AN ESTATE TAX AUDIT by the IRS usually results from an estate tax return that either fails to comply with federal law or misstates information the IRS already has on record. An estate tax return is a document that reports the value of an individual’s assets at the date of death and is used to determine the amount of estate tax is owed to the government. Estate tax is a tax on the transfer of property (including money, stocks, and real estate) from a deceased person to his or her heirs.
If the value of the estate exceeds a certain threshold set by the government, the estate may be subject to estate tax. The estate tax return provides the government with information on the assets and liabilities of the estate, and allows the government to calculate the amount of tax owed.
In simple terms, an estate tax return is necessary to determine if an estate is required to pay estate tax, and if so, how much. The process helps ensure that the transfer of assets from one generation to the next is taxed fairly and in compliance with the law.
What Happens if the Estate Tax Return is Audited
First, don’t ignore the audit. It’s not something that will clear up on its own. Interest and penalties for non-compliance can be severe. In one recent case I handled, interest and penalties were assessed at over $900k when I was brough into the case.
Second, start by gathering all relevant documentation. Keep all records and receipts related to the estate and ensure they are organized and easily accessible. Consider working with an experienced CPA or accountant to help with this process.
Third, don’t speak to the IRS yourself! Think of this as a root canal. It’s necessary and unpleasant, and you wouldn’t think to do it yourself. Hire an experienced tax attorney early in the process. An attorney who specializes in estate tax laws can provide valuable advice and represent you in front of the IRS.
Fourth, follow the law. Ensure that all information provided during the audit is accurate and complies with the relevant tax laws.
Fifth, negotiate with the IRS in good faith. You can take aggressive tax positions if they are supported by evidence, but be prepared to negotiate.
Sixth, if negotiations fail and you are not satisfied with the outcome of the audit, you have the right to file an appeal within 90 days.
If you follow these steps, your chances of beating an estate tax audit will improve dramatically.
To appeal an estate tax audit, consider taking the following steps:
- Request a conference: You can request a conference with an appeals officer to discuss the findings of the audit and try to resolve any disputes.
- File a protest: If the conference does not result in a resolution, you can file a protest in writing to the IRS Office of Appeals. Your protest should explain why you disagree with the audit findings and include any relevant documentation.
- Attend a hearing: The IRS Office of Appeals may schedule a hearing to hear both sides of the argument. An experienced estate tax attorney can represent you at the hearing.
- Receive a decision: After the hearing, the appeals officer will make a decision and send you a written notice.
- Seek judicial review: If you disagree with the appeals officer’s decision, you can seek judicial review by filing a lawsuit in federal court.
Estate tax audits are challenging, and a lot of money can be at stake. The information provided here is general in nature and does not constitute legal advice. If you are facing an estate tax audit, it is advisable to seek professional assistance immediately. We would be happy to consult with you on your federal estate tax matter.