Estate & Gift Tax Payments Now Electronic Only Effective September 30, 2025

Per Executive Order 14247 effective September 30, 2025, paper checks are being phased out for ALL payments from and TO the IRS – there’s no exception for trusts & estates, so that includes estate and gift tax payments, which must now be made “as soon as practicable” either:

(1) electronically using the Electronic Federal Tax Payment System (EFTPS), OR

(2) via same-day wire directly from a financial institution to the IRS.

This mandate is part of a broader government initiative to reduce fraud by modernizing payment systems and reducing reliance on paper checks.

However, this change presents unique challenges for trusts and estates. Unlike individual taxpayers, trusts and estates cannot use IRS Direct Pay, and the other two options presented require advance planning.

The same-day wire payment option may involve additional costs (such as wire fees) and has a cutoff time of 5pm Eastern Standard Time, and you must provide your financial institution with a completed “Same-day wire taxpayer worksheet.”

• When completing the Same-day taxpayer worksheet, you will need a two-digit year, a two-digit month, and a five-digit tax type code, depending on the type of payment you are making (using the table of codes provided online), so this is not as straightforward as you may think.

The EFTPS option is free but requires an enrollment process that takes a couple of weeks to complete:

• First, trustees and executors must register for EFTPS online.
• After submitting the enrollment, the IRS will send them a PIN via MAIL within 5-7 business days.
• Once they have received the PIN, they have to return to the EFTPS website to activate the account.
• Once the account has been activated, they can schedule an estate or gift tax payment, which must be made at least one day in advance of the due date.

It appears that there is a ramp up period for making estate tax payments TO the IRS, because there’s still information regarding paying estate taxes by paper check on the IRS’s website, but we recommend practitioners begin acquainting themselves with the electronic payment options sooner than later.

Estate of Galli v. Commissioner (T.C. No. 7003-20 and 7005-20), issued March 5, 2025

Summary: The U.S. Tax Court ruled that the intra-family loan documentation, the debtor-son’s payment history, and consistent tax reporting demonstrated a bona fide debtor-creditor relationship. Charging interest at the AFR was sufficient to satisfy federal tax requirements, even if the rate was lower than what a commercial lender might have required.

In Estate of Galli, Barbara Galli advanced approximately $2.3 million to her son, Stephen, pursuant to a formal, written promissory note. The note had a fixed 9-year term, bore interest at the applicable federal rate (AFR) of 1.01% and required annual interest payments with repayment of the entire principal balance at the end of the term.

Because the parties treated this as a loan, Barbara did not file a gift tax return relating to the loan. Stephen thereafter made annual payments of interest as required in 2014, 2015 and 2016. Barbara included the interest payments as taxable income on her individual income tax returns.

On March 7, 2016, Barbara died, leaving a taxable estate that included the loan repayment obligation reflected by the note. Under her estate plan, Stephen inherited the note. For estate tax purposes, the estate valued the note at $1,624,000 after applying a discount to account for the risk of nonpayment.

Even though Stephen made annual interest payments as required, the IRS contended that the loan was unsecured and lacked provisions necessary to create a legally enforceable right to repayment reasonably comparable to the loans made between unrelated persons in the commercial marketplace. The IRS argued that the advance was not a bona fide loan because Barbara did not show that she had the intent to create a legally enforceable loan, or that she expected repayment, taking the position that Barbara made a taxable gift of $869,000 (which was the difference between the amount lent and the fair market value of the note as then determined by the IRS).

The Tax Court disagreed, and reached a conclusion opposite from that in Estate of Bolles (where it sided with the IRS and termed the advances as gifts rather than loans). Here, the Tax Court concluded this was, in fact, a loan because it was structured and administered in a manner that resembles an arm’s-length transaction.

While these cases resulted in different outcomes, they both reinforce the importance of careful planning, proper documentation and tax reporting, and compliance with the terms of the loan as key factors to achieving the intended tax treatment.