Fast-Tracking Tax Assessments In Estate Administration With Form 4810

The Internal Revenue Code Section 6501 sets the framework for the time limits the IRS has to assess taxes on individuals, estates, and other taxpayers. A key provision within this statute allows taxpayers or their representatives to request a “prompt assessment” using IRS Form 4810. This article will explore IRC 6501, its connection to Form 4810, and why and how a prompt assessment request may be beneficial for estates or taxpayers seeking finality on their tax liabilities.

What Is IRC 6501?

IRC 6501 outlines the statute of limitations for the IRS to assess taxes. In most cases, the IRS has three years from the filing date of a return to assess additional taxes. However, the code provides exceptions, such as:

• Failure to file a return, fraud or tax evasion: No statute of limitations applies.
• Substantial understatement of income: The statute extends to six years if income is understated by 25% or more.
• Request for prompt assessment: The statute can be reduced to 18 months when a valid request is made using Form 4810.

What Is A Request For Prompt Assessment?

A request for prompt assessment shortens the time frame within which the IRS can audit and assess taxes related to a particular tax return, particularly for decedents’ final returns, estate income tax returns, or fiduciary returns. By filing IRS Form 4810, a fiduciary, executor, or taxpayer can ask the IRS to quickly audit a return and either assess additional taxes or confirm no additional tax is owed. The result is that the IRS has only 18 months from the date of filing Form 4810 to assess any additional taxes, rather than the standard three years.

When And Why Would You Want A Prompt Assessment?

A prompt assessment is particularly useful in situations where the estate or fiduciary is seeking to close the estate and distribute assets, or when a taxpayer is trying to settle any outstanding tax issues as quickly as possible. Common scenarios for requesting prompt assessment include:

1. Estate Administration: Executors want to close the estate and distribute assets without the lingering possibility of the IRS coming back years later with a tax bill.
2. Business Liquidation: Executors or trustees winding down business operations as part of the estate or trust administration may wish to resolve any tax liabilities promptly.
3. Trust Termination: Trustees may seek to settle taxes on a trust before distributing its assets.
4. Decedent’s Final Return: When administering a deceased person’s final tax return, the executor may wish to close the door on potential IRS claims, protecting beneficiaries and heirs from future liabilities.

Who Can Make The Request?

• Fiduciaries: Executors, administrators, trustees, or personal representatives acting on behalf of an estate or trust can file the request.
• Taxpayers: The taxpayer or their authorized representative can request a prompt assessment for personal income tax returns, business tax returns, or partnership returns. Fiduciaries generally make the request because they are tasked with administering estates, but business owners and trustees may also use Form 4810 to expedite the audit process for other types of entities.

How To Request A Prompt Assessment

To request a prompt assessment:

1. Complete Form 4810: Provide detailed information, including the name of the decedent or taxpayer, the type of return filed (e.g., Form 1040 for individuals or Form 1041 for estates), and the periods covered by the return.
2. Submit to the IRS: File the form with the IRS service center where the return was originally filed.
3. Wait for IRS Response: The IRS will review the form, conduct any necessary audits or assessments, and notify you if additional taxes are owed. If no additional tax is assessed within 18 months, the matter is effectively closed.

Benefits Of Filing Form 4810

Filing Form 4810 for a prompt assessment offers several key benefits:

• Finality and Certainty: The shortened assessment window provides peace of mind. After the 18-month period expires, the IRS cannot reopen the return to assess additional taxes, barring exceptions like fraud.
• Estate Closure: Executors can distribute estate assets without fear of the IRS coming back years later with a claim, which could disrupt distributions or create complications with beneficiaries.
• Reduced Administrative Burden: By prompting the IRS to act sooner, fiduciaries and trustees can complete their duties and close accounts faster.

Are There Any Drawbacks?

While the request for prompt assessment provides several benefits, there are potential drawbacks to consider:

• IRS Scrutiny: Requesting a prompt assessment could trigger an immediate audit. If the return has errors or questionable deductions, this could lead to the IRS identifying issues that may have otherwise gone unnoticed.
• Shortened Time for Corrections: Once the 18-month window is over, the IRS generally cannot assess additional taxes, but this also means that taxpayers lose the ability to amend their returns if they discover an error later.

Conclusion

A request for prompt assessment using Form 4810 can be a valuable tool for individuals, estates, and fiduciaries seeking closure on tax liabilities. By reducing the IRS assessment period to 18 months, it provides greater certainty and enables estates or trusts to distribute assets without the fear of future IRS claims. However, it’s essential to weigh the potential risks, such as triggering an audit, before filing. Properly preparing returns and understanding the intricacies of IRC 6501 can help avoid any negative consequences.