Administering an estate is never a joyous task, but it is a necessary one. We usually want to get it behind us as quickly as we can in order to move on with life’s business.
Yet for reasons known only to itself, the Internal Revenue Service has just added a new item to an executor’s to-do list in order to settle an estate.
In an update to its Frequently Asked Questions on estate taxes, the Service stated that, as of June 1 this year, executors who file a federal estate tax return must actively request a “closing letter,” which states that the estate has satisfied its liabilities. These letters used to be issued automatically. Now the IRS asks that estates allow at least four months before even making the request, and nobody knows how long they should expect to wait thereafter before receiving the letter. (Even under the old system, my experience has been that closing letters took anywhere from six months to two years to be issued.)
Not every estate needs to file an estate tax return. In fact, only a small percentage – those that report taxable transfers greater than the $5.43 million exemption amount in 2015 – actually owe any tax. The IRS workload for processing those returns would be pretty small, except that on large estates, the IRS often gives close scrutiny to the values reported on the return. Also, these days many smaller estates file returns to make a “portability” election to carry unused exemption to a surviving spouse’s future return.
So with as little fanfare as possible, the IRS decided to stop issuing closing letters automatically. Instead, it will only issue the letters on request.
IRS Makes Executors Ask, ‘Mother May I?’ « Palisades Hudson Financial Group