Notice 2009-83

Part III. Administrative, Procedural, and Miscellaneous
Credit for Carbon Dioxide
Sequestration Under Section
45Q
Notice 2009–83
SECTION 1. PURPOSE
This notice sets forth interim guidance,
pending the issuance of regulations, relating to the credit for carbon dioxide (CO2)
sequestration under section 45Q of the
Internal Revenue Code. Specifically, this
notice provides guidance on determining
eligibility for the credit and the amount
of the credit, as well as rules regarding
adequate security measures for secure geological storage of CO2. This notice also
sets forth a separate reporting requirement.
The Internal Revenue Service (Service)
and Treasury Department (Treasury) expect that the regulations will incorporate
the rules set forth in this notice.
SECTION 2. BACKGROUND
.01 Section 45Q was enacted by § 115
of the Energy Improvement and Extension
Act of 2008, Pub. L. No. 110–343, 122
Stat. 3829 (October 3, 2008), as amended
by § 1131 of the American Recovery and
Reinvestment Tax Act of 2009, Division
B of Pub. L. 111–5, 123 Stat 115 (Feb.
17, 2009). Section 45Q(a) provides that a
credit for CO2 sequestration (§ 45Q credit)
is generally available to a taxpayer that
captures qualified CO2 at a qualified facility and disposes of the CO2 in secure geological storage within the United States,
effective for CO2 captured after October 3,
2008. As originally enacted, § 45Q(a)(1)
provides for a credit of $20 per metric ton
of qualified CO2 that is captured and disposed of in secure geological storage, and
§ 45Q(a)(2) provides for a credit of $10 per
metric ton of qualified CO2 that is captured
and used as a tertiary injectant in a qualified enhanced oil or natural gas recovery
project (EOR project). Section 45Q(a),
as amended, provides additional requirements effective after February 17, 2009,
that, for purposes of the $20 per metric
ton credit under § 45Q(a)(1), the qualified
CO2 must not be used as a tertiary injectant; and, for purposes of the $10 per met-

2009–44 I.R.B.

ric ton credit under § 45Q(a)(2), the qualified CO2 used as a tertiary injectant must
be disposed of in secure geological storage.
.02 Section 45Q(d)(2) as amended provides that the Secretary of Treasury or his
or her delegate (the Secretary), in consultation with the Administrator of the Environmental Protection Agency (EPA), the Secretary of Energy (DOE), and the Secretary
of the Interior (DOI), shall establish regulations for determining adequate security
measures for the geological storage of CO2
such that the CO2 does not escape into the
atmosphere.
.03 Section 45Q(d)(5) provides that the
§ 45Q credit is attributable to the person
that captures and physically or contractually ensures the disposal of or the use as a
tertiary injectant of the qualified CO2, except to the extent provided in regulations
prescribed by the Secretary.
.04 Section 45Q(d)(6) provides for a recapture of the benefit of any credit allowable under § 45Q(a) with respect to any
qualified CO2 that ceases to be captured,
disposed of, or used as a tertiary injectant
in a manner consistent with the requirements of § 45Q.
.05 Section 45Q(d)(7) provides that, for
taxable years beginning in a calendar year
after 2009, the dollar amount contained in
§ 45Q(a) will be substituted for an amount
equal to the product of such dollar amount
multiplied by the inflation adjustment factor for such calendar year determined under § 43(b)(3)(B), determined by substituting “2008” for “1990.”
.06 Section 45Q(e) as amended provides that the § 45Q credit will apply with
respect to qualified CO2 before the end
of the calendar year in which the Secretary, in consultation with EPA, certifies
that 75,000,000 metric tons of qualified
CO2 have been taken into account in accordance with § 45Q(a).
SECTION 3. TERMS AND
DEFINITIONS
.01 Terms. For purposes of this notice,
(a) The terms disposal, storage, and sequestration are used interchangeably,
(b) The term credit refers to a tax credit
and shall not be interpreted or construed as

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a CO2 allowance, permit, or any other CO2
emissions property right, and
(c) The term leakage refers to CO2 that
ceases to be sequestered via escape or release from the subsurface to the atmosphere or ocean.
.02 Industrial Facility.
(a) Industrial facility refers to a facility that produces a CO2 stream from a
fuel combustion source, a manufacturing
process, or a fugitive CO2 emission source
that, absent capture and disposal, would
otherwise be released into the atmosphere
as industrial emission of greenhouse gas.
(b) An industrial facility does not include a facility that produces CO2 from
CO2 production wells at natural CO2-bearing formations.
.03 Qualified Carbon Dioxide. Qualified carbon dioxide means CO2 that is:
(a) Captured from an industrial source
that would otherwise be released into
the atmosphere as industrial emission of
greenhouse gas (GHG),
(b) Measured at the source of capture,
and
(c) Verified at the point of disposal or
injection.
Qualified CO2 includes the initial deposit of captured CO2 used as a tertiary
injectant but does not include CO2 that is
re-captured, recycled, or otherwise re-injected as part of the enhanced oil and natural gas recovery process.
.04 Qualified Enhanced Oil or Natural Gas Recovery Project. Qualified
enhanced oil or natural gas recovery
project has the same meaning given the
term “qualified enhanced oil recovery
project” under § 43(c)(2) by substituting
“crude oil or natural gas” for “crude oil”
in § 43(c)(2)(A)(i).
.05 Qualified Facility. Qualified facility means an industrial facility that is
owned by the taxpayer where carbon capture equipment is placed in service and
where at least 500,000 metric tons of qualified CO2 is captured during the taxable
year.
SECTION 4. APPLICATION OF
SECTION 45Q CREDIT
.01 In General. Taxpayers who capture
qualified CO2 from a qualified facility in

November 2, 2009

a taxable year beginning after October 3,
2008, and meet all of the other requirements of § 45Q are eligible to claim the
credit.
.02 Section 45Q Credit Amount. (a) The
amount of the § 45Q credit is equal to the
sum of:
(i) $20 per metric ton of qualified CO2
if the qualified CO2 is not used as a tertiary
injectant in an EOR project; and
(ii) $10 per metric ton of qualified CO2
if the qualified CO2 is used as a tertiary
injectant in an EOR project.
Pursuant to § 45Q(d)(5), a taxpayer that
captures and physically or contractually
ensures the disposal of or the use as a tertiary injectant of qualified CO2 is eligible
to claim the § 45Q credit.
(b) Inflation Adjustment. The § 45Q
credit amount will be adjusted for inflation
for any taxable year beginning in a calendar year after 2009. The Service will announce in later guidance the applicable inflation adjustment for the amount of § 45Q
credit for a given taxable year.
.03 Carbon Dioxide Measured by
Weight. (a) In order to claim a § 45Q
credit, the amount of CO2 must be measured at the source of capture and verified
either at the point of disposal in secure geological storage or at the point of injection
as a tertiary injectant in an EOR project.
The amount of qualified CO2 for purposes
of the § 45Q credit is presumed to be the
lesser of the amount measured at capture
and the amount verified at disposal or injection, unless the taxpayer can establish
to the satisfaction of the Secretary that the
greater amount is the correct amount.
(b) For the purpose of calculating the
§ 45Q credit, a metric ton of CO2 includes
only the contained weight of the CO2. The
weight of any other substances, such as
water or impurities, is not included in the
calculation. For example, if a metric ton
of a substance that is bought and sold as
“CO2” is 95 percent pure CO2 by weight,
for purposes of the § 45Q credit, 1.0526
tons (equivalent to 1 divided by 0.95) of
the 95 percent pure substance is considered
to be one metric ton of CO2.
.04 Captured and Disposed of or Used
within the United States. Section 45Q
credit applies only to qualified CO2 that is
captured and disposed of or used as a tertiary injectant within the United States (as
defined in § 638(1)) or a possession of the
United States (as defined in § 638(2)).

November 2, 2009

.05 Taxpayers Eligible to Claim the
§ 45Q Credit. (a) To be eligible to claim
the § 45Q credit, a person must (i) own an
industrial facility at which carbon capture
equipment is placed in service, (ii) capture
not less than 500,000 metric tons of qualified CO2 during the taxable year at such
industrial facility, and (iii) physically or
contractually ensure that the qualified CO2
is securely stored in a geologic formation,
including where such CO2 is captured and
transported for use in an EOR project. In
the case of qualified CO2 that is used as
a tertiary injectant in an EOR project, requirement (iii) above applies only to CO2
captured after February 17, 2009.
Each industrial facility for which the
§ 45Q credit is claimed must be equipped
with carbon capture equipment and must
capture not less than 500,000 metric tons
of qualified CO2 during the taxable year.
Additionally, a person that buys the captured CO2 at the point of transit or disposal but does not own the industrial facility at which the CO2 is captured does
not meet the qualified facility requirement
of § 45Q(c) and is therefore ineligible to
claim the § 45Q credit.
(b) Example. (i) X, a calendar year taxpayer, owns a manufacturing facility in the
United States and releases CO2 into the
atmosphere as a by-product of the facility’s operations. On November 1, 2009,
X leases carbon capture equipment and
places it in service at the manufacturing facility. On February 1, 2010, Y, an oil company, enters into a contract with X to purchase the CO2 for use as a tertiary injectant
in an EOR project. Pursuant to the terms of
the contract, X captures the CO2 and delivers it to Y at the manufacturing facility. Y transports the CO2 in a pipeline to
Y’s oil fields located in the United States.
Pursuant to its contract with X, Y uses
the CO2 as a tertiary injectant in an EOR
project and thereafter disposes of the CO2
in secure geological storage in the United
States in 2010 and later years. During the
taxable year beginning on January 1, 2010,
700,000 metric tons of CO2 is captured at
X’s facility and injected as a tertiary injectant under the terms of the agreement. X
measures the amount of CO2 at the source
of capture and Y verifies the amount of
CO2 at the point of injection during taxable
year 2010.
(ii) CO2 captured from X’s facility is
qualified CO2 under § 45Q(b) because

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the CO2 was captured from an industrial
source from which it would otherwise
have been released into the atmosphere
and is measured at the source of capture
and verified at the point of injection in the
United States. The CO2 was captured at
a qualified facility within the meaning of
section 3.05 of this notice because it is an
industrial facility, within the meaning of
section 3.02 of this notice, that is owned
by X, at which carbon capture equipment
is placed in service, and the facility captures not less than 500,000 metric tons of
CO2 during the taxable year. Therefore,
X is eligible to claim the § 45Q credit
in 2010 for the qualified CO2 captured
and used as a tertiary injectant in an EOR
project in 2010. The amount of qualified
CO2 for purposes of the § 45Q credit is
presumed to be the lesser of the amount
measured at capture and the amount verified at injection, unless X can establish
to the satisfaction of the Secretary that the
greater amount is the correct amount.
.06 Allocation of § 45Q Credit Among
Qualified Facility Owners. Eligibility
for the § 45Q credit is based on the total
amount of CO2 captured and disposed of
in secure geological storage during a taxable year subject to the following:
(a) If the qualified facility is owned by a
partnership that has not made a valid election under § 761(a), the partnership will
be considered the taxpayer for purposes
of this notice. In such cases, the § 45Q
credit must be allocated in accordance with
§ 1.704–1(b)(4)(ii).
(b) If the qualified facility is owned by a
partnership that has made a valid § 761(a)
election, then each partner in the partnership will be considered the taxpayer for
purposes of this notice. In such case, the
taxpayer may claim the § 45Q credit in
accordance with its portion of the total
amount of qualified CO2 that is commensurate with its undivided ownership of the
qualified facility.
.07 Applicability of Credit for Projects
under §§ 48A and 48B of the Code. Qualified CO2 for purposes of the § 45Q credit
does not include CO2 that is captured and
sequestered in a project to the extent required under an agreement executed with
the Service under the qualifying advanced
coal project program of § 48A or the
qualifying gasification project program of
§ 48B.

2009–44 I.R.B.

.08 Credit Recapture. Taxpayers must
physically or contractually ensure that all
qualified CO2 disposed of in secure geological storage remains stored and is not
released into the atmosphere. Taxpayers
must recapture the benefit of any credit
allowable under § 45Q(a) with respect to
any qualified CO2 that ceases to be captured, disposed of, or used as a tertiary injectant in a manner consistent with the requirements of § 45Q. Procedures regarding
§ 45Q credit recapture will be provided in
future guidance.
.09 Credit Termination. Pursuant to
§ 45Q(e), at such time as the Service certifies, in consultation with the EPA, that
75,000,000 metric tons of qualified CO2
have been taken into account for purposes
of § 45Q credit, the Service will publicly
announce that the § 45Q credit will cease
to be available for the calendar year following such announcement.
SECTION 5. SECURE GEOLOGICAL
STORAGE
.01 In General. In order to qualify
for the § 45Q credit, a taxpayer must either physically or contractually dispose of
captured CO2 in secure geological storage
using adequate security measures as provided by the Secretary in regulations. The
term “secure geological storage” includes
storage at deep saline formations, oil and
gas reservoirs, and unminable coal seams
under such conditions as the Secretary may
determine under regulations. There are not
yet regulations setting forth the requirements for secure geological storage. This
section of the notice provides interim procedures for a taxpayer to determine adequate security measures for the secure geological storage of CO2 until such regulations are promulgated. In the event
that a taxpayer disposes of the qualified
CO2 contractually, the taxpayer must ensure that the contracting party complies
with the requirements of this section of the
notice at all times, and the taxpayer must
be able to provide documentation of such
compliance as required under section 7 of
this notice. In order to demonstrate secure geological storage for purposes of the
§ 45Q credit, a taxpayer must meet the requirements of section 5.02 of this notice.
.02 Requirements of Secure Geological
Storage.

2009–44 I.R.B.

(a) Measurement of CO2 at the Source
of Capture: Final Mandatory GHG Reporting Rule. On September 22, 2009,
EPA issued the Final Mandatory GHG Reporting Rule (Reporting Rule) (to be codified at 40 C.F.R pt. 98), to require reporting of greenhouse gas emissions from
all sectors of the economy. The Reporting Rule applies to fossil fuel suppliers
and industrial gas suppliers, including CO2
suppliers, as well as to direct greenhouse
gas emitters. The Reporting Rule does
not require control of greenhouse gases:
rather, it requires only that certain sources
monitor and report emissions. A taxpayer
claiming the § 45Q credit must use the
methodology, inputs, and equations in the
Reporting Rule (or any successor rule) to
calculate the amount of CO2 measured at
the source of capture. The amount reported under the Reporting Rule (or any
successor rule) must be consistent with the
amount of qualified CO2 taken into account for purposes of the § 45Q credit.
(b) Sequestration Site Rules.
(i) IPCC Guidelines. In order for geological storage to be considered adequately
secure for purposes of the § 45Q credit
such that the injected CO2 does not escape into the atmosphere, a taxpayer must
conduct at the frequency appropriate for
the site conditions, except as otherwise
provided under paragraph (c), the following procedures outlined in the 2006 Intergovernmental Panel on Climate Change
Guidelines for National Greenhouse Gas
Inventories (IPCC Guidelines):
(A) Conduct a site characterization by
evaluating the geology of the storage site
and surrounding strata and identifying the
local and regional hydrogeology and leakage pathways such as deep wells, faults,
and fractures.
(B) Conduct an assessment of the risks
of CO2 leakage, or escape of CO2 from
the subsurface to the atmosphere, by evaluating the potential for leakage through a
combination of site characterization and
realistic models that predict movement of
CO2 over time and locations where emissions might occur. A range of modeling
tools is available, including reservoir simulators that are widely used in the oil and
gas industry and have proved effective in
predicting movement of gases and liquids,
including CO2, through geological formations. Reservoir simulation can be used
to predict the likely location, timing, and

590

flux of emissions. Additional numerical
modeling techniques may need to be used
to analyze aspects of the geology, such as
multi-phase reaction transport models and
geomechanical models.
(C) Monitor potential leakage pathways, measure leakage at those pathways
as necessary, monitor the current and future behavior of the CO2 and of the storage
system, and use the results of the monitoring plan to validate and/or update models
as appropriate. Monitoring should be conducted according to a suitable plan. This
should take into account the expectations
from the modeling on where leakage might
occur, as well as measurements made over
the entire zone in which CO2 is likely to
be present.
(ii) UIC Program: Proposed Rules for
Geologic Storage. The Underground Injection Control (UIC) program was established under the authority of Part C of the
Safe Drinking Water Act (42 U.S.C. 300h
et seq.) (SDWA), which regulates underground injection wells. The SDWA is designed to protect the quality of drinking
water sources in the United States. The
SDWA gives the EPA authority to issue
regulations for state programs that contain “minimum requirements for effective
programs to prevent underground injection
which endangers drinking water sources.”
Under the UIC program, the EPA promulgated a series of regulations (40 C.F.R.
parts 144 through 148) to employ a multiple barrier approach that includes requirements for the proper geologic siting, construction, operation, testing, and closure
of injection wells to ensure that injected
fluids remain isolated from underground
sources of drinking water (USDWs) and
the environment.
On July 25, 2008, the EPA proposed
rules relating to federal requirements under the UIC Program for CO2 Geologic Sequestration Wells (73 Fed. Register No.
144, 40 C.F.R. parts 144–146). The EPA
proposes to create a new category of injection well (Class VI) under its existing
UIC Program with new federal requirements to permit the injection of CO2 for the
purpose of geologic sequestration (i.e., the
long-term containment of a gaseous, liquid, or supercritical CO2 stream in subsurface geologic formations). The EPA proposes to tailor existing UIC program components to create standards appropriate for
injecting large amounts of CO2 into a va-

November 2, 2009

riety of geologic formations to ensure that
USDWs are not endangered.
The proposed UIC program rules have
not been finalized as of the date of this notice. Once the UIC program rules are finalized, any taxpayer claiming the § 45Q
credit who is covered by the new program
rules must follow the modeling, monitoring, well construction, and other requirements of the relevant permit as required
under the rules. The requirements in the
final UIC program rules (or any successor
rules) will apply in lieu of the requirements
of the IPCC Guidelines under paragraph
(i). However, any taxpayer that is not covered by the final UIC program rules must
continue to follow the procedures outlined
in the IPCC Guidelines pursuant to paragraph (i).
(iii) Proposed Geologic Sequestration
Rules. Subpart PP of the Final Mandatory
GHG Reporting Rule announces EPA’s
plans to propose new rules to require
reporting of the amount of CO2 that is
geologically sequestered. EPA will seek
comments on monitoring, reporting, and
verification methodologies that can be
used to determine the amount of CO2 emitted and geologically sequestered at active
EOR facilities and geologic sequestration
sites where CO2 is injected (for long-term
storage) into saline aquifers, oil and gas
reservoirs, or other geologic formations.
When the proposed geologic sequestration rules are finalized, such rules (or any
successor rules) will apply in addition to
the final UIC program rules (to the extent
applicable), and the requirements of the
IPCC Guidelines under paragraph (i) will
no longer apply.
(c) Compliance with Additional Regulatory Requirements. EPA may impose
additional or different requirements for
secure geological storage, including additional methodology, inputs, and equations
to calculate the amount of CO2 measured
and verified at the source of injection
and/or the amount of CO2 emitted from
secure geological storage. Furthermore,
various aspects of geologic sequestration,
including well construction, operation,
well plugging, and post-injection site
closure may be subject to other existing
or future requirements from government
bodies, including EPA’s regional or state
UIC programs. Any taxpayer claiming the
§ 45Q credit must follow such additional
requirements together with the Reporting

November 2, 2009

Rule and the IPCC Guidelines (or, in lieu
of the IPCC guidelines, the UIC program
rule as applicable and the geologic sequestration rule, once they are finalized)
in order to demonstrate secure geological
storage for purposes of the § 45Q credit.
SECTION 6. REPORTING
REQUIREMENTS
.01 Annual Reports. A taxpayer that has
claimed the § 45Q credit on a tax return
must submit an annual report to the Service
containing the following information:
(a) The name, address, and taxpayer
identification number of the reporting taxpayer, and all parties with which the taxpayer contractually ensures the secure geological storage of the CO2;
(b) The name and location of the qualified facilities at which the CO2 was captured;
(c) The amounts (in metric tons) of
qualified CO2 for the taxable year that has
been taken into account for purposes of
claiming the § 45Q credit;
(d) Any changes in the information included in prior annual reports submitted
under section 6.01 of this notice, including adjustments to the amount (in metric
tons) of qualified CO2 taken into account
for purposes of the § 45Q credit in prior
taxable years; and
(e) A declaration, applicable to the report and any accompanying documents,
signed by a person currently authorized to
bind the taxpayer in these matters, in the
following form:
“Under penalties of perjury, I declare
that I have examined this report, including accompanying documents, and to the
best of my knowledge and belief, the facts
presented in support of this report are true,
correct, and complete.”
.02 Time for Filing Reports. The annual
report described in section 6.01 of this notice must be filed with the Service at the
following address not later than the last
day of the second calendar month following the month during which the tax return
on which the § 45Q credit is claimed was
due (including extensions):
Internal Revenue Service
Attn: CC:PSI:6, Room 5116
P.O. Box 14095
Benjamin Franklin Station
Washington, D.C. 20044

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SECTION 7. RECORDKEEPING
REQUIREMENT
.01 In General. A taxpayer is not
required to attach documentation to the
return on which the credit is claimed.
However, § 6001 of the Code provides
that every person liable for any tax imposed by the Code, or for the collection
thereof, must keep such records, render
such statements, make such returns, and
comply with such rules and regulations
as the Secretary may from time to time
prescribe. See Treas. Reg. § 1.6001–1(e).
.02 Information Must Be Available for
Inspection. The taxpayer must retain in
its records documentation establishing
that the taxpayer qualifies for the § 45Q
credit. The taxpayer must, upon request,
make such documentation available for
inspection by the Service regardless of
whether the taxpayer physically or contractually ensures injection or disposal in
secure geological storage. Such necessary
documentation includes, but is not limited
to, the following:
(a) Methodology, inputs, and equations
used to measure the amount of CO2 at the
source of capture and verify the amount at
the point of disposal or injection. Qualified CO2 for purposes of the § 45Q credit
does not include the amount of CO2 recycled or re-injected as part of EOR operations.
(b) Evidence of disposal of captured
CO2 in secure geological storage, as specified in section 5 of this notice. As future
Federal and state regulations are promulgated, such evidence may also include any
certificates issued or determinations made
by a Federal or state government that the
geological storage meets the necessary requirements to ensure secure storage.
(c) Methodology, inputs, and equations
used to calculate the amount of CO2 emitted from secure geological storage.
(d) All contracts entered into by the taxpayer and any contracting party that ensures the use of the CO2 as a tertiary injectant or the disposal of the CO2 in secure
geological storage.
SECTION 8. PAPERWORK
REDUCTION ACT
The collection of information contained
in this notice has been reviewed and approved by the Office of Management and

2009–44 I.R.B.

Budget in accordance with the Paperwork
Reduction Act (44 U.S.C. § 3507) under
control number 1545–2153.
An agency may not conduct or sponsor,
and a person is not required to respond
to, a collection of information unless the
collection of information displays a valid
OMB control number.
The collection of information is in section 6 of this notice. This information is required to allow the Secretary to determine
when 75,000,000 metric tons of qualified
CO2 have been taken into account for purposes of the § 45Q credit. The § 45Q credit
will cease to be available after the end of
the calendar year in which the Secretary,
in consultation with the EPA, certifies that
75,000,000 metric tons of qualified CO2
have been taken into account. This collection of information is required to obtain a
benefit. The likely respondents are businesses or other for-profit institutions.
The estimated total annual reporting
burden is 180 hours.
The estimated annual burden per respondent varies from 2 to 10 hours, depending on individual circumstances, with
an estimated average of 6 hours. The estimated number of respondents is 30.
The estimated annual frequency of responses is annually.
Books or records relating to a collection
of information must be retained as long
as their contents may become material in
the administration of any internal revenue
law. Generally, tax returns and tax return
information are confidential, as required
by 26 U.S.C. § 6103.
SECTION 9. DRAFTING
INFORMATION
The principal author of this notice is
Jennifer C. Bernardini of the Office of
Associate Chief Counsel (Passthroughs
& Special Industries). For further information regarding this notice, contact
Jennifer C. Bernardini at (202) 622–3110
(not a toll-free call).

2009–44 I.R.B.

Limited Reexamination of
Estate Tax Return Applicable
to Certain Section 2053
Claims for Refund
Notice 2009–84
PURPOSE
This notice provides a limited administrative exception to the ability of the
Internal Revenue Service (Service) to examine a Form 706 (United States Estate
(and Generation-Skipping Transfer) Tax
Return) in connection with certain protective claims for refund filed within the time
prescribed in section 6511(a) of the Internal Revenue Code (Code). Specifically, in
processing a timely-filed protective claim
for refund of tax based on a deduction
under section 2053 of the Code, if the
claim for refund ripens and becomes ready
for consideration after the expiration of
the period of limitations on assessment
prescribed in section 6501, the Service
will limit its review of the Form 706 to the
evidence relating to the deduction under
section 2053 that was the subject of the
protective claim.
BACKGROUND
Concurrently with the issuance of this
notice, the Treasury Department and the
Service are issuing final regulations under
section 2053 of the Code (T.D. 9468) to
provide guidance in determining the deductible amount of a claim against a decedent’s estate under section 2053. Section 20.2053–1(d)(1) of the final regulations provides the general rule that a deduction for any claim or expense described
in section 2053 and the final regulations
is limited, with several exceptions, to the
amount actually paid in settlement or satisfaction of the claim or expense.
Under the final regulations, if a claim or
expense that would have been deductible
under section 2053 had it already been paid
is not fully deductible within the period
of limitation prescribed in section 6511(a),
the estate may file a protective claim for refund to preserve the estate’s right to claim
a refund of tax attributable to the deduction
of such claim or expense in the event that
it becomes deductible in whole or in part
after the expiration of the period of limitation prescribed in section 6511(a). Sec-

592

tion 20.2053–1(d)(5). A protective claim
for refund may be filed at any time before
the expiration of the period of limitation
prescribed in section 6511(a) for the filing
of a claim for credit or refund. See section
6514. Once the claim or expense has been
paid or otherwise has become deductible
under section 2053, the executor may notify the Service that the decedent’s estate is
ready to pursue the claim for refund.
In considering a claim for refund, the
Service must determine if there is an overpayment of tax for purposes of section
6402. An overpayment exists to the extent the amount of tax paid exceeds the correct tax liability. To determine the correct
tax liability, the Service has the authority
to examine each item on the return regardless of whether the period of limitations
on assessment has expired. See Lewis v.
Reynolds, 284 U.S. 281, 283 (1932). Even
if the Service is barred from assessing any
additional amount of tax by reason of the
expiration of the period of limitations on
assessment under section 6501, the Service may reject the claim for refund to the
extent the Service determines there is no
overpayment of tax.
DISCUSSION
Commentators responding to the
proposed regulations (published in the
Federal Register on April 23, 2007
(REG–143316–03, 2007–1 C.B. 1292 [72
FR 20080])) expressed concerns that the
protective claim procedures effectively
would keep the period of limitations on assessment open to the extent of the amount
of the claim for refund and, therefore,
would impede the goal of achieving finality in the administration of a decedent’s
estate. In cases in which the Service accepts the Form 706 as filed or in which
any disputes between the estate and the
Service are resolved without a judicial determination, the executor generally relies
on the estate tax closing letter (Letter 627)
that is issued by the Service to advise the
estate that the Form 706 has been accepted,
either as filed or after an adjustment to
which the estate has agreed. Practitioners
are concerned that, if an estate must file
a protective claim for refund in order to
claim a deduction for a claim or expense
under section 2053 of the Code, executors
will be unable to rely on the estate tax
closing letter because the Service has the

November 2, 2009