Estate tax returns have become relatively rare over the past decade. Since the early 2000’s, the estate tax exemption has been quickly rising, resulting in far fewer estates having to file estate tax returns. Because the number of estate tax returns has been dropping, the IRS has had a statistically greater opportunity to scrutinize the returns that are filed. This means that if you are the executor of an estate with a value of over $5.49 million, you need to be mindful that the IRS is going to heavily scrutinize the estate tax return you file.
With this warning in mind, here are several notes to keep in mind as you begin your meticulous and time-consuming task.
- Consult with a tax attorney before you begin preparing the estate tax return. There are tax advantages to be had when you know where to look. A tax attorney can provide customized advice on pitfalls to avoid.
- Large estate. The general rule with the IRS is that the larger estate, the higher the risk of estate tax audit. This means that you and your tax professional should prepare an estate tax return with the expectation of an audit.
- Vague appraisals. Be sure to do your due diligence and get reputable appraisers. The IRS looks for valuations that do not truly reflect market value of comparable assets. Appraisals need to be realistic and supportable. They also need to be explicit and contain an understandable method of appraisal.
- Business interests. Valuing business interests can be complex: no business is alike, there are numerous legal structures, there are partners and co-owners, and there are numerous valuation methods. Be sure to identify and hire the proper expert to appraise these interests.
- Gift taxes. The lifetime gift tax exemption is directly tied to the estate tax exemption. It is therefore critical to fully disclose all gifts that fell out of the annual exclusion, and to attach a complete set of gift tax returns. Any discrepancies will draw unwanted attention.
- Charitable deductions. The IRS looks for returns that over report charitable contributions or over-value property that is donated. Be sure to obtain proper verification and appraisals for any form of charitable giving.
If you are the executor or administrator of a large estate, you need professional assistance. Estate taxes are incredibly complex and susceptible to IRS audits. You need an experienced tax and estate planning attorney who can guide you through this incredibly complex process. I have been an estate planning and tax attorney for over two decades and have a Master of Law Degree (LLM) in Taxation, and a license to practice in the United States Tax Court. I can help you attain the goals of the estate. Contact The Law Offices of Robert S. Thomas at 847-392-5893 or visit our website today.