On May 16, 2025, the Department of the Treasury and the Internal Revenue Service (IRS) issued an interim final rule (TD 10031) and a corresponding notice of proposed rulemaking (REG-107459-24) regarding the user fee for requesting IRS Letter 627, commonly known as the estate tax closing letter. These documents, to be published in the Federal Register on May 20, 2025, detail a reduction in this fee and explain the underlying cost methodology used for its determination. Understanding these changes and the basis for the fee calculation is crucial for tax practitioners advising estates.

The Fee Change

The most notable change is the reduction in the user fee required for authorized persons requesting an estate tax closing letter. Previously, the fee was set at $67, based on a 2019 Cost Model and established by final regulations (TD 9957) published in 2021. Through a biennial review conducted in 2023, the IRS issued a new Cost Model that determined the full cost of issuing these letters to be lower. As a result, the fee has been reduced to $56. This represents an $11 reduction from the prior fee.

Effective Date and Applicability

The interim final regulations are effective on May 20, 2025 (the date the interim final rule is scheduled to be published in the Federal Register. Specifically, the $56 fee applies to requests received by the IRS after May 20, 2025 assuming the rule is published as scheduled. The Treasury Department and the IRS determined that there was good cause to dispense with notice and public comment, as well as a delayed effective date, to enable the reduced fee amount to be in effect immediately. They reasoned that continuing to charge the higher, current user fee during a comment period would be unnecessary and contrary to the public interest.

How the Fee is Determined: The Cost Methodology

The authority for agencies like the IRS to charge user fees stems from the Independent Offices Appropriations Act of 1952 (IOAA). The IOAA mandates that regulations establishing user fees are subject to policies prescribed by the President, which are set forth in Office of Management and Budget (OMB) Circular A-25. A key principle under the IOAA is that services provided by an agency should be self-sustaining to the extent possible.

OMB Circular A-25 directs agencies to identify services that confer special benefits on identifiable recipients beyond those accruing to the general public and, if appropriate, establish user fees that recover the full cost of providing those services. The IRS has determined that the issuance of an estate tax closing letter constitutes such a service, conferring special benefits to authorized requesters. Therefore, the IRS is authorized under the IOAA and OMB Circular A-25 to charge a fee reflecting the full cost. Agencies are required to review user fees biennially and update them based on cost changes. The 2023 review led to the updated cost and fee.

The IRS follows Generally Accepted Accounting Principles (GAAP), specifically the Statement of Federal Financial Accounting Standards 4: Managerial Cost Accounting Standards and Concepts (SFFAS No. 4) established by the Federal Accounting Standards Advisory Board (FASAB), to calculate the full cost of providing services. The methodology used is in accordance with SFFAS No. 4.

The core steps in the IRS cost accounting system are:

Cost Center Allocation: The IRS tracks costs to organizational units called cost centers. These are typically separate offices distinguished by subject area or region. All costs, both direct and indirect (including overhead), are recorded and allocated to a single cost center.
Cost Estimation of Direct Labor and Benefits: When a cost center handles multiple services, the IRS measures the time required for activities related to each service. The average time spent on a service is multiplied by the average labor and benefits cost per unit of time for that organizational unit to estimate the direct labor and benefits cost for that service.
Calculating Overhead: Overhead represents indirect costs that cannot be directly associated with a single activity. Examples include general management, facilities, IT, and HR services. Overhead allocable to a service is determined by multiplying the service’s direct labor and benefits costs by the current overhead rate. This rate is calculated annually based on the ratio of indirect costs (from divisions not interacting with taxpayers) to direct costs (from divisions interacting with taxpayers). For this estate tax closing letter user fee review, the FY 2023 overhead rate of 62.50 percent was used, based on FY 2022 costs.

Full Cost Determination for the Estate Tax Closing Letter

Following the OMB Circular A-25 guidance, the IRS’s calculation of the full cost for issuing estate tax closing letters includes all indirect and direct costs, such as personnel, physical overhead, rents, utilities, travel, and management. The calculation considers two primary cost components:

Request Processing Costs: These costs relate to the staff hours spent reviewing returns, creating, and preparing letters for mailing. The work is performed by employees at GS-5, GS-8, and GS-11 grades. An average of 0.65 staff hours is required per request. Based on an average of 8,894 annual requests in FY 2021-2022, this amounts to 5,781 direct staff hours. After including indirect hours for campus employees (applying a 60 percent indirect employee rate), the total staff hours for processing are 9,250 annually. Converting this to a full-time equivalent (FTE) basis (9,250 hours / 2,080 hours/FTE) yields 4.45 FTEs. Considering the primary processing is done by GS-5 employees (87.7%), along with GS-8 (1.7%) and GS-11 (10.6%), the average salary and benefit cost per FTE is calculated as $67,355. This results in a total labor and benefits cost for processing of $299,730 ($67,355 * 4.45).
Quality Assurance (QA) Review Costs: Outgoing letters undergo review by QA professionals in the IR-10 (87.7%) and IR-06 (12.3%) paybands. Approximately three out of every 100 letters are reviewed for authorization, accuracy, and address. This amounts to 266 letters annually based on the average volume. Each review takes approximately 0.5 hours, totaling 133 direct staff hours. Including indirect hours (at the 60 percent rate), the total annual staff hours for QA reviews are 213. This equates to 0.10 FTEs (213 hours / 2,080 hours/FTE). Using the average salary and benefits for the relevant IR paybands, the cost per FTE for QA is $95,460. The total labor and benefits cost for QA reviews is derived from multiplying this FTE cost by the QA FTE equivalent [22, implied from 21].

Finally, the $56 cost per request is determined by applying the 62.5 percent overhead rate to the total labor and benefits cost (sum of processing and QA labor/benefits costs) and then dividing the resulting full cost by the average annual volume of requests (8,894).

Proposed Regulations and Comments

It’s important to note that the text of the interim final regulations also serves as the text for the proposed regulations. The Treasury Department and IRS are accepting electronic or written comments on these proposed regulations. Comments must be received by July 19, 2025 (assuming publication takes place on May 20, 2025 as scheduled). Electronic submissions are strongly encouraged via the Federal eRulemaking Portal at regulations.gov, indicating IRS and REG-107459-24.

This fee reduction reflects the IRS’s updated assessment of the administrative costs associated with providing the estate tax closing letter. Practitioners should ensure their processes are updated to reflect the new $56 fee for requests filed after the applicability date.

Prepared with assistance from NotebookLM.