Family members don’t usually have to take care of the debts and taxes of a deceased relative from their pocket. If the resources in the estate aren’t sufficient to cover the tax obligations, they may go unpaid. The IRS, however, can still take action against the estate by filing a federal lien. The person in charge of the estate must clear the federal taxes before taking care of any other debt.
Exceptions exist for funeral costs and associated expenses, which may get paid before the outstanding taxes. A tax attorney can negotiate with the IRS for lower back taxes than what’s owed. The attorney can also negotiate with the IRS for the removal of any tax liens and penalties imposed by the agency.
How the IRS Recovers a Deceased Person’s Back Taxes
If a decedent has unpaid property taxes, the IRS can pursue the estate until the entire amount gets cleared. The tax collection window is usually about ten years – the IRS has a whole decade to pursue the decedent’s estate. What’s more, the IRS may request the extension of this tax collection window, the Collection Statute Expiration Date (CSED).
The representative of the deceased or the estate administrator is usually required to account for and report all income streaming during the year before the deceased passed on and file relevant tax returns. The administrator is in charge of putting together the decedent’s financial details. However, the administrator can use Form 4506-T to request the IRS for the decedent’s past tax transcripts.
Often, the administrator can file the relevant taxes with Form 1040 to report income on the deceased person’s behalf. If the estate earned an income of more than $600 before getting distributed to heirs, filing an income tax return for the same is necessary.
Who is in Charge of Paying the Decedent’s Back Taxes?
The estate plan usually names the individual in charge of paying taxes on the decedent’s behalf. This individual will be responsible for settling the estate and accessing information and accounts needed to cover back taxes after a loved one has passed. The person will be responsible for administering refunds, if applicable. This responsibility can be shared in the following ways:
The Estate Administrator
An estate administrator is named within the Will to take care of the deceased’s assets and distribute them accordingly. The roles of the administrator include, but aren’t limited to, paying debts, taxes, and distributing inheritances as per the Will.
Appointed Legal Representative
The decedent may have named a Legal Representative to take care of tax issues. The legal representative could be a family law attorney or an estate planning lawyer. The lawyer may have access to the deceased’s bank accounts and settle all back taxes quickly.
Surviving Spouse
If the decedent was officially married or in a legally recognized relationship, their surviving spouse may be responsible for handling tax affairs. This usually applies when the two are submitting tax returns for the year jointly. The surviving spouse will typically jointly file taxes for the year the death happened and possibly the previous year. The surviving spouse would need to indicate this crucial information on the tax documents.
Next of Kin
In the absence of an Estate Plan, appointed attorney, or surviving spouse, a Next of Kin or a family member will be in charge of the decedent’s estate. This individual should keep in mind that they will be serving as the decedent’s personal representative when dealing with the IRS.
Satisfying the Decedent’s Tax Obligation
A decedent’s loved one should work in close collaboration with a tax attorney knowledgeable in resolving IRS tax problems to devise ways to take care of the decedent’s outstanding taxes. The attorney can negotiate terms for paying the back taxes with the IRS on behalf of the loved one, shielding the taxpayer from facing bankruptcy over tax obligations.