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Federal Tax

An Estate & Trust Professional’s Four Takeaways From Tax Season 2023

· 5 minute read

· 5 minute read

T.J. Wertman, Estate & Trust Supervisor, Boulay, PLLP 

Another tax season has come and gone. As we shift our focus to extended and fiscal year returns, other duties, and possibly a well-earned vacation, here are four things I noticed as an estate and trust professional during the most recent tax season.

1. The IRS is Becoming Stricter with Name Control and Entity Names

E-filing with the IRS has its challenges. Among them is making sure that you have an accurate name control and entity name with your filing. Previously, the IRS might accept e-file returns with minor name control or entity name inconsistencies, but it appears those days have mostly passed.

Name control rules differ for estates and trusts and depending on how the EIN was obtained. While a screenshot of the EIN after obtaining it from the IRS online tool has the EIN and entity name, it is missing the name control. A good solution is getting a complete copy of the EIN confirmation letter that the IRS mails. The letter contains all the information you need in one place, helping you avoid an e-file rejection.

2. The IRS Continues to Incorrectly Reject Timely Mailed Returns, Payments and Extensions

Sending mail to the IRS is never fun but often required. Gift tax returns must be paper filed, fiduciary income tax extensions and returns can be rejected from e-file necessitating the use of paper file, and mail is the easiest way to make a payment for some clients.

Required mailings to the IRS are timely filed if postmarked on or before the due date under Code Sec. 7502. Nonetheless, the IRS is consistently using the date it processed a return, payment, or extension, which is sometimes weeks after mailing, as the filed date. This leads to incorrectly assessed late filing and/or late payment penalties and interest and rejected extensions.

Many firms have created a standard response letter for the incorrect assessments the IRS has made over the past several years. Enclosing copies of the Certified Mail receipt and USPS tracking record has been useful in combatting incorrect assertions. Filing Form 2848, Power of Attorney and Declaration of Representative, may be necessary before the IRS will respond to any correspondence.

3. Pass-Through Entity State Tax Elections Become More Popular

The Tax Cuts and Jobs Act limits the deduction of state and local income taxes to $10,000 on Form 1041. The cap may cause trusts and estates with pass-through entity income to lose the ability to fully utilize the SALT deduction to reduce overall tax liability.

Many states responded to the $10,000 limit by enacting laws allowing an election to have the pass-through entity pay the income tax. The afforded election, which varies by state, may result in favorable tax savings to a trust or estate by reducing federal taxable income at the entity level (which is ultimately passed down to owners), and then allowing a credit or income exclusion for the PTE owners’ state taxable income.

The increased frequency of pass-through entity elections has further emphasized the always present need for detailed review of K-1s when preparing a tax return. While tax return software is great, it can only process what is inputted. Preparers and reviewers need to be careful and make sure that the pass-through entity tax elections are properly presented on federal and state returns.

4. The Administrative Staff is your Best Friend

I learned this lesson a long time ago, but it bears repeating. The administrative staff is the heart of every well-functioning public accounting firm. They perform too many duties to list and their hard work and composure during an incredibly stressful period cannot be quantified. It is important to recognize the value they bring and thank them for their contributions not only during tax season but throughout the year.


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