Will the IRS Pursue the Estate of a Deceased Person?

 Posted on April 10, 2019 in Taxation Law

There are several ways the IRS will be involved in the estate of someone who has died (known as a “decedent”). The IRS is notorious for enforcing payment of the taxes it claims it is due, including in situations involving a deceased person’s estate. 

Tax issues will be important to a deceased person’s personal representative, executor, successor trustee, and heirs, because the estate must pay all taxes due before the estate’s assets can be distributed to the beneficiaries. The IRS can even audit the tax returns of a dead person.

The estate will have to pay any income taxes due for the year of the person’s death (as well as for any year that the decedent did not file). Just like a taxpayer filing his or her income taxes each year, the estate administrator will file a Form 1040 for the estate. Depending on how organized the estate is, the estate administrator may need to file a Request for Transcript of Tax Return in order to get needed documents related to the deceased person’s income and taxes.

Another tax implication that may arise in administering an estate is that taxes may be due on income earned by the estate before the estate is distributed to the heirs. This is a requirement any time the income generated is more than $600 annually. Examples of assets that would generate income to the estate include savings accounts, CDs, stocks, bonds, mutual funds, and rental property. 

An estate may also be subject to estate taxes. This is an issue in larger estates worth more than the lifetime exclusion amount, which is $11.4 million for 2019 if no significant gifts were made. Anything above this mark is taxed at a rate of 40 percent.

Contact a San Jose, CA Income Tax Attorney

The task of handling a recently deceased person’s affairs can be daunting. Many people do not know all the details of their loved one’s finances. In the months that follow a family member’s death, those charged with handling the estate must get caught up to speed on numerous financial details and understand what rights and obligations the estate and heirs have.

In most cases, this is not a job for those untrained in estate and tax law. Costly mistakes are easy to make and can stall the process. Our seasoned San Jose tax lawyer can help you understand what steps you need to take to comply with applicable tax laws and regulations. To learn more, contact our office at 408-866-1810.

Sources:

https://www.irs.gov/businesses/small-businesses-self-employed/deceased-taxpayers-probate-filing-estate-and-individual-returns-paying-taxes-due

https://www.fool.com/taxes/2019/01/10/2019-estate-tax-rates.aspx