This guest post was authored by Mara Smith, a summer associate with Montgomery McCracken.
For the last three years, you have spent one weekend during each of the summer months at your favorite great-aunt’s beachfront home in a swanky community at the Jersey Shore. Also, you visited her routinely at her primary residence about an hour from your home. You assisted her in taking care of both homes. You often cooked meals for her or invited her to dinner with your spouse and three active children. You were agent under her power of attorney and helped her manage her finances, including gathering information each year for her income tax returns. You went with her to doctors’ appointments.
Your great-aunt had never married and had no children. While she had nieces and nephews and other great-nieces and nephews, none of them had had much contact with her in many years and your great-aunt often lamented that fact. Your great-aunt, on her own, had had a will prepared. After she died suddenly last month, you learned for the first time that you are the sole beneficiary of her substantial estate, including the beach house. You are named executor under the will. The lawyer you hired to assist with the administration of the estate prepared a federal estate tax return which you signed and which the lawyer filed with the IRS. You signed her last income tax return.
Sure enough, as uninvolved and inattentive as the other family members had been while your aunt was alive, shockingly, they became very present and attentive after she passed. Why were they not included in the will? “She was always my favorite aunt?” “I was her favorite nephew!” “I sent her a birthday card five years ago!” “She told me she was going to leave everything to me!” “My third child’s middle name is the same as hers…!” and so on and so forth.
In pursuing their efforts to build a case to enrich themselves, several of your cousins write to the IRS for copies of your great aunt’s income tax returns and the federal estate tax return. Are they entitled to copies of these documents?
In fact, your great-aunt’s tax returns can be disclosed to her heirs, next of kin, and beneficiaries, but only if those parties have a material interest that will be affected by the information requested. Generally, heirs, next-of-kin and beneficiaries will include your great-aunt’s siblings and the children of those siblings (your aunts, uncles and cousins).
But which of them has a material interest? The IRS broadly defines material interest to apply to an important interest that is generally, but not always, financial in nature. This leaves the IRS with discretion to determine whether your cousins’ interests are substantial or of consequence in obtaining the tax returns. The IRS may withhold information if disclosure of the tax return would seriously impair the federal tax administration.
So how can one show that he or she has a material interest in your aunt’s tax returns? The requester can make the request to the IRS using Form 4506, but must provide a statement explaining why the return is needed to assist the requester in determining whether he or she received the proper share of the estate. It is important that the requester provide documentation showing beneficiary status by producing birth and/or death certificates, letters testamentary, a will, or other documents that may demonstrate a material interest.
At the end of the day, you may not be able to keep all of your cousins from accessing your great-aunt’s tax returns but there is some comfort in knowing that only relatives who can demonstrate to the IRS a material interest in your great-aunt’s estate will be able to access her tax returns.