What is “Fair Market Value?”
Fair Market Value is defined as: “The fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includible in the decedent’s gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item wherever appropriate.” Regulation §20.2031-1.
When can I expect the Estate Tax Closing Letter?
There can be some variation, but for returns that are accepted as filed and contain no other errors or special circumstances, you should expect to wait about 4 to 6 months after the return is filed to receive your closing letter. Returns that are selected for examination or reviewed for statistical purposes will take longer.
Who should I hire to represent me and prepare and file the return?
The Internal Revenue Service cannot make recommendations about specific individuals, but there are several factors to consider:
- How complex is the estate? By the time most estates reach $1,000,000, there is usually some complexity involved.
- How large is the estate?
- In what condition are the decedent’s records?
- How many beneficiaries are there and are they cooperative?
- Do I need an estate tax professional?
With these questions in mind, it is a good idea to discuss the matter with several estate tax professionals. Ask about how much experience they have had and ask for referrals.
This process should be similar to locating a good physician. Locate other individuals that have had similar experiences and ask for recommendations. Finally, after the individual(s) are employed and begin to work on estate matters, make sure the lines of communication remain open so that there are no surprises during administration or if the estate tax return is examined.
Finally, most estates engage the services of both attorneys and/or Enrolled Agents (EA). The attorney usually handles probate matters and reviews the impact of documents on the estate tax return. The EA often handles the actual return preparation and some representation of the estate in matters with the IRS. However, some attorneys handle all of the work.
EAs may also handle most of the work, but cannot take care of probate matters and other situations where a law license is required. In addition, other professionals (such as appraisers, surveyors, financial advisors and others) may need to be engaged during this time. Engaging these separate professionals is not the complete answer. They need to work on the same team.
What if I do not have everything ready for filing by the due date?
The estate’s representative may request an extension of time to file for up to six months from the due date of the return. However, the correct amount of tax is still due by the due date and interest is accrued on any amounts still owed by the due date that are not paid at that time.
Do I have to talk to the IRS during an examination?
You do not have to be present during an examination unless an IRS representative needs to ask specific questions. Although you may represent yourself during an examination, most executors prefer that professional(s) they have employed handle this phase of administration. They may delegate authority for this by signing a designation on the Form 706 itself, or executing Form 2848 “Power of Attorney”. Enrolled Agents and Attorneys are best suited to represent you against the IRS.