Deceased mother's returns

[JenMO]

My client's mother died in 2007. Mom had not filed for several years. IRS contacted my client about her mother and indicated that she should have filed in 06 and 07. IRS sent my client the info with the 1099's and social security. Mom had cashed in a couple of savings bonds which I guess Mom didn't think counted as income. Mom has a $1400 liability in 06 and less than $100 in 07. There was no estate, everything flowed to the 2 children, one who is my client. Is my client responsible for this? If so, is there any way to get the late filing and late paying penalties abated? What course should I take? Would appreciate any guidance.

[MLINDER42]

Mother's returns

I would file the returns and include a note that there was no estate and no money to pay you may have to follow it up with a call.Daughter is not responsible for payments.

[Beth]

Deceased mother's returns

"There was no estate, everything flowed to the 2 children"

What flowed to the children? Would that have contistued an estate? Asking because I really do not know.... not tryng to imply one way or the other...

[JenMO]

There was a small checking account and her house, which they received on a beneficiary deed. My client will pay if she has to (hopefully with help from her brother) but the big thing I worried about was the penalties and interest. Any hope for getting these abated?

[JenMO]

If the returns are filed, should I attach a letter asking for abatement with the return, or wait until the letter comes with the penalty and interest and then send a letter. Will it do any good? Has anyone else had any luck in this area?

[MLINDER42]

Penalties

I would wait for the letter then call up and try to put the whole amount in non collectible status due to the mothers death.I have been able to put a few clients in non collectible status lately.

[JenMO]

Do I file the returns, or what? We have received a letter asking for a return if needed. Do I go ahead and file and not pay? What if the daughter wants to clear it up. Any chance of abatement of penalty and interest? What are the options?

[Zee]

It is the responsibility of the executor to ascertain that the current year's tax return and all prior years have been properly filed. General guidelines suggest the executor obtain the prior four years returns during the estate administration. Here's links that might help:

http://www.perebruin.com/tax.htm

http://books.google.com/books?id=vPVS6XnGHj0C&pg=PR119&lpg=PR119&dq=is+an+executor+responsible+for+unpaid+taxes%3F&source=web&ots=G7AmwWq0CD&sig=Jq46aK8Tqgu4oJ5vDo_KCVnkuQg&hl=en&sa=X&oi=book_result&resnum=1&ct=result#PPT67,M1

I believe if there are limited situations where if the executor can establish that he performed in a responsible manner and followed reasonable processes to determine tax liabilities, he may be relieved of responsibility for unpaid taxes later discovered. With some additional research, you can determine whether this is the case. I suppose it's possible if no tax returns could be found or other tax information.

If not, my guess is the executor may be personally liable and will have to collect from the beneficiaries.

[JohnH]

I'd file the returns and attach an explanatory note from the daughter explaining that the taxpayer is deceased. Maybe include a copy of the death certificate for good measure. It won't do any good, but attach the note & death certificate to the return anyhow.

When IRS processes the return and throws the note away, they will send a bill which will include penalties & interest. (maybe you'll get lucky and they will read the note, put the account in uncollectible status, and you'll be done with. But don't count on it.) Anyhow, when the bill arrives, send it back with another copy of the original note & death certificate. Respond in this manner a couple of times, if necessary.

Eventually the IRS will either close the case or else you'll need to call them at some point and ask to have it put in uncollectible status. If you've kept the paper trail intact, then you'd have a pretty good argument for getting it placed in uncollectible status.

In any event, tell the daughter not to pay the taxes, unless she just wants to get it out of the way. If she wants to pay it, then you should use the original note you sent them to try and get the penalties abated. If you can get the FTF penalty to go away, that's most of the battle. You won't likely have any success with getting interest abated, and probably not the FTP penalty either.

[Zee]

I'd file the returns and attach an explanatory note from the daughter explaining that the taxpayer is deceased. Maybe include a copy of the death certificate for good measure. It won't do any good, but attach the note & death certificate to the return anyhow.

When IRS processes the return and throws the note away, they will send a bill which will include penalties & interest. (maybe you'll get lucky and they will read the note, put the account in uncollectible status, and you'll be done with. But don't count on it.) Anyhow, when the bill arrives, send it back with another copy of the original note & death certificate. Respond in this manner a couple of times, if necessary.

Eventually the IRS will either close the case or else you'll need to call them at some point and ask to have it put in uncollectible status. In any event, tell the daughter not to pay the taxes, unless she just wants to get it out of the way. If she wants to pay it, then you should use the original note you sent them to try and get the penalties abated. If you can get the FTF penalty to go away, that's most of the battle. You won't likely have any success with getting interest abated, and probably not the FTP penalty either.

This might be a good, practical suggestion. I kinda like it.

But, if it doesn't work...won't the clock continue ticking on the interest and penalties? And, given the new preparer penalties, etc. does it make sense to advise a client this way?

If this suggestion is followed, I'd develop a backup plan showing reasonable and due care was taken by the executor to establish tax liabilities before the estate was closed and caution the client of the risks.

[Roland Slugg]

Was starting to answer JenMO's questions, but now see others have done the same. Although it may now be redundant, I offer the following information:

Even though the decedent's estate did not require probate or the filing of an Estate Tax Return ... or so I assume from the posts ... she still left an "estate."

The "personal representative" is responsible for filing all final tax returns and paying the taxes. Liability for unpaid taxes shifts to a decedent's heirs, which in this case means her son and daughter, who received their mother's assets. (Code §6901(h))

The deceased woman's son or daughter should file the mother's 2006 and 2007 returns. On the 2007 return, write "DECEASED" at the top of F-1040, as per IRS instructions. The tax should be paid with the returns. Since interest and penalties are accruing, you may wish to suggest that these returns be filed ASAP.

Regarding the interest and penalties, I don't believe the IRS is permitted by law to waive or reduce the interest. I would say there is a fair chance the IRS will waive the late payment penalty, and a good chance it will waive the late filing penalty. Wait for the penalty/interest bills to arrive, then write a letter explaining the facts and why the returns and tax were late.

[JohnH]

The FTF penalty is already maxed out, so that train has left the station (unless you can get it abated later).

The only thing running right now is the combined FTP penalty and interest, a total of about 1.25% per month. Using a total liablity of $1,500, that means there's only about $18/month accumulating during the delay period. If I'm the client, I'd risk the cost of an extra 3-4 months at $18 per month in order to try and save $1,500 (plus the $375 FTF penalty).

If you think they might balk at that or try to hold you responsible, then maybe they need to get someone else to do the work. Or you could add $100 to their bill to cover the difference and then pay it if they squawk. (Unless they just want to to roll over and pay the tax plus penalties & interest up front - and I realize there are some people who would take that option).

[Zee]

The FTF penalty is already maxed out, so that train has left the station (unless you can get it abated later).

The only thing running right now is the combined FTP penalty and interest, a total of about 1.25% per month. Using a total liablity of $1,500, that means there's only about $18/month accumulating during the delay period. If I'm the client, I'd risk the cost of an extra 3-4 months at $18 per month in order to try and save $1,500 (plus the $375 FTF penalty).

If you think they might balk at that or try to hold you responsible, then maybe they need to get someone else to do the work. Or you could add $100 to their bill to cover the difference and then pay it if they squawk. (Unless they just want to to roll over and pay the tax plus penalties & interest up front - and I realize there are some people who would take that option).

Agreed, $18 month isn't much risk to the client. I'd also give it a try, with a strong caution that the IRS may not accept the explanation and attempt to hold the recipients responsible for the tax, etc.

I guess given the new preparer penalty standards, we'd have to assume there is a 50% or greater chance the explanation will be acceptable?

[erchess]

In My Experience

If the decedent dies with little of significant value the children or other close heirs go into the house and remove anything they want and then leave the rest for the creditors and that is the end of it. Of course the relatives are all claiming that the decedent gifted them the stuff before death but who is to prove otherwise when no one person has taken a collection that could be sold for a hundred dollars?

[FEDUKE404]

Is there a VALID non-payment reason in play here?

Not really having a dog in this hunt, I thought it was the executor's (sworn?) duty to perform certain actions, including filing all appropriate income tax returns for the deceased.

It appears there may have been no probate and/or estate tax issues here, but certainly there were assets that went to the heir(s).

I would think the executor/heirs should just file the tax return, pay the interest, beg for forgiveness on the lateness, and get on with things.