In mid-2016, the Internal Revenue Service modified the procedure by which an estate may obtain a discharge of an estate tax lien in anticipation of the sale of real estate by an estate. The new procedure, not yet described in any published writing, is, arguably, authorized by IRC Section 6325(c) which provides for a discharge if the Secretary finds that the liability secured by such lien is fully satisfied or provided for. In mid-2016, the discharge process was transferred to the collection side of the Service, hence the change in procedure. One might speculate that the Service had been unable to collect estate tax in from some estates in which discharges had been issued.
The change gives the estate methods to get the discharge:
- Escrow the net proceeds of the sale with an agent and in an amount acceptable to the Service; or
- Deposit the entire net proceeds of the sale with the Service, until there is a closing letter on the audit; or
- Dispense with the escrow if a return is accepted as filed in a non-taxable estate.
Hardship cases are likely to be considered.
Form 4422 (Application for Certificate Discharging Property Subject to Estate Tax Lien) was re-published in September 2016 and contains the phone number of the office to call for assistance.
Whether or not this procedure will be remodeled by the new administration and Congress is yet to be seen, and if it were, the timing of any change is unknown. Practitioners may wish to explore their clients’ options carefully in view of the current protocol.