4.25.11. Special Examination Procedures

(1) This IRM subsection provides technical guidance for understanding specialized estate, gift and generation-skipping transfer tax return issues. This IRM contains audit steps and processing procedures for unique examination issues and related returns.

(1) Estate and gift tax examiners and managers assigned to examine and oversee the examination of estate and gift tax returns and issues are responsible for complying with servicewide policies and authorities set forth in IRM 1.2.1.5, Servicewide Policies and Authorities, Policy Statements for the Examining Process.

(2) Examination of estate and gift tax returns should be conducted in a manner that will promote public confidence as stated in the Mission of the Service. See IRM 1.2.1.2.1, and Policy Statement 1-1.

(3) Section 3504 of P.L. 106-206 requires the Service to include an explanation of the examination and collection process, as well as information about assistance from the Taxpayer Advocate with any first report/notice of proposed deficiency. Pub 3498, The Examination Process, will be used for this purpose.

(4) Per Statement of Procedural Rules 26 CFR 601.506, examiners should forward any correspondence (or copy), discussions, reports and/or other material to the taxpayer at the same time it is sent to the representative. For more detailed information on how to mail correspondence when a POA is involved, see IRM 4.11.55.2.9, Notices and Communications.

(5) 26 U.S. Code Subtitle B - Estate and Gift Taxes, Chapters 11 through 15 provide the legal authority for the computation of estate, gift and generation-skipping transfer taxes.

(1) The National Quality Review System (NQRS) is a web-based review system used by Estate and Gift Tax Policy, Estate and Gift Tax Examination Management and Estate and Gift Tax Quality Measures and Analysis (QMA) to generate and review reports analyzing national quality performance based upon standardized quality attributes set forth in Document 12499, Estate and Gift Tax Examination Embedded Quality Job Aid. NQRS report data is compiled by QMA on a quarterly basis, but ad hoc reports may be obtained monthly. The use of NQRS is explained in additional detail in IRM 4.25.1.11, Manager Embedded Quality Review and Specialty Exam National Embedded Quality Review Programs.

(2) Operational Reviews and related NQRS reports are conducted by Territory Managers and the Chief of Estate and Gift to measure national adherence to quality standards and managerial performance and/or oversight.

(3) Customer (i.e., taxpayer) satisfaction reports are generated by SB/SE Operation Support Research on a quarterly basis. These reports provide masked taxpayer narratives that are responsive to a pre-defined set of survey questions. The quarterly survey reports are to be used to identify areas for examination quality improvement.

(4) Front-line manager reviews are conducted under the Examination Quality Review System (EQRS), with the frequency based on annual personnel requirements.

(1) The following table sets forth Estate and Gift Tax program specific terms and definitions:

(2) The following table sets forth common Estate and Gift Tax program acronyms:

(1) The Estate and Gift Tax program is required to follow all servicewide examination procedures and those set forth in the SB/SE examining process IRM. The following IRM subsections provide additional information relating to the processing, classification and examination of Estate and Gift Tax program returns and claims:

• IRM 4.25.1, Estate and Gift Tax, Estate and Gift Tax Examinations

• IRM 4.25.2, Campus Estate and Gift

• IRM 4.25.3, Planning, Classification and Selection

• IRM 4.25.4, International Estate and Gift Tax Examinations

• IRM 4.25.5, Technical Guidelines for Estate and Gift Tax Issues

• IRM 4.25.6, Report Writing Guide for Estate and Gift Tax Examinations

• IRM 4.25.7, Estate and Gift Tax Penalty and Fraud Procedures

• IRM 4.25.8, Delinquent Returns and SFR Procedures

• IRM 4.25.9, Requests for Abatement, Claims for Refund and Doubt as to Liability Offer in Compromise in Estate and Gift Tax Cases

• IRM 4.25.10, Case Closing Procedures

• IRM 4.25.12, Valuation Assistance

• IRM 4.25.13, Appeals, Mediation and Settlement Procedures

• IRM 4.25.14, Miscellaneous Procedures

• IRM 4.2.8, Guidelines for SB/SE National Quality Review

• IRM 25.6.1, Statute of Limitations Processes and Procedures

• IRM 25.6.22, Extension of Assessment Statute of Limitations By Consent

• IRM 25.6.23, Examination Process-Assessment Statute of Limitations Controls

• IRM 5.5.8, Advisory Responsibilities for Processing Estate Tax Liens

• IRM 4.15.1, Jeopardy/Termination Assessments, Jeopardy and Terminations

• IRM 25.2.1, General Operating Division Guidance for Working Whistleblower Claims

• IRM 25.2.2, Information and Whistleblower Awards, Whistleblower Awards

(1) See IRM 4.25.3.4.4.1, IRC 6166 Election Accepted as Filed, for procedures involving IRC 6166 cases accepted as filed during classification.

(1) If a return with an IRC 6166 election is sent to an Estate and Gift examination group, a determination must be made regarding whether the estate met the initial eligibility requirements. The examiner should document their analysis using the Installment Payment Election IRC 6166 Lead Sheet. See IRM 4.25.5.2.31, Issue Specific Lead Sheets and Technical Guidance, Installment Payment Election (IRC 6166) Lead Sheet. The estate is eligible under IRC 6166(a) to make the election if the decedent was a U.S. citizen or resident of the United States, the decedent’s interest in the closely held business exceeds 35 percent of the adjusted gross estate (not including passive assets), and the notice of election under IRC 6166 was attached to a timely filed estate tax return. The business must also qualify as a closely held business, as defined in IRC 6166(b). In certain cases there may be additional eligibility requirements. See IRC 6166(b)-(h).

(2) After determining the estate's eligibility for the IRC 6166 installment payment election, the examiner should prepare two copies of the lien information package. See Exhibit 4.25.11-1, IRC 6166 Lien Referral Package for Advisory and Estate and Gift Campus.

1. The examiner should send one copy of the package to the Campus Estate and Gift operation (Campus), and a copy to the Advisory Estate Tax Lien Group.

2. The Campus e-mail address and a checklist are located on the Estate and Gift Tax SharePoint, under Estate and Gift Campus Information.

(3) The Advisory Estate Tax Lien Group will determine on a case-by-case basis whether the estate must provide a bond or lien. In order to make a case-by-case determination, the lien package should be sent by encrypted e-mail to the Advisory Estate Tax Lien Group manager along with a Form 3210 annotating each item enclosed. See the Estate and Gift SharePoint for Advisory Estate Tax Lien Group contact information.

(1) If the return is examined by Estate and Gift examination, the examiner assigned to the case will determine whether the taxpayer has met the initial eligibility requirements to make the IRC 6166 election and will complete the Installment Payment Election IRC 6166 Lead Sheet. This should be done as early during the examination as possible. The estate is eligible under IRC 6166(a) to make the election if the decedent was a U.S. citizen or resident of the United States, the decedent’s interest in the closely held business exceeds 35 percent of the adjusted gross estate (not including passive assets), and the notice of election under IRC 6166 was attached to a timely filed estate tax return. The business must also qualify as a closely held business, as defined in IRC 6166(b). In certain cases there may be additional eligibility requirements. See IRC 6166(b) - (h).

(2) If the estate elects a 14-year deferral period but IRC 6166(b)(7), IRC 6166(b)(8), or IRC 6166(b)(10) applies to the closely held business, then the deferral period on the account must be adjusted accordingly. Estate and Gift examination will prepare and send, by certified mail, Letter 950-K, Preliminary Internal Revenue Code Section 6166 Determination Letter, selecting the appropriate paragraphs regarding the preliminary determination adjusting the account; informing the estate which subsection of IRC 6166 applies (i.e., IRC 6166(b)(7), 6166 (b)(8), or 6166 (b)(10)); and informing the estate of its appeal rights. Estate and Gift examination will send a prepared copy of Letter 950-K to the Campus for informational purposes.

(3) The estate has 30 days from the date of the Letter 950-K to appeal the IRC 6166 determination. The Estate and Gift examination group manager may grant an extension of up to 30 days. If circumstances warrant, the Estate and Gift examination group manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the Form 9984, Examining Officer's Activity Record.

(4) If the estate does not appeal the preliminary determination within the 30-day period allowed in Letter 950-K or as extended, or if the estate sends a protest that is untimely, the examiner will notify the Campus of the change in the deferral period and instruct the Campus to send Letter 6335 for any balance due resulting from the change in the deferral period. Estate and Gift examination will close the agreed or no change examination tax case following normal agreed case closing procedures.

(5) If the estate tax issues are agreed and the IRC 6166 issues are not protested then, prior to closing the agreed estate tax case, the following information is to be sent by encrypted e-mail with a Form 3210, indicating that the estate has not protested the Letter 950-K, to the appropriate Technical Group at the Campus, and to the Advisory Estate Tax Lien Group. See Exhibit 4.25.11-1, IRC 6166 Lien Referral Package for Advisory and Estate and Gift Tax Campus.

(6) If the estate submits a protest to request Appeals consideration, the examiner will:

1. Date stamp the protest

2. Verify the protest was filed timely and document the Form 9984 of its receipt and review

3. If the estate submits a timely-filed protest containing new IRC 6166 issues, new arguments or new information with its request for Appeals consideration, the examiner will consider the information and determine whether to revise the examiner's position (i.e., the terms of estate's deferral period to be allowed).

4. The examiner will prepare a rebuttal to the protest that includes the determination reached.

5. The examiner will send the rebuttal to the protest to the estate and include a copy in the examination case file.

(7) If, after considering the protest, the examiner agrees that the estate is entitled to the IRC 6166 election, the examiner will prepare a Form 3210 to notify Campus to continue the 6166 election, with any adjustments that are agreed. The examiner should follow standard agreed case closure procedures. See IRM 4.25.10.

(8) If no new issues are raised by the estate in its request for Appeals consideration, the examiner will not prepare a rebuttal to the protest.

(9) If after considering the protest, the examiner still does not agree with the estate's position, the examiner will prepare a separate auxiliary IRC 6166 case file containing all the documents needed by Appeals. The examiner will not establish AIMS controls on this IRC 6166 auxiliary case file. Campus will continue to control and monitor the IRC 6166 account. The examiner should notify Campus by secure e-mail that a protest has been forwarded to Appeals so that Letter 6335-F is not sent prematurely.

(10) The auxiliary IRC 6166 case file will contain all of the documents specified in Exhibit 4.25.11-1, IRC 6166 Lien Referral Package for Advisory and Estate and Gift Campus, and copies (or originals where appropriate) of the following:

1. Copies of any supplemental Form 706 returns that were filed

2. Copies of any state estate or inheritance tax returns that were filed, if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information

3. Copy of the examiner's Form 9984, Activity Record

4. Original and copy of the Letter 950-K

5. Copy of the taxpayer's date-stamped protest

6. Copy of the examiner's rebuttal to the protest

(11) The IRC 6166 auxiliary file will be forwarded to Appeals using a Form 3210 transmittal that is notated with the type of case as "IRC 6166 - Qualification (Deferral Period)" or "IRC 6166 - Qualification (Deferred Tax)" with no AIMS controls. The examiner will close the regular agreed examination case file separately following the normal agreed case closing procedures. See IRM 4.25.10.

(12) The examiner will forward the protested IRC 6166 auxiliary file within 30 days from the postmark date of the protested letter to the Office of Appeals nearest the state of the decedent's last domicile using the Appeals Case Routing Tool, with the understanding that the case may be transferred to another Appeals office based on Appeals inventory needs.

(1) If the return is examined by Estate and Gift examination, then the examiner assigned to the case will determine whether the taxpayer has met the eligibility requirements to make the IRC 6166 election and will complete the Installment Payment Election IRC 6166 Lead Sheet. This should be done as early during the examination as possible. The estate is eligible under IRC 6166(a) to make the election if the decedent was a United States citizen or resident, the decedent's interest in the closely held business exceeds 35 percent of the adjusted gross estate (not including passive assets), and the notice of election under IRC 6166 was attached to a timely filed estate tax return. The business must also qualify as a closely held business, as defined in IRC 6166(b). In certain cases there may be additional eligibility requirements. See IRC 6166(b) - IRC 6166(h).

(2) If the estate elects a 14-year deferral period but IRC 6166(b)(7), (b)(8), or (b)(10) applies to the closely held business, then the deferral period on the account must be adjusted accordingly. The examiner will prepare and issue by certified mail Letter 950-K, Preliminary Internal Revenue Code Section 6166 Determination Letter, selecting the appropriate paragraphs regarding the preliminary determination adjusting the account; informing the estate which subsection of IRC 6166 applies (i.e., IRC 6166(b)(7), 6166 (b)(8), or 6166 (b)(10)); and informing the estate of its appeal rights. Estate and Gift examination will send a prepared copy of Letter 950-K to Estate and Gift Campus for informational purposes.

(3) The estate has 30 days from the date of the Letter 950-K to appeal the IRC 6166 determination. The group manager may grant an extension for up to 30 days. If circumstances warrant, the group manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the Form 9984, Examining Officer's Activity Record.

(4) If the estate does not appeal the preliminary determination within the 30-day period allowed in Letter 950-K or as extended, or if the estate sends a protest that is untimely, the examiner will notify Campus by encrypted e-mail of the new terms applicable to the existing IRC 6166 election and instruct Campus to send Letter 6335 for any balance due resulting from the change in the deferral period. Estate and Gift examination will forward the unagreed examination case file to Appeals through normal unagreed case closing procedures.

(5) If the estate submits a protest to request Appeals consideration, Estate and Gift examination will date stamp the protest, verify the protest was timely filed and document the Form 9984. If the estate submits a timely-filed protest containing new IRC 6166 issues, new arguments or new information with its request for Appeals consideration, the examiner will consider the information and determine whether to revise the examiner's position (i.e., estate's deferral period allowed). The examiner will prepare a response to the protest that includes the determination reached. The examiner will send the response to the protest to the estate and include a copy in the case file.

(6) If, after considering the protest, the examiner agrees that the estate is entitled to the IRC 6166 election, the examiner will notify Estate and Gift Campus to continue the IRC 6166 election. Estate and Gift examination will forward the unagreed examination case file to Appeals through normal unagreed case closing procedures.

(7) If no new issues are raised by the estate in its request for Appeals consideration, the examiner will not prepare a response to the protest.

(8) If, after considering the protest, the examiner still does not agree with the estate's position, the examiner will prepare a separate IRC 6166 auxiliary file containing all the documents needed by Appeals, see subsection 9 below, to consider the estate's 6166 appeal. The examiner will not establish AIMS controls on this auxiliary IRC 6166 case file. Estate and Gift Campus will continue to monitor and control the IRC 6166 account. The examiner should notify Estate and Gift Campus by secure e-mail that a protest has been forwarded to Appeals so that the Letter 6335-F, Notice of IRC 6166 Denial or Termination, is not sent prematurely.

(9) Unagreed IRC 6166 cases going to Appeals from Estate and Gift examination often include other unagreed issues generating an estate tax deficiency. Since the deficiency portion of the case can proceed to Tax Court under IRC 6312 while the 6166 portion can proceed to Tax Court under IRC 7479, these cases must have bifurcated files and work units in Appeals. For this reason, Estate and Gift examiners will bifurcate the estate tax examination portion of a case from the 6166 portion before forwarding either one to Appeals. If the case files are not bifurcated, Appeals will return the case to Estate and Gift examination as a premature referral.

(10) The auxiliary IRC 6166 case file will contain copies (originals where appropriate) of all the documents specified in the 6166 lien referral package (See Exhibit 4.25.11-1, IRC 6166 Lien Referral Package for Advisory and Estate and Gift Campus) and the following additional documents:

1. The examiner's notes and report on the IRC 6166 qualification issue, plus any other documents that affect the IRC 6166 qualification

2. The unagreed examination report and computations

3. Any supplemental Form 706 returns that were filed

4. Any state estate or inheritance tax returns that were filed, if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information

5. The examiner's Form 9984, Examining Officer’s Activity Record

6. A prepared Letter 950-K

7. The taxpayer's date-stamped protest

8. The examiner's response to the protest

(11) Estate and Gift examination will forward the IRC 6166 auxiliary file to Appeals independent of the regular unagreed protested examination case. The Form 3210 will cross-reference the related return. The Form 3210 transmittal for the IRC 6166 auxiliary file will notate the type of case as "IRC 6166 - Qualification-Deferred Period" or "IRC 6166 - Qualification-Deferred Tax" with no AIMS control. The examiner will state that there is an unagreed estate tax examination case being sent to Appeals separately. The examiner will forward the regular protested examination case following normal unagreed case closing procedures.

(12) Estate and Gift examination will forward the protested IRC 6166 auxiliary file within 30 days from the postmark date of the protest letter to the Office of Appeals for the state of the decedent's last domicile using the Case Routing Tool, with the understanding that the case may be transferred to another Appeals office based on Appeals inventory needs.

(13) The examiner will follow the normal case closing procedures for unagreed cases for the non-IRC 6166 issues. If the examiner is issuing a 90-day letter, all issues except the IRC 6166 qualification or termination issues will be included in the unagreed report. The 90-day letter will be closed in accordance with 90-day closing procedures.

(1) If the return is examined by Estate and Gift examination and the examiner assigned to the case determines the estate is not eligible to make the IRC 6166 election or has terminated its election, but there is no dispute about the amount of tax owed, the examiner will prepare the Letter 950-J, Preliminary Section 6166 Determination, denying or terminating the IRC 6166 election. The Estate and Gift examination group manager will issue the Letter 950-J by certified mail denying or terminating the IRC 6166 election.

(2) The estate has 30 days from the date of the Letter 950-J to appeal the IRC 6166 determination. The group manager may grant an extension for up to 30 days. If circumstances warrant, the Estate and Gift examination group manager may grant an additional extension of time. Such approval and the reason for granting it must be documented in the Form 9984, Examining Officer's Activity Record.

(3) If no appeal is filed or if the estate sends a protest that is untimely, the examiner will deny or terminate the election 15 days after the expiration of the 30-day period or the extended period. The examiner must send a narrative to the Campus for denial or termination of the IRC 6166 election along with a copy of the Letter 950-J. The examiner will instruct the Campus to send Letter 6335-F by certified mail, return receipt requested. The Letter 6335-F should be based on the existing IRC 6166 figures. Since the reason for the termination is determinative of the termination date, the narrative will set forth the reason for the termination.

1. For example, if the termination is the result of a sale or other disposition that equals or exceeds fifty percent of the closely held business, the date of the sale or other disposition will be included in the narrative.

(4) If the estate submits a protest to request Appeals consideration, Estate and Gift examination will date stamp the protest, verify the protest was filed timely and document the Form 9984. If the estate submits a timely-filed protest containing new IRC 6166 issues, new arguments or new information with the request for Appeals consideration, the examiner will consider the information and determine whether to revise the examiner's position (i.e., qualification allowed). The examiner will prepare a response to the protest that includes the determination reached. The examiner will send the response to the estate and include a copy in the case file.

(5) If, after considering the protest, the examiner agrees that the estate is entitled to the IRC 6166 election, the examiner will follow the agreed examination case closing procedures and notify the Campus to continue the IRC 6166 election, with any adjustments that are agreed.

(6) If after considering the protest, the examiner still does not agree with the estate's position, the examiner will prepare a separate IRC 6166 auxiliary file containing all the documents needed by Appeals, see subsection 11 below, to consider the estate's IRC 6166 appeal. The examiner will not establish AIMS controls on this IRC 6166 auxiliary file. The Campus will continue to monitor and control the account. The examiner should notify the Campus by secure e-mail that a protest has been forwarded to Appeals so that the Letter 6335-F is not sent prematurely.

(7) The examiner should document on the Form 3198 that the case being closed includes an unagreed IRC 6166 issue on Form 3198 and request expedited processing due to a possible appeal. Estate and Gift examination will follow the normal case processing procedures for agreed or no change cases for the non-IRC 6166 issues. The Campus will adjust its IRC 6166 billing when the TC 300 posts for Agreed Tax Change cases, or will continue current IRC 6166 billing for No Change Tax cases. Final billing adjustments will occur when the agreed IRC 6166 qualification issue is resolved. Before closing the case, Estate and Gift examination will create the auxiliary file described in Exhibit 4.25.11-1.

(8) If less than 6 months remain on the statute, Estate and Gift examination may close out a No Change Examination after alerting Estate and Gift Campus to the unagreed IRC 6166 issue. Meanwhile, the examiner must set up an auxiliary file described in subsection 11 for the unagreed IRC 6166 issue to await a response to the Letter 950-J. The examiner must notify the Campus 45 days after Letter 950-J was mailed if a protest is received or if the 30 day period has expired without a protest. After the procedures described in items (1) through (7), have been completed, the auxiliary file will be forwarded to Appeals within 30 days from the postmark date of the protest letter. If a protest was not received, the Campus will follow normal case disposition procedures.

(9) The examiner will call or send an encrypted e-mail to the Campus employee who has the IRC 6166 billing file. The examiner will explain that a short statute No Change case is being closed out of the group with an unagreed IRC 6166 qualification issue.

(10) The statute expiration date has no effect on the unagreed IRC 6166 qualification issue.

(11) The auxiliary IRC 6166 case file will contain copies (or originals where appropriate) of all documents described in IRM 4.25.11-1 and:

1. Any supplemental Form 706 returns that were filed

2. Any state estate or inheritance tax returns that were filed, if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information

3. Form 9984

4. Letter 950-J

5. Protest from the taxpayer

6. Examiner's response to the protest

(12) The IRC 6166 auxiliary file will be forwarded to Appeals using a Form 3210 transmittal that is notated with the type of case as "IRC 6166 - Qualification Case" or "IRC 6166 - Termination Case" with no AIMS controls. The examiner will close the agreed (or No Change) examination case file separately following normal procedures.

(13) Estate and Gift examination will forward the protested IRC 6166 auxiliary file within 30 days from the postmark date of the protested letter to the Office of Appeals for the state of the decedent's last domicile using the Case Routing Tool, with the understanding that the case may be transferred to another Appeals office based on Appeals inventory needs.

(1) If the return is examined by Estate and Gift examination and the examiner assigned to the case determines the estate is not eligible to make the IRC 6166 election or has terminated the election, the examiner will prepare Letter 950-J, Preliminary Internal Revenue Code Section 6166 Determination Letter, denying or terminating the IRC 6166 election. The Estate and Gift examination group manager will issue Letter 950-J denying or terminating the election by certified mail. The Letter 950-J must be issued separately from any other 30-day letter or 90-day letter that may be issued with respect to the regular examination unagreed issues. Estate and Gift examination will send a copy of the Letter 950-J to the Campus.

(2) The estate has 30 days from the date of the Letter 950-J to appeal the IRC 6166 determination. The Estate and Gift examination group manager may grant an extension for up to 30 days. In unusual cases if circumstances warrant, the Estate and Gift examination group manager may grant an additional extension of time. Such approval and the reason for granting the additional extension must be documented in the Form 9984, Examining Officer's Activity Record.

(3) If no Appeal is filed or if the estate sends a protest that is untimely, the examiner will deny or terminate the election 15 days after the expiration of the 30-day period or the extended period. The examiner must send a narrative to the Campus for denial or termination of the election along with a copy of the Letter 950-J. The examiner will instruct the Campus to send Letter 6335-F by certified mail, return receipt requested. The Letter 6335-F should be based on the existing IRC 6166 figures. Since the reason for the termination is determinative of the termination date, the narrative will set forth the reason for the termination. For example, if the termination is the result of a sale or other disposition that equals or exceeds fifty percent of the closely held business, the date of the sale or other disposition will be included in the narrative. When the regular examination unagreed issues are resolved, a final bill will be sent.

(4) If the estate submits a protest to request Appeals consideration, Estate and Gift examination will date stamp the protest, verify the protest was timely filed and document the Form 9984. If the estate submits a timely-filed protest containing new IRC 6166 issues, new arguments or new information with the request for Appeals consideration, the examiner will consider the information and determine whether to revise the examiner's position (i.e., qualification allowed). The examiner will prepare a response to the protest that includes the determination reached. The examiner will send the response to the protest to the estate and include a copy in the case file.

(5) If, after considering the protest, the examiner agrees that the estate is entitled to the IRC 6166 election, the examiner will follow the regular examination unagreed case closing procedures and will notify the Campus by sending an encrypted e-mail to continue the IRC 6166 election, with any adjustments that are agreed.

(6) If, after considering the protest, the examiner still does not agree that the estate is entitled to the IRC 6166 election, the examiner will prepare a separate auxiliary file described at Exhibit 4.25.11-1 containing all documents needed by Appeals. The examiner will not establish AIMS controls on the IRC 6166 auxiliary case file. The Campus will continue to control and monitor the IRC 6166 account. The examiner will notify the Campus by secure e-mail that a protest has been forwarded to Appeals so that the Letter 6335-F is not sent prematurely.

(7) The auxiliary IRC 6166 case file will contain copies of the documents identified in Exhibit 4.25.11-1 (originals where appropriate) and:

1. The unagreed examination case report and computations

2. Any supplemental Form 706 returns that were filed

3. Any state estate or inheritance tax returns that were filed if payment of state death taxes was deferred or interest on state death taxes is being allowed or claimed as a deduction, together with state payment information

4. Form 9984, Activity Record

5. Letter 950-J

6. Protest from the taxpayer

7. Examiner's response to the protest

(8) The examiner will forward the IRC 6166 auxiliary file to Appeals independent of the unagreed protested regular examination case. In this situation, the Form 3210 transmittal will notate the type of case as "IRC 6166 - Qualification Case" or "IRC Section 6166 - Termination Case" with no AIMS controls. The examiner will state that there is an unagreed estate tax examination case being sent to Appeals separately. The examiner will close the protested regular examination case separately following normal unagreed case closing procedures.

(9) Estate and Gift examination will forward the protested IRC 6166 auxiliary file within 30 days from the postmark date of the protested letter to the Office of Appeals nearest the state of the decedent's last domicile using the Case Routing Tool, with the understanding that the case may be transferred to another Appeals office based on Appeals inventory needs.

(1) If the case is a non-filer case, the examiner will receive a copy of Form 706-GS(D-1) and a Form 706-GS(D) cover memo at the time of assignment.

(2) The Estate and Gift Tax Notebook Job Aid (Notebook) should be used to obtain specific forms for this project. The Date of Death is needed for an Estate Return in Notebook. Please enter the last date of the year when the return should have been filed (e.g., 12/31/2021). Do not add information with the "Estate Report" button on the Case Details screen in Notebook.

(3) A TC 150 SFR has been established by WSD. The case has been established with Activity Code 421 and Tracking Code 6458.

(4) An opening letter, Request for Delinquent 706-GS(D) Return was developed for this project and can be found in Notebook (Lead Sheets + Workpapers > Estate > Project and Delinquent Return Workpapers > 706GS(D) Workpapers (6458)). This is the only approved opening letter to be issued to taxpayers for this project. Send the opening letter to the taxpayer using certified mail, return receipt. When preparing the opening letter examiners should:

1. Use three weeks from the date of the opening letter as the initial request response date.

2. As stated in the opening letter, if a return has been filed, the taxpayer needs to provide a copy of the filed return and proof of IRS receipt. If a return has not been filed, the taxpayer needs to file Form 706-GS(D) with the examiner.

3. If a return has not been filed and the taxpayer does not believe they are required to file a return, the reason(s) need to be provided on page three (Response to Request for Tax Return(s)) of the opening letter.

(5) If a delinquent Form 706-GS(D) is secured, process the return according to the Estate and Gift Delinquent Return Guidelines, which can be found on the Estate and Gift SharePoint, Delinquent, SFR and Fed/State Gift Non-Filer Procedures folder. See IRM 4.25.8.3, Non-filer Project Cases and IRM 4.25.8.4, Delinquent Returns.

(6) If the examination is expanded to include a multiple year examination and/or a related entity examination, complete the Establish Case Request Form, (which was deployed in Notebook with the opening letter or can be found on the Estate and Gift SharePoint (Case Establishment Form Request)) and send to Estate and Gift WSD to have the case established as part of the project.

(7) If the examiner does not receive a response by the requested response date, send a second request and use three weeks from the date of the second request letter as the request response date. If the examiner does not receive a response after the second attempt to contact the taxpayer, follow the additional steps in IRM 4.10.2.8.3 and IRM 4.10.2.8.6 for locating the taxpayer, including possible phone calls, USPS tracer and third party contact, and document the actions taken on Form 1900-B.

(8) If a response is not received by the requested response date, the examiner should process the case as a Substitute for Return (SFR) according to the Estate and Gift SFR Guidelines. See IRM 4.25.8.5, Introduction to Substitute for Return, and IRM 4.25.8.5.3, Case Closing Procedures for SFRs.

(9) If closing the case agreed, close case to CCP. If closing the case unagreed, close case to Technical Services. Unless issuing a statutory notice of deficiency, the examiner should use the standard case closure procedures outlined in IRM 4.25.10.

(10) The examiner should complete the Project and Referral Feedback Form, which can be found in IMS, and send by encrypted e-mail to the Project and Referral Feedback Form to the WSD Project Coordinator.

(1) The examiner should review the statute of limitations (if a return was filed) and send a 30-day letter if there are sufficient days remaining on the assessment statute of limitations. Appeals requires at least 365 days remaining on the assessment statute of limitations before accepting the case. Examiners can solicit a consent to extend the statute of limitations on Form 706-GS(D) cases. See IRM 4.25.10 for 30-day letter instructions.

(2) If the examiner does not receive a response from the 30-day letter or there are fewer than 365 days left on the statute of limitations, issue a statutory notice of deficiency. See IRM 4.25.10.7.4, Statutory Notice of Deficiency Procedures.

(3) The Form 706-GS(D) SNOD should include the following documents:

• Letter 902, Notice of Deficiency

• Form 706-GS(D) with "Computation of Tax Due" written across the top (preferably in red)

• Form 886-A - Explanation of Changes

• Form 4089, Notice of Deficiency - Waiver

• Notice 1214, Helpful Contacts for Your Notice of Deficiency

(4) In completing Letter 902:

• The first paragraph is modified for the deficiency, penalties and type of tax.

• The first paragraph should include the following statement: "We have determined an assessment against you in the amount of (amount of liability), plus interest as provided by law, which constitutes your personal liability for generation-skipping transfer tax as a result of the distribution from (trust name), as shown in the attached statement, plus interest to be computed at the legal rate on the amount due."

(5) The 706-GS(D) Computation Workbook, which is deployed from Notebook, is an excel based calculator that examiners can use to create the statement of adjustments/report.

(6) After preparing and issuing the Notice of Deficiency package to the taxpayer, the examiner should forward the case to the local Technical Services office. The shared administrative support staff will input the appropriate disposal code for Statutory Notice. The disposal code 07 is used for Protest to Appeals only. Cases will be forwarded with Form 3210, Document Transmittal, to Technical Services. Technical Services RA reviewers are responsible for performing a limited review of the notices to ensure that they are legally sufficient and ready for signature and mailing. The address for the examiner’s local Technical Services office can be found at: Knowledge Management Listing of Technical Services Codes and Addresses.

(1) In order to establish the Form 1041 on ERCS the examiner must complete Form 5345-D, Examination Request - ERCS (Examination Returns Control System Users) and seek group manager approval. It may take up to one week to fully establish control of the return through Automated Information Management System (AIMS). The Form 5345-D must include the following information:

• Source Code: 50

• MFT: 05

• Activity Code: 496-498, depending on whether the examination is of a taxable or a non-taxable return

(2) While examination of the Form 1041 may be attendant to the estate tax examination, it is considered a separate examination.

1. Taxpayer rights documentation, e.g., Pub 1, Your Rights as a Taxpayer, Notice 609, Privacy Act Notice, and, if required, Form 12180, Third Party Contact Authorization, and Form 2848, Power of Attorney and Declaration of Representative, should be sent to the taxpayer with the opening letter.

2. Additional provisions relating to the examination of fiduciary returns are set forth in IRM 4.10.8.4.4, Fiduciary Cases.

3. The examiner should take all necessary steps to protect the statute of limitations. The normal statute of limitations for fiduciary income tax returns is three years after the later of the due date of the return or the filing date. See IRC 6501(a) and IRM 4.25.1.2.1, Verify and Protect Statute of Limitations.

(3) If an estate files an IRC 6501(d) election, the statute of limitations ends 18 months after the date of the election. An IRC 6501 election is made on a Form 4810, Request for Prompt Assessment, and applies to all specified fiduciary income tax returns filed by an estate prior to the filing of the election.

(4) The statute of limitations for the fiduciary income tax return may be extended by consent. Consent is secured on Form 872, Consent to Extend the Time to Assess Tax. See IRM 25.6.22.6.7, Decedent's Estate (Income Tax – Form 1041).

(5) If the taxable income of an estate is distributed from an estate to a beneficiary and reported on Form 1041, Schedule K-1, Beneficiary's Share of Income, Deductions, Credits, a referral must be made to Estate and Gift Tax, Workload Selection and Delivery (Estate and Gift WSD). Contact information regarding WSD referrals is located on the Estate and Gift Tax Contacts Knowledge Management webpage.

(6) The workpapers necessary for the examination of a Form 1041 return are located in Notebook, and must include the Other Tax Returns Lead Sheet.

(7) The examiner should consider whether penalties are applicable and document the assertion or non-assertion of penalties.

(8) If the fiduciary does not agree to the recommended adjustments, use Form 4549-A, Income Tax Discrepancy Adjustments to make the recommended adjustments and to summarize the unagreed issues. The 30-day and 90-day letter procedures for an estate tax return also apply to fiduciary income tax return examinations. Letter 950, 30 Day Letter - Straight Deficiency, and Form 870, Waiver of Restrictions on Assessment Collection of Deficiency in Tax and Acceptance of Overassessment, must be included in the unagreed package.

(9) There are no special closing procedures for a fiduciary income tax return. The Form 5344, Examination Closing Record, and Form 3198, Special Handling Notice for Examination Case Processing are used to close a fiduciary income tax examination. Regular estate and gift tax closing procedures should be followed. For case maintenance and IMS upload information, see IRM 4.25.1, Estate and Gift Tax Examinations. For instructions on Form 1041 case examination case closure procedures, see IRM 4.25.10, Case Closure Procedures.

(1) The Form 1041 examination report forms for issuance to the taxpayer and authorized representative are not available in the Estate and Gift Tax Notebook Job Aid (Notebook). Use the Form 1041 WorkcenterMY report writer to generate Form 4549, Income Tax Examination Changes.

(2) The 1041 Workcenter is an Excel report writing program developed for the examination of Forms 1041, Fiduciary Income Tax Returns. Additional report writing procedures are set forth at IRM 4.10.8, Report Writing. The Excel workbook allows users to create reports for up to three years.

(3) To create a new 1041 report file, select the 1041 Workcenter Excel file and select the "save as" option. You must enable macros prior to using the worksheet. Change the file name to reflect the specific case, and save the new case file to the examiner's SBU folder.

(4) The 1041 WorkcenterMY contains multiple worksheets or "pages." The user can view data pages by clicking on navigational "buttons" located on each of the data pages. The Introduction and Index pages are the point from which the user can navigate to all of the other pages. The buttons appear in groups at the bottom of the Index page. For any given page, the user can return to the Index page by clicking the button at the top of the page.

(5) The examination report forms used for a fiduciary income tax return vary depending upon the type of adjustment necessary:

1. The examiner should send a Form 4549, Income Tax Examination Changes, to the taxpayer and authorized representative if there is a deficiency or over-assessment relating to the trust or estate. The Form 4549 contains a signature line whereby the taxpayer consents to the recommended adjustment(s).

2. If the examiner determines that the only changes to the Form 1041 affect the IRC 652 or IRC 662 inclusion to a beneficiary (i.e., there is no tax change to the trust or estate), the examiner should send a Form 4549 and provide an explanation in the "Other Information" field. The taxpayer should sign the bottom of the Form 4549 and the case will be closed with an 01 disposal code. At the time of the case closure, the examiner should make a referral to Estate and Gift Tax Workload Selection and Delivery (Estate and Gift WSD).

3. The examiner may attach Form 886-A, Explanation of Items, if the recommended adjustments to the Form 1041 need to be described in more detail.

(1) If an IRC 6163 estate tax extension is granted, the collection of tax and accrued interest is suspended until six months after the precedent interest terminates.

(2) An estate that elects to postpone that part of the estate tax attributable to a reversionary or remainder interest may prepay a portion of the outstanding liability without payment of accrued interest or acceleration of the remaining tax. See Rev. Rul. 83-103.

(1) Notice of the exercise of the election to postpone the payment of the tax attributable to a reversionary or remainder interest should be filed on or before the date prescribed for payment of the tax.

(2) The notice of election may be made in the form of a letter or by filing Form 4868 prior to the date the estate tax payment is originally due. The election may also be made by the estate if the executor checks the Part 3, line 4 election box on a timely filed Form 706.

1. The estate must attach a certified copy of the will or other instrument under which the reversionary or remainder interest was created. A copy verified by the executor if the instrument is not filed of record is also acceptable.

2. Additional documentation may be requested in order to determine whether the election is valid.

(3) If the duration of the precedent interest is dependent upon the life of any person, the notice of election must show the date of birth of that person.

(1) If the decedent's gross estate consists of both a reversionary or remainder interest in property and other property, the tax attributable to the reversionary or remainder interest is an amount which bears the same ratio to the total tax as the net value of the reversionary or remainder interest bears to the total value of the estate (computed in accordance with special rules). In applying this ratio, the value of the reversionary or remainder interest is reduced by:

1. The amount of claims, mortgages, and indebtedness which is a lien upon such interest

2. Losses in respect of such interest during the settlement of the estate which are deductible under the provisions of IRC 2054 or IRC 2106(a)(1)

3. Any amount deductible in respect of such interest under IRC 2055 or IRC 2106(a)(2) for charitable, etc. transfers.

4. The portion of the marital deduction allowed under the provisions of IRC 2056 on account of bequests, etc., of such interests to the decedent's surviving spouse

(2) Likewise, in applying the ratio, the value of the gross estate is reduced by such deductions having similar relationship to the items comprising the gross estate.

(1) As a prerequisite to the postponement of the payment of the tax attributable to a reversionary or remainder interest pursuant to IRC 6163, a bond equal to double the amount of the tax and interest for the estimated duration of the precedent interest must be furnished, conditioned upon the payment of the tax and interest accrued thereon within six months after the termination of the precedent interest.

(2) If it is determined that the amount of the tax attributable to the reversionary or remainder interest was understated in the bond, a new bond or a supplemental bond may be required, or the tax, to the extent of the understatement, may be collected.

(3) If the estate does not post bond as required, the examiner should deny the IRC 6163 election.

(4) The bond must be conditioned upon the principal or surety promptly providing notice when the precedent interest terminates. The principal or surety must also provide annual notice (during the month of September) as to the continuance of the precedent interest, if the duration of the precedent interest is dependent upon the life or lives of any person or persons, or is otherwise indefinite.

(5) In the case of any proposed bond, Estate and Gift examination will consult with Area Counsel for drafting and review of the bond agreement.

(6) Once the examination of the return is completed, the principal and surety should be notified to send the annual notice and the notice when the precedent interest terminates to the Advisory Estate Tax Lien Group.

(1) Review transcripts to ensure that a TC 488 posted to master file.

(2) Once the examiner determines that the estate meets the threshold requirements for a 6163 election, the examiner will contact the estate to solicit the bond agreement. Collateral must be equal to twice the amount of the tax deferred and interest accrued through the deferral period under IRC 6163. Upon receipt of the estate's proposed bond agreement, the examiner will request local Area Counsel review for approval. Once the bond agreement is approved by Counsel, and the bond is secured, the examiner will notify the appropriate Technical Group at the Campus, and the Advisory Estate Tax Lien Group by encrypted e-mail that the 6163 election has been approved.

(3) Prepare Form 2276 and all attachments thereto. See IRM 5.6.1.8, Preparing Form 2276, Collateral Deposit Record.

(4) Once the examiner determines that the estate made a valid IRC 6163 election, the examiner should prepare a separate IRC 6163 case folder. This folder should be captioned with the name of the estate and the date the return was received. The following documents should be included in this separate 6163 case folder:

1. Proof of election (letter, Part 3, Line 4 election, etc.)

2. Copies of Pages 1, 2 and 3 of Form 706, and Schedule(s) used to report the decedent's interest

3. Copies of all documents used to determine the fair market value of the decedent's interest in the reversionary or remainder interest

4. A copy of the examiner's analysis confirming the validity of the IRC 6163 election

5. A copy of the examination report showing adjustments and calculations of all relevant penalties and interest

6. A copy of Form 1273, Report of Estate Tax Examination Changes, Form 6180, Line Adjustment - Estate Tax, if applicable, and the examiner's narrative report of examination changes (e.g., Form 886-A, Explanation of Items, or similar documentation)

7. Two copies of Form 2276, Collateral Deposit Record, and supporting extended tax and interest calculations. Include one copy of Form 2276 in the estate tax examination workpaper file and another copy in the 6163 file for CCP

8. Complete copy of the Counsel-approved bond

9. Copy of Form 2848, Power of Attorney and Declaration of Representative

(5) The examiner should work with the Advisory Estate Tax Lien Group to ensure that the bond is perfected.

(6) If the required collateral was not received by Estate and Gift examination, advise the Campus and the taxpayer that the election (under IRC 6163) of an extension of time to pay is invalid.

1. If extension is terminated, request input of TC 489 to remove the account from the deferred status on the BMF. See IRM 4.25.2.8.2.6 paragraph (8).

(7) Estate and Gift Campus 6163 election processing and monitoring procedures are located at IRM 4.25.2.8.2.6, Estate Tax Extension of Time to Pay Under IRC 6163.

(1) Secure the delinquent information returns (Form 8971, Information Regarding Beneficiaries Acquiring Property from a Decedent and/or Schedule(s) A) that were required to be filed.

(2) Date stamp each Form 8971 and Schedule A with the received date.

(3) At the top of the Form 8971, annotate in red ink, "Delinquent Return Secured by Examination."

(4) Forward a copy of the Form 8971 to Campus Estate and Gift via eFax to request the TC 971 AC 368 input on the Form 706 account module. For the current eFax number and required information, see the Basis Consistency - Form 8971 folder on the Estate and Gift SharePoint.

(5) Analyze the Form 8971 case for penalties. See IRM 4.25.7.8, Form 8971 Penalties