• An estate includes all a deceased person's assets.Real Estate image by Stephen VanHorn from Fotolia.com
  
  When empowered by Congress to do so, the Internal Revenue Service (IRS) levies a tax on the transfer of the estate of a deceased person. In order to understand estate tax, it is necessary to understand the rules on how an estate is valued, exceptions and reductions, when the tax is due and documentation to be filed, and what happens in the case of a dispute. The rate of tax and amount of allowable exceptions and deductions is set by Congress and adjusted with some frequency. As of August 2010, for example, no provisions for levying estate tax had been in place since 2009 because Congress must enact new legislation permitting the estate tax.
  
  

Valuing the Estate

• Estates are valued according to fair market value.accounts image by Alexey Klementiev from Fotolia.com
  
  An estate includes everything owned by the deceased at time of death, including not only cash and property but businesses, stocks and bonds, trusts, annuities, shares in jointly owned property and certain other interests. The rule for assessing an the value of an estate is "fair market value"--the price a willing buyer apprised of all relevant facts would pay to a willing seller in circumstances where the sale is not compelled.
  
  

Exceptions and Deductions

• Lifetime complete gifts are excluded from estate tax. "Complete" means that the deceased exercised no continuing power or control over the gift. A "martial deduction" is allowed on outright bequests to the surviving spouse. Deductions are also allowed for gifts to qualifying charities, for costs and losses arising from the administration of the estate after death, and for outstanding mortgages and debts. A reduction may be available for property operated as a family farm.
  
  

Due Date and Documentation

• Estate tax is payable within nine months of date of death.tax defined image by Christopher Walker from Fotolia.com
  
  The estate tax return is due within nine months of the date of death, with the possibility of a six month extension. An extension does not extent the due date for paying the tax, and interest can accrue during the extension period. When filing the return, the documents to be submitted include copies of the death certificate, will, any trusts, the appraisal of the estate's value, any litigation involving the estate, and a written explanation of any unusual items such as gifts made immediately prior to death.
  
  

Examination and Disputes

• The IRS selects some estate tax returns for "examination," the IRS term for audit. The estate may appeal the findings of the examination if it believes, for example, that the estate has been overvalued for estate tax purposes. The estate, through a personal representative--usually the executor of the will--can appeal to the IRS Appeals Office. The estate can also appeal the examination in U.S. Tax Court, the U.S. Court of Federal Claims or a U.S. District Court where the appellant lives. Successful appellants may be able to recover litigation and administrative costs, providing the administrative appeals route via the IRS Appeals Office was used before resort to the courts.