Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Final Tax Return - FIL
Old 07-22-2017, 07:06 AM   #1
gone traveling
 
Join Date: Mar 2015
Location: Greenville
Posts: 653
Final Tax Return - FIL

Wondered if there were any Tax attorneys or Tax Accountants on here that could provide direction.

In summary, DMIL passed a couple of years ago, and as is often the case, DFIL within a year. (2016). They had their modest home in an Irrevocable trust for last 15-20 years, so not included in any final assets. Cash was minimal, no vehicle, limits household belongings.

Based in his USPS mention, and minimal SS, he had a tax bill due at debt of ~$800. Since all of his cash was used (and then some from us) for burial expenses, I filled out the final tax form which is marked as "Deceased" at top of form, and included a note that there were no remaining assets after expenses at time of death.

We got a letter for the tax amount plus interest and penalty in June.

Any suggestions from those in the business?
__________________

Pilot2013 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 07-22-2017, 07:52 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 22,035
Interesting question. They may try to make a case that the executor or whoever was paying the bills should have known about the tax bill and the cash available and that the taxes should have been paid or set aside ahead of the burial expenses. If that was the case, then it would have come out of your pocket any way since you paid the burial expenses in excess of cash available and the cash available would have been $800 lower so you would have paid $800 more.

Whether they would bother to make that case for $800, I dunno.... tend to doubt it be never say never.

Perhaps a tax practitioner will come along and weigh in.

Were there any income tax withholdings from his USPS pension? If so, have they been considered in the $800?

Also see https://www.irs.gov/businesses/small...eased-taxpayer
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 07-22-2017, 08:02 AM   #3
gone traveling
 
Join Date: Mar 2015
Location: Greenville
Posts: 653
Yes, Fed tax was withheld from his pension, just not enough to cover. It was the first year following his wife's death, and unfortunately, nothing was changed on his withholding despite the change in status for the next tax year filing.

I thought there might be some kind of exclusion for burial, but have no idea.
Pilot2013 is offline   Reply With Quote
Old 07-22-2017, 08:11 AM   #4
Full time employment: Posting here.
Markola's Avatar
 
Join Date: Nov 2013
Posts: 754
We went through DFIL dying with a bunch of smallish debts in 2015 and now DMIL is in hospice. DW served/s as power of attorney and executor for both. The attorneys we've worked with have both said "Their debts are not your responsibility." Further, we are entitled to reimbursement for our expenses in the process. Several companies and the state of California were out a few bucks and continued to write for a few months while DW convinced them that he was deceased. Sometimes they wanted a copy of his death certificate, which she'd send. Eventually they all stopped writing. However, we did get a bright neon green letter from a county in California last week seeking back taxes on a timeshare that DFIL walked away from in 2007. I did them the courtesy of calling to say "Good luck collecting."
Markola is offline   Reply With Quote
Old 07-22-2017, 08:15 AM   #5
gone traveling
 
Join Date: Mar 2015
Location: Greenville
Posts: 653
I meant to add, I have tried (unsuccessfully) to call the IRS. After 60 minute plus wait times, several times, I hang up.
Pilot2013 is offline   Reply With Quote
Old 07-22-2017, 08:34 AM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 7,143
Quote:
Originally Posted by Pilot2013 View Post
I meant to add, I have tried (unsuccessfully) to call the IRS. After 60 minute plus wait times, several times, I hang up.
Good luck with that.

How about returning the IRS invoice (after you make a copy for your records) with a death certificate ?
Sunset is offline   Reply With Quote
Old 07-22-2017, 08:54 AM   #7
Thinks s/he gets paid by the post
 
Join Date: Mar 2013
Location: Coronado
Posts: 1,145
You need Pub 559: https://www.irs.gov/publications/p559/ar02.html

Quote:
A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property.
Quote:
Insolvent estate. Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence.
Quote:
No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. These expenses may be deductible for estate tax purposes on Form 706.
My inexpert reading of the above quotes from Pub 559 is that you are personally responsible for the $800, because when you took control of your FIL's property you became his Personal Representative and you were required to determine whether there were tax obligations due before spending the estate's cash on his funeral. You can pay a tax attorney or accountant to advise you, but I think you're still going to owe the $800 plus penalties and interest, and then you're also going to owe the accountant too.
cathy63 is offline   Reply With Quote
Old 07-22-2017, 09:22 AM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 22,035
+1 Thanks for the cite cathy63. I think the easiest thing if for the OP to just pay the bill since he will ultimately be liable for it anyway... unfortunately sort of in the "no good deed goes unpunished" catagory.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 07-22-2017, 10:23 AM   #9
Thinks s/he gets paid by the post
 
Join Date: Nov 2011
Posts: 3,071
The key phrase in that 559 quote is "if such obligations existed before distribution of the estate's assets". Did the estate have any assets? If not, I read 559 to mean the personal rep has no liability. However often left behind is some personal property with at least a nominal value, for example, cell phone, TV, books, etc. that the IRS could claim against.
GrayHare is offline   Reply With Quote
Old 07-22-2017, 10:35 AM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 22,035
I read it that if the decedent had more than $800 of cash at death, then the first $800 goes to the IRS and then the other bills get paid in priority (like in a bankruptcy liquidation). The OP suggested that some cash was used to pay burial expenses and then the OP paid the remainder.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 07-22-2017, 11:15 AM   #11
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,513
Was FIL's cash that was used to pay the funeral expenses in a bank or other financial account?

If so, how did you gain access to the funds? Did you go to your county's Probate Court to get authority?

Is the house really safe in the Trust? Alternatively will a tax lien be applied to it, perhaps at the county level, that will prevent transfers or at least cause problems with future purchasers with mortgages seeking the required title insurance.

In this case it looks like the IRS not only placed a lien but also a levy (forced sale) against real estate held in an irrevocable trust. Ultimately the trust was upheld but legal fees may have been incurred in the process.

I would also be curious to know what the relationship is between the trustee and the family? Is it a truly arms-length relationship?

I think if assets of the estate were used to pay funeral expenses in lieu of paying Federal taxes that this was definitely an error in the part of whoever was administering the estate. The question is when does this become a personal liability. When I served as the court appointed Personal Representative for my Father's small estate, it was clear to me that Federal taxes needed to be paid first and that if I did not do this I would be personally liable.

If there was no official court appointment, then the liability issues are less clear to me - a casual observer.

Have you checked out the IRS Offer in Compromise (OIC) program. This program is available persons who have no hope of ever paying off their full IRS liability. The IRS will accept less than full payment and close the matter under this program. The question to me is OIC only available to "natural persons" or are other entities (ie Estates of Decedents) also covered. It may be easier for you to research this yourself on the Internet as opposed to trying to find an IRS employee to help.

Another resource is AARP Tax-Aide, whom I volunteer for. They typically prepare Final 1040 returns for individuals (but not Estate Tax, ie 760, nor Estate Income Tax ie 10401 returns)

-gauss
gauss is offline   Reply With Quote
Old 07-22-2017, 12:48 PM   #12
Thinks s/he gets paid by the post
 
Join Date: Mar 2013
Location: Coronado
Posts: 1,145
Quote:
Originally Posted by GrayHare View Post
The key phrase in that 559 quote is "if such obligations existed before distribution of the estate's assets". Did the estate have any assets? If not, I read 559 to mean the personal rep has no liability. However often left behind is some personal property with at least a nominal value, for example, cell phone, TV, books, etc. that the IRS could claim against.
Yes, you're correct that if the estate had no assets, then the personal rep has no liability for paying the decedent's personal income taxes. However, in this case, the OP said he paid the funeral expenses out of the estate's assets and then told the government there was no money left to settle the tax debt.

The IRS' position will be that this happened in the wrong order. OP should have first paid the taxes, then anything left over could have gone to the funeral.
cathy63 is offline   Reply With Quote
Old 07-22-2017, 01:01 PM   #13
Thinks s/he gets paid by the post
Ready's Avatar
 
Join Date: Mar 2013
Location: Southern California
Posts: 2,358
I suspect the IRS has better things to do than to chase $800 and once they receive a copy of the death certificate this will go away.
Ready is offline   Reply With Quote
Old 07-22-2017, 01:05 PM   #14
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 2,513
I have confirmed that OIC is available to "An individual who is submitting an offer on behalf of a deceased person" from the application booklet.

I suspect that question is how much of the estate's assets were removed to pay for the funeral compared to the tax bill.

There is normally a $186 application fee for the OIC, but it appears to be waiveable under certain low income situations. Not sure if the low income test is applied to the estate or the individual submitting the application.

-gauss
gauss is offline   Reply With Quote
Old 07-22-2017, 01:06 PM   #15
Thinks s/he gets paid by the post
RobbieB's Avatar
 
Join Date: Mar 2016
Location: Central CA
Posts: 4,090
I suspect the penalties and interest will increase if not paid.
__________________
Retired at 59 in 2014. Should have done it sooner but I worried too much.
RobbieB is online now   Reply With Quote
Old 07-22-2017, 01:23 PM   #16
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Charlotte
Posts: 221
I handling my mothers estate, I needed to file and pay taxes due under her SSN for the current year. THEN get a separate number, EIN from the IRS to file next years income to the estate (one remaining lottery annuity payout).
bw5972 is offline   Reply With Quote
Old 07-22-2017, 10:28 PM   #17
Recycles dryer sheets
 
Join Date: Feb 2014
Location: SF Bay Area
Posts: 289
As I read this thread, I feel a headache coming on.
__________________
"The only function of economic forecasting is to make astrology look respectable"
- J.K. Galbraith
FireBug is offline   Reply With Quote
Old 07-23-2017, 01:29 AM   #18
Thinks s/he gets paid by the post
 
Join Date: Feb 2014
Posts: 1,746
If there is an IRS office nearby, it is way easier to pay them a visit then to call. My son and I visited our local IRS office a couple of times in 2015, and resolved an odd issue in about an hour. They reversed some late payment penalty in my son's situation. Since you're going to have to pay something, bring your paperwork and checkbook and be prepared to pay the penalties. My son made the payment and got a receipt, which is nice proof that it was paid. Local IRS folks are regular neighborhood people, and were nice and helpful.
EastWest Gal is offline   Reply With Quote
Old 07-25-2017, 08:43 AM   #19
gone traveling
 
Join Date: Mar 2015
Location: Greenville
Posts: 653
Quote:
Originally Posted by gauss View Post
Was FIL's cash that was used to pay the funeral expenses in a bank or other financial account?

If so, how did you gain access to the funds? Did you go to your county's Probate Court to get authority?

Is the house really safe in the Trust? Alternatively will a tax lien be applied to it, perhaps at the county level, that will prevent transfers or at least cause problems with future purchasers with mortgages seeking the required title insurance.

In this case it looks like the IRS not only placed a lien but also a levy (forced sale) against real estate held in an irrevocable trust. Ultimately the trust was upheld but legal fees may have been incurred in the process.

I would also be curious to know what the relationship is between the trustee and the family? Is it a truly arms-length relationship?

I think if assets of the estate were used to pay funeral expenses in lieu of paying Federal taxes that this was definitely an error in the part of whoever was administering the estate. The question is when does this become a personal liability. When I served as the court appointed Personal Representative for my Father's small estate, it was clear to me that Federal taxes needed to be paid first and that if I did not do this I would be personally liable.

If there was no official court appointment, then the liability issues are less clear to me - a casual observer.

Have you checked out the IRS Offer in Compromise (OIC) program. This program is available persons who have no hope of ever paying off their full IRS liability. The IRS will accept less than full payment and close the matter under this program. The question to me is OIC only available to "natural persons" or are other entities (ie Estates of Decedents) also covered. It may be easier for you to research this yourself on the Internet as opposed to trying to find an IRS employee to help.

Another resource is AARP Tax-Aide, whom I volunteer for. They typically prepare Final 1040 returns for individuals (but not Estate Tax, ie 760, nor Estate Income Tax ie 10401 returns)

-gauss
It's $800, I'm not going to those lengths to argue that "there is no hope of paying it off".

I was just wondering if there was some provision that you bury somebody with their money, rather than lay them out on the street for the garbage men to take. But God knows, the Federal Government needs that $800 to distribute to someone else.
Pilot2013 is offline   Reply With Quote
Old 07-25-2017, 09:30 AM   #20
gone traveling
 
Join Date: Mar 2015
Location: Greenville
Posts: 653
Quote:
Originally Posted by EastWest Gal View Post
If there is an IRS office nearby, it is way easier to pay them a visit then to call. My son and I visited our local IRS office a couple of times in 2015, and resolved an odd issue in about an hour. They reversed some late payment penalty in my son's situation. Since you're going to have to pay something, bring your paperwork and checkbook and be prepared to pay the penalties. My son made the payment and got a receipt, which is nice proof that it was paid. Local IRS folks are regular neighborhood people, and were nice and helpful.
Thanks. I'll check on that. Can't hurt to ask one more time.
__________________

Pilot2013 is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
FIL just got his lungs....double lung transplant! thefed Other topics 6 08-16-2009 11:37 AM
Farewell to my FIL... bbbamI Other topics 22 09-05-2008 04:16 PM
FIL wrecked his car, might be a good thing Walt34 Other topics 27 06-22-2008 11:21 PM
FIL's property tax bill unpaid Walt34 Other topics 2 04-23-2008 05:32 AM
FIL getting amputation bright eyed Health and Early Retirement 14 01-19-2008 11:47 PM

» Quick Links

 
All times are GMT -6. The time now is 11:25 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.