5.5.8. Advisory Responsibilities for Processing Estate Tax Liens

(1) Purpose: This IRM section provides guidance to Civil Enforcement Advice and Support Operations (CEASO) Advisory employees on actions to take to protect the government’s interest on estate and gift tax collection cases.

(2) Audience:

• CEASO Advisory (Advisory) group managers

• Advisory revenue officer advisors

• Advisory tax examining technicians

(3) Policy Owner: Director, Small Business/Sell-Employed Division (SB/SE), Headquarters, Collection Policy.

(4) Program Owner: Collection Policy, Global Strategic Compliance, oversees policy and guidance for the estate and gift tax collection program.

(5) Primary Stakeholders: SB/SE Collection. Other functions that are affected by, or have input to, these procedures include Chief Counsel, IRS Independent Office of Appeals, Estate and Gift Examination, Campus Estate and Gift, and the Taxpayer Advocate Service.

(6) Program Goals: The estate tax and gift tax collection programs include guidance to Advisory employees:

• To properly process and file Notices of Federal Estate Tax Liens.

• To make proper determinations on estate tax lien releases, discharge requests, and subordination requests.

• To secure and process collateral on remainder/reversionary interest and qualified domestic trust cases.

(1) In many cases, the generalIRC 6324(a) lien is the best tool to protect the Government's interest. It is automatically created when any resident of the United States dies. No recorded notice is required for it to become effective. It attaches to all of the assets that are part of the decedent's gross estate and are required to be reported on Form 706, U.S. Estate Tax Return, and is security for any estate taxes that may be determined to be due. If a probate asset (assets in the name of the decedent at time of death) is transferred or liquidated without payment of the tax, but for the exceptions detailed at IRM 5.5.8.3 the lien continues to attach to the asset. If a non-probate asset (property described under IRC 2034 to 2042) is transferred or liquidated without payment of the tax, a liability equal to the value of the asset at the time of the decedent's death becomes due from the transferee. A separate assessment against the transferee is not needed. Assets of the gross estate can be sold or encumbered free of the IRC 6324(a) lien if the proceeds from the sale or loan are used for the payment of charges against the estate or expenses of its administration that are allowed by any court having jurisdiction.

(2) The estate tax lien and personal liability transferee provisions of Section 6324(a)(1) and (2) apply to estate taxes owed by non-resident aliens who file Form 706-NA.

(3) Estate tax attributable to an estate’s interest in a closely held business may be paid over a 14-year period if an extension of time to pay under IRC 6166 is in effect. This could potentially leave the Service without lien protection for four years (or more if there are any section 6161 extensions) if a notice of lien is not recorded before the 10 years have elapsed.

(4) The filing of Form 668-J (the special IRC 6324A lien for taxes deferred under IRC 6166) will secure the deferred taxes for the duration of the extension. The collection statute of limitations under IRC 6502 is suspended during the period of the extension.

1. The lien attaches only the property specified on the IRC 6324A lien agreement. A lien on property with equivalent value can be substituted for the actual IRC 6166 property upon agreement between the Service and all parties with an interest in the property.

2. When estate property is listed on the recorded Form 668-J, it is automatically released from the effects of the general IRC 6324(a) estate tax lien.

3. The IRC 6324A lien is a negotiated lien that is created only when both the Service and all persons and/or entities with an ownership interest in the property listed on the notice of lien agree to its filing.

(5) The filing of Form 668-H - the special IRC 6324B lien for special use valuations under IRC 2032A or qualified family owned business interest property under IRC 2057, will secure the potential recapture tax during the required 10 year holding period.

(6) All references to IRC 2057 have been removed from this IRM revision. This code section does not apply to estates of decedents who died after December 31, 2003. Earlier versions of IRM 5.5.8 and/or the code section or regulations may be reviewed for information concerning this special election.

(1) The estate tax lien provided for by IRC 6324(a) is similar in character to the lien imposed by IRC 6321. The general lien imposed by IRC 6321 and the special lien for estate tax are not necessarily exclusive of each other, but can be cumulative. Whereas the IRC 6324(a) lien arises upon death and attaches to all probate and non-probate assets comprising the gross estate, after the tax liability has been assessed, notice and demand is given, and there is a neglect or refusal to pay, the IRC 6321 lien arises and also attaches to all as yet undistributed probate assets. Neglect and refusal to pay is generally inferred from notice and demand and an unpaid balance.

(2) Even though no notice is recorded, the lien has priority over all subsequent interests in the property.

(3) The IRC 6324(a) estate tax lien attaches at the date of death to every part of the gross estate, even when the property has not yet been placed under the control of the fiduciary. It attaches to the extent of the estate tax shown due on the return, and of any deficiency in estate tax found due upon review and audit. The estate tax lien continues for a maximum period of ten years after the decedent’s death or until the tax is paid.

(4) IRC 6324(a)(2) provides that when the estate tax is not paid when due, any spouse, transferee, trustee, surviving tenant, person in possession of the property by reason of the exercise, non-exercise, or release of a power of appointment, or beneficiary, is liable for the payment of the estate tax to the extent of the value of any non-probate estate assets held by, or passing to such person.

(5) There is no need to assess the liability against the person liable under IRC 6324(a)(2). The collection statute under IRC 6502 applies. IRC 6324(a)(2) also makes all of the property of such person subject to a lien just like the estate tax lien if their transfer of estate assets divests the assets of the estate tax lien. This ″like-lien″ continues until the IRC 6324(a) estate tax lien expires or the estate tax is paid.

(6) For more information on the different types of estate tax liens and lien attachment see IRM 5.5.9, Administrative and Judicial Actions for Estate Taxes and IRM 5.5.6, Collection on Accounts with Special Estate Tax Elections.

(1) The IRC 2032A special use valuation election allows an estate to specially value real property used in a family business. This is typically farm property, but it can also include other types of specially valued real property. To take this election, the estate must complete Schedule A-1, Section 2032A Valuation, when filing Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return. The special use valuation election is also identified on Page 2 of Form 706, Part 3, Elections by the Executor, Line 2.

(2) By taking the special use valuation election, the estate can include the property on Form 706 at a lower special use value. Since the estate tax is based on the value of the estate assets, valuing the property for an amount that is less than fair market value creates a tax savings for the estate.

(3) If the heirs that receive the specially valued property do not continue to use the property for the special use purpose or they dispose of the property during the ten-year period following the decedents death, additional estate tax is owed. This additional estate tax is sometimes referred to as recapture tax, and it is reported on Form 706-A, United States Additional Estate Tax Return.

(4) The heir that disposed of the property or stopped using the property for the qualifying purpose is responsible for filing Form 706-A. The additional estate tax is a separate assessment made under the heir’s name and social security number since the heir is personally liable for the additional estate tax.

(5) The following forms are related to the IRC 2032A special use valuation election:

• Form 668-H, Notice of Federal Estate Tax Lien Under Internal Revenue Code Section 6324B, is filed on the asset that qualified the estate for the IRC 2032A election.

• Form 706-A, United States Additional Estate Tax Return, is used to report a disposition of the property or a cessation of the qualified use of the property.

• Form 668-I, Certificate of Release of Federal Estate Tax Lien Under Internal Revenue Code Section 6324B, is used for releasing the Notice of Federal Estate Tax Lien.

(6) Additional guidance on these elections can be found in IRC 2032A, IRC 6324B, and IRM 5.5.6, Collection on Accounts with Special Estate Tax Elections.

(1) The IRC 6166 election allows an extension of time to pay estate tax that is attributable to an interest in a closely held business. To qualify, at least 35% of the assets in the gross estate must consist of an interest in a closely held business or businesses. Estate and Gift (E&G) examiners make determinations if estates qualify for this special election. With this election, most estates will make four annual payments of interest only then they will make ten annual payments of principle and interest. In these cases, the first annual payment is due a year after the due date of the return. Subsequent payments are due each year thereafter until the account is paid in full. Estates can also elect to pay the deferred tax in a shorter period. An estate with an IRC 6166 election may qualify for a reduced interest rate under IRC 6601(j).

(2) Some estates, such as estates in which the IRC 6166 qualifying asset is an interest in a holding company, may only qualify to pay their tax for a shorter period. For these estates, they must begin paying their annual installments on the principle, plus interest, immediately. They do not get the additional four years to make only interest payments.

(3) For the tax that is reported on Form 706, the IRC 6166 election must be made with a timely filed estate tax return. Late filing of the return invalidates the election. If the tax that qualifies for the IRC 6166 electionis the result of an examination deficiency, the estate must make the IRC 6166election within 60 days after issuance of notice and demand for the additional tax.

(4) The portion of the tax that is owed due to the examination deficiency will be prorated (subject to the limitations of section 6166(a)(2)) as if the election had been made with a timely filed return. The estate must pay the past due installments, and they must pay future annual installments in order to keep the IRC 6166 election.

(5) When an estate has an IRC 6166 election, Campus E&G puts the account into status 14 on Integrated Data Retrieval System (IDRS) which keeps the account out of collection status.

(6) Campus E&G monitors estates with IRC 6166 elections. They send annual bills to the estate along with a Certificate of Unchanged Status. The estate must sign the Certificate of Unchanged Status to annually certify if there has been a disposition of 50% or more of the IRC 6166 qualifying assets. Such a disposition would cause the IRC 6166 election to go into default. Campus E&G confirms that the annual IRC 6166 payments are made. If the estate doesn’t make their payments, Campus E&G will send a series of bills which allow the estate at least six months to make the installment before the election goes into default. If the estate still does not pay, Campus E&G will terminate the IRC 6166 election, and the full tax liability will be immediately due.

(7) Under IRC 6503(d) the collection statute is suspended for the period during which payment of the tax is deferred under IRC 6166. However, running of the unrecorded IRC 6324(a) estate tax lien is not suspended. See IRM 5.5.8.3, General Estate Tax Lien under IRC 6324(a).

(8) When the examining office determines that an estate is eligible for the IRC 6166 extension of time to pay estate tax that is attributable to an interest in a closely held business, a case is referred to Advisory to contact the estate to request a surety bond or a consent to the creation and filing of a Notice of Federal Estate Tax Lien. The origin of the referral depends on which unit approved the IRC 6166 election or accepted the return as filed with the election:

• If the return was accepted as filed or surveyed before assignment to E&G Examination, the referral will come from Campus E&G. They will hold the original estate tax return for 90 days after their referral in case Advisory needs additional information from the return.

• If the return was examined or surveyed by E&G Examination, the referral will come from E&G Examination.

• If the final tax was determined by IRS Independent Office of Appeals or in Tax Court, the referral will come from Appeals Account and Processing Support (APS).

(9) The following items will be included with the referral:

1. Pages 1, 2, and 3 of Form 706 and schedules A, B, F, & G with any attachments, including other pertinent schedules listing assets or encumbrances.

2. Form 4349, Computation of Estate Tax Due With Return and Annual Installment.

3. Form 1273, Report of Estate Tax Examination Changes, and Form 6180, Line Adjustments - Estate Tax, if the estate tax return was examined.

4. The examiner’s narrative report of examination changes (Form 886-A, Explanation of Items, or similar documentation) if the estate tax return was examined.

5. Form 2848, Power of Attorney and Declaration of Representative, if applicable.

6. IRC 6166 election and attachments to the election.

7. List of all the businesses that qualified the estate for the IRC 6166 election as shown on the estate tax return including the business name and employer identification number (EIN). This information may be provided separately or on the related estate tax return schedule where the business is listed.

(10) Advisory will open a Non-Field Other Investigation (NFOI) 195, 668J Lien (IRC 6166), on Integrated Collection System (ICS) when they receive a referral due to an IRC 6166 election.

(11) Advisory will contact the estate’s executor or power of attorney within 60 days of receipt of the referral package to request the estate to voluntarily provide collateral during the IRC 6166 payment period. Collateral is requested to protect the government with an asset to collect on if the IRC 6166 election goes into default. The estate can provide a surety bond, or they can provide a consent to the creation and filing of an IRC 6324A lien by providing a signed Form 13925, Notice of Election and Agreement to Internal Revenue Code (IRC) 6324A Lien.

(12) In some cases, the estate may respond that no collateral should be required because the government is not at risk during the IRC 6166 payment period. If that occurs, or if the estate does not respond to Advisory’s request for collateral, see IRM 5.5.8.5.1, Risk Reviews on Estates with IRC 6166 Elections, for procedures to follow.

(13) Key elements of the consent to the creation and filing of the IRC 6324A Notice of Federal Estate Tax Lien, include the following:

• To agree to the Notice of Federal Estate Tax Lien, the estate must provide Form 13925, Notice of Election and Agreement to Internal Revenue (IRC) 6324A Lien. The agreement must list the specific property that will be subject to the Notice of Federal Estate Tax Lien, and it must be signed by all individuals with an interest in the designated property.

• Any property may be listed on Form 13925 to consent to the filing of a Notice of Federal Estate Tax Lien. The property may, or may not, be part of the estate assets.

• Although real property is preferred, any property, either real or personal, with equity equal to the deferred taxes plus interest, that can be expected to survive the deferral period, may be designated in the agreement.

  Note: Even though the property offered by the estate as security for the Notice of Federal Estate Tax Lien may be, if necessary, difficult to enforce against (such as stock in a closely held corporation), distrainability is not a factor in determining the adequacy of the value of the property offered. If the requirements under IRC 6166(a)(1) as to the value of the property have been met, and the asset is expected to survive through the deferral period, whatever property the estate offers as security for the lien is acceptable.

• By signing Form 13925, the owners of the property agree to the filing of a lien on the property included in the lien agreement. Form 668-J, Notice of Federal Estate Tax Lien Under Internal Revenue Code Section 6324A, is then recorded listing the property from the lien agreement.

• Any property that is part of the decedent's gross estate that is part of the lien agreement and described on the recorded Notice of Federal Estate Tax Lien is no longer subject to the unrecorded IRC 6324(a)(1) estate tax lien.

• The lien agreement must include the contact information for a designated agent. That individual is responsible for notifying the IRS if there is any change to the property that qualified the estate for the IRC 6166 election or to the asset that is being used as collateral for the Form 668-J Notice of Federal Estate Tax Lien.

• Filing of the Notice of Federal Estate Tax Lien acts as a discharge of personal liability of the executor or fiduciary under IRC 2204 on the IRC 6166 qualifying tax. See 26 CFR 20.2204-3.

(14) If the estate provides a lien consent form other than Form 13925, Advisory will consult with Area Counsel for the state of the decedent’s last domicile for approval of the alternate lien consent form. Area Counsel can also be consulted when unusual assets are pledged on Form 13925, such as art or collectibles.

(15) The IRS may file a Notice of Federal Estate Tax Lien Under Internal Revenue Code Section 6324A on shares of stock. If possible, the IRS should take possession of the certificates to protect the government’s lien interest. See IRM 5.6.1, Collateral Agreement and Security Type Collateral, for guidance on collateral.

(16) The IRC 6324A Notice of Federal Estate Tax Lien is property specific. The property to which the Notice of Federal Estate Tax Lien attaches should be listed in detail on Form 668-J or as an attachment to Form 668-J.

(17) If the real or personal property subject to the Notice of Federal Estate Tax Lien is held by an entity other than the estate, then the entity name should be identified on the Notice of Federal Estate Tax Lien under the owner’s name so that the lien is properly indexed in the public records. The owner/entity’s taxpayer identification number should not be included on the Notice of Federal Estate Tax Lien.

(18) Form 13925 must be signed by all individuals with an interest in the designated property (whether or not in possession) which will be described on the Notice of Federal Estate Tax Lien.

(19) If the asset is owned by a partnership, LLC, corporation, trust, etc., Advisory must request and review documents that confirm the names of the individuals that can pledge property and have authority to act on behalf of the entity to confirm all these individuals signed Form 13925. If the estate does not provide these documents, or the individuals with authority to pledge property do not sign Form 13925 agreeing to the filing of the Notice of Federal Estate Tax Lien, the IRS will not accept that asset as collateral.

(20) The IRS may file a Notice of Federal Estate Tax Lien that attaches to an interest in a corporation, partnership, limited liability company (LLC), or trust. However, caution should be exercised. The Notice of Federal Estate Tax Lien attaches to whatever rights the interest entails. If those rights do not include the right to sell the interest, the IRS will be unable to sell the interest. The IRS may be left with whatever rights to payment, distributions, or liquidation that the interest includes. On the other hand, if the interest includes the right to sell the interest, the IRS can also sell the interest (upon termination of the IRC 6166election), if the interest is marketable. Oftentimes there are restrictions on the transfer of such interests. For example, a partnership agreement, LLC agreement, or state law may contain provisions as to the manner in which a decedent’s interest is handled upon death, or there may be a restriction to encumber property owned by the partnership or LLC. General guidance on ownership of LLCs, operating agreements, documents that outline ownership, and authorities of LLC members is in IRM 5.1.21, Collecting from Limited Liability Companies.

(21) If the property to which the Notice of Federal Estate Tax Lien attaches is an interest in a corporation, partnership, LLC, or trust, etc., the recorded Notice of Federal Estate Tax Lien should include a description of the covered property as the interest in the entity, the nature of the interest, and the address of the entity.

(22) For state and territory filing locations, see IRM Exhibit 5.12.7-2, State and Territory Filing Location. Multiple Notices of Federal Estate tax Liens may need to be filed in different filing locations if there is more than one asset provided as collateral and those assets are in different locations. The location to file the Notice of Federal Estate Tax Lien is the one office within the state, as designated by the laws of such state, in which the property subject to the lien is situated. See IRC 6323(f):

• For personal property owned by a corporation, partnership, trust, etc., the property will be deemed to be the place at which the principal executive office of the entity that owns the assets is located. It is the place where the major management decisions are made. Do not confuse the principal executive office with the principal place of business. See IRM 5.12.7.10, Filing the Notice of Federal Tax Lien.

• For personal property that is an interest in a corporation, partnership, LLC, trust, etc., the filing location is deemed to be situated at the residence of each of the individuals that own the interest. If the estate has not yet distributed the property, then the location for filing the Notice of Federal Estate Tax Lien is the decedent’s last address and the executor’s residence.

(23) If the estate provides signed Form 13925 agreeing to the filing of a Notice of Federal Estate Tax Lien, Advisory must verify the value of the asset pledged as collateral and determine if there are any encumbrances on the property to confirm there is sufficient equity to cover the deferred tax and interest. Advisory may utilize sources such as appraisals, Accurint, UCC filings, public records, etc. to verify the asset value and encumbrances. Advisory may also request for the estate to provide verification of the value of an asset or verify encumbrance information (including title reports, owner and encumbrances reports, etc.). Advisory will document the ICS history with their analysis of equity in the collateral. See IRC 6324A(b)(2), Maximum value of required property.

(24) Once Advisory has determined that all required information has been provided to file Form 668-J, Notice of Federal Estate Tax Lien Under Internal Revenue Code Section 6324A, they will follow the procedures in IRM 5.5.8.5.4, Processing of Lien Form 668-J and Form 668-K, to file the lien.

(25) If the estate provides a completed Form 13925, Advisory will send a copy of the lien agreement to Campus E&G for association with their IRC 6166 file.

(26) If, at any time, the value of the property covered by the agreement becomes less than the IRC 6166 qualifying tax, plus interest, the IRS can require the addition of property to the agreement. Advisory will send Letter 4346, Additional Collateral. If the estate does not provide the additional collateral within 90 days, Advisory will notify Campus E&G to terminate the IRC 6166 election. See IRC 6324A(d)(5), Additional lien property required in certain cases.

(27) If the executor chooses to provide a bond as collateral, see IRM 5.6.1.3.1, Bonds, for information regarding bond requirements. If needed, Advisory may consult with Counsel to draft and review the bond agreement. Advisory will follow the procedures in IRM 5.6.1, Collateral Agreement and Security Type Collateral, to process the bond which will be held in the Advisory safe for safekeeping.

(1) The provisions of the gift tax lien are also delineated in IRC 6324 and parallel those for the general estate tax lien.

(2) The special gift tax lien imposed by IRC 6324(b) attaches to all gifts made during the calendar year for the amount of the gift tax imposed upon the gifts made during such year. If the gift tax is not paid by the donor when due, the donee of any gift becomes personally liable for the tax to the extent of the value of the gift. The gift tax lien extends for a period of ten years from the time the gifts were made or until or the tax is paid, whichever date is sooner.

(3) Guidance on gift tax liens is provided in IRM 5.5.9.9, The Gift Tax Lien.

(4) Advisory is responsible for processing Form 1127, Application for Extension of Time for Payment of Tax Due to Undue Hardship, for Form 709 gift tax returns. Guidance is provided in IRM 5.5.5.10, Extension Requests to Pay Gift Tax.

(1) Advisory may receive a discharge request for property owned by a deceased taxpayer. The responsibility to process such requests depends on what taxes are owed and/or what returns are required to be filed.

(2) To determine if there is an estate or gift tax filing requirement, research IDRS using the taxpayer’s SSN with a "V" or "W" suffix (e.g., 123-45-6789V, 123-45-6789W). IDRS will show if there is a balance due account or if an extension of time to file and/or pay has been submitted (TC 460 or TC 468). Extensions are requested using one of the following forms:

1. Estate taxes - Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes

2. Gift taxes - Form 8892, Application for Automatic Extension of Time To File Form 709 and/or Payment of Gift/Generation-Skipping Transfer Tax is provided

(3) For discharge requests related to a decedent’s tax liabilities, determine when the statutory lien arose, when the NFTL was filed, and what the status of the property was when the NFTL was filed.

1. If the assessment was made before the death of the taxpayer, the federal tax lien attaches to the property owned by the taxpayer and follows that property into the estate or the hands of the transferee. The Government’s priority position is determined based on the filing date of the NFTL

2. If the assessment was made after the death of the taxpayer, the federal tax lien attaches to any probate property in the estate at the time of assessment.

(4) A discharge request related to a decedent’s tax liabilities that is subject to the federal tax lien should be processed following standard discharge procedures.

(5) Expenses related to the decedent's tax liabilities are known as "administrative expenses." When determining allowance for administrative expenses consider the factors outlined in IRM 5.5.2.6.1.1, Necessary Administrative Expenses.

(1) Advisory is responsible for processing all requests for discharge for any of the estate tax liens and all applications for subordination under IRC 6325(d). An NFOI will be established under time code 141.

(2) Advisory Estate Tax Lien group will be required to:

• Investigate applications for discharge of any estate tax lien. Applications for discharge under IRC 6325(c) are usually submitted on Form 4422,Application for Certificate Discharging Property Subject to Estate Tax Lien

• Review and finalize details concerning the acceptance of an escrow agreement Form 15056, Escrow Agreement for Estates

• Verify funds have been deposited with escrow agent

• Ensure all payments are applied to the correct account

• Issue a discharge certificate Form 792, United States Certificate Discharging Property Subject to Estate Tax Lien, is used to discharge property under IRC 6325(c)

• Ensure collateral controls are established on Interim Revenue Accounting and Control System (IRACS)

• Monitor the escrow agreement

• Close IRACS controls when funds have been delivered in accordance with terms of the escrow agreement.

(3) Guidance for opening of controls, investigation, response times and processing of discharge requests in IRM 5.12.10, Lien Related Certificates, should be followed.

(4) The guidance provided in this IRM is in addition toIRM 5.12.10, focusing on unique circumstances that arise in processing requests for discharge of property from the estate tax lien.

(1) The issuance of the certificate of discharge is discretionary and should be issued only if there is an actual need. The Service’s authority to issue a certificate of discharge related to the estate tax lien is governed by IRC 6325(c) and the related regulations. Pursuant to the regulations, the primary purpose of the estate tax lien discharge is not to evidence payment or satisfaction of the estate tax, but to permit the transfer of property free from the lien in case it is necessary to clear title. The estate tax will be considered fully satisfied only when an investigation has been completed and payment of the tax, including any deficiency that has been determined, has been made.

(2) In many instances, in determining whether to grant an estate tax lien discharge, the issue you will need to consider is whether the estate tax liability is adequately provided for, meaning that the Government’s interest in collecting the estate tax is secured under IRC 6325(c) and the accompanying Treasury Regulations. In determining whether an estate tax liability is adequately provided for, you have discretion and should exercise your judgment in making that decision based upon the facts and circumstances of the case and/or in coordinating with E&G Exam. You may also consider the criteria in IRC 6325(b) as a guideline in making your decision as the estate tax liability will generally be adequately provided for when one or more of the IRC 6325(b) criteria set forth below is satisfied. In addition, there may be other circumstances where you and your manager determine that the estate tax liability has been adequately provided for under the particular circumstance involved. For example, while filing compliance is sometimes required when considering a lien discharge under IRC 6325(b), a filed return is not required when considering a discharge application under IRC 6325(c). The issue under IRC 6325(c) is not whether the return has been filed, but whether in your judgment and discretion the estate tax liability is adequately provided for under the circumstances. Depending upon the circumstances, if the Form 706 has not been filed or a closing letter has not been issued, it may be desirable to coordinate with E&G Exam, before making your lien discharge decision under IRC 6325(c). In all cases under IRC 6325(c), the estate must be divested of its entire interest in the property to be discharged.

(3) Pursuant to Treasury Regulation 301.6325-1(c)(1), the issuance of the certificate of discharge is a matter resting within the discretion of the appropriate IRS official. In many instances, decisions concerning the discharge application can be made from the information provided on the Form 706 (if applicable) and the Form 4422 without the need to coordinate with E&G Exam. For example, if based on the information provided with the Form 4422 and internal account records you are able to determine that the estate tax liability has been paid, or the estate is not subject to a Form 706 filing requirement, or the value of other property disclosed on the Form 4422 that will remain subject to the estate tax lien is more than ample to protect the Government’s interest in the payment of the estate tax, coordination with E&G Exam is not ordinarily necessary. In other instances, you and your manager may decide that it is necessary to coordinate with E&G Exam; for example, to estimate the amount of the estate tax liability or to determine the status of an examination. You should also coordinate with the Office of Chief Counsel when a deficiency has been proposed and is or may be the subject of litigation before making a decision on the discharge application. In all cases, decisions concerning lien discharge applications should be made as expeditiously as possible while, in your and your manager’s judgment, protecting the Government’s interest in collecting the estate tax liability.

• Property Double the Amount of the Liability, IRC 6325(b)(1) - A certificate of discharge may be issued if it is determined that the remaining property of the estate subject to the estate tax lien has a fair market value that is at least double the amount of the unsatisfied liability secured by the estate tax lien and the amount of all other liens upon such property which have priority over the estate tax lien. It should frequently be possible to determine the value of the property from Form 4422 and you should refer to the form for that purpose. For example, if the estimate of the estate tax liability on the Form 4422 is $500,000 and the fair market value (minus encumbrances) of the remaining property is $6,000,000, then a lien discharge would ordinarily be appropriate. See IRM 5.12.10.3.1 for additional guidance.

• Part Payment, IRC 6325(b)(2)(A)- A certificate of discharge may be issued for any part of the property subject to the estate tax lien if it is determined by the Service that an adequate amount has been paid in partial satisfaction of the estate tax liability secured by the lien. The amount cannot be less than the value of the Service’s interest in the property to be discharged. Consider all facts and circumstances of the case when determining the amount to be paid, including all other liens and encumbrances with priority over the estate tax lien. Reasonable and necessary expenses, including fees and taxes that are treated as expenses of sale, are also allowed in calculating the amount necessary for discharge of the property from the lien. See IRM 5.12.10.7.4. Payments are applied directly to the account. See IRM 5.12.10.3.2 for additional guidance.

• No Value, IRC 6325(b)(2)(B)- A certificate of discharge may be issued if it is determined that the interest of the Service in the property subject to the estate tax lien has no value. Consider all facts and circumstances of the case when determining the value of the Government’s interest in the property, including all other liens and encumbrances with priority over the federal tax lien. See IRM 5.12.10.3.3 for additional guidance.

• Substitution of Proceeds of Sale (Escrow Agreement), IRC 6325(b)(3) - A certificate of discharge may be issued if property subject to the estate tax lien is sold and the Service determines that the proceeds of sale should be held in escrow as a fund subject to the estate tax lien in the same manner and with the same priority as the estate tax lien had with respect to the discharged property. Whether to require an escrow and the amount of the escrow is a decision within the discretion of the IRS, and should be based on the facts and circumstances of each case. In this situation, escrow agreements are used to evidence that the proceeds of sale remain subject to the estate tax lien. Reasonable and necessary expenses incurred in connection with the sale of the property or administration of the sale proceeds will be paid from the proceeds of the sale before the satisfaction of any claims. See IRM 5.12.10.7.4. Form 15056, Escrow Agreements for Estates, will be utilized. Funds are held in escrow until the tax liability can be determined. The IRS has discretion to allow distributions from escrow for allowable expenses of administering the estate before the tax liability is determined. SeeIRM 5.5.2.6, Administrative Expenses, and related sections regarding necessary and reasonable expenses. Any excess proceeds will be released if it is later determined that the estate tax liability is adequately provided for or after verification that all assessments (tax, interest and penalty) have been made and funds have been properly applied to the account. See IRM 5.12.10.3.4for additional guidance.

• Right of Substitution of Value, IRC 6325(b)(4) - An owner has the right under IRC 6325(b)(4) to receive a certificate of discharge on any property subject to an estate tax lien if the owner deposits an amount equal to the value of the Service’s interest in the property, as determined by the Service, or furnishes an acceptable bond in a like amount sufficient to cover the Service’s determined interest in the property. SeeIRM 5.12.10.3.5 for additional guidance.

(1) Advisory can make a referral to E&G Exam through the Specialist Referral System (SRS) when no return has been filed and no closing letter has been issued for assistance in determining if there is a filing requirement or if there are potential audit issues that may result in a proposed deficiency. The SRS automates the referral request process to E&G Exam, the portal can be found at https://srs.web.irs.gov/. The SRS system must be used for referrals, questions, and requests for assistance. See E&G Exam guidance IRM 4.25.14.3.2, Coordination Required Between Estate and Gift Field and Advisory.

(2) E&G Exam will provide written communication of their recommendations on issues such as filing requirements; potential audit issues or proper calculations of recapture tax returns within 10 business days. The advisor should explain, if necessary, to the taxpayer that Exam has 10 business days to reply to request for assistance in establishing the potential tax liability.

(3) If Advisory receives a lien discharge request from an estate where the estate tax return has been selected for examination, options for protecting the Government’s interest are similar to instructions for scenarios when no return has been filed and/or the final tax liability is unknown.

(4) Consult with the Estate Tax Attorney working the case to secure the Revenue Agent Report (RAR) when the audit is final and take any necessary actions to close escrow agreements.

(1) In addition to the completed Form 4422, the estate administrator should submit the following:

• Short form of letters testamentary

• Copy of will

• Copy of sale contract with a legal description of the property being sold

• The proposed itemized closing statement outlining sales expenses and creditors to be paid

• Copy of the Form 706

• If return is not filed a draft of Form 706, and/or a copy of the inventory and appraisement reflecting all assets of the estate

• Form 4768, Application for Extension of Time to File a return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.

(2) It may be necessary to review additional documentation such as:

• An appraisal by a disinterested third party

• Title report

• Any recorded deeds/instruments to indicate how the property is titled or when the creditor recorded its lien

• The company name, phone number, and address for the title or escrow company that will be used at the settlement and Form 15056, Escrow Agreement for Estates

• Form 8821, Tax Information Authorization, giving the Internal Revenue Service the authority to contact individuals or companies, if necessary, when determining if the discharge is appropriate.

(3) Evaluate the priority of all liens, judgments and expenses to determine the interests of the government in the property.

(4) The ICS Advisory case file should reflect all actions taken and deadlines established. Guidance for documenting discharge case files is outlined inIRM 5.12.10.17, Requirements for Lien-Related Certificates.

(5) If documents requested are not submitted timely refer to IRM 5.12.10.7.2, Requests for Additional Information - Actions if Not Received.

(6) If documentation and/or payment are received after the ICS NFOI has been closed, create a new ICS NFOI to complete the investigation and make an appropriate recommendation.

(1) When investigating requests for discharge review the Forms 4422, documents submitted by the estate, internal and external records (such as market comparisons) to estimate or substantiate the tax liability in order to determine how much or if any of the sale proceeds must be held or paid over to the Government in exchange for a certificate of discharge. It may be necessary to request assistance from E&G Exam using the Specialist Referral System (SRS) to estimate the estate tax liability, to provide input on the effect of any deductions on the tax computation or when sales occur on properties that are claimed under special elections.

(2) Consider the factors below to determine how much or if any of the sale proceeds must be held or paid over to the Government in exchange for a certificate of discharge:

1. Conduct a compliance check to see if the estate has related outstanding periods, for returns such as Form 1040, Form 1041 or Form 709. Look at BMFOLT to see if there are unfiled or balance due returns. Ensure all payments are applied to the correct account.

2. If Advisory or E&G Exam determines that the estate was not required to file an estate tax return, then do not issue a discharge certificate. Instead, issue Letter 1352, Request for Discharge of Estate Tax Lien, selecting the applicable paragraph for no estate tax return filing requirement.

3. If the Form 4422 indicates that the estate tax return will be non-taxable, based upon the estimated gross estate and estimated deductions, then a discharge without an escrow may be appropriate. However, if you have a question regarding the effect of any of the deductions on the tax computation, you should submit an SRS referral to E&G Exam before making a decision on the application. Number Cruncher software may be used to estimate the tax liability.

4. If the estate reports marital and/or charitable deduction on Form 4422 additional documents should be obtained for review including the will and/or trust that authorize those deductions. Check IDRS to see if there is a surviving spouse and if warranted consult with E&G Exam on whether the estate tax liability will be reduced or no tax will be imposed, as a result if any marital and/or charitable deduction being taken.

5. If the Form 4422 shows an estimated estate tax greater than the net proceeds from the property being sold, and no estimated payment has been made, then the net proceeds should be paid or escrowed before granting the discharge. For example, if the net proceeds are $1 million and the estate tax is $2 million, the escrow or payment would be $1 million. An SRS referral to E&G Exam may not be necessary in this situation.

6. Research if the estate has submitted Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, and pre-paid any portion of the estimated tax due for the tax return.

7. If the Form 4422 shows an estimated estate tax liability, and the estate has filed an extension to file the tax estate tax return (Form 4768) and paid the full estimated tax liability, then a discharge without an escrow may be appropriate. For example, if the extension request estimates $1 million in taxes and the $1 million was paid with the extension, you may determine that an escrow or additional payment is unnecessary. However, if you have a question regarding the effect of deductions on the estate tax liability computation, you should submit an SRS referral to E&G Exam before making a decision on the application.

8. Does IDRS reflect there is a balance due on the account? If yes sales proceeds should be applied directly to the account.

9. Check Form 706 page 2 to see if there is a special election reported on the return under IRC 6166 or 2032A. Is the property being sold considered the qualifying property for the election? Will sale of this property disqualify the estate for the special election? Under such circumstances disqualification may result in additional tax due, send an SRS referral to Exam for assistance with questions. Has the special election lien been secured? Coordinate with Campus E&G unit, if the election is disqualified or there is impact to billing.

10. For estates with an IRC 6166 election - provided property equal to the amount of the remaining deferred balance of tax and interest will remain subject to the lien, a certificate may be issued discharging a portion of the property listed on Form 668-J from the lien. As an alternative, under IRC 6324A(d)(5), the estate representatives may substitute other property in order to obtain a discharge of all or part of the property listed on the lien. If the disposition of property will result in accelerated payment of all or part of the deferred tax, or if the equity in the remaining property will not equal the remaining deferred balance of tax and interest, the application should be made under IRC 6325(b)(2).

11. Consider the other assets reported on the Form 4422 or Form 706 that the estate tax lien attaches that have liquidity and are sufficient in value in the event there is additional tax liability.

12. How many properties have been sold and what assets remain in the estate in which the estate tax lien attaches. For example: the estate has sold four properties there is only one remaining piece of real property according to Form 4422. It will be necessary to determine using Number Cruncher software or with assistance from Exam to derive an estimated liability to ensure that all assets are not released before the return is filed. In this scenario it may be necessary to require additional documentation from the estate to substantiate the estimated liability or deductions reflected on the Form 4422. Review to determine if additional sales proceeds need to be held in escrow.

13. Check Form 706 schedules to see if sales price is higher than the fair market value at date of death or alternative valuation date. If so consider an SRS referral to Exam, include a copy of the sales contract, Form 706 and inquire if there is a potential valuation issue that may increase the tax liability. For example, the return reports the property’s value as $1 million, but the property is selling for $3 million, you should submit an SRS referral to E&G Exam before making a decision on the application. E&G Exam could provide an opinion on the appropriate returned value and the impact on the estate tax liability computation or where there are questions regarding the effect of any deduction(s) on the estate tax liability computation.

14. Consider if the examination case has been sent to Appeals or is in litigation — in this scenario the proposed tax liability has been established — sale proceeds should be secured to resolve as much of the proposed liability as possible.

15. Look at IDRS for a TC 420 posted on the account, check AMDISA to see if the return is assigned to an Exam group for audit. If yes check with the examiner to see if there are any proposed changes to the tax liability when determining the amount of sale proceeds to secure in exchange for the discharge or request feedback on audit status.

16. If an amended return has been filed to reduce the tax liability, until a determination on an amended is made by Exam, the original tax is still due.

(1) In some requests for discharge of property from the estate tax lien that are submitted before the tax return is filed the estate administrator may request some of the sales proceeds to pay administrative expenses ahead of the estate tax lien priority.

(2) Expenses related to the decedent's estate are known as administrative expenses. They include any expenses related to maintenance of the decedent's property incurred after the decedent's death.

(3) The estate tax lien will be divested of assets used for the payment of charges against the estate and expenses of administration which have been allowed by any court having jurisdiction over the estate. See IRC 6324(a)(1). Review court records for such orders and consult with Counsel to address questions. However, the decision by an executor to use estate assets to pay expenses of administration does not divest those assets of the estate tax lien, unless approved by a court. See Kleine v. United States, 539 F.2d 427, 432-33 (5th Cir. 1976).

(4) The Service in its discretion may permit reasonable, necessary expenses to be paid before the federal estate tax lien. Such expenses must be examined to determine if an expense is reasonable and necessary to the administration of the estate. Reasonable and necessary expenses should not be permitted ahead of a tax lien if such expenses can be paid from other estate assets/funds or are already covered by an insurance policy, trust or other similar benefit that covers such costs. State statutes may limit the amount permitted to be paid for administrative expenses in probate. Inform the administrator that such planned expense payments may not be made prior to tax payments without prior agreement from the Service.

(5) Reasonable administrative expenses are limited to expenses for preserving and marshalling estate assets. Consideration should be given to how does allowance of this expense benefit the Government giving up its lien position.

(6) Review guidance in IRM 5.5.2.6, Administrative Expenses, and related subsections.

(7) The expenses of selling assets are allowable only if the sale is necessary to pay the decedent's debts, the expenses of administration or taxes, or to preserve the estate or carry out distribution.

(8) Employees are required to request and review documents that substantiate expenses such as itemized statements of service, invoices for payment, etc. If documentation cannot be provided, employees should not permit theses expenses to be paid ahead of a decedent's federal taxes (similar to deductions on a Form 1040 - if deductions cannot be substantiated they are not allowed). Statements should include the exact nature of the claim, the name of the creditor, and the time period covered by the claim.

(9) Determine if administrative expenses can be paid from other non-probate assets or if provisions have been made to pay estate expenses from a trust or other estate asset. Advisory will review submitted expenses and make a determination on what are reasonable and necessary expenses that will be allowed before the estate tax lien and have the balance of the funds paid to IRS or held in escrow until the tax return is filed.

(10) Review the completed application and determine if the discharge or subordination proposed by the applicant is appropriate. If there are discrepancies between what is proposed by the taxpayer and what is determined as acceptable by the Service, including the amount of the Government's interest in the transaction, contact the applicant and attempt to resolve.

(11) Issue the appropriate commitment letter, Letter 5751, Estate Tax Lien Conditional Commitment for Discharge, or Letter 5752, Estate Tax Lien Conditional Commitment - Escrow, when the application is acceptable and there is a tentative agreement with the applicant regarding the amount of the Government's interest.

(1) IRC 6325(b)(3) and Pub 783, Instructions on how to apply for a Certificate of Discharge of Property From Federal Tax Lien, provide guidance for securing escrow agreements. IRM 5.12.10.3.4, Substitution of Proceeds of Sale, also addresses escrow agreements.

(2) The estate must identify an acceptable, bonded escrow agent who will hold the sale proceeds in a federally insured commercial bank or similar institution while the estate tax return is being prepared for filing or the pending audit is completed. The agent can be a bonded title company, law firm, accounting firm, bank or brokerage firm. The agent may not be an individual unless that person is a CPA or an attorney, not representing the estate. If the agent is a CPA or attorney, he or she should not be related to the decedent or any of the decedent’s heirs. Ask the firm if they are bonded and with whom or do an internet search for references to a bonding company for the firm or ask for a copy of the bond. Finally, the agent must be located in the United States.

(3) If the estate wants to submit an escrow agreement, Advisory will mail to the estate Form 15056, Escrow Agreement for Estates, and provide a deadline to complete and return the agreement. In most cases, deadlines to provide the escrow agreement should be kept to 5 to 10 calendar days, due to the urgency to proceed with the sale by its closing date. Only the IRS approved escrow agreement form will be used. There may be unique circumstances where modifications are needed to the form. No changes can be accepted without review by SB/SE Counsel. The title company or escrow agent will be provided a conditional commitment letter by Advisory stating that the discharge certificate will only be issued after the IRS has verified the escrow funds have been deposited.

(4) Advisory must review the draft escrow agreement. The Advisory Group Manager approves the escrow agent selected by the applicant; any reasonable expenses submitted as incurred in connection with the sale of the property; the claim amounts and priorities; and the distribution timing of the fund.

(5) If there are discrepancies between what is proposed by the taxpayer and what is determined as acceptable by the Service, including the amount of the Government's interest in the transaction, contact the applicant and attempt to resolve.

(6) Issue the commitment Letter 5752, Conditional Commitment to Discharge Certain Property from Federal Estate Tax Lien, when the escrow agreement is acceptable and there is a tentative agreement with the applicant regarding the amount of the Government's interest.

(7) The agreement must be finalized and contain signatures of all parties involved including the Advisory Group Manager prior to the discharge being issued. An escrow agreement is considered a legal contract, electronic signatures cannot be used. Pen and ink signatures will be required when approving escrow agreements.

(1) Prepare the Form 792, U.S. Certificate Discharging Property Subject to the Estate Tax Lien, in duplicate, one copy is sent to the estate one is kept for IRS records. The form is available as a PDF fillable form from the Publishing website.

1. Block or line out the unused area in the description portion of the form so as to prevent the insertion of a description of other property.

2. Do not modify form or content of lien certificates at the request of local recording offices.

3. Redact Social Security Numbers (SSNs) that appear on the certificate so only the last 4 digits are shown. Employer Identification Numbers (EINs) should be redacted in a similar manner (e.g., xx-xxx1234).

4. Only reference that the discharge is being granted under IRC 6325(c).

(2) Upon receipt of the closing documents, ensure the requirements listed in the conditional commitment letter have been met. Generally this includes the actions described below:

1. Review the copy of the recorded deed (for discharge) or mortgage for accuracy.

2. Review the copy of the final settlement statement and reconcile any differences from the preliminary statement to ensure proper accounting of all funds.

3. If applicable, receive payment of the amount specified in certified funds or other acceptable form.

(3) Deliver the original of executed Form 792 to the applicant after all requirements are met. Advise the applicant of their responsibility to file the document with the appropriate recording office. If any payment received is not by certified funds, withhold issuance of the certificate until it is verified that the payment has cleared.

(4) Post all payments received in conjunction with certificate applications on the date of receipt.

(5) It is the responsibility of the applicant to record the certificate unless a particular recording agency only records certificates presented by the Service. If Advisory must file the certificate, no filing fee need be collected from the applicant.

(6) See retention guidance in IRM 5.5.8.19.

(1) Issue a denial letter, Letter 1352, Request for Discharge of Estate Tax Lien when the proposed request is not acceptable or discrepancies in the amount of the Government's interest cannot be resolved. See IRM 5.12.10.12, Denial of Applications for Discharge or Subordination.

(2) Enclose Pub 1660, Collection Appeal Rights, with the denial determination letter.

(3) Document the case history with the reason(s) for denial.

(4) Advisory closes its NFOI control on ICS fifteen (15) calendar days after sending the denial letter.

(5) Process any appeal requests received from the taxpayer in accordance with standard appeal processing. See IRM 5.1.9, Collection Appeal Rights.

(6) If a timely CAP appeal is filed, maintain an open NFOI until resolved.

(1) Applications for subordination under IRC 6325(d) will be processed by Advisory to make a determination if the United States will be adequately secured after such subordination. The Service is not required to issue a subordination but may do so when it is in the best interest of the Government to do so. Requests for subordination will normally be made under IRC 6325(d)(2) or (d)(3). Provided it is determined that the amount realizable by the United States from the property will ultimately be increased, or that the ultimate collection of the tax liability will be facilitated by the subordination, a certificate may be issued.

(2) Discharge factors should be considered such as:

• Has a special election lien been secured?

• Have events occurred that would disqualify the estate for the special election that results in additional tax due?

• Should a recapture tax return be secured?

• Is all of the special use property impacted or only a portion?

• Are there other estate properties should the subordinated creditor not be paid?

(3) In addition, consider general guidance concerning processing of subordinations in IRM 5.12.10.6, Subordination of Lien, when reviewing subordination requests.

(4) The instructions for applying for a subordination can be found in Pub 1153, Certificate of Subordination of Federal Estate Tax Lien Under Section 6325(d) of the Internal Revenue Code.

(5) A subordination will be issued using Form 669-F, Certificate of Subordination of Federal Estate Tax Lien. All SSNs must be redacted, for example, XXX-XX-1234V.

(1) An estate can make an election under IRC 6163, Extension of Time for Payment of Estate Tax on Value of Reversionary or Remainder Interest in Property, when Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is filed. When an estate is granted an IRC 6163 election, the time for payment of the estate tax will be postponed for six months after the termination of the preceding interest in the property. For example, the assets may be bequeathed to one beneficiary, but the tax is not triggered until that beneficiary dies. The tax is then due six months after the date of the beneficiary’s death. Estate and Gift (E&G) examiners determine if the election should be allowed.

(2) As a prerequisite to allowing this election, the estate must provide a bond that is at least equal to double the amount of the tax for the estimated duration of the precedent interest. If the estate does not provide the required bond, the E&G examiner will deny the IRC 6163 election.

(3) A condition of the bond must indicate that the principal or surety will provide notice when the precedent interest terminates. The E&G examiner will consult with IRS Counsel to ensure that the language on the bond is sufficient.

(4) If the election is granted, the E&G examiner will send a copy of Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, notification of the IRC 6163 election, and the original bond to Advisory. Campus E&G will input a transaction code (TC) 488, Installment and/or Manual Billing, on Integrated Data Retrieval System (IDRS) to keep the account out of collection status.

(5) Advisory will take the following actions when they receive the bond:

• Confirm that the amount of the bond is at least equal to twice the amount of tax deferred under IRC 6163.

• Open a Non-Field Other Investigation (NFOI) code 184, Collateral, on Integrated Collection System (ICS) and follow the collateral procedures in IRM 5.6.1.6, CEASO Actions.

• Assign a collateral serial number to the bond. See procedures in IRM 5.6.1.7, Collateral Agreement and Other Acquired Property Serial Numbers.

• Complete Form 2276, Collateral Deposit Record. See procedures in IRM 5.6.1.8, Preparing Form 2276, Collateral Deposit Record.

• Place the original bond in the Advisory safe for safekeeping.

(6) Campus E&G monitors these cases, and they issue an annual letter to the estate to determine if the tax has been triggered. The principle or surety must provide an annual notice to the IRS during the month of September indicating the status of the precedent interest if the duration of the precedent interest depends on the life of any person.

(7) Campus E&G will notify Advisory when there is termination of the precedent interest that triggers the tax to be due. The tax is owed six months after the event occurs that triggers the tax. Advisory will seek assistance from E&G Examination through the Specialist Referral System (SRS) to calculate the accrued interest.

(8) Advisory will contact the estate to request payment of the tax. If the tax is not paid, Advisory will issue an Other Investigation (OI) on ICS to a Field Collection revenue officer to initiate collection against the bond. For guidance on collecting on bonds, see IRM 5.5.7.22.2, Estate Tax Collection on Bonds.

(9) If the estate has reasonable cause, the estate can request to extend the time for payment of the tax for a reasonable period or reasonable periods (for multiple requests) not to exceed three years from the expiration of the previously elected postponement under IRC 6163(a) (due date of the tax). See IRC 6163(b), Extension for Reasonable Cause, and IRM 5.5.5, Processing Estate and Gift Tax Extensions, for information on reasonable cause determinations.

(10) After the tax is paid, Advisory will release the bond. See IRM 5.6.2, Collateral Agreements, Maintenance.

(11) See IRM 4.25.11.11, IRC 6163 Election Examination, for information on E&G Examination processing procedures, and see IRM 4.25.2.8.2.6, Estate Tax Extension of Time to Pay Under IRC 6163, for Campus E&G processing procedures, for additional information on IRC 6163 elections.

(1) Keep original or copies of all documents that relate to investigation of lien certificate applications. Specifically, keep the following in case files during investigation of applications and after investigations are complete:

• Original application and attachments

• A copy of the notice of estate tax lien to which the application or investigation applies (or document the ICS history if the IRC 6324(a) lien applies)

• All documents referenced in the ICS history

• A copy of the signed certificate or letter issued as a result of the investigation.

(2) Advisory must print all lien agreements, forms and correspondence with the estate, and any documents issued through ICS that cannot be retrieved. Any forms, correspondence with taxpayers related to extensions to pay, notices of termination of special elections, notices of tax due or late installment payments are used as evidence in litigation cases and to calculate or support CSED calculations. This includes copies sent to persons having power of attorney for the estate.

(3) The retention period for estate tax case files is two years after the account is closed (Status 12) not two years after Advisory closes the case. These case files contain key documents that are used as evidence in litigation cases.

(4) Before any lien discharge case file is destroyed, current IDRS transcripts should be obtained to ensure that there is no balance owed on the account. If IDRS reflects there is a balance due on the account do not destroy the file.

(5) A best practice is to destroy only after the assessment SOL has expired, or there is no TC 420 or 520 and with assurance that there is no outstanding balance on the tax module.

(1) IRC 7508A(a) and the regulations thereunder provide that for taxpayers affected by a federally declared disaster, the IRS may specify a period up to one year to postpone filing of a return or a payment due date or extended due date if the original or extended due date falls within the disaster relief period. This includes filing any estate tax return and paying an estate tax or installment. For example, if the news release states the IRS gives the affected taxpayers until the end of the specified postponement period to file an estate tax return, the postponement would apply to any estate tax return that had an original or extended due date occurring between the beginning and ending dates of the postponement period.

(2) The postponement period varies on each disaster incident and is specified in the news releases found on:

• https://www.irs.gov/newsroom/tax-relief-in-disaster-situations

(3) Refer to general disaster guidance provided in:

• IRM 5.1.12.2, Disaster Assistance and Emergency Relief

• IRM 25.16.1, Disaster Assistance and Emergency Relief

• http://mysbse.web.irs.gov/opsupport/hc/facilitiesorganizationalsupport/continuityofop/disaster/default.aspx

• http://serp.enterprise.irs.gov/databases/irm-sup.dr/disaster/faq.html

(4) In general, do not take collection actions against taxpayers located in disaster areas who received an -O freeze during the compliance activity suspension period. These actions include, but are not limited to:

1. Initiating contact with the estate executor if the executor or principal place of business of the closely held business for which the estate made the 6166 election is located in the designated disaster area.

2. Filing a new Notice of Federal Estate Tax Lien on property in the designated disaster area.

   Note: A consensual lien may be filed provided that such request is made by the executor after the beginning of the postponement period announced in the IRS news release. This exception only applies if the taxpayer specifically requested the exception on its own initiative and that such request was made by the taxpayer after the taxpayer had experienced the disaster effects (if any) for the disaster postponement period at issue.

3. Initiating enforcement action if the estate missed a deadline established prior to the disaster. Determine if estate records that are necessary to meet the deadline occurring during the postponement period were located in the IRS designated disaster area.

(5) If contact with the executor results in information that the estate is not impacted by the disaster and an -O freeze was placed on the entity:

• Resume normal collection activity immediately with managerial approval. Do not remove the -O freeze as doing so will reinstate the penalty and interest that were previously waived.

• Document the ICS case history with the estate/taxpayer’s status regarding the disaster, see IRM 5.1.12.2.5, Revenue Officer Inventory with "-O" Freeze.

(6) For accounts with an -O freeze, casework will resume after the expiration or lifting of the suspension period with “soft contact” procedures to determine the impact of the disaster on the estate executor or estate assets and any changes in their ability to comply with special elections or other pre-disaster requests. The IRS news release describes a specific beginning date and a specific ending date for the postponement and the applicable disaster tax relief. See guidance in IRM 5.1.12.2.7, Soft Contact Procedures.

(7) Identify cases on ICS by state abbreviation, zip code or by -O freeze. Indicators are posted on IDRS, via IT systemic programming to identified zip codes, through the use of computer transaction code (TC) 971. TC 971, action code 087 will post a corresponding -O freeze on the tax account of the affected taxpayer. It allows for special penalty/interest computation for taxpayers meeting the criteria for the filing and payment relief granted, see IRM 25.16.1.7.2,- O Freeze.

(8) Document the ICS case history (or scan the declaration) with the state/county affected, the specific beginning/ending date for the postponement and the applicable disaster tax relief.

(9) Review cases to verify if the executor or property pledged on liens are located in the designated disaster area. If you have been working with an executor who is located in a disaster area it may be necessary based on their individual circumstances to delay contact during the suspension period. For example, the executor is selling estate property located in an area not affected by the disaster and you have received a request for discharge, determine if the sale will continue or be delayed due to personal circumstances of the executor. Schedule follow ups, as needed, in ICS after the suspension period expires.

(10) After the suspension period of collection activity has expired follow soft contact procedures, conduct IDRS research and/or contact the estate executor to determine the following:

1. Was the closely held business located in the disaster area?

2. Is the closely held business operating after the disaster?

3. If the closely held business is no longer operating, can the estate pay the remaining deferred tax?

4. After conducting the above research decide if the IRC 6166 special election should be terminated. If so, send the estateLetter 950-I, 30 Day Letter - Intent to Terminate IRC 6166 Election and send a copy to the Campus to put the E&G unit on notice to issue the Letter 6335-F, Notice of IRC 6166 Denial or Termination. Refer to procedures in IRM 5.5.8.5.1, Bond/Lien Determinations for Estate Tax Deferred Under IRC 6166.

5. Are any assets pledged on a special election 668-J lien impacted by the disaster?

6. If collateral for the 668-J lien has decreased in value, contact the executor to inquire if the estate can provide substitute property equal to the remaining deferred tax or pay the remaining portion of the deferred tax. Follow monitoring procedures in IRM 5.5.8.5.3, Monitoring Accounts During The Deferral Period, requesting additional collateral and send Letter 4346, Additional Collateral.

7. If the family-owned business has ceased to exist on accounts with 668-H liens, a cessation of the qualified use may trigger a recapture tax event - refer to IRM 5.5.8.4.2, Monitoring Lien Form 668-H.

(11) An -S freeze will perform the same functions as the -O freeze but does not provide automatic compliance relief and will not stop generation of notices, see IRM 5.1.12.2.6, Revenue Officer Inventory with "-S" Freeze.

(12) Requests for extensions of time to pay may be submitted or already under review during the postponement period. As part of the review process make a determination if the Government’s interest is adequately protected in other estate assets outside of the affected disaster area for the amount of the unpaid tax liability. Document findings to applicable factors in (9) above and follow guidance in IRM 5.5.5.4, Evaluating Requests for Extensions of Time to Pay when determining the estate’s ability to pay the liability.

(13) An affected taxpayer, who received an extension of time to file, but not an extension of time to pay, is eligible for a postponement of time to file and relief from penalties relating to failure to file. The taxpayer is not eligible for penalty and interest relief relating to failure to pay, as the payment due date was not extended.

(14) Similarly, if an affected taxpayer received an extension of time to pay, payment will be timely on or before the last day of the postponement period, and the taxpayer is eligible for relief from interest, penalty, additions to tax, or additional amounts related to the failure to pay during the postponement period.

(15) Affected taxpayers that have both an extension of time to file and an extension of time to pay, and both extended due dates fall during the postponement period, are eligible for relief from the penalties for failure to file and failure to pay and interest that would otherwise accrue during the postponement period.

(16) In cases where an extension to pay has been granted and another extension is requested before the end of the postponement period the request will be considered timely made. For example:

• Estate filed a first extension to pay, good for 12 months and is accepted by IRS.

• Before the end of those 12 months, at the 11 month mark, IRS declares that disaster relief postponements began for the applicable county (e.g, where the executor resides) on that date and the taxpayer postponement continues for 4 months from that date.

• On the day the 4 month postponement periods ends, the estate submits a second extension to pay, for another 12 months.

• The IRS would treat this second request for extension to pay by the estate as being timely filed.

• Whether the second extension should be accepted or for what amount of time its merits would be decided under the criteria in IRM 5.5.5.5, Evaluating Requests for Extension of Time to Pay.

(17) The expiration of the extension to pay request would be postponed until the end of the disaster relief period, whether or not a new extension to pay request was made by the end of the disaster relief period, provided the IRS decided to grant this relief.

(18) Disaster tax relief is not automatic, it needs to be included in the press release or other document the IRS publishes to describe the discretionary disaster tax relief being granted and the specified period of time for the relief. This period of time may be extended by subsequent notices.

(19) It is not required to return voluntary payments received prior to or during the disaster compliance activity suspension period.

(1) When assets in an estate pass to a surviving spouse, the estate may be entitled to an unlimited marital deduction on those assets. The citizenship of the decedent’s spouse will affect how this deduction is taken.

(2) If a decedent was married to a United States (U.S.) citizen at date of death, the estate is entitled to an unlimited marital deduction on the assets that were received by the surviving U.S. citizen spouse. These assets are listed on Form 706 or Form 706-NA estate tax returns, on Schedule M, Bequests etc. to Surviving Spouse.

(3) If a decedent was married to a non-U.S. citizen spouse, the estate is not entitled to the unlimited marital deduction unless the property received by the surviving spouse passes into a qualified domestic trust (QDOT). The assets received by the non-U.S. citizen surviving spouse are also listed on Form 706, Schedule M. Estate and Gift (E&G) examiners determine if an estate is eligible for an IRC 2056A qualified domestic trust election. See IRC 2056A, Qualified Domestic Trust, and see QDOT requirements in IRM 4.25.4.6.2, Qualified Domestic Trusts.

(4) In some of these cases, the qualified domestic trust will provide the IRS with collateral in the form of a bond or letter of credit when the estate files the estate tax return. In these cases, the E&G examiner will forward the collateral to Advisory along with the following documents:

• Copy of the first three pages of Form 706 or Form 706-NA with Schedule M listing the qualifying assets.

• A copy of the qualified domestic trust document.

• Taxpayer identification numbers for the trust and social security number of the surviving spouse, if available, if the information is not already included on Form 706, Form 706-NA, or Schedule M.

• Original collateral provided to the IRS which will be placed in Advisory’s safe for safekeeping.

(5) When the Advisory Estate Tax Lien Group receives a referral from E&G on an approved QDOT election with collateral, they will open a case on Integrated Collection System (ICS) under Non-Field Other Investigation (NFOI) code 184, Collateral, and they will maintain a case file with the documents from E&G.

(6) Advisory holds the collateral for safekeeping. See IRM 5.6, Collateral Agreements, which provides the procedures for receiving, monitoring, and releasing collateral. At least every three years, Advisory will review internal records and will contact the qualified domestic trust to determine if a taxable event has occurred.