Dot Your I's and Cross Your T's

It is possible that virtually every 2011 estate tax return resulting in the payment of federal estate tax will be audited by the Internal Revenue Service (IRS). On Dec. 17, 2010, President Obama signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010. Among other provisions, the law increases the federal estate tax filing threshold to $5 million for persons dying in 2010 through 2012. The ABA’s Real Property Trust and Estate Law Section estimates that less than one-half of one percent of people who die in 2011 will be subject to the federal estate tax. Another estimate projects that only 3,600 estates will pay the estate tax in 2011 under the new tax scheme. With so few filings, every estate tax return will likely be scrutinized.

Therefore, the question becomes, how do we, as trust and estate lawyers, prepare our clients for the inevitable audit? Following are ways we can assist our clients in preparing for a tax examination, and actions we can take as estate planners to minimize their exposure on audit.

Gift Issues