IRS Form 1040 US Individual Income Tax Return
A decedent will owe a final tax return for the short tax year beginning on January 1st and ending on the date of death. The decedent’s final Form 1040 U.S. Individual Income Tax Return must be filed by April 15 of the year following the year of the decedent’s date of death. An automatic 6-month extension may be obtained by filing the Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. The extension of time to file does not extend the time to pay taxes due.
If the decedent is survived by a spouse, the executor and the surviving spouse may file a joint return (or, if no executor is appointed, the surviving spouse may file a joint return). However, the decedent’s estate and the surviving spouse will be jointly and severally liable for the full amount of income taxes due. Therefore, care should be taken to determine whether the surviving spouse has any tax issues that could affect the estate. In addition, a separate agreement with the surviving spouse to pay his or her share of tax may be advisable.
California Form 540 California Resident Income Tax Return
The executor must also file the decedent’s final Form 540 California Resident Income Tax Return for the short tax year beginning on January 1st and ending on the date of death. The same due dates apply as for the Form 1040. No additional filings are required for an automatic 6-month extension of time to file. The Form 540 must be filed by the extended deadline (October 15th) to apply. The filing status indicated on the California income tax returns must be the same as for the federal returns.
Prior Year Returns
The executor should also review and confirm that the past three years (at least) of the decedent’s income tax returns were filed prior to death. If the decedent failed to file required income tax returns, the executor must file the income tax returns post death in order to avoid continuing liability to the estate and/or trust, and the beneficiaries. Similarly, amended income tax returns may be needed to correct any errors.
Generally, the statute of limitations applicable to federal tax returns is 3 years, but in the case of substantial omissions (i.e., amounts over 25% of the gross income reported), the statute of limitations is increased to 6 years. There is no statute of limitations for false, fraudulent or unfiled returns.
Additional IRS Forms
Form 56 Notice Concerning Fiduciary Relationship
IRC § 6903 requires fiduciaries to notify the IRS of their fiduciary status. Form 56 is used to notify the IRS of the creation or termination of a fiduciary relationship. An executor must file Form 56 for the individual decedent, if the executor will be filing a final Form 1040 income tax return for the decedent. The executor must file another Form 56 for the name of the estate.
A fiduciary is treated by the IRS as if he or she is the actual taxpayer. Upon appointment, the fiduciary automatically has both the right and the responsibility to undertake all actions the taxpayer is required to perform. For example, the fiduciary must file tax returns and pay taxes due on behalf of the taxpayer.
Form 8822 Change of Address or Responsible Party
An executor would file Form 8822 to change the “last known address” of the decedent. This is necessary so that the executor will receive the tax information of the decedent.
Form 2848 Power of Attorney and Declaration of Representative
An executor may file Form 2848 to appoint an authorized representative of the estate or of the decedent.
The IRS treats the authorized representative as an agent of the taxpayer. An authorized representative can only perform the duties authorized by the taxpayer. An authorized representative is not required or permitted to do anything other than the actions explicitly authorized by the taxpayer.
Form 8821 Tax Information Authorization
An executor may file Form 8821 to allow an authorized representative to obtain the tax information of the decedent. This would allow gathering prior year transcripts, Form W-2, Form 1099, etc.