The Internal Revenue Service has issued a notice providing guidance on how to confirm the closing of an examination of an estate tax return.
Notice 2017-12 also announces that an account transcript that includes a transaction code of “421” and the explanation “Closed examination of tax return” can serve as the functional equivalent of an estate tax closing letter to confirm the closing of an examination.
An estate tax closing letter is a written communication from the IRS specifying the amount of the net estate tax, the state death tax credit or deduction, and any generation-skipping transfer tax for which the estate is liable. However, the closing letter doesn’t specify how much has been paid in estate tax or generation-skipping transfer tax.
The estate tax closing letter also confirms the return has either been accepted by the IRS as filed, or it has been accepted after an adjustment by the IRS to which the estate has agreed. The receipt of a closing letter generally indicates that, for purposes of determining the estate tax liability, the IRS examination has been closed.
An estate tax closing letter, however, is not a formal closing agreement, the IRS noted. The issuance of the closing letter doesn’t prevent the IRS from reopening or reexamining the estate tax return to determine estate tax liability if there is evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact, or if there was a clearly defined, substantial error based upon an established IRS position, or another circumstance indicate that a failure to reopen the case would be a serious administrative omission.
Executors, local probate courts, state tax departments and others have come to rely on estate tax closing letters for confirmation that the IRS examination has been completed and the IRS file has been closed. Estate tax closing letters continue to be available upon request. However, an account transcript can substitute for an estate tax closing letter and is available from the IRS at no charge. An account transcript is a computer-generated report that provides current account data.
The account transcript may include information such as the return received date, payment history, refund history, penalties assessed, interest assessed, the balance due with accruals, and the date on which the examination was closed. An account transcript presents the data by including transaction codes along with descriptions of the various codes. An account transcript that includes the transaction code “421” and the explanation “Closed examination of tax return” indicates the IRS’s examination of the estate tax return has been completed and that the IRS examination is closed. That means the issuance of an estate tax closing letter and the entry of “421” code on the estate’s account transcript each independently confirms that the IRS’s examination of the estate tax return has been completed, and may be reopened to determine the estate tax liability of a decedent only in the circumstances described in both the closing letter and Rev. Proc. 2005- 32. Thus, according to the IRS, an account transcript showing a transaction code of “421” can serve as the functional equivalent of an estate tax closing letter.