Tips for Preparing an Auditable Estate Form 706
7 of 8 in Series: The Essentials of Completing the Estate Tax Return (Form 706)
Because only estates with a high asset threshold have to file Form 706, the IRS audits a higher percentage of these returns than any other type. Prepare the return and all its exhibits with this in mind. Make sure that all supplementary documentation is available and organized. If issues arise, whether you are preparing Form 706 or being audited, turn to a tax expert for guidance.
Keep the following pointers in mind when preparing an auditable Form 706:
Get all the appraisals from reputable appraisers so that the results will stand up under audit. Each appraiser should know what the IRS expects in an appraisal and should attach his or her credentials to the appraisal for the IRS to see.
If you take a valuation discount for closely held stock, have the calculations done by an expert in the field. Attach them to the 706.
Keep a copy of every piece of paper that you use to determine an asset existed, whose name it was in, and its value. And keep those papers in an organized file. A file broken down by schedule is one good way to do it. That way, you can lay your hands on any given piece of paper that the IRS may require at audit.
If your return is selected for audit, you receive a letter (and sometimes a phone call) from the IRS, requesting further information, such as the decedent’s income tax returns for the past few years. If that’s the case, supply the information requested. Usually, the IRS accepts the additional documentation and concludes the audit.
If the IRS conducts a larger audit and any issues arise, turn to a tax expert for assistance. After all the questions are satisfied, the IRS will issue its closing letter.