Former IRS Attorney Suggests Changes to Estate Tax User Fee Regs

February 26, 2021

Ms. Juli Ro Kim
CC:PA:LPD:PR (REG-114615-16), Room 5203
Internal Revenue Service
P.O. Box 7604
Ben Franklin Station
Washington, DC 20044

Re: Comment
Proposed User Fee for Estate Tax Closing Letter
85 F.R. 86871 (December 31, 2020)

Dear Ms. Kim:

I offer two comments regarding the proposed user fee of $67 for issuance of Estate Tax Closing Letter 627.

PERSONAL BACKGROUND

I spent 34 years with Internal Revenue Service (“IRS”) as an Estate Tax Attorney. From 1990 through 1996 I served as the Estate Tax Attorney at Philadelphia Service Center specializing in section 6166 matters. From 2000 until my retirement from IRS in 2010 I worked full time for Cincinnati Campus solely on section 6166 matters. Immediately after my retirement I began the private practice of law, dealing only with section 6166 matters for attorneys who represent estates of decedents who died after the date of my retirement and attorneys who represent clients for estate planning purposes. I continue that work today, maintaining a website at www.section6166.com that was created at the inception of my private practice, and over the course of my career have run several thousand section 6166 computations.

I. The Proposed $67 User Fee for Issuance of Estate Closing Letter 627 Should Not Be Imposed for Additional Estate Tax Closing Letters 627 When Supplemental Estate Tax Returns Are Filed Pursuant to Revenue Procedure 81-27, 1981-2 C.B. 548.

In my experience as an IRS Estate Tax Attorney at Philadelphia Service Center and Cincinnati Campus, estate tax closing letters 627 were routinely issued when the net estate tax changed because of supplemental returns having been filed pursuant to Revenue Procedure 81-27. On many occasions I forwarded appropriate information to the parties responsible for generating those letters. Current practice is that an authorized person must now request a closing letter 627 before one will be issued.

For dates of death before 1998, 100% of the interest accrued and paid each year on tax deferred under section 6166 was deductible on the estate tax return. This necessitated filing annual supplemental estate tax returns pursuant to Revenue Procedure 81-27 to claim the additional interest as a new deduction, which reduced the tax and interest previously assessed, which then reduced the next annual installment payable. Interest was charged at 4% per year on the first $153,000 of deferred tax (from 1988 through 1997), and at regular section 6621 underpayment interest rates on the balance of tax.

From dates of death in 1998 forward, interest on tax deferred under section 6166 is no longer deductible on the estate tax return. As compensation, however, interest is charged at 2% per year on the tax attributable to the first $1,000,000 of taxable business value (adjusted for inflation; for 2021 the 2% tax is $636,000) and at 45% of the regular section 6621 underpayment interest rates on the balance of deferred tax. This change in law was intended to eliminate the need for filing annual supplemental estate tax returns.

Notwithstanding this change in the law, supplemental estate tax returns must still be filed pursuant to Revenue Procedure 81-27 under the following circumstances.

It is understood that, in all cases, an estate would pay the proposed user fee of $67 for the first estate tax closing letter 627. My recommendation is that an estate thereafter not be required to pay user fees for supplemental estate tax closing letters 627 requested after supplemental estate tax returns have been filed pursuant to Revenue Procedure 81-27. Otherwise, requiring a user fee for such supplemental closing letters 627 could be construed as an unwarranted burden imposed upon estates that file section 6166 elections or request section 6161 extensions of time to pay.

I do not have any objection to charging a user fee for a new estate tax closing letter when an estate files a claim for refund on Form 843, except in the situation described in section 3.04 of Revenue Procedure 81-27. As noted in section 3.03 of the Procedure, a supplemental return will not be considered a claim for refund.

II. The Proposed Alternative of a Free Transcript of the Estate Tax Account In Lieu Of Estate Tax Closing Letter 627 Might Not Provide All the Information Needed by An Estate or Authorized Representative. The Free Transcript Should Be Modified to Include Abstract Code 074 (Generation-Skipping-Transfer Tax) and Abstract Code 076 (Regular Estate Tax) Assessment Data to Provide More Complete Information About the Estate Account.

Section F of the Notice of proposed rulemaking recognizes that estate tax closing letters are unique to estate tax, while account transcripts are available to taxpayers filing Federal tax returns other than estate tax returns. Notice 2017-12 publicized the availability and utility of an account transcript as an alternative in lieu of an estate tax closing letter. Reference is made to feedback received by IRS when Notice 2017-12 was issued, where a definite preference for receiving the information contained in an estate tax closing letter was expressed.

The proposed rule states that a free alternative is an Account Transcript where a TC 421 and a DLN with 547 as the 3^rd, 4^th, and 5^th digits is evidence that an examination of the return has been completed and the tax finally determined.

However, supplemental estate tax returns do not generate 547 DLNs when the account is adjusted with a TC 291 — they generate 554 DLNs. Furthermore, activity at the service center where a supplemental return is accepted as filed and the tax is reduced by agreement with the estate does not constitute an “examination.”

Master File Transaction Codes are explained in IRS Document 6209 at section 8A. Also see Document 11734 — IRS Transactions Code Pocket Guide. DLNs are explained in Document 6209 at section 4.

IRS Appeals IRM 8.20.2.2 (10-15-2014) describes the different types of transcripts applicable to estate tax accounts. During the 14-year section 6166 deferral period, in many cases authorized persons have received from Campus personnel several types of transcripts in addition to the account transcript described in the present notice.

ACCOUNT TRANSCRIPT — This is the transcript mentioned in Notice 2017-12 and in the present notice of a proposed user fee as a free alternative in lieu of an estate tax closing letter 627. It presents a summary of account information and shows tax and interest assessments, payments and credits, and the current account balance. Transaction Code (TC) numbers accompany each action posted to the account. Each TC posting is associated with a narrative description of the action; the calendar Cycle Number of the posting; the posting Date; and the dollar amount, if any, of each posting. DLNs (Document Locator Numbers) are associated with tax or interest assessments but not with other postings.

BMFOLT — Business Master File On Line Transcript – More comprehensive than an Account Transcript. Contains the same information as in the Account Transcript, but DLNs are associated with every Transaction Code posted to the account.

TXMODA — More comprehensive yet, and more current. Shows Trace Numbers for each payment received, the computation period ending date for each interest assessment, and the Abstract Codes applied to each tax assessment.

Note: Abstract Codes are described in IRS Document 6209, Section 8-C, at page 8C-12 (2020).

Abstract Codes applicable to estate tax returns are:

An account transcript would show the following:

300	Additional tax assessed by examination	$0.00
421	Closed examination of tax return	$0.00

The authorized person would not be able to ascertain the finally determined amounts of both taxes.

An estate tax closing letter 627 would report the following:

Net Estate Tax	$5,500,000.00
State Death Tax Credit/Deduction	$0.00
Generation-Skipping Tax	$1,000,000.00

The authorized person would be able to ascertain the finally determined amounts of both taxes.

A TXMODA transcript would show the following:

300.	0.00
	870-DT>08192019 DISP-CD>03
	ABST-NUM	ABST-AMT	ABST-NUM	ABST-AMT
	076	500,000.00	074	500,000.00-
421	0.00

The authorized person would be able to ascertain the finally determined amounts of both taxes.

CONCLUSION

1. Charging $67 for each estate tax closing letter 627 issued for supplemental estate tax returns filed for estates with an ongoing section 6166 elections would be excessive. IRS should issue estate tax closing letters 627 without charge to estates that file supplemental estate tax returns after an examination has been completed and a TC 421 has posted to the account, given that such estates will have previously paid the proposed $67 user fee.

2. The account transcript, which is intended to be a free alternative available to authorized persons in lieu of an estate tax closing letter 627, should be modified to include assessment data for Abstract Code 076 for estate tax and 074 for Generation-Skipping-Transfer tax. This would provide information equivalent to that which is currently provided on estate tax closing letter 627.

Respectfully submitted,

Nelson M. Blakely