IRS Examination Computations

Last Updated: 25 February 2014

During an IRS examination of the return, an estate’s computations using proposed IRS changes to the return (and to the section 6166 business value) would permit forecasting future payment requirements at the earliest possible time. They would also provide the amount of any “catch-up” payment required to bring the section 6166 deferral account current on the date the estate agrees to the IRS deficiency (which is the date the executor signs the estate tax waiver, Form 890). Any interest accrued on non-deferred estate tax would be included as an additional Schedule J deduction, creating an interrelated computation that reduces the total payment otherwise due. [Even if 100% of the tax is deferred under section 6166, there would be a Schedule J interest deduction if a deficiency is assessed.]

In addition, they could provide payment figures for a section 6166(h) election on a deficiency if a 6166 election had not been filed with the original return.

The primary benefit, however, is that an estate can run alternate computation scenarios with its own figures to present counterproposals to the IRS Estate Tax Attorney conducting the examination. 

Once the adjustments are agreed upon, the estate has the option to pay the catch-up amount on the agreement date rather than wait to receive a bill from Cincinnati after the examination has been closed. This would reduce the interest payment. Note that the IRS Estate Tax Attorney conducting the examination might not be able to provide a catch-up payment figure to the estate.