Overview of the Estate Tax Lien
1.
Before the Federal Government files a federal tax lien on an estate tax case, the IRS gives careful thought to the advantages and limitations of each type of estate tax lien.
2.
In many cases, the general lien is the best tool to protect the federal government’s interest. The Federal Estate Tax Lien is automatically created when any resident of the United States dies. No recorded notice is required for it to become effective. It attaches to all of the assets that are part of the decedent’s gross estate and are required to be reported on Form 706, United States Estate Tax Return, and is security for any estate taxes that may be determined to be due. If a probate asset is transferred or liquidated without payment of the tax, but for the exceptions detailed at IRM of the Internal Revenue Manual, the federal estate tax lien continues to attach to the asset. If a non-probate asset is transferred or liquidated without payment of the tax, a liability equal to the value of the asset at the time of the decedent’s death becomes due from the transferee. A separate assessment against the transferee is not needed. Assets of the gross estate can be sold or encumbered free of lien if the proceeds from the sale or loan are used for the payment of charges against the estate or expenses of its administration that are allowed by any court having jurisdiction.
3.
A limitation of the general federal estate tax lien is that it has an absolute life of 10 years. It cannot be extended. Estate tax attributable to an estate’s interest in a closely held business may be paid over a 14-year period if an extension of time to pay under IRC is in effect which could potentially leave the Service without lien protection for four years if a notice of lien is not recorded before the 10 years have elapsed.
4.
The filing of Form 668-J will secure the deferred taxes for the duration of the extension. The collection statute of limitations is suspended during the period of the extension.
1.
The federal estate tax lien attaches only the property specified on the recorded lien. A lien on property with equivalent value can be substituted for the actual property upon agreement between the Internal Revenue Service and all parties with an interest in the property.
2.
When estate property is listed on the recorded IRS Form 668-J, it is automatically released from the effects of the general estate tax lien.
3. Find the closest Estate and gift Unit of the Internal Revenue Service and they should be able to help you with these issues.
Requesting a Release, Discharge of Property From, or Subordination of Unrecorded Federal Estate Tax Lien
1.
Releasing the Estate Tax Lien Occasionally, the IRS office receives requests for release of the unrecorded estate tax lien. However, just as there is no provision for recording a notice of the unrecorded estate tax lien, there is no provision for recording a release. Individuals are instructed to provide documentation to potential purchasers of the decedent’s property that either there was no Form 706 filing requirement, or, if Form 706 was filed and a closing letter has been provided to the estate by Estate & Gift Tax and a copy of the return, the Estate Tax Closing Letter 627 , and verification of payment, are evidence that the federal estate tax lien has been satisfied.
2.
Discharge of the Estate Tax Lien
1.
Those individuals looking for discharge under are usually submitted on Form 4422, Application for Certificate Discharging Property Subject to Estate Tax Lien. These applications will be processed by Estate and Gift division of IRS. If Form 706 has not been filed or if a closing letter has not been issued. If Form 706 has been filed and a closing letter has been issued, applications for discharge will be processed by Advisory Unit of IRS , United States Certificate Discharging Property Subject to Estate Tax Lien, is used to discharge the property.
2.
Applications for discharge will be processed by Advisory Unit in the local office. If Form 706 has not been filed or if a closing letter has not been issued, Advisory will consult with Estate and Gift division in order to determine the government’s lien interest.
3.
Subordination of the Estate Tax Lien Individuals looking for a subordination will be processed by the Local Advisory Unit. If Form 706 has not been filed or if a closing letter has not been issued, Advisory Unit will consult with the Estate and Gift Division in order to determine the government’s lien interest.
The Federal Gift Tax Lien
1.
The provisions of the federal gift tax lien are also delineated in IRC and parallel those for the general estate tax lien. ( Same as above )
2.
The special gift tax lien imposed attaches to all gifts made during the calendar year for the amount of the gift tax imposed upon the gifts made during such year. If the gift tax is not paid by the donor when due, the donee of any gift becomes personally liable for the tax to the extent of the value of the gift. The gift tax lien extends for a period of ten years from the time the gifts were made or until or the tax is paid, whichever date is sooner.
Should you have any questions about any of these issues, call the Fresh Start Tax professionals at 1.866.700.1040