Over the past several months, the U.S. Internal Revenue Service has made some changes to the releasing of liens related to the estates of deceased individuals.
This started last summer, when the agency began funneling the processing of Form 4422 to its Estate Tax Lein Group. Form 4422 becomes necessary when an estate needs to transfer assets before filing Form 706, assuming those assets are subject to an estate tax lien.
As you might imagine, this can get quite complicated for those dealing with the estate of a deceased person. The bottom line is that when someone passes away, there’s an estate tax lien that gets attached to all assets and property contained within that individual’s gross estate.
Anyone who inherits property from the deceased will likely want to get that lien released as soon as possible. Before 2016, the IRS would typically release the lien within several days. But now, all applications for releasing liens must go through the agency’s Specialty Collection, Offers, Liens and Advisory department. The IRS requires that the net proceeds from any sale of property from an estate be deposited into an escrow account or an IRS estate tax account, and the agency may also make the final decision regarding the taxes owed before releasing the proceeds in escrow.
Mass confusion leads to memo
These changes have caused a great deal of confusion for accountants and attorneys—not to mention the individuals and families dealing with the death of their loved ones. In early April, the IRS issued a memo with guidance on how its agents should process requests for discharging estate tax liens, providing some level of clarification. The memo also directs agents to review whether there are adequate assets to cover any estate tax liabilities.
If the estate does not owe any taxes, the IRS will not require the extra step of placing assets in escrow—as it had been requiring for the past several months. To that end, the memo at least provided some greater flexibility in how the lien discharge process moves forward in most scenarios.
The tax issues associated with high-value estates can be incredibly complicated and unwelcome, especially when you are already dealing with the passing away of someone close to you. For further guidance on this and related legal issues, meet with a skilled U.S. Virgin Islands trust and estate planning attorney.
Steven K. Hardy is Chair of Corporate, Tax and Estate Planning Practice Group at BoltNagi, an established and well-respected estate planning law firm serving individuals and families throughout the U.S. Virgin Islands.