If an estate is required to file a federal estate tax return, IRS Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, because the estate is taxable or the decedent made substantial gifts during his or her lifetime, then in many cases the estate will be "frozen" until the IRS has had sufficient time to examine and accept the decedent's estate tax return. This will undoubtedly frustrate the heirs of the estate since they will not be able to get their hands on their inheritance until the estate tax return has been completely processed and accepted by the IRS and any estate taxes due have been paid in full. And it should come as no surprise to learn that the IRS is not exactly efficient in processing federal estate tax returns.
The purpose of this article is to explain what happens after a federal estate tax return is filed with the IRS and how long it will take to receive the coveted estate tax closing letter.
Timeline for Processing IRS Form 706
IRS Form 706 must be filed with the IRS within nine months of the decedent's date of death. An automatic six-month extension of time to file the return can be requested using IRS Form 4768, Application for Extension of Time to File Estate Tax Return, but this will not delay the time for paying any taxes due. Thus, estimated taxes should be paid when IRS Form 4768 is filed, otherwise interest and penalties will accrue. Of course, any delay in time in filing Form 706 will delay the time for the IRS to process and examine the return once it is filed.
Once IRS Form 706 is filed with the IRS, below is the timeline for the IRS to initially process the return, examine the return, and then finally issue the estate tax closing letter:
- It will take 6 to 8 weeks from the date the IRS receives Form 706 before it is even processed and entered into the IRS's database. So, in other words, do not call if you have any questions about a Form 706 until at least 6 weeks have passed since you filed the return.
- It will take six to nine months from the time the return is filed for the IRS to either issue an estate tax closing letter or inform the executor that the estate tax return is being audited. This is contrary to the information listed on the IRS's website, which states that it will take four to six months to receive a closing letter for returns that are accepted as filed and contain no other errors or special circumstances. From personal experience, it is much closer to nine months than six months to receive the closing letter for returns that are accepted as filed.
- If the estate tax return is audited, it will take another four to six months before the audit is completed and an estate tax closing letter is issued. In some extreme cases, the audit can take an additional six months to several years before the audit is completed and an estate tax closing letter is issued.
Some Helpful Tips
Below are some tips I can offer through personal experience:
- If a payment is made when the estate tax return is filed and you receive a notice that additional taxes and/or interest and penalties are due, confirm that the initial payment has been applied against the tax due before making any additional payments. In one case I handled, a check had been sent with the estate tax return and the client even had the canceled check in hand for several months, but for reasons unknown the payment was never applied against the taxes due.
- If the estate is required to file IRS Form 706-NA, United States Estate (and Generation Skipping Transfer) Tax Return, Estate of nonresident not a citizen of the United States, and if the nonresident decedent did not have a U.S. Social Security number, then the IRS will assign an individual taxpayer identification number (or ITIN for short) to the estate. Once you know the ITIN, use it in all of your IRS correspondence and have it handy for telephone calls to the IRS.
- And here is one more extremely helpful tip that I can offer since I could not easily find this information on the IRS's website, or anywhere else for that matter: If you need to call the IRS with questions about a Form 706, save time (and your sanity) by calling the IRS estate and gift tax unit directly at 866-699-4083.