Who is responsible for taxes owed?

[Jack from Ohio]

Background.

Clients file MFJ 2008 & 2009. Have balance due and have not made payments. Returns were filed late as well. Aprox. tax due $11K. Amount due was simply caused by insufficient withholding at W-2 jobs.

Procrastination continued. 2010 and 2011 returns were filed in October 2012. Both years were filed as MFS. All 4 returns had balance due. Same reason, insufficient withholdings. Wife paid the amounts for her 2010 & 2011 returns.

Here is the problem hitch and the basis of my question. Husband passed away in March 2012. Wife signed his 2010 & 2011 returns as surviving spouse.

There was no estate. Everything went to wife when hubby passed. All assets are mortgaged so her net worth is very small.

Question: Is the wife responsible for the taxes owed on deceased spouse tax returns?

[Lion EA]

She's responsible for MFJ years. You may need legal advice for MFS years. I would say yes, if his assets passed to her before paying his tax debts. -- but as I said, you may need a legal opinion. Someone will have dealt with this and jump on this thread.

[Richcpaman]

I would say no.

Had client with same sitch.

Husband owed $350k. He filed his MFS, and signed them, then he fell ill, and died.

Wife picked up the house and a rather large Life Insurance policy, and the IRS was out of luck.

Filed the Estate return, and a couple for years later, when we got the notice from the IRS for the deceased husband past due taxes, sent a copy of the death cert, and the estate closing letter, and never heard from the IRS again...

In your particular case, I would make sure the allocations were good on the MFS returns, but otherwise, if there was no assets in the estate, there is nothing to claim.

Rich

[Richcpaman]

And can't the Excuter of the estate go from a MFJ filing to a MFS?

Could the Wife get of the taxes for the earlier years?

Rich

[rfassett]

Innocent spouse relief is worth a shot.

[mcb39]

Innocent spouse relief is worth a shot.

Have you ever gotten a "yes" on an innocent spouse claim? I haven't!

[Lion EA]

Can't go from MFJ to MFS after due date of return. (Just from MFS to MFJ.)

[rfassett]

Have you ever gotten a "yes" on an innocent spouse claim? I haven't!

Yes I have - on more than one occasion.

[Guest Taxed]

I would say no.

Had client with same sitch.

Husband owed $350k. He filed his MFS, and signed them, then he fell ill, and died.

Wife picked up the house and a rather large Life Insurance policy, and the IRS was out of luck.

Filed the Estate return, and a couple for years later, when we got the notice from the IRS for the deceased husband past due taxes, sent a copy of the death cert, and the estate closing letter, and never heard from the IRS again...

In your particular case, I would make sure the allocations were good on the MFS returns, but otherwise, if there was no assets in the estate, there is nothing to claim.

Rich

Rich I seem to recall an old IRS notice or revenue procedure regarding death of a MFS taxpayer with balance due stating what you just said. I think IRS is out of luck on this one.

[jainen]

>>Is the wife responsible for the taxes owed on deceased spouse tax returns?<<

There should be no doubt about her "joint and several" liability for 2008 and 2009. As for 2010 and 2011, Pub 559 says, "tax liability of an estate attaches to the assets of the estate..... the beneficiary can be liable for tax due and unpaid to the extent of the value of the estate assets received." So yes, since she inherited everything she is legally and I would say morally liable for the balance due for 2010 and 2011. If the IRS does not go after her, she can make up her own mind about that.

[mcb39]

That pretty much answers my question about the son who inherited his mom's entire estate. Mom has to file a final return. However, she sold bonds before she passed and has a 1099-Int for $26,000 of bond interest. Since the son inherited the estate, including the bond and bond interest proceeds, why would he not be responsible to pay the tax liability for mom? Jainen?

[Jack from Ohio]

Innocent spouse relief is worth a shot.

Innocent or injured spouse only applies to MFJ returns.

[Jack from Ohio]

Have you ever gotten a "yes" on an innocent spouse claim? I haven't!

Likewise, over the 14 years, probably filed 50 or more. All accepted without any questions.

[Jack from Ohio]

>>Is the wife responsible for the taxes owed on deceased spouse tax returns?<<

There should be no doubt about her "joint and several" liability for 2008 and 2009. As for 2010 and 2011, Pub 559 says, "tax liability of an estate attaches to the assets of the estate..... the beneficiary can be liable for tax due and unpaid to the extent of the value of the estate assets received." So yes, since she inherited everything she is legally and I would say morally liable for the balance due for 2010 and 2011. If the IRS does not go after her, she can make up her own mind about that.

There was no estate. All assets transferred TOD at time of his passing. She signed both his 2010 and 2010 MFS as "Surviving Spouse." Net worth may be only $2k tops.

[rfassett]

Innocent or injured spouse only applies to MFJ returns.

Sorry - speed reading has never been my forte. I completely missed the MFS for 2010 and 11. So I would say you are back to surrendering any provable assets of the estate. Since no probate seems to have taken place you are back to proving whatever assets were titled in his name were used for his final expenses. To the extend that can be done and there are no assets available, then his account would be determined uncollectible by the IRS and it is not her concern. To the extent the asset value exceeded final expenses, I believe she would have to turn those funds over to the IRS - to the extent of his debt.

[Terry D EA]

You have stated there was no estate. But, what I think Jainen is saying that because she inherited whatever assets he had, those assets can be seized towards the tax debt he owed and any cash received may have to be surrenderd to satisfy any portion of the debt as well. I totally agree that there is no question regarding her joint liability. No injured spouse necessary as I see it.

[jainen]

>>There was no estate. All assets transferred TOD at time of his passing.<<

There is ALWAYS an estate. It may be less than the exclusion amount, or qualify for the unlimited marital deduction. It may be exempt from probate under state law, paid to a beneficiary, or retained by a joint tenant. But for federal tax purposes, Pub 559 defines it: "gross estate includes the value of all property you own partially or outright at the time of death." Regardless, in every case the tax liability attaches to the assets.

>>She signed both his 2010 and 2010 MFS as "Surviving Spouse."<<

Technically a surviving spouse can only sign a joint return. She should have signed as personal representative, if she was in charge of his property and there was no executor or court appointee. I doubt it will be a problem this time, but it further erodes her potential claim to not be liable.

[Guest Taxed]

Jack says the surviving spouse's net worth is only $2,000! What are the chances that IRS will attempt to seize any property that is now 100% owned by the spouse and there was no lien filed?

[Lee B]

Jainen,

I agree with you.

[joanmcq]

I agree with Jainen too. Net worth doesn't come into play here; any accounts that transferred to her are 'estate', and after death expenses are available to pay the taxes. Estate and taxable estate are two very different things.

[Guest Taxed]

Someone may want to check out IRS Letter Ruling 201323019. If I understand it correctly a property that is held jointly with rights of survivorship, after the spouse who owes the tax dies his interest can not be attached and the property passes to the surviving spouse.

I will try to attach that ruling.

UIL No. 6321.03-00 Lien for taxes (Lien right v. no lien right); Lien priority v. no lien priority.

LTR Report Number 1893, June 12, 2013, IRS REF: Symbol: CCA_2013052209132420
From: *****
Sent: Wednesday, May 22, 2013 9:13:26 AM
To: *****
Cc: *****
Subject: Decedent case question-no probate
*****
You asked whether the federal tax lien under section 6321 would remain attached to property that passes by a beneficiary deed (which is created by state statute). The section 6321 lien attaches to all of decedent's property and right to property while the taxpayer lives. Generally, when property is owned by the decedent and other party with rights of survivorship, the decedent's property rights terminate automatically upon death. An example of this is when property is held as tenancy by the entireties. In the tenancy by the entireties case, the property is held by spouses as a marital unit. If one spouse dies, then the property is owned by the surviving spouse.
(See Notice 2003-60, 2003 C.B. 643 which states with respect to entireties property, that upon the death of the taxpayer there is no longer an interest held in the property by the taxpayer to which a federal tax lien attaches).
In contrast, the beneficiary here does not hold property in common ownership with the decedent with rights
of survivorship. Before death, the decedent has the right to revoke or change the beneficiary deed and the
beneficiary does not have rights to the property before the taxpayer's death. Thus, the federal tax lien remains on the property.
Please let me know if you have any questions.
Thanks, *****.

[kcjenkins]

I agree with you, Taxed, where there is joint ownership with right of survivorship, the surviving spouse owns the property, and IRS can only go after it if the taxes owed were joint. I've won such a case, myself. The agent tried to use an emotional "you have a moral obligation" argument on her, but I'd already prepared her that she had no legal obligation. She'd have had to sell her home to pay them, so she was glad she'd talked to me first.

[Crackerjack]

I have a similar situation. The Dad deeded his farm to his daughter, reserving a life estate. Then he failed to file tax returns for at least 10 years. Then he died in a plane wreck. The probate attorney prepared 10 years of tax returns using 3rd party reporting (the only information available). Daughter received $50K in life insurance and his $40K 401(k). The only assets in the probate estate were personal property, which the daughter purchased from the estate. This enabled the estate to pay attorney fees, with $1800 left over to pay the IRS. The state of Wisconsin issued a closing certificate and did not take any collection action against the estate. The IRS issued a letter allowing the attorney to close the estate since funds were exhausted, but hinted that they may pursue transferee liability against the daughter. Several weeks later, an IRS agent showed up at the daughter's door. The daughter asked how much tax was due, and the agent said, "I'm not supposed to tell you that, but I can't help it if a piece of paper happens to fall on the ground." When daughter picked up the paper, it turned out to be a computer printout. Total tax due about $70K. Daughter came to me. We executed a POA and I wrote to the agent (who had given her business card to Daughter) asking the agent to include me on any correspondence. It's been over a month and we haven't heard anything. Do you think we will?

[kcjenkins]

Probably not, since the estate has already given them all there was. If they were saying the daughter owed those taxes, they would not have to play games about the amount, now would they?