and financing of the business. In addition, unless these other security measures are put in place toward the beginning of the deferral period, there is a risk that other creditors could have a higher priority interest than the Government. (more…)
The untimely death of Robin Williams shocked and distressed many of his admirers. Now six months after his death many of his admirers are further distressed by the legal battle between Williams’s widow and his children from prior marriages.
Mr. Williams seems to have gone to great lengths to care for and protect his three children from two different marriages. Yet, he also made provisions for his wife. His home in Tiburon, California, along with its contents, subject to certain reservations, was to pass to his wife on his death. However, the trust which, according to news sources, disposes of this home and its contents also provides that his children are to receive his clothing, jewelry and personal photos taken prior to his last marriage as well as his “memorabilia and awards in the entertainment industry”.
Williams’s widow contends that his children came into her home soon after the suicide and wrongfully took property that should belong to her from the home. The children counter that the trustees acted within their authority in granting them access to the home and these items. What does the word memorabilia cover? (more…)
When a will contains a so-called no contest clause or in terrorem clause that would cause a beneficiary to lose his or her interest in the deceased’s estate in the event the beneficiary contests the validity of the will, the court is often called upon to determine whether to enforce the forfeiture against the beneficiary if he or she loses the will contest. Just such an issue faced the Mississippi Supreme Court in Parker v. Benoist.
In this case, Bronwyn Benoist Parker (“Parker”) filed a will contest, contesting the validity of her father’s 2010 will. The 2010 will changed the disposition of the father’s estate from an equal division between Parker and her brother, William Benoist (“Benoist”), to a disposition where Benoist received a significantly greater portion of their father’s estate and Parker received a significantly lesser portion of the estate. (more…)
More than a month after his death at age 82, Casey Kasem’s body still has not been buried and now is missing from the Washington state funeral home where it was being held, according to a recent statement from the publicist for his daughter, Kerri Kasem.
Kasem’s body disappeared around the same time that Kerri Kasem was granted a temporary restraining order she sought to prevent Casey Kasem’s second wife (and the step mother of three of his four children, including Kerri), Jean Kasem, from cremating Casey’s remains or removing them from cold storage. Kerri was seeking a court order allowing Kerri to obtain an autopsy of her father’s body. Kerri has stated that in light of threats by Jean to sue Kerri for elder abuse and wrongful death she is concerned about how the results of any autopsy that Jean may have commissioned might be used.