What Happens If a Taxpayer Dies?

Who is Responsible for Filing a Final Tax Return for Someone Who Dies?

When someone passes away, their tax obligation does not immediately disappear. Though it is a bit morbid to discuss, the fact is that tax considerations still exist for the part of the tax year when that person was still alive. That means someone must file a final tax return on the deceased person’s behalf.

That responsibility falls to the surviving spouse or representative. Usually, the representative is named in the person’s will or appointed by a court. If there is no surviving spouse or designated representative, a personal representative must file the final tax return.

A personal representative is usually the executor, administrator of the estate, or anyone else in charge of the decedent’s property. The IRS defines the term as anyone filing for a decedent, whether court-appointed or not. It is also worth noting that a personal representative nominated in a will has no authority over estate assets unless appointed by a court.

When there is no probate and no appointed representative, the IRS will allow “a person charged with property of the decedent” to file the decedent’s income tax returns and claim refunds. If there is no surviving spouse, the person who makes this filing is commonly:

• The trustee of the decedent’s revocable trust,
• The personal representative nominated in the will who would have been appointed if probate was required, or
• A beneficiary receiving non-probate assets who undertakes the work.

This individual is responsible for filing any final individual income tax return or returns and the estate tax return of the decedent when due. They may also need to file Form 56, Notice Concerning Fiduciary Relationship, to notify the IRS of the existence of a fiduciary relationship. For more on personal representative responsibilities, refer to Publication 559.

Other duties of a personal representative can include collecting all of the decedent’s property, paying any creditors, and distributing assets to beneficiaries.

Here are a few more notes to keep in mind:

• The IRS considers someone married for the entire year that their husband or wife died if they don’t remarry during the year.
• The surviving spouse can use the filing status “married filing jointly” or “married filing separately.”
• The final tax return for the deceased person is due by the regular April tax deadline unless the surviving spouse or representative attains an extension.
• You may need to include other documents with the return. For example, the court-appointed representative should attach a copy of the court document showing their appointment. Similarly, representatives who are not court-appointed must include Form 1310 to claim any refund.

Lastly, if you are a surviving spouse or representative of a deceased person, you must also note that the person has died on their final tax return. You can do so by writing the word deceased, the deceased person’s name, and the date of death across the top of a paper return. If e-filing, follow the directions provided by the software for the correct signature and notation requirements.

This is the only notification of the death the IRS will need, and it is unnecessary to send a copy of the death certificate or proof of death. Remember that you may also need to notify other agencies, such as the Social Security Administration.

How Do You File a Final Tax Return for a Deceased Person?

Generally speaking, the personal representative must file and prepare the final individual income tax return of a deceased person the same way they would if the person were alive. That usually means filing at least a Form 1040 and potentially other forms as required. These may include:

• Form 1041: Income tax returns for the probate estate (required if income greater than $600 is received after death by the decedent’s estate).
• Form 706: Estate tax return (required if decedent’s estate exceeds the estate tax exclusion ($12,060,000 in 2022) or if portability election is made).
• Form 709: Gift tax for the year of death (required if the decedent gave more than the annual exclusion ($16,000 for 2022) to any person in the year of death or failed to file any prior year gift tax returns).

Furthermore, if the decedent had not filed for prior years before death, you may also need to file for those previous years. It is also your responsibility to pay any balance due and submit a claim using Form 1310 if there is a refund. If you distribute assets, the estate is insolvent as a result, and you had notice of the tax claim, you can become personally liable for unpaid tax — so it’s a good idea to take this seriously!

What Happens if You Don’t File a Deceased Person’s Taxes?

As mentioned above, personal liability for you as the representative is not off the table regarding a deceased person’s tax obligations. If you fail to file taxes for the deceased person, the IRS can take legal action by placing a federal lien against the estate. This means you must pay any federal taxes owed before closing any other debts or accounts. The IRS can demand that you pay the taxes if you do not.

There are exceptions for funeral expenses and associated administrative costs. These can be paid before outstanding taxes on behalf of the deceased. You may have further options if the deceased person owes multiple years’ worth of taxes. For example, if you can demonstrate that you were unaware of the outstanding amounts, the IRS will typically be willing to work with you on a solution. However, proving this to the IRS will normally require the assistance of a tax planning lawyer or CPA.

In Closing

Dealing with tax considerations on top of the numerous other responsibilities that come in the wake of a death (not to mention grief) is a lot to handle. But you don’t have to do it alone. As always, at Stable Rock, we are ready to offer counsel, advice, and assistance during challenging times.