Executor’s Obligation to File Decedent’s Individual Income Tax Return.
The personal representative of decedent's estate is tasked with various legal obligations with respect to federal tax matters. These obligations include obtaining an estate identification number (EIN), filing all applicable tax returns when due, and paying any applicable tax. The federal tax returns that may be required include the estate return, estate income tax return, gift tax return, and final individual income tax return of decedent. This article focuses on the latter.
Estate income tax returns must be filed if the estate’s assets generate income of more than $600 for the year (this be rent from rental property, dividends from stocks, etc.).
The “Executor” for Federal Tax Matters
Federal tax law defines the personal representative of decedent’s estate as the executor, administrator, or anyone in charge of the decedent's property. For estate tax purposes, if there is no executor or administrator appointed by the probate court, then the term “executor” includes anyone in actual or constructive possession of any property of the decedent.
The court-appointed personal representative or administrator must file IRS Form 56 at the beginning of the case to notify the IRS of the existence of the person’s fiduciary relationship with the estate, as well as at the end of the case to notify the IRS that such relationship as terminated. Link to Form 56 can be found here.
An individual who has not been appointed as personal representative or administration but who intends to file decedent’s final individual income tax return must first file Form 56 in lieu of proof of court appointment.
Final Income Tax Return of Decedent
The personal representative must file the final income tax return of the decedent for the year of death, and any returns not filed for prior years. If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year that just closed will not be the final return. The return for that year will be a regular return, and the personal representative must file it. See IRS Publication 559 (2020).
The IRS gives the following example: Decedent died on March 21, 2020, before filing his 2019 individual tax return. His personal representative must file his 2019 return by April 15, 2020. His final tax return covering the period from January 1, 2020, to March 20, 2020, is due April 15, 2021.
Potential For Personal Liability of Personal Representative
If the estate is insolvent (not enough assets to pay debts) then the federal tax liability takes priority over all other claims. 31 U.S.C. § 3713(b). Any conflicting Washington law to the contrary is trumped by § 3716 via the Supremacy Clause of the U.S. Constitution. When the estate is insolvent, the personal representative is personally liable to the extent the personal representative paid other claims before federal tax liability. Steps to avoid personal liability of personal representative will be discussed separately in greater detail.
How to Get Information From the IRS to Determine Decedent’s Tax Filing and Payment Obligations.
First, file Form 56 as discussed above to be able to communicate with the IRS. Next , either request a tax transcript or decedent’s prior year returns. Tax transcript requests can be done via the IRS’s online portal, phone, or by mail after completing and signing IRS Form 4056.
In addition to determining whether decedent faces an existing federal tax liability this will reveal whether prior year returns need to be filed in addition to decedent’s final income tax return. The personal representative should also go through decedent’s financial records and correspondence, and check public records to see if, among other things, a notice of federal tax lien has been filed as to decedent’s property.
Attorney, Chris Chicoine
Estate Planning and Probate
Christopher R. Chicoine, PLLC