Letter from the IRS - Regarding Tax Filings for Deceased Parents

[MineralMan]

This has to do with the IRS, so it's government related.

When a parent or parents die, you may have to file a tax return for them, as a surviving offspring. I had to do that. My parents both died in January of 2021. I had to file their 2020 income 1040 tax form for the previous year. Their financial records and other paperwork were in terrible disarray, and I couldn't even go to California after they died, due to COVID.

So, in April of 2021, I filed for an automatic extension on filing. My relatives in California had boxed up all of the paperwork they could find in their house, including the contents of a three drawer filing cabinet. I had their incoming mail after their deaths forwarded to my address.

I went through everything. They had stopped using their accountant for their farming income that year and my father, due to some mild Alzheimer's, had not paid some bills, and had not kept some mail he should have kept. So, I had very poor records to use for the filing. I did have his 2019 1040, however, that had been filed by their accountant. But, they stopped dealing with that accountant in 2020. They owned no California state income taxes in 2019, so I did not file with CA for 2020 at all.

In October, I knew I had to file for them. I did my best to piece together the farm income and expenses. I had settled all of their outstanding bills, cancelled everything, and contacted everyone I could to ask for an annual statement for 2020. Some complied. Others did not. They also had huge medical bills for home care, etc. I got account records from their providers.

Anyhow, I used TurboTax to prepare their return, using estimates where necessary and checking everything against their 2019 1040. Nothing much had changed in 2020, anyhow, but the 2019 filing helped me create acceptable estimates when I didn't have actual documentation for numbers. There is a place on the 1040 where you can tell the IRS that a taxpayer has died, as well, along with the dates of death.

For reference, here is another step I took: I wrote a cover letter to attach to the 1040 filing for 2020. In it, I explained the disarray I found in their documentation, described their illnesses, and stated that I had estimated some numbers for lack of information. I stated, "To the best of my knowledge, this filing is as accurate as I am able to make it."

I was careful to make sure that the amount I paid for their 2020 taxes was just a bit larger than the payment for the 2019 tax year. I assumed that the 2020 filing would be compared to previous filings by the IRS. I signed the 1040 as the Preparer, with a note identifying myself as the son of the deceased taxpayers.

Then I wrote a check, put it and the completed filing in the mail and waited.

I was somewhat worried, but I was not contacted by the IRS until yesterday. I opened that letter from the IRS with some anxiety. What I found was a bill for a penalty of about $40 for failing to pay one estimated tax payment for their 2020 tax year. That was it. I put a check in the mail today.

If you find yourself in a similar situation, and I know that some DUers will, don't panic. Do the best you can with filing your deceased parents taxes. If possible, compare what you file with a previous year's return. Add a cover letter, explaining the situation fully, and pay a little more than they paid the previous year, if they had to pay. Then, don't worry too much. The IRS understands that people die with their paperwork in disarray. The IRS WILL compare what you file to previous years. If you pay something similar, the IRS will just say OK, never mind, and you'll be done. If you get a bill for some penalty or other, just pay that bill at once. After you do that, the ordeal will be over.

A Caution: If your deceased parent(s) were high-income people, or their estate is large enough to trigger federal or state estate taxes, go to a tax accountant. However, if not, you can do it yourself, for sure. Frankly, though, if you pay a little more than they paid the previous year, you won't get hassled by the IRS in normal circumstances.

[MiniMe]

1. Thanks for your care for us DUers.

I went through this in 2013, but my parents were not in disarray. I would add that State taxes can be quite a pain too. I live in Maryland, and the State limits are quite a bit lower than Federal. I don't think I had to pay Federal, but State got me. The lawyer filled out the State forms, I just had to sign and write the check. Tried to get the lawyer to write the check, but they said nice try, but no. That check hurt to write, but I had to tell myself to suck it up, if they didn't leave you money, you wouldn't have to pay now.

[MineralMan]

3. Yes, they have to pay taxes for the year when they were alive.

That's the reality, and there's nothing wrong with that. My parents left adequate money, so there was no problem paying their tax bills.

It's not a fun job, and makes you relive your loss once again, or even multiple times.

A tax accountant can do the job for you, for a fee. But, if you do your own taxes, you can do theirs, too. The accountant will use estimates based on previous filings, too, if the documentation is not there. I've been doing my household's taxes for decades, so I'm used to the job. As long as the IRS gets its money, it's OK with those estimates. That's why I made sure they paid a little more than the previous year. I adjusted my estimates to make sure that happened.

[SharonClark]

2. Thank you for sharing this information.

I'm not in your position - my 91-year-old Mom is still kicking, I manage all her finances, and an accountant friend of mine prepares her taxes. But, it is still good information for those brave people like you who have to deal with less than perfect circumstances. I'm glad your situation had a good outcome.

[MineralMan]

5. I've been sharing stuff about my parents' passing, where

it applies to more people than myself. Estates are complicated at times. I had an attorney to help me with complicated issues, but wherever I could, I did things myself. The attorney charged $300/hour, so the less I needed him, the better the heirs did. That seemed important to me, and the attorney agreed, as long as I was doing things properly. He's the one who told me that I could use estimates on their tax filings, but to make sure the tax payment exceeded the previous year's payment to simplify things. He was right, I guess.

[jonstl08]

4. Had the same issue

I Had the same issue with my Grandmothers estate. She dies in 2003 but my Aunt and Uncle neglected to file taxes or settle the estate so the IRS sent a letter to them in 2004, 2005, 2006 asking about tax filings thinking she was still alive. They never told anybody else about it. Found out when I went to my grandmothers house to check on it after a storm. A neighbor told me the IRS came to talk to them about my grandmother. They told them she passed away but periodically family would come to check on the house. The agent gave them a card and I called them. That was when I found out the Aunts and Uncles did nothing. Agent told me what needed to be done. I told Aunt and Uncles what the IRS said. They told the government cannot get money from a dead person and refused to do anything. IRS initiated proceeding against them and I was a witness. The IRS told the judge I was at least acting responsible so he gave me fiduciary duty to file back taxes and settle the estate. Finances were a mess. Took my over a year just get the all the financial information to file the taxes. Since she had a trust I had to file 1041 for the years after she died. Found out my Aunt and Uncle were "acquiring" money from her accounts before and after she died. When I settled the estate I filed a report with the court which a copy was sent to all family members outlining everything I found including the amounts taken from her accounts by family members. Needless to say it cause a huge family split.

The IRS will work with you if you have the right attitude.

PS. Because the way my Aunt and Uncle acted toward them the IRS went after them for back taxes on the money they took which was 6 figures.

[MineralMan]

6. Yikes! My situation was much simpler, and

my relatives didn't do anything like that. There was a trust involved with my parents' estate, as well. I let the attorney handle everything regarding that. I was the surviving trustee, but it was all pretty simple, really, and the total value of the estate was below thresholds that would have complicated things.

[ALBliberal]

7. CPA here

Very impressed with how you handled this return you basically did everything I would have done and I have been preparing returns for over 30 years.

My only suggestion is that a “final” return be prepared for 2021. It will have little to no activity. Possible social security income maybe bank interest probably no tax owed.

[MineralMan]

8. Well, since they both died on January 6, 2021, I think I'll

just pass on it. They literally had no income in that time. Social Security was notified, and grabbed back the last payment they had sent. Their farm had already been sold, and closed on in January. All of their assets were in trust.

So, I think I won't bother with the IRS for 2021. If they bug me, I'll file something.

Thanks for the compliment, too. I did some research, along with a little reasoning.

[ALBliberal]

9. Very reasonable:))