So what do you do when someone dies in a nursing home on medicaid with not even enough to pay for tax preparation? Nothing to be inherited. And really nothing documented...
Or someone who is barely scrapping by commits suicide... with lots of debts, effectively no assets and little to no documentation?
who fills out final tax forms or probates effectively nothing?
without documentation (wills, etc) who causes probate to start? Who funds it?
I expect there are many that fall in these categories in our country.
Note at least on the federal side there are minimum amounts before returns need to be filed, on the 1040 it is roughly 10,000 in income or 400 if there is self employment tax involved. So for example if a single person were to die on Jan 3 for example, in all likleyhood no tax return would need to be filed since the income for Jan 1-3 would be in all likleyhood less than 10,000. For the estates income tax (1041) return the limit is $600 in income.
Note however if there is anything at all in the estate the law does say it goes first to paying administration expenses which would include tax returns as needed. Note that the person on medicaid might well have less than 10k in annual taxable income if living on just Social Security (since that is under the limit where social security is taxable), thus no final return need be filed there. It appears that the social security benefits are paid retrospectivly so there should be none of them for form 1041 i.e. if someone dies early in the month be benefit recieved would be for the month before and thus be involved in the final 1040 if the income is large enough.
To be practical the IRS probably does not care to bother with such small accounts since the costs exceed the possible recovery for the cases cited.
In addition if no one steps up as personal representative and no one receives anything of value from the decedent, then there is also nothing for the IRS to claw back since those who inherit can only be hit with claims up to the amount they inherited.
Let me add that due to expense many states have simpler probate for estates less than some value, and if there is nothing to pay administration expenses nothing is done, in many cases for example those buried by the county, income is less than filing limits so no return need be filed.
Now if a person in the nursing home has a guardian then that person should file the return for the decedent (again if needed)