Decease taxpayer and tax liability

[jasdlm]

Another preparer contacted me today to get my opinion on the following:

Married taxpayers. Wife Died a few weeks ago. Wife had taken several IRA distributions with no withholding and also had some self-employment income on which no tax had been paid. Husband was aware of this. The preparer wants to recommend that husband files Single for 2009, and leaves wife 'hanging' with respect to tax liability. All assets passed by beneficiary designation, so there is no 'probate estate'. I don't see how filing 'single', when they were married at the time of the taxable events and there was no divorce, absolves H from any liability for the IRA distributions and SE income (from which he also benefitted). However, perhaps this is just my public policy bent, and my colleague is giving H the soundest tax advice.

Thanks for your thoughts.

[TaxmannEA]

I believe that the only filing options for this person are MFJ or MFS.

[jasdlm]

When I said that to my colleague, she had to responses:

1) If he files MFS he still avoids her liability and;

2) What if he remarries before the end of the year?

[TAXBILLY]

http://www.irs.gov/publications/p501/ar02....ublink100041739

taxbilly

[jainen]

>>leaves wife 'hanging' with respect to tax liability<<

This is another falsehood the preparer is suggesting, beside the fraudulent filing status. Regardless of whether the assets were transferred to the taxpayer as a beneficiary or as an heir, he is required to cover all her tax liability (up to the amount of assets). Same thing if he is acting as personal representative or executor. Filing status is irrelevant to that issue, as is remarrying. He got the money--he owes the tax.

[Catherine]

>>leaves wife 'hanging' with respect to tax liability<<

This is another falsehood the preparer is suggesting, beside the fraudulent filing status. Regardless of whether the assets were transferred to the taxpayer as a beneficiary or as an heir, he is required to cover all her tax liability (up to the amount of assets). Same thing if he is acting as personal representative or executor. Filing status is irrelevant to that issue, as is remarrying. He got the money--he owes the tax.

jainen is exactly correct here -- and specifically includes the point he either missed or ignored in a similar post. "Up to the amount of assets", with the additional line of "He got the money -- he owes the tax".

[jasdlm]

Thanks so much to all of you!

[zeke]

Just for fun, I agree that the tax liability follows the money and that hubby therefore does have the tax liability - eventualy. but not on his return. The income is properly reported only on her return. I question the fact that hubby is REQUIRED to file a return for her. The IRS can and may prepare a return for the decedent and assess the liability to him, but, over the years I have observed several occasions that ignored letters to decedents result in no action by IRS.....

z

[jainen]

>>Just for fun<<

Your point is completely serious. The original post asked about liability--collection is another matter. That is the reason for "the point he either missed or ignored in a similar post" [cpabsd's thread on Deceased Taxpayer]. We already knew that bill was only $750, so it is reasonable to assume the taxpayer could ignore the letters and obligations alike.

[kcjenkins]

I agree with jainen, and also would comment on the "and SE income (from which he also benefitted)". He would in no case be personally liable for her SE taxes, those are specific to the person who earned the income.

[jasdlm]

KC, thanks for your post. To clarify, are you saying that he doesn't have to pay the SE tax, period, or just that he doesn't have to pay the SE tax if it exceeds the amount of assets he received (insurance proceeds, IRA proceeds, etc.) as a result of her death?

Thanks.

[jainen]

>>are you saying that he doesn't have to pay the SE tax, period<<

That's a very good question. I always assumed ALL taxes are due (to the extent of estate assets). I'm not sure how "specific to the person who earned the income" is any different than regular income tax, but it's a lovely idea!