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8.7.4.5
(11-06-2007)
Notices of Deficiency for Estate and Gift Tax Cases
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Procedures for preparing a notice of deficiency for estate and gift tax cases are the same as the general procedures for preparing
Notices of Deficiency found in IRM 8.17.4. The only exceptions are those detailed in this subsection.
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Some procedures are unique to estate and gift tax cases. These are described in detail in the subsections below.
8.7.4.5.1
(11-06-2007)
Notices of Deficiency Letter 901(cg)
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The notice of deficiency letter, Letter 901(cg), is used for estate and gift tax cases and is available on the Appeals Centralized
Database System (ACDS) through the Appeals Generator of Letters and Forms (APGolf).
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In ACDS, there is an option to select one of two opening paragraphs for Letter 901(cg). Select the paragraph that reads as
follows:
"We've determined that you have a deficiency in your tax account(s). This means you owe additional tax, other amounts such
as penalties or additions to tax, or both, as shown above. This letter is your NOTICE OF DEFICIENCY that the law requires.
The enclosed statement shows how we figured your deficiency."
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Letter 901(cg) has lines in the heading for the type of tax and form number. Since the opening paragraph does not specify
the type of tax, it is important to complete this information.
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Change the "Tax Year Ended"
default selection on the input screen, using the drop down menu and change to -
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"Date of Death"
for estate tax cases
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"Calendar Year"
for gift tax cases.
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Use the salutation"Dear Taxpayer"
.
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The gross deficiencyis the amount that is entered on Letter 901(cg).
8.7.4.5.2
(11-06-2007)
Preparing Form 890 and Form 4089-A in Estate and Gift Tax Notices
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Form 4089-A, Notice of Deficiency-Statement, is used as a summary of the deficiency and is the first page of the notice statement
in all estate tax and gift tax cases.
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Modify the form as follows:
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Change "Tax Year Ended"
to "Date of Death"
for estate tax cases.
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Change "Tax Year Ended"
to "Calendar Year"
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Enter penalties or additions to tax in columnar format under and to the right of the deficiency block. List each penalty separately.
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The gross deficiency is the amount that is entered on Form 4089-A and Form 890.
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When Form 4089-A is used, prepare Form 890 and include with the notice.
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The following paragraph printed on Form 890 is for agreed estate tax cases where the Form 890 is secured for the net deficiency
after unverified credits are allowed. It should be deleted from Form 890 when issuing a notice. "If the estate is required
to file with the Internal Revenue Service evidence of payment of estate, inheritance, legacy, succession or generation-skipping
transfer taxes to any State or District of Columbia, I understand that such evidence must be filed by _, or the credits for
these taxes will not be allowed. I also agree to the assessment and collection of the increase in estate tax and penalties
of $ _based on the disallowed credits, plus interest figured for the 30th day after _, or until this increase is assessed,
whichever is earlier."
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For estate tax cases, an explanatory paragraph must be included on Form 890 and Form 4089-A when credits for estate, inheritance,
legacy or succession taxes paid to a State, territory, District of Columbia, or a possession of the United States, are disallowed
in whole or in part. Use the following paragraphs depending on the situation.
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Estate is entitled to additional credit for state death tax (tax years beginning before 2005) that has not been substantiated:
"When we receive a waiver or, in the absence of one, 90 days after the date of this letter, we will assess and bill you for
an increase of $___ in tax, and any penalty charges, unless you have filed a petition with the United States Tax Court. If
within the 90 days you file evidence of payment of State, territorial estate, inheritance, legacy, or succession taxes as
required by the regulations, we will assess and bill you for the net increase of $___, and any penalty charges."
Note:
In some cases it may be advisable to add a sentence explaining the form of evidence required and where it may be secured.
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Ample time remains to make an assessment after expiration of the 90-day period:
"When we receive a waiver or, in the absence of one, 90 days after the date of this letter, we will assess and bill you for
$___ of the increase in tax and any penalty charges, unless you have filed a petition with the United States Tax Court. The
balance, $___, is the maximum allowable credit for estate or inheritance taxes paid to the State."
The $___ balance may be eliminated by credit for payment of State, territorial estate, inheritance, legacy, or succession
taxes, if you submit evidence required by the regulations. This evidence, a certificate which your [Title of local official;
for example: State Tax Commissioner] will furnish the estate upon request, should be filed within a reasonable time. Otherwise,
we will assess and bill you for the balance of the increase in tax, and any penalty charges.
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Deficiency results entirely from disallowance of credits:
"The increase in tax may be eliminated by credit for payment of State, territorial estate, inheritance, legacy, or succession
taxes, if you submit evidence required by the regulations. This evidence, a certificate which your [Title of local official;
for example: State Tax Commissioner] will furnish the estate upon request, should be filed within the 90 days. Otherwise,
we will assess and bill you for the $___ increase in tax, and any penalty charges."
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If a credit involves State, territorial estate, inheritance, legacy, or succession taxes which do not have a statute absorbing
the full credit allowable under the Federal estate tax statute, prepare appropriate paragraphs using the previous paragraphs
as a guide.
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Always use the same paragraph on the Form 890 as used on the Form 4089-A.
8.7.4.5.3
(11-06-2007)
Preparing Form 3614-A (Estates) or Form 3615-A (Gifts)
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This section covers instructions for preparing the estate and gift tax computation forms. Use Form 3614-A for estates tax
cases and Form 3615-A for gift tax cases.
8.7.4.5.3.1
(11-06-2007)
Preparing Form 3614-A (Estate)
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Use Form 3614-A,Estate Tax for Persons who Died After December 31, 1976 for estate tax computations. The starting point for
taxable estate is usually the return as filed or the latest processed amended return.
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If applicable, allow a credit for the amount of state death taxes paid on the estate.
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Many times credit evidence substantiating the amount paid is attached to the return or is secured prior to the issuance of
the notice of deficiency.
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Regardless of the amount of credit taken on the return, insert the amount of substantiated credit on Line 10 of Form 3614-A.
Allowing only the substantiated credit results in a gross deficiency amount on Line 18 of Form 3614-A.
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If the estate is entitled to additional credit for state death tax that has not been substantiated, insert the amount on line
19 of Form 3614-A. Allowing this additional credit results in a net deficiency amount on Line 20 of Form 3614-A.
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The gross deficiency from line 18 of Form 3614-A is the amount that should be used on Form 4089-A, Form 890, and the Notice
of Deficiency letter.
8.7.4.5.3.2
(11-06-2007)
Preparing Form 3615-A (Gift)
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Use Form 3615-A (Gift Tax For Donors Making Gifts After December 31, 1976) to compute the actual gift tax.
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When a deficiency notice covers two or more calendar periods, start the computation with the earliest calendar period because
the earlier year generates taxable gifts and tax that is used in the computation of tax for the later calendar periods.
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If the earlier calendar period is adjusted but does not result in a deficiency, the adjustments, explanations, and computation
of tax are still included in the notice.
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Since there is no deficiency in the earlier calendar period, do not list it on the notice of deficiency letter. However, the
earlier period would be included on Form 4089-A and Form 890.
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See Exhibit 8.7.4-6. This is an example of Form 3615-A and explanations of adjustment for a gift tax notice. In this example, the earlier year
(1996) does not result in a deficiency because the increase in tax is offset by an increase in the unused credit.
8.7.4.5.4
(11-06-2007)
Preparing Explanation of Adjustments
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Write an explanation for each item changed. The explanations of adjustments must be computer-generated using the Form 886-A
or a separate schedule such as Word document. See TCS web page on the Appeals web site for sample paragraphs.
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For estate tax cases, use a Form 3228 (Adjustments to Taxable Estate) if it helps clarify the notice of deficiency. Use a
Form 3229 (Computation of Credit for Tax on Prior Transfers), pages 1 and 2 (and page 3, if applicable) in notices of deficiency
to explain complicated adjustments involving credits for tax on prior transfers.
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For gift tax cases, an explanation for the Adjustments to Total Taxable Gifts for Prior Periods amount may be necessary.
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It may be necessary to adjust the value of taxable gifts made in a prior period in determining the gift tax liability for
a gift made in a subsequent period.
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If the prior period in which the gift was made is before August 6, 1997, the value of that gift may be adjusted in determining
the gift tax liability for a gift made in a subsequent year unless, with respect to the earlier gift, the statute of limitations
on assessment has expired and a gift tax was either paid or assessed.
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However, if the earlier gift was made after August 5, 1997, the value of that gift cannot be adjusted if the statute of limitations
on assessment has expired with respect to that gift.
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The gift tax statute of limitations may not expire if a gift is not adequately disclosed on a gift tax return. See Treas.
Reg. 301.6501(c)-1(c) and (c)-1(f).
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Include the adjustments made to taxable gifts for the prior period, along with appropriate explanations, as a separate attachment.
See See Exhibit 8.7.4-6.
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