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Facts From the IRS About Estate Taxes

It is not surprising that the number of federal estate tax returns being filed has gone down – a lot. The amount of federal estate taxes collected has gone down, too, and there aren’t as many estate tax audits.

The federal estate tax is a tax imposed at death on the value of property owned.  The federal estate tax exemption is $5.43 million per person in 2015 and is indexed for inflation.  The federal estate tax is imposed at a flat rate of 40% on assets in excess of the exemption amount.  “Portability” of a deceased spouse’s unused exemption to the surviving spouse means that in 2015 a married couple can avoid estate taxes when between the two of them they own less than $10.83 million in assets.

Number of returns down, taxes collected down too

The number of estate tax returns filed with the Internal Revenue Service declined 63% from 2003 to 2012.  In 2003, when the exemption was $1 million, over 73,000 estate tax returns were filed.  In 2012, when the exemption was $5.12 million, only 27,000 estate tax returns were filed. * Over half those returns were for estates of $5 million or less, which means that over half the returns filed required no payment of federal estate tax.  Over 1,000 of those returns were filed in 2012 on behalf of Massachusetts decedents.

The amount of federal estate taxes collected in 2013, about $14 billion, was similar to the amount collected in 1996, without any adjustment for inflation.  This is because of the increased exemption amount.  The highest amount of estate taxes collected was almost $27 billion, in 2006.  Just for contrast, the IRS collected over $1.5 trillion in income taxes in 2013, and $1.2  trillion in 2006.

Estimates are that with our current gift and estate exemption ($5.43 million in 2015) only 0.14% of Americans who die each year will owe any federal estate tax (or about 2 out of every 1,000 people who die).

What about audits?

Of the 27,000 estate tax returns filed in 2012, 3,250 were audited, or about 12%. About 350 resulted in an assessment of additional tax, and the average recommended additional tax was over $1 million.  800 of these returns resulted in no change in taxes owed; 500 of those audits resulted in refunds to the taxpayer.  It’s not clear what happened for the rest.

IRS staff reductions

The total number of staff members at the IRS was reduced by 6.6% between 2012 and 2013.  This included a reduction in the number of examiners (auditors).

All information taken from the Internal Revenue Service Data Book, 2013

*Note – for reasons we do not understand, the separately published IRS Statistics of Income reports that the number of returns filed in 2012 was 9,400.  For consistency’s sake, we used the Data Book for all numbers reported here.