Tax Brief Issue 9: Estate Tax Fee Hike & BBA Penalties

01. Proposed Estate Tax Fee, 4960 Changes

• The user fee for an estate tax closing letter (IRS Letter 627) is proposed to increase from $56 to $76.
• For taxable years beginning after December 31, 2025, the Section 4960 'covered employee' definition for tax-exempt organizations expands to reach any current or former employee (employed after December 31, 2016), not just the five highest-compensated; the forthcoming proposed regulations will not provide a 'limited services' exception, though the limited-hours and nonexempt-funds exceptions are expected to continue.

Source: IRS Internal Revenue Bulletin · 2026-06-22

02. BBA Partnership Accuracy-Related Penalties

• For BBA partnerships, accuracy-related penalties are computed by treating the partnership as an individual subject to tax for the reviewed year under IRC 6233(a)(3).
• To determine if an understatement is 'substantial' for a BBA partnership under IRC 6662(d)(1)(A), the tax is calculated by treating the partnership's net income or loss (reflecting adjustments) as taxable income under IRC 1(c) (individual rates, without regard to IRC 1(h)), as per Treas. Reg. § 301.6233(a)-1(c)(2)(iv)(B).

Source: IRS Written Determinations · 2026-06-18

03. DSUE Portability Extension §301.9100-3 Relief

• Estates not required to file an estate tax return under IRC § 6018(a) can obtain a reasonable extension of time under § 301.9100-3 to elect portability of the deceased spousal unused exclusion (DSUE) amount.
• Such an extension, if granted, typically provides 120 days from the date of the private letter ruling to file a complete Form 706 and is void if the estate was actually required to file under IRC § 6018(a).

Source: IRS Written Determinations · 2026-06-18