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Part 5. Collecting Process

Chapter 5. Insolvencies, Decedents Estates and Estate Taxes

Section 5. Processing Estate Tax Extensions

5.5.5  Processing Estate Tax Extensions

5.5.5.1  (06-23-2005)
Section Overview Request for Extension of Time to Pay Estate Tax

  1. Internal Revenue Code (IRC) § 6161 provides decedents estates that file Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, the option of securing an extension of time to pay when specific circumstances impede their ability to pay the total tax due by the return due date. This section provides background information and procedures for processing of § 6161 extension requests.

  2. Taxpayers submit Form 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes, for an extension of time to file or pay Estate Tax. Technical Services Advisory (Advisory) processes only the Forms 4768 that request extensions of time to pay. On requests that ask for both extensions to file and to pay, the filing extensions are processed first before the forms are sent to Advisory for a determination on the payment portion of the request.

  3. Relevant provisions of IRC § 6161 for extensions of time to pay estate tax are:

    1. The maximum allowable extension of time to pay is 12 months.

    2. Additional extension requests can be granted for up to 12 months at a time for a maximum of 10 years.

    3. A request for extension of time to pay must be in writing and received no later than the due date of the return, or in the case of a subsequent request, the extended payment date.

    4. Requests must include a statement of reasonable cause or undue hardship.

    5. Under IRC § 6503(d), the Collection Statute Expiration Date (CSED) is suspended for the period of any extension of time for payment that is granted.

5.5.5.2  (06-23-2005)
Compliance Services Collection Operation (CSCO) Control and Processing of Forms 4768, Application for Extension of Time to File a Return and/or Pay U.S. Estate (and Generation-Skipping Transfer) Taxes.

  1. Control Form 4768 on IDRS using category "Coll" and "F4768" activity code to avoid the issuance of unneeded notices.

  2. Process within 30 days.

  3. For the extension to be granted, it must include a check for the computed balance due shown in Part V of Form 4768 and a statement of reasonable cause. Acceptable reasons include:

    1. The estate contains enough liquid assets to pay the tax but the assets are located in several places and the administrator cannot take control of them in time to pay the tax by the due date.

    2. Much of the estate consists of assets that provide for payment in the future (e.g., annuities, copyright royalties, contingent fees, or accounts receivable). Currently they do not produce enough cash to fully pay by the due date. Borrowing against these assets has proved not to be possible, and sale of these assets at a discount would greatly decrease the value of the estate.

    3. The estate includes a claim to substantial assets which cannot be collected without litigation. The value of the gross estate is undetermined so tax cannot be paid (or even computed) when the tax is due.

    4. The estate does not have enough money (without borrowing at a rate of interest substantially higher than normal) to pay all the tax and other claims against the estate while providing funds for the decedent’s dependents during the period of administration. The administrator has made reasonable attempts to convert assets into cash.

  4. If the request is incomplete, correspond with the taxpayer specifying what is needed to consider the extension and suspend the case.

  5. If no response is received after 45 days, close the control base and update the activity code "EXTDENIED" .

  6. Refer questions related to completeness or validity of the request to the estate tax specialist in Campus Examination when the request is below the criteria for transfer to the appropriate area Advisory.

  7. If the request is complete, and the liability meets the criteria for evaluation by Advisory covered in IRM 5.5.5.7, transfer the case to the appropriate Advisory office, (normally the area where the decedent’s last place of abode is located) via Form 3210. Close the control base, update the activity "CLTOTSAO" show the AO number for the area where the case is being sent.

5.5.5.3  (06-23-2005)
Second and Subsequent Extension Requests

  1. Review the file to determine if a prior investigation was completed by Advisory. When the case is documented with an existing Advisory determination, follow Advisory’s recommendation. For example, Advisory may determine that the estate will not be able to pay the balance for two years.

  2. Otherwise, consider second and subsequent extension requests based on executor actions to resolve the liability during the previous extension period.

    1. Evaluate progress of efforts made by the executor to borrow, liquidate assets, or otherwise pay the amount to be extended.

    2. If there is insufficient information included with the request to make this determination, the request is incomplete.

    3. If the issues involved are complex, contact the estate tax specialist in Campus Examination. Upon Campus Examination agreement for immediate transfer or if Campus Examination fails to respond to the informal inquiry within 30 days, transfer the case to Campus Examination, via Form 3210 and close the control base activity "CLTOSCE" .

    4. Second and subsequent requests must also include a statement of reasonable cause based on the same factors as shown in IRM 5.5.5.2.

  3. If the request is incomplete, correspond with the taxpayer specifying what is needed to consider the extension and suspend the case. If no response is received after 45 days, close the control base and update the activity code "EXTDENIED" .

5.5.5.4  (06-23-2005)
Approval of Extensions of Time to Pay

  1. Complete Part VI of Form 4768

    1. If the taxpayer requested more than 12 months, indicate the extension may only be granted for 12 months in the space marked "Other" in item 2 of Part VI.

    2. Grant the extension to pay only for the amount of cash shortage in the gross taxable estate.

    3. Forward to the CSCO manager for signature.

  2. After Form 4768 is signed and dated, make three copies and route as follows:

    1. File original in closed Form 4768 file

    2. Send two copies to the taxpayer, and

    3. Send one copy to Exam at Gateway

  3. Close the control base, and update the activity "EXT–MMDDYY" with the date it is extended to.

  4. Input transaction code 468 indicating the date to which payment has been extended.

5.5.5.5  (06-23-2005)
Denial of Requests for Extension of Time to Pay

  1. Complete Part VI item 2 of Form 4768

    1. Give the reason for denial.

    2. In the space marked "Other" write, "A written appeal may be made to the Examination Area Director within 10 days from the time the denial is mailed." Show the CSCO address for the Appeals office address unless the liability was created by an examination.

    3. Forward to CSCO Manager for signature.

  2. After Form 4768 is signed and dated, make three copies and route as follows:

    1. File original in closed Form 4768 file

    2. Send two copies to the taxpayer, and

    3. Send one copy to Accounting Department

  3. Close the control base, and update activity "EXFPDENIED"

  4. If the taxpayer files an appeal:

    1. Pull the file and send it to the appropriate Appeals office.

    2. Create a History item on IDRS, "SENTTOAPAO " , and show which Appeals office is receiving the case.

5.5.5.6  (06-23-2005)
Closed Form 4768 File

  1. Maintain a file of all approved and rejected Form 4768 extension requests in CSCO.

  2. Keep approved extension requests until 30 days after expiration of the extension.

  3. Keep rejected extension applications for one year in case the file is requested by Appeals, then destroy.

5.5.5.7  (06-23-2005)
Requests to Transfer to Technical Services Advisory

  1. Transfer requests for extension of time to pay, with the associated case file, to the appropriate area Advisory office when:

    The amount of tax due is And And
    $500,000 or greater it is the initial request there is no prior IRM 5.5.5.3 determination
    $100,000 or greater it is a second request there is no prior IRM 5.5.5.3 determination
    $25,000 or greater it is a third request there is no prior IRM 5.5.5.3 determination
    any dollar amount it is a fourth or subsequent request there is no prior IRM 5.5.5.3 determination

5.5.5.8  (06-23-2005)
Technical Support Actions (Form 4768)

  1. Compliance Services Collection Operation (CSCO) has responsibility for initial review of requests for extension of time to pay estate tax (Form 4768), except those cases covered by (2) below. IRM 5.5.5.2 outlines (CSCO) procedures and responsibilities for these requests.

  2. See IRM 5.5.5.7 which provides for transfer of certain requests directly to the appropriate area Technical Support.

  3. Analyze these referrals to ensure that the government’s interests are protected before an additional extension of time is granted.

  4. Consult with Counsel on cases with

    1. Requests for an extension of payment of interest.

    2. Provisions of 31 U.S.C. § 3713, fiduciary or transferee liability

    3. Administrative remedies based on the IRC § 6321 lien (e.g., filing of a Notice of Federal Tax Lien, Notice of Levy, and/or seizure of property or property rights).

  5. To favorably consider the extension request, reasonable cause must be established. See IRM 5.5.5.2(3) which lists acceptable reasonable cause statements.

  6. In addition to establishing reasonable cause, these cases require an analysis of the progress of efforts being made to borrow or liquidate assets or to otherwise pay the amounts to be extended. Some suggested additional information required in this analysis include:

    1. Balance sheets listing all assets, disbursements, liabilities and earnings for the estate and relating to the prior extension period. Real estate should be listed with the value and location identified (city, county, and state).

    2. An accounting of the actions taken during the past extension period to resolve the indebtedness. Examples include marketing property, resolving suits, or seeking loans.

    3. Information on the executor’s proposal to make partial payments during the extension being requested.

  7. Contact the executor within 30 days of the date of the extension request to

    1. advise them that you are reviewing the request,

    2. gather information to support your determination, and

    3. estimate the date of completion.

  8. Generate an ICS Other Investigation to a revenue officer for cases that require field contact, valuation of property, or administrative remedies.

  9. The maximum allowable extension of time to pay is 12 months, but additional extensions can be granted, one at a time, up to a maximum total of ten. Document the file if the area investigation shows a period longer than 12 months is justifiable under reasonable cause. Document exactly the period of time the reasonable cause is expected to exist and recommend that subsequent requests not be sent to the field during that period.

  10. Most requests for an extension to pay are necessary because the estate representative or executor needs additional time to liquidate what are often very valuable properties that cannot be marketed within the 9 month period following the death of the taxpayer. Provided the executors verify that all steps necessary to sell property to pay the tax are being taken in an expeditious manner, and that all liquid assets not needed for the payment of anticipated administrative expenses are paid over, extensions to pay should generally be granted. If, in the judgment of the Advisor evaluating the extension request, granting an extension to pay may put the interest of the government at risk, under IRC § 6165 granting of the extension can be conditioned upon the estate posting a bond. The filing of a Notice of Federal Tax Lien should also be considered if there are assets attached by the IRC § 6321 lien, and if all of the statutory requirements for creation of the assessment lien have been met. See IRM 5.5.7.4 and IRM 5.5.7.8.1 for further information.

  11. Some requests for an extension to pay an annual installment of tax deferred under IRC § 6166 (see IRM 5.5.6) will meet the guidelines for referral to Advisory. The same reasonable cause criteria apply to these requests. However, the granting of an extension to pay an annual installment should always be conditioned upon the estate posting a bond under IRC § 6165, or agreeing to the recording of a special estate tax lien (Form 668-J) under IRC § 6324A, if a bond was not previously posted or a lien recorded. Before securing a bond or a lien, verify that Estate & Gift has made a final determination regarding the acceptability of the IRC § 6166 election. (See IRM 5.5.8.4 for procedures). If a lien was previously recorded, it should be determined that the value of the property described on the lien remains adequate to secure the remaining balance of deferred tax and interest. If not, additional security should be obtained prior to granting an extension to pay.

  12. When evaluating extension to pay requests bear in mind that denial of the request may have adverse financial ramifications to the estate far in excess of the failure to pay penalty which will begin to accrue if the request is denied. Under IRC § 2011(c), for state death taxes to be deductible as an expense on Form 706, they must be paid within 4 years from the date the Form 706 is filed, or until the expiration of any extension to pay under IRC § 6161 or §  6166, whichever date is later. Most states allow an extension to pay state death taxes provided an extension to pay the estate taxes has been granted under IRC § 6161 or § 6166. If the estate tax liability has been in extension to pay status (status 14) for more then 4 years from the filing of Form 706, the estate will be unable to claim as a deduction any subsequent state death tax payments if further extension to pay requests are denied.

  13. If all issues are resolved in favor of an extension, complete part V, item 1 of Form 4768 and return it with the case file to CSCO via Form 3210. They will maintain the case file and process all documents.

  14. If the request is denied, complete part V, item 2 of Form 4768 giving the reason for denial and return it with the case file to CSCO for processing. Retain a copy of the case file for use in preparing a rebuttal if the denial of the extension is appealed.

  15. If an appeal is received in Advisory, an advisor will prepare a rebuttal and forward the entire package to the proper Appeals office for a hearing. Notify CSCO that the estate has requested an appeal so that the account remains in status 14 and payment due notices are not sent during the appeals process.


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