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IRS Warns: Don’t Send Us Estate Tax Returns (Until Further Notice)

August 12, 2010

As the estate tax remains in temporary limbo this year until Congress decides what to do, the IRS at least is sending a clear message. It doesn’t want an estate tax return for those who died this year.

Speaking at the IRS Tax Forum in New York on Thursday, Patrick Leahy, an attorney with the IRS’s estate and gift tax division in Manhattan, told an audience of tax preparers they don’t have to file the Form 706, the U.S. Estate (and Generation-Skipping Transfer) Tax Return.

“If you file a 706 to the IRS Service Center,” he warned, “we will rapidly return it to you because we don’t have a place to put them.”

Also forget about getting a clearance letter or discharge letter from the IRS because everybody will fail to meet the non-existent threshold for a discharge this year. However, if you have a gift tax situation, you still have to file a Form 709. For gifts made in 2010, there is an exemption of $1 million and a maximum rate of 35 percent.

Of course, all of that might change if Congress manages to pass an estate tax fix and makes it retroactive for this year. But that appears increasingly unlikely as the year goes on, and disagreement over the various tax extenders and Bush tax cuts remains unresolved.

In fact, the Bush tax cuts were largely to blame for the estate tax limbo. Many of those tax cuts were ushered in with the Economic Growth and Tax Relief Reconciliation Act of 2001, which included the estate tax provisions. Since they were passed under budget reconciliation rules, they could not go beyond 10 years. The provisions of EGTRRA pertaining to estates, gifts, and GST will sunset on Dec. 31, 2010, and then the estate tax rate will jump to as much as 55 percent.

Despite the temporary disappearance of the estate tax and generation-skipping transfer tax this year, there are still carryover basis rules that apply to property acquired by gift and inheritance. In the case of property acquired by gift, it’s the lesser of the donor’s adjusted basis or the fair market value of the property at gift. For property acquired by death, it’s the lesser of the decedent’s adjusted basis or the fair market value of the property at death.

The current priorities for the IRS’s estate and gift program are, logically, examinations of returns filed for estates of decedents who died before Jan. 1, 2010, as well as gift tax returns. For those who pass away this year, the IRS examiners are going to take a wait and see attitude until Congress finally reaches an agreement.

Comments (1)
Instead of fixing the estate tax, which would have atleast generated some tax revenue, our Congress has passed a bill with it's ridiculous 1099 filing requirement.
Posted by eastcoast ea | Sunday, August 15 2010 at 3:13PM ET
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