AICPA Comments on New IRS Policy Regarding Estate Tax Closing Letters

The American Institute of CPAs (AICPA) has submitted comments to the Internal Revenue Service (IRS) about the IRS’s new policy of issuing estate tax closing letters only upon a separate request four months after filing the estate tax return.  The IRS announced changes related to the issuance of estate tax closing letters on the Frequently Asked Questions on Estate Taxes page of its website in several different postings last year. 

“The new policy will not change the need for closing letters,” the AICPA stated in its January 11 letter.  The AICPA explained that closing letters serve many important purposes, including assuring executors that distributions can be made, notifying states that impose an estate tax that the Form 706 has been accepted by the IRS, releasing federal or state tax liens on property owned by a decedent, satisfying requirements of financial institutions that require this type of assurance before releasing funds or transferring clear title to property and providing certainty to the beneficiaries that the estate value is binding.

The AICPA noted in its letter that in the past the closing letter was automatically sent to every estate that filed an IRS Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return, and was generally received within four to six months after the return was filed or the estate tax audit was completed. 

The AICPA wrote that the new policy will add administrative burdens for executors and their representatives and that it does not believe the new policy will significantly reduce the IRS workload when processing Forms 706.  “The new policy will add challenges, complications, and additional risks for such requests to be processed incorrectly,” the letter stated.

The AICPA recommended that the IRS formally announce its policy regarding issuing estate tax closing letters in an official procedure or notice.  “Formal notice will provide all executors and the representatives with information that is needed regarding the closing letter process,” the letter stated.  Future changes and updates related to estate closing letters should also be communicated formally by the IRS so that all executors and estate representatives receive the information in a timely manner, the AICPA wrote.

In addition, the AICPA suggested that the IRS:

• Revise Form 706 to add a box to check to request a closing letter.  Until the next revision of Form 706, the IRS should allow estates to request a closing letter by adding a hand-written request on the top of the first page of Form 706 or by attaching a page requesting the closing letter to Form 706 when it is filed.
• Consider procedures to issue closing letters (not just transcripts with codes) through the transcript delivery service (TDS).