Estate Tax Protective Claim Procedures Detailed

The IRS issued guidance October 14 on filing a protective claim for refund of estate tax and notifying the IRS that the claim is ready for consideration.

The guidance, in Rev. Proc. 2011-48, provides details on who may file a protective claim, methods by which the claim must be prepared and submitted, and identifying and documenting outstanding claims upon an estate and other deductible expenses for which the protective claim is filed.

Sec. 2053 identifies types of expenses that may be deducted from the value of decedents’ gross estates for determining the taxable amount of the estate. These expenses include funeral expenses, administration expenses, unpaid mortgages on the decedent’s property, and other claims against the estate. In some cases, such claims and expenses may not be known at the time of filing Form 706, U.S. Estate (and Generation-Skipping Transfer) Tax Return, or resolved within the general limitation period allowed for filing a claim for refund of tax overpaid (three years from the filing date or two years from the date taxes are paid, whichever is later—Sec. 6511(a)). In such cases, estate fiduciaries may file a protective claim for refund within the general limitation period to preserve the estate’s right to claim a refund beyond that period.

Regulations under Sec. 2053 finalized in 2009 provide that a protective claim must identify the claim or expense and why its payment has been delayed. Once payment is made, the estate’s fiduciary must within a reasonable period notify the IRS, which will then process the claim and issue a refund.

Method of Filing

For estates of decedents dying on or between October 20, 2009, (the revenue procedure’s effective date) and December 31, 2011, fiduciaries may file a Sec. 2053 protective claim using Form 843, Claim for Refund and Request for Abatement, with “Protective Claim for Refund under Section 2053” written across the top, to the IRS address given in the revenue procedure.

For estates of decedents dying on or after January 1, 2012, the protective claim may be filed either using Form 843 as described above or by attaching to Form 706 one or more Schedules PC, which the IRS expects to first make available as part of the 2012 version of Form 706. A separate Schedule PC must be filed for each claim or expense.

Who May File?

Generally, the claim is filed by an estate fiduciary or other person authorized to act on behalf of the estate, who must document that status by including certified copies of letters testamentary, letters of administration or other such evidence with the protective claim for refund. However, this documentation generally is also required for Form 706, and if the same fiduciary or other person submits the Sec. 2053 protective claim, a written statement affirming that fact and the person’s continuing authority to act in that capacity will be deemed sufficient.

Notifying the IRS

The fiduciary or other authorized person must notify the IRS that the claim for refund is ready for consideration within 90 days after the claim or expense is paid or the amount becomes certain and no longer subject to any contingency, whichever is later. A late notification should include an explanation sufficient for the IRS to determine whether reasonable cause exists for the delay.

For estates of decedents dying on or after January 1, 2012, a fiduciary or authorized person can notify the IRS using an updated Form 843 or a supplemental (updated) Form 706, with the notation and attachments as described in the revenue procedure. For estates of decedents dying on or between October 20, 2009, and December 31, 2011, the notification must be made via an updated Form 843.