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A recent IRS notice confirms that an account transcript issued by the IRS qualifies as a substitute for an estate tax closing letter, as long as the transcript includes the proper transaction code.
An estate tax closing letter indicates that the IRS has accepted an estate tax return and that the estate’s federal tax liabilities have been satisfied. Once the letter has been received, it makes it clear to the executor of the estate that it can proceed with finalizing the estate administration process.
The receipt of the closing letter is often needed to meet requirements for state law probate proceedings. It’s rare for the IRS to reopen an estate tax return after a closing letter has been issued, except in certain extreme circumstances such as fraud or a major error by the IRS.
However, the IRS stopped automatically issuing estate tax closing letters effective June 1, 2015. Since then, the taxpayer’s representative receives a closing letter only by request.
The new IRS notice (Notice 2017-12) makes clear that a taxpayer’s IRS account transcripts noting transaction code 421 can serve as a replacement for an estate tax closing letter. This code indicates that Form 706, which is used to determine the amount of the estate tax, has been accepted as filed and an examination has been concluded.
According to the IRS, account transcripts that contain transaction code 421 are functionally equivalent to an estate tax closing letter.
If you have any additional estate planning questions or would like to schedule a consultation, please feel free to contact us at your earliest convenience.