Can the IRS Ignore Your Request for an Estate Tax Valuation Explanation? – Houston Tax Attorneys

When a family member dies and leaves behind interests in a closely held business, the estate has to figure out what those interests are worth.

This is rarely straightforward. There is no ticker symbol, no public market, no closing price to look up. The estate hires an appraiser, applies valuation methodologies, and reports a number on the estate tax return. Then the IRS looks at the same assets and comes up with a completely different number — sometimes orders of magnitude higher.

When that happens, the tax code gives the estate a specific right. Under Section 7517, the estate can send the IRS a written request demanding an explanation of how the IRS arrived at its valuation. The IRS is supposed to respond within 45 days with a written statement setting forth the basis for its determination, the computations used, and copies of any expert appraisals. But what happens when the IRS simply ignores that request?

This question has now been answered. The Estate of Amplatz v. Commissioner, T.C. Memo. 2026-35 considers that question — and the answer is not encouraging for taxpayers.

Facts & Procedural History

Amplatz founded a medical device company in 2014. He created several trusts — a Funding Trust, a Medical Trust, and a Revocable Trust — through which he held interests in the business. The Funding Trust transferred approximately $19 million in cash to fund the company’s research and development. In return, the company executed 25 promissory notes. It never paid principal or interest on any of them.

Mr. Amplatz died in 2019. His estate filed Form 706 — the federal estate tax return — using the alternate valuation date. On that return, the estate reported the value of the company’s membership units at $0 and the promissory notes at $1 million. This was based on an appraisal from a valuation company.

Then, a year later, a third party purchased all of the company’s membership units for $15 million. You can start to see the issue here–$1 million valuation for estate tax purposes followed by a $15 million dollar sale

The IRS examined the estate tax return and asserted that there was a deficiency of over $5 million dollars and an accuracy-related penalty of in excess of $2 million under Section 6662. In 2023, the IRS sent the estate a preliminary examination report with Form 886-A explaining its proposed adjustments.

One week later, the estate sent a written request under Section 7517 demanding a formal statement explaining the IRS’s valuation determinations. The IRS never responded.

The IRS then issued an IRS Notice of Deficiency. And still after that, the IRS still never responded to the Section 7517 request. The estate petitioned the U.S. Tax Court, and the parties filed cross-motions for partial summary judgment on the Section 7517 issue.

What Is Section 7517?

Section 7517 of the tax code addresses a specific problem in estate, gift, and generation-skipping tax cases. When the IRS makes a determination of value for purposes of any of those taxes, the taxpayer can send a written request asking the IRS to explain itself. The statute says that the IRS has to then provide a written statement that explains the basis of the valuation and it has to set forth any computations used and include copies of any expert appraisals the IRS relied on.

The statute gives the IRS 45 days to respond. That clock starts running on the later of two dates — either the date of the taxpayer’s request or the date of the IRS’s determination. The statement does not need to follow any particular form. A letter will do.

This is not a new provision. Congress enacted Section 7517 as part of the Tax Reform Act of 1976. The legislative history — H.R. Rep. No. 94-1380 — explains the purpose. Valuation disputes in estate and gift tax cases are common and expensive. Congress wanted to encourage early resolution by giving taxpayers the right to see how the IRS arrived at its numbers. The idea was simple. If the estate could understand the IRS’s reasoning, both sides might resolve the dispute without years of tax litigation.

Why Estate Tax Valuations Are Frequently Disputed

Estate tax valuations are inherently subjective. When an estate includes publicly traded stock, the value is whatever the market says it is on the valuation date. But estates rarely present such clean facts. The assets that generate disputes are the ones without public markets — closely held business interests, limited partnership units, promissory notes from related entities, and similar assets that require professional appraisals and judgment calls.

Valuing these assets requires choosing methodologies, making assumptions about future cash flows, selecting comparable transactions, and applying discounts for lack of marketability and lack of control. Reasonable appraisers can look at the same business and arrive at drastically different numbers. The IRS’s appraiser and the estate’s appraiser will almost always disagree.

In Amplatz, the gap was large. The estate valued the company’s membership units at $0 and the promissory notes at $1 million — a combined $1 million. The IRS determined the value was $15,145,000. That is not a rounding error. It is the kind of disparity that Section 7517 was designed to address. If the estate could see the IRS’s reasoning and computations early in the process, both sides might narrow the gap — or at least understand what they were actually fighting about — before spending years in litigation.

Did the IRS Comply with Section 7517?

The timeline here matters. The IRS sent its preliminary examination report — complete with a Form 886-A explaining adjustments — on June 21, 2023. The estate sent its Section 7517 request on June 28, 2023. The examination report came first. It could not have been a response to a request that had not yet been made.

The tax court even noted this. If the IRS had simply sent a letter after receiving the request — even a one-sentence letter incorporating the preliminary examination report by reference — that might have been enough to satisfy Section 7517. The statute does not require any particular form. But here, the IRS did not send any response at all. Not a letter. Not a form. Nothing.

The IRS issued its Notice of Deficiency on July 17, 2023 — within 45 days of the estate’s request. That raised a question about whether the Notice of Deficiency itself could satisfy Section 7517. But the court concluded thath it did not need to reach that issue. The tax court said that real question was not whether the IRS complied. The real question was what happens when it does not.

What Remedy Does Section 7517 Provide for Noncompliance?

The estate made the logical request of the court. It asked the court to preclude the IRS from asserting its $15,145,000 valuation of the company’s membership units. If the court granted that request, the IRS Notice of Deficiency would be voided basically as the IRS would have no valuation to support the proposed deficiency.

The tax court declined. The reason was straightforward. Section 7517 contains no enforcement mechanism. It tells the IRS what to do. It does not say what happens if the IRS refuses to do it. There is no penalty for noncompliance. There is no provision shifting the burden of proof. There is no language authorizing courts to exclude evidence or preclude valuations.

The court cited a prior case that involved the IRS Restructuring and Reform Act of 1998, wherein the Act required the IRS to stamp a calendar date on every Notice of Deficiency. The IRS failed to do so in the prior case. The taxpayer argued the notice was invalid. Similar argument here. The tax court in that case disagreed — because the statute imposing the requirement contained no enforcement provision. The court in that other case said that the IRS’s failure to follow the rule did not invalidate the notice.

The principle comes from other court cases. Courts apply the plain text of statutes. When Congress wants noncompliance to have consequences, it says so. When it does not say so, courts will not invent consequences on their own. There are cases that show that this isn’t always the case, but this is the general rule, if there is one here.

A Statutory Right Without Teeth

The practical result is this: the IRS can ignore a Section 7517 request with impunity. There is no financial penalty. There is no preclusion of evidence. There is no shifting of the burden of proof. There is no sanction of any kind. The statute creates an obligation, and then provides no mechanism for enforcing it.

The court in Amplatz noted that the estate was not truly prejudiced because it could obtain the IRS’s valuation reasoning through discovery. That is true — once a case is in the U.S. Tax Court, both sides exchange information through the normal litigation process. But that observation misses the entire point of Section 7517.

Congress enacted Section 7517 to encourage early resolution of valuation disputes — before litigation. The legislative history says so explicitly. The statute was supposed to give estates visibility into the IRS’s reasoning at the tax audit stage, not the trial stage. If the only way to get that information is through discovery after filing a Tax Court petition, the statute serves no purpose at all. The estate already has discovery rights without Section 7517.

For estates facing IRS valuation disputes involving closely held businesses or other hard-to-value assets, the lesson from Amplatz is sobering. The tax code gives you the right to demand an explanation. The IRS can say no — or say nothing — and face no consequences. The estate is left to fight it out through normal litigation channels, which is exactly what Section 7517 was supposed to help estates avoid. The right exists on paper. In practice, it has no teeth.

The Takeaway

Estate tax valuations of closely held business interests will always be contested territory. The tax code gives estates the right to demand a written explanation of the IRS’s valuation under Section 7517. But as Amplatz shows, that right has no practical enforcement mechanism. When the IRS ignores a Section 7517 request, the estate’s only recourse is to proceed through normal tax litigation and discovery. Estates dealing with IRS valuation disputes — particularly those involving tax penalties & interest alongside valuation adjustments — should not rely on Section 7517 as a meaningful tool. The real work of uncovering the IRS’s reasoning happens in discovery and at trial.