Immediate steps after receiving the notice
Receiving a Notice of Proposed Estate Tax Adjustment can be stressful, but acting methodically reduces risk. Begin with these priorities:
- Read the notice carefully. Identify the specific items the IRS proposes to change and the deadline for response. The notice will list the proposed adjustments and the tax, interest, and penalty amounts the IRS believes are due.
- Do not ignore the deadline on the notice. The exact time to respond varies by notice type; follow the date printed on the correspondence. Missing deadlines limits your options for appeal and can increase interest and penalties.
- Gather the original estate tax return (Form 706) and the supporting schedules, appraisals, and valuations submitted with it. Assemble all additional documentation that supports your original positions.
(Author note: In my practice as a CPA and CFP®, a quick triage — reading the notice, calendarizing deadlines, and collecting the core documents — prevents rushed, incomplete responses that weaken an estate’s position.)
What the IRS typically questions
The IRS commonly proposes adjustments in the following areas:
- Asset valuations (real estate, businesses, collectibles)
- Deductions (administrative expenses, funeral costs, mortgages)
- Marital deduction and portability filings
- Gift-tax basis adjustments or omitted assets
- Life insurance proceeds and beneficiary designations
Because closely held business interests and unique assets are more subjective, they frequently trigger proposed adjustments.
Document checklist to support your response
Collect documents that directly address the IRS’s concerns. Typical supporting evidence includes:
- Certified appraisals and appraiser CVs
- Recent comparable sales and MLS data for real estate
- Business valuations, financial statements, and valuation reports (with methodology explained)
- Trust, will, and beneficiary designation documents
- Closing statements, HUD-1/ALTA settlement statements
- Bank statements, cancelled checks, and billing records for claimed deductions
- Stock certificates, partnership K-1s, and corporate minutes
- Promissory notes, loan agreements, and evidence of bona fide debt
- Expert reports (CBV, accredited appraisers, valuation experts)
Include a cover letter that maps each challenged item in the notice to the supporting documents you are providing.
How to craft your written response
A clear, concise, and well-documented written response increases the chance the IRS will accept your position or narrow the dispute. Your response should:
- Open with a short summary that identifies the estate, the decedent, the Form 706 filing date, and the IRS notice number.
- For each proposed adjustment, state plainly whether you agree, partially agree, or disagree.
- Present facts, then law. Explain the valuation method used, cite the appraiser’s credentials, and show calculations.
- Attach labeled exhibits (Exhibit A: Appraisal; Exhibit B: Comparable Sales; Exhibit C: Financial Statements).
- Provide contact information for the executor or fiduciary and for any tax representative (CPA/attorney) so the IRS can easily follow up.
Sample response opening (adapt for your facts):
“Re: Notice of Proposed Estate Tax Adjustment dated [date]. On behalf of the estate of [name], executor [name] respectfully responds as follows. The estate disagrees with the IRS’s proposed increase to the value of [asset]. Enclosed is a certified appraisal dated [date], three comparable sales, and an explanation of the appraisal methodology demonstrating the fair market value reflected on Form 706 was reasonable and supported by contemporaneous evidence.”
(Author tip: Keep tone professional and avoid argumentative language. Focus on evidence and method.)
When to involve professionals
If the proposed adjustment is technical, involves a closely held business, or is a large dollar amount, engage experienced advisors immediately. Typical specialists to involve:
- Estate tax attorney (for appeals and litigation strategy)
- CPA with estate tax experience
- Accredited business valuator or certified real property appraiser
These professionals help prepare credible expert reports and can negotiate effectively with the IRS. In my experience, bringing an expert appraisal or valuation report that directly addresses the IRS’s valuation methodology often narrows or removes the adjustment.
Possible procedural outcomes
After you submit a response, the IRS may:
- Accept your documentation and close the case with no change.
- Make a partial adjustment and issue a revised notice.
- Maintain the proposed adjustment. If you still disagree, you can request an appeals conference with the IRS Independent Office of Appeals or pursue other dispute-resolution options.
Note: Appeal rights and specific procedures depend on the notice type. Follow the notice instructions for how to request an appeal. For general guidance on estate tax administration see the IRS estate tax page (irs.gov/businesses/small-businesses-self-employed/estate-tax).
Negotiation, appeal, and litigation options
If the IRS does not accept your evidence, you still have options:
- Administrative appeal: Request a conference with the IRS Appeals Office. Appeals emphasizes impartial resolution without litigation.
- Collection alternatives: If the IRS asserts tax but you cannot pay immediately, discuss installment agreements or offers-in-compromise with the IRS — but these are complex for estate tax matters.
- Litigation: Where appropriate and if statutory rights allow, a fiduciary or beneficiary can seek review in the U.S. Tax Court or file suit in the U.S. District Court (procedures depend on whether a formal statutory notice of deficiency was issued).
Consult experienced counsel before pursuing appeals or litigation — the right path depends on facts, notice type, and deadlines.
Common mistakes to avoid
- Waiting until the last minute and sending incomplete documentation.
- Submitting an unsigned response or failing to include required exhibits.
- Assuming the IRS’s examiner will automatically accept a later-submitted valuation; get expert reports prepared to deadline.
- Ignoring procedural options like appeals; many disputes are resolved before litigation.
Time and cost considerations
Responding to an estate tax adjustment can be resource-intensive. Expect to pay for appraisals, valuation experts, and professional representation. However, for large adjustments, spending upfront to obtain credible evidence usually produces net savings by avoiding additional tax, penalties, and interest.
Sample response timeline (illustrative)
- Day 0: Notice received. Read notice and calendar deadline.
- Day 1–7: Gather original return, schedules, and supporting documents.
- Day 7–30: If an appraisal or valuation is needed, retain an expert quickly (many appraisers take 2–6 weeks).
- Day 30–45: Prepare and send your written response with exhibits, or request a reasonable extension in writing.
(Adjust timeline to the deadline on your notice; always request an extension in writing if you need more time.)
Resources and further reading
- For IRS guidance on estate tax administration and filing requirements, see the IRS Estate Tax resource page: https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax
- For practical background on estate tax planning strategies, see our article on estate tax planning: “Estate Tax Planning” (internal resource) — https://finhelp.io/glossary/estate-tax-planning/
- For definitions and filing rules that affect trust reporting and when to file Form 706, see: “Understanding Trusts and Estate Tax Filing Requirements” — https://finhelp.io/glossary/understanding-trusts-and-estate-tax-filing-requirements/
Final checklist before you send your response
- [ ] Confirm the notice number and deadlines.
- [ ] Include a cover letter mapping each adjustment to exhibits.
- [ ] Attach certified appraisals and valuation reports where applicable.
- [ ] Include signed declarations or affidavits from the executor or fiduciary if needed.
- [ ] Keep copies of everything you send and use a tracked mail method.
Author credentials and disclaimer
I am a CPA and CFP® with over 15 years of experience advising clients on estate tax, valuations, and IRS dispute resolution. This article is educational and does not substitute for personalized legal or tax advice. Always consult a qualified tax professional or estate attorney about your specific notice and circumstances.
Authoritative sources
- IRS — Estate Tax (irs.gov/businesses/small-businesses-self-employed/estate-tax)
- IRS — Form 706 instructions (refer to current instructions on IRS.gov)
Internal links
- Estate tax planning: https://finhelp.io/glossary/estate-tax-planning/
- Trusts and Form 706 filing requirements: https://finhelp.io/glossary/understanding-trusts-and-estate-tax-filing-requirements/
If you’d like, I can draft a tailored response letter template based on your notice language and the specific items the IRS questions. Send a copy (redacted if needed) and I’ll outline the strongest documentation to include.