New Requirements – and Fees – For the Estate Tax Closing Letter

On October 28, 2021, the IRS announced a new fee for executors seeking an estate tax closing letter. An estate tax closing letter specifies the estate tax amount and any generation-skipping transfer tax due. Additionally, it serves as an official certification the estate has been closed and all relevant taxes have been paid. Due to budget constraints and a high volume of estate tax return filings, the letter will now cost filers $67. While this is a nominal fee it represents the estimated direct and indirect costs of managing the totality of letter requests.  Executors, trustees, and other authorized representatives of an estate will need to follow these new requirements when requesting an estate tax closing letter. To help clients, prospects, and others, Wilson Lewis has provided a summary of the key details below.

The Estate Tax Closing Letter

This is formerly known as IRS Letter 627 and has been issued – by request only since June 2015 – to let taxpayers know that the IRS accepted the estate tax return. Before June 2015, the IRS automatically issued the letters and did so for free. Executors rely on the letter to close out an estate and to verify that all taxes are paid in full.

In addition to the basic acknowledgment, the estate tax closing letter also provides cursory information regarding net estate tax and generation-skipping transfer tax, if any. The letter also lists state death tax credit or deduction, if any.

Most estate tax returns are filed and don’t owe any estate tax. The decedent’s surviving spouse usually wants to establish the unused exemption amount to take advantage of portability. Portability, which was first enacted in 2010, allows the surviving spouse to use any remaining exemption for estate and gift taxes. The Portability election must be made on a timely filed Form 706 – Estate Tax Return.

In 2021, the estate tax exemption is $11.7 million per person or double that amount for a married couple filing jointly. In 2022, the exemption increases to $12.06 million and $24.12 million for individuals and married filing jointly, respectively.

New Regulations for the Estate Tax Closing Letter

Beginning with all requests on or after October 28, 2021, a $67 fee will apply for all estate tax closing letters. Executors or trustees may request – and pay for – an estate tax closing letter at www.pay.gov. Search for “estate tax” or “closing letter.” Be prepared to provide the decedent’s name, Social Security number, date of death, and address. The executors’ and/or trustees’ names and addresses are required as well.

Only those listed as executor, trustee, and/or power of attorney are authorized to receive a copy of the estate tax closing letter. Though a copy of the letter can be sent to two representatives in addition to the executor, each person will only receive one original copy. Co-executors will not receive a copy unless the estate changes their designation prior to requesting the letter and paying the fee.

An account transcript, an alternative to the full estate tax closing letter, is free. It can be helpful to determine whether an estate tax closing letter is available to issue in the first place.

In some cases, the account transcript an acceptable substitute as it can prove that any remaining estate tax liability has been paid in full. The account transcript won’t contain detailed information, but it will include transaction dates, like when Form 706 has been accepted. The estate’s registered tax professional may request the account transcript, or the executor or trustee can use Form 4506-T.

Note that taxpayers must wait nine months after filing IRS Form 706 – estate tax return to request the letter unless the account transcript contains a Transaction Code 421 (TC 421). TC 421 indicates that the return has been accepted or if it’s under examination. Executors of estate tax returns under examination must wait at least 30 days after the examination is done before they can request an estate tax closing letter.

Other Important Considerations

States that levy an estate tax – 12 plus Washington, D.C. – also issue their own estate tax closing letters. Executors and trustees should consult their respective state agencies to request a letter in addition to the federal one through the IRS.

Also be aware that simply because an estate tax closing letter has been issued, the IRS can still re-examine the estate. The letter is not a closing agreement or a promise not to reopen Form 706. A subsequent examination can occur if the IRS finds either:

• Evidence of fraud, malfeasance, collusion, concealment, or misrepresentation of a material fact,
• A substantial error that goes against established IRS position, and/or
• Another situation with a significant administration mistake or omission.

Contact Us

The new cost associated with receiving an estate tax closing letter is a minor bump in the road for those charged with managing an estate. Despite this, it is an important change that executors should be aware of. If you have questions about the information outlined above or need assistance with an estate or trust tax planning or compliance issue, Wilson Lewis can help. For additional information call 770-476-1004 or click here to contact us. We look forward to speaking with you soon.