Losing a parent or family member is always heartbreaking, even if they were older. Although you have enough on your plate as it is, tax time is on the horizon, and you have a laundry list of questions.
For instance, what if you don’t file taxes for your recently passed loved one? What then?
You’re required to file a final income tax return and pay taxes for a deceased person; if you don’t, the IRS might put a federal lien against the deceased’s estate assets.
The deceased’s estate administrator must pay any taxes the deceased owed, and if not them, then a legal representative, living spouse, or next of kin.
If you thought filing taxes for the living was confusing, you might find it even more mind-boggling doing the same for a deceased individual.
You can’t pretend that the deceased doesn’t owe taxes, as the IRS will go to great lengths to get its money.
Today’s article will guide you through the process so you can get it over with quickly.
*NOTE: We are not accountants or attorneys and this information should not be taken as financial or legal advice. Please consult a tax professional to get specific information for you and your deceased loved one’s tax situation.
Do You Have To File Taxes For Someone Who Passed Away?
When filing income taxes, you’re not doing so for the current year but for the prior tax year.
Therefore, even if your senior parent’s date of death falls in 2023, for example, since they were alive in in the calendar year 2022, they would still have to file a federal income tax return (and possibly a state income tax return, as well).
Since that’s not possible for them to do anymore, the responsibility falls on the deceased’s administrator of the estate.
If that’s you, then this page on the IRS’s website states that filing taxes for the deceased isn’t all that different than doing the same for a living person. You can still use IRS Form 1040.
You’d report the deceased’s income for the year prior, up until they died.
If the deceased’s taxes allow for any deductions and credits, you’d claim those the same way you would when filing taxes any other time.
You might even have to file for previous years if your deceased parent hadn’t been keeping current on their federal taxes, says the IRS.
In that case, you would need Form 4506-T, a Request for Transcript of Tax Return.
The IRS, on a separate page on its website, mentions that you can ask for a variety of information on the deceased for tax purposes, including address changes, payoff information for unpaid balances, tax records, and prior tax returns.
However, you need proof that you’re the deceased’s estate administrator or otherwise managing their affairs.
That requires you to have a copy of their death certificate, full name, Social Security Number, and last known address.
You will also need a copy of completed Form 56, Notice Concerning Fiduciary Relationship. If you have any court-approved Letters of Testamentary, you’d need copies of those too.
Letters of Testamentary are referred to as Letters of Representation or Letters of Administration and come from the probate court.
The document allows a personal representative, executor of the estate, or estate administrator to oversee the estate and affairs in respect of a decedent.
Once you take care of this tax return for the deceased, no further taxes must be filed on their behalf.
Do I Need To Send A Death Certificate To The IRS?
When someone passes away, their financial situation needs to be addressed soon after. One of the most important questions people ask is whether they need to send a death certificate to the IRS.
The answer is that it is generally not necessary for those who have lost a loved one to send a copy of their death certificate to the IRS.
In fact, the IRS says on their website, “The IRS doesn’t need a copy of the death certificate or other proof of death.“
If your loved one died under circumstances that make you unsure if a death certificate needs to be submitted, however, it is best to reach out to a tax advisor ot the IRS directly for personalized advice.
They can help you understand what documents may need to be provided and any other steps that may need to be taken in order to close out the deceased’s taxes.
Please be aware that, in some cases, a copy of the death certificate may need to be sent to your state’s Department of Revenue or Taxation so their records can be updated. Be sure to check with them for further requirements as this can vary by state.
What Happens If A Deceased Person Owes Taxes?
Let’s say that you’re legally permitted to file taxes for your deceased loved one, and as you proceeded to do just that, you learned your loved one owes a lot of back taxes.
Whether the amount is a little or a lot, this a jarring news. The tax debt still has to be paid, so who takes care of paying the outstanding taxes now?
That would be the estate administrator, legal representative, surviving spouse, or next of kin of the deceased.
Estate administrators are usually chosen in the deceased’s will. This party is already doling out inheritances, closing accounts, and managing other financial aspects of the decedent’s estate.
If not them, the deceased might have had a legal representative such as a family attorney or estate planning lawyer. In such cases, the onus would fall on them.
Next in line would be a surviving spouse.
Without any kind of legal representative, surviving spouse, or estate plan, the tax payments would fall on the next of kin. These individuals would now become the deceased’s personal representatives.
Taxes have a Collection Statute Expiration Date of 10 years, so the IRS still expects to receive payment within this time limit, even if the taxes owed are from several years back.
Debts aren’t immediately forgiven just because someone dies (outside of federal student loans, which Studentaid.gov says are forgiven after receipt of the proof of death: i.e. a certified copy of the death certificate or similar).
What If You Can’t Afford To Pay A Deceased Person’s Taxes?
Funerals expenses continue to rise. Insurance resource Policygenius states that the average cost of funerals in 2023 is between $7,000 and $10,000.
You might feel financially spent after laying the deceased to rest. What if you can’t pay for their tax debts, so you don’t bother filing their final tax return? Or what if you file but don’t pay the tax bill?
As we said in the paragraphs above, the IRS expects to receive payment.
The IRS can file a federal lien against the deceased’s estate for the remaining balances if they don’t get the money owed.
This legal action prevents you from being able to close accounts and debts until you pay the deceased’s taxes.
If you still don’t pay, the IRS can demand payments.
Don’t get us wrong, the IRS is willing to work with you.
If the deceased racked up huge amounts of tax payments unbeknownst to you, and you can prove that you didn’t know their taxes were that significant, you and a CPA or tax planning lawyer might be able to work out a payment system with the IRS.
How Far Back Can The IRS Audit A Deceased Person?
In some instances, the IRS will request a tax audit.
Large deposits, sizable foreign assets, and cash businesses typically trigger audits. Gambling earnings and investment income can also lead to an audit.
In some cases, the audit target comes down to computer selection.
Although the IRS usually requests an audit within two years of an abnormal tax return filing, that’s not the statute on audits.
The IRS can request a tax audit for up to six years after the filing due date.
That means it’s rather common for the IRS to audit the deceased.
If this happens to your family, whether it’s one year after filing your deceased loved one’s taxes or five years after the fact, then as the heir of the estate or the executor, you’re liable to deal with the audit.
If you’re in charge of the estate and the tax audit reveals that the deceased owes taxes, then you’d be responsible for paying those taxes.
Those who inherited money from a deceased person’s estate may similarly have to pay up.
Surviving spouses may be on the hook if they have assets or money that counts as community property for the year of the tax return filing.
Whatever the value of the community property, you’d have to pay that to the IRS.
That does not include any assets or money you’ve acquired since being widowed, and the IRS cannot put a lien or garnishment on these assets or money.
The more documentation you have handy, the easier it will be to handle a deceased person’s tax audit.
Here are some documents we recommend you produce:
- Retirement account contributions
- Real estate taxes
- Any donations the deceased made when still alive
- Medical bills
- Sales slips
- Credit card statements
- Canceled checks
- Brokerage statements
- Bank account statements
- W-2 forms
NOTE: A Peace Of Mind planner (like this one I found on Amazon) can be super helpful for heirs and estate administrators. It’s a great idea for seniors (or anyone, really) to fill one out so your loved ones know where to locate all of your personal wishes and financial information if you pass away.
Is Family Responsible For Deceased IRS Debt?
Being the family of a deceased loved one with tremendous amounts of IRS debt is stressful. Are you going to be held responsible for paying off the debt?
That goes back to the hierarchy we discussed in the section prior.
The estate overseer may be a direct relative of the deceased such as an adult child. In that case, then technically, yes, the family would be responsible.
However, the person managing the deceased’s estate could be anyone they entrusted in that position and not necessarily family members, and the same would still apply.
A third-party legal representative might bear no relation to the deceased at all, yet if the deceased trusted them to manage their estate, then the lawyer would take care of the payments.
It’s only if the deceased didn’t assign responsibility to either of those two parties that the family must pay for IRS debt.
You’ll recall that the surviving spouse is liable to pay the debt first and then any next of kin should the deceased have no surviving spouse.
Who Gets The Tax Refund Of A Deceased Person?
Of course, filing taxes isn’t all about paying money back. In many cases, it’s about receiving a tax refund.
If your deceased loved one was eligible for a refund in their last year of taxes filed, who receives the refund?
That would usually be the tax filer, be that a legal estate representative, a sole beneficiary, a surviving relative, or a surviving spouse.
Whether filing the deceased’s taxes as a legal representative or as an individual, to get the refund you’d need both the death certificate and a completed Form 1310, which is the Statement of Person Claiming Refund Due to a Deceased Taxpayer.
Tax time is stressful enough for many of us. When you add the complication of filing taxes for the deceased on top of it, it becomes even more difficult.
However, you can’t pretend that the deceased doesn’t owe taxes, as the IRS will go to great lengths to get its money.
Good tax-filing practices while one is alive are the best way to prevent family from having unintended surprises later, but as the estate manager for the deceased, keeping records and timely filing taxes will make this process as smooth as possible. Good luck!