Page 569 - TaxAdviser_2022

his article is the first installment
Prior to June 2015, the IRS generally issued
Tof an annual update on recent
developments in trust, estate, and gift an estate tax closing letter for every estate tax
taxation. The second and third install-
ments will appear in the December return filed.
and January issues, respectively. In this
first installment, the topics include on the Pay.gov website (see also FAQs consequences for an estate whose dece-
available on IRS.gov). dent makes gifts between $5 million and
estate tax closing letters, the basic
While the proposed regulations had $10 million during calendars years 2018
exclusion amount, estate debts and
defined the person liable for the fee to through 2025, when the BEA is $10
expenses, and extending the time to
include a person authorized under Sec. million, but dies after 2025, when the
elect portability. The period covered is 6103 to receive an estate tax closing BEA decreases to $5 million.
from July 2021 through July 2022. letter, the final regulations remove the In late 2019, the IRS and Treasury
reference to Sec. 6103, explaining that issued final regulations (T.D. 9884)
Estate tax closing letters the section governs the disclosure of under Sec. 2010 to address this situation.
On Sept. 22, 2021, Treasury and the IRS return information but does not neces- The final regulations adopted a special
issued final regulations1 establishing a sarily govern who would be liable for the rule for the purpose of ensuring that the
new $67 user fee for estates to receive an payment of the user fee. donor’s estate is not taxed on completed
estate tax closing letter. gifts on which no gift tax was imposed
Prior to June 2015, the IRS generally Basic exclusion amount due to the increased BEA. The special
issued an estate tax closing letter for On April 27, 2022, Treasury and the rule allows the estate to compute its
every estate tax return filed. The IRS IRS issued proposed regulations2 estate tax credit using the higher of: (1)
changed its practice for estates of dece- amending estate tax regulations on the the BEA applicable on the decedent’s
dents dying on or after June 1, 2015, and basic exclusion amount (BEA) used in date of death, or (2) the BEA applicable
now offers an estate tax closing letter computing federal estate and gift taxes. to gifts made during the decedent’s life
only upon the request of an authorized The proposed regulations would affect (Sec. 2001(b)).
person. The reasons for this change estates of decedents dying after a reduc- The preamble to T.D. 9884 noted
were: (1) the volume of estate tax returns tion in the BEA (currently set to occur that further consideration would be
filing increased due to the enactment on Jan. 1, 2026) who made certain types given to the issue of whether gifts that
in December 2010 of the portability of of gifts before the BEA was reduced. are not true inter vivos transfers but
a deceased spouse’s unused applicable rather are includible in a decedent’s
exclusion amount for the benefit of the Background gross estate should be excepted from the
surviving spouse; and (2) the IRS recog- The 2017 law known as the Tax Cuts special rule. The new proposed regula-
nized that an account transcript with a and Jobs Act (TCJA)3 increased the tions address this question.
transaction code and explanation of “421 BEA from $5 million, adjusted for infla-
— Closed examination of tax return” is tion after 2011, to $10 million, also ad- Rationale for the proposed
available as an alternative to an estate tax justed for inflation, for decedents dying, exception
closing letter. and gifts made, in calendar years 2018 The preamble to the proposed regula-
The final regulations adopting the through 2025. Under current law, the tions explains that the special rule
$67 user fee do not establish a procedure BEA will revert to $5 million, adjusted currently does not distinguish between
for requesting an estate tax closing letter for inflation, on Jan. 1, 2026. completed gifts that are treated as: (1)
and paying the user fee. Instead, as the In addition to increasing the BEA,4 adjusted taxable gifts for estate tax pur-
preamble to the regulations notes, the the TCJA added new Sec. 2001(g)(2), poses and not included in the donor’s
procedure for requesting, and paying the authorizing the Treasury secretary to gross estate; and (2) testamentary trans-
fee for, the estate closing letter is found issue regulations addressing the tax fers for estate tax purposes and included

1. T.D. 9957. 3. P.L. 115-97.
2. REG-118913-21. 4. Sec. 2010(c)(3).

www.thetaxadviser.com November 2022 27