Trust Updates Archive
(July 15, 2014 --Chicago, IL) -- While the number of trust/fiduciary, estate, and gift tax (TEG) returns audited declined in 2013, both in percent and total number, the dollar error rate significantly increased, according to Trust Regulatory News.
The findings are based on TRN's and Fiduciary Advisors' annual analysis of TEG returns. TEG returns include the forms 1041 (trust or fiduciary return), 706 (estate tax return), and 709 (gift tax return).
Additional taxes owed following IRS audits in 2013 of TEG returns spiked by more than 200 percent, to $4.7 billion, even though fewer returns were audited than in prior years. Once audited, the probability the IRS will find a mistake has not increased— regardless of whether the audit is a field or a letter audit. In 2013, however, those mistakes were bigger than in any of the last six prior years.
An IRS spokesman insisted the agency was not " targeting" TEG returns, adding that "many factors" can result in variations year over year.
Since 2007, there have been minor variations in additional taxes owed ranging from declines of nearly 20 percent to increases of 15 percent. These pale, however, in comparison to the current year's findings.
While some industry sources suggest the extraordinary spike in 2013 results from "special federal estate tax laws applied" to 2010 returns, this would not explain the increase in additional taxes owed on fiduciary and gift tax returns.
The federal estate tax, set to disappear in 2010, but was resurrected late that year giving filers the confusing option of using modified carryover basis or retroactively applying the estate tax.
Regardless of whether the estate tax law change was a "driver" of the large increases in additional taxes owed, the IRS definitely appears to be more carefully scrutinizing TEG returns.
For a more detailed review of this topic, see Trust Regulatory News.
No statement in this issue is offered as or should be construed as legal opinion or advice or as an indicator of future performance.
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