TIGTA recently released a report discusses their audit of the IRS’s estate and gift tax examination procedures. TIGTA made eight recommendations of changes to the estate and gift tax examination process. The bulk of TIGTA’s recommendations address the informal processes, lack of consistency, and unknown effectiveness of the estate and gift tax examination procedures.
One of the more significant findings of the report is that while the examination division proposed over $577 million of estate and gift tax deficiencies for FY 2016, only $98 million of those deficiencies were sustained after cases were considered by IRS Appeals. The Examination division attributed this statistic to the fact that the Examination division proposes alternative deficiencies in order to prevent being whipsawed. However, the Examination division could not separately identify the amount of deficiencies that were attributable to these alternative positions. TIGTA highlighted that the Government could be subject to suits for attorneys’ fees pursuant to Section 7430 if the positions set forth in the notices of deficiency were not substantially justified. TIGTA recommended that Examination division develop written guidance “on the circumstances in which it is advisable to propose and issue notices of deficiency in estate and gift tax examinations that contain alternative positions.”
Other highlights from the report include:
- there is one gatekeeper who decides whether or not to route a case for examination and how to prioritize cases;
- there is no quality review process;
- unlike the process for selecting income tax returns for examination, the process of selecting estate and gift tax examinations for examination is based minimal written guidance and involves almost no objective procedures, but instead relies on human involvement and judgment; and
- procedures for documenting case selection, examination documentation and managerial review either did not exist or if they did exist were not followed as closely as they should be.
TIGTA’s report can be accessed here.