[WSBAPT] Administrator duty to search for indications of pre-death unfiled tax returns?

Fri Dec 12 14:03:51 PST 2014

Eric:  Let me know what you find.  To get discharged, the PR declares that
all taxes have been paid, which would not be true if there was a claim.
Also, the federal tax law takes precedence over Washington's probate law.  I
think a laches defense would work if the IRS does not act within six years
or so.  My 9 year late claim case was resolved on the merits, that there had
been an IRS mistake in I assigning to my client the income reported when his
wife cashed his IRAs following his divorce.  I do not know if the IRS then
went after the wife.

                Tom

From: wsbapt-bounces at lists.wsbarppt.com
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Friday, December 12, 2014 1:37 PM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Administrator duty to search for indications of
pre-death unfiled tax returns?

I like it for the potential coverage, but I wonder what I would advise a PR
to do if say, we discover that the decedent didn't file a return 15 years
ago. Unlikely to have any remaining documentation concerning income in that
year...I guess we'd ask the IRS for any W-2s and 1099s reporting income for
that year, and file a return only for the income that had been reported to
the IRS?

This is one of those scenarios where I think I'd prefer to advise the PR to
meet only the minimum duty to investigate, and otherwise let sleeping dogs
lie. Maybe my real research should be focused on figuring out whether or not
the IRS's ability to pursue a fiduciary is discharged upon closure of the
Estate along with all other PR liability.

Sincerely,

Eric

Eric C. Nelsen

SAYRE LAW OFFICES, PLLC

1320 University St

Seattle WA  98101-2837

phone 206-625-0092

fax 206-625-9040

From: wsbapt-bounces at lists.wsbarppt.com
<mailto:wsbapt-bounces at lists.wsbarppt.com>
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Roger Hawkes
Sent: Friday, December 12, 2014 1:13 PM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Administrator duty to search for indications of
pre-death unfiled tax returns?

Your exchange has led me to modify our procedures.  It may be a hammer on a
mosquito, but it's a light, cheap hammer.  We will routinely ask for tax
filing history from IRS unless the PR has good evidence that all prior
returns are filed.  Seems like a very simple, quick, and easy protection for
our PRs.  Does anyone see a problem with doing that as a routine?

Roger Hawkes, WSBA # 5173

19909 Ballinger Way NE

Shoreline, WA 98155

www.hawkeslawfirm.com <http://www.hawkeslawfirm.com> 

206 367 5000

Fax is 206 367 4005

From: Eric Nelsen [mailto:Eric at sayrelawoffices.com] 
Sent: Friday, December 12, 2014 10:22 AM
To: WSBA Probate & Trust Listserv
Subject: Re: [WSBAPT] Administrator duty to search for indications of
pre-death unfiled tax returns?

Thanks Tom! Do you think a PR's liability to the IRS survives discharge
following closure of an estate (RCW 11.96A.070(2)
<http://app.leg.wa.gov/rcw/default.aspx?cite=11.96A.070> )? I am thinking of
just the kind of nightmare-for-the-PR scenario you mention: PR searches the
decedent's papers but doesn't see any problem, completes the probate and is
discharged, and then IRS pursues the PR for liability on decedent's unfiled
tax return from a decade before. Under IRS rules, there is no statute of
limitations on unreported tax years; the S/L doesn't start accruing until a
return is filed.

It seems to me, your standard operating procedure and mine are the same: PR
needs to review the decedent's papers, but unless something obvious crops
up, there is no duty to explicitly ask the IRS whether the decedent has
filed all previous tax returns. I think that's right; but the Form 56 led me
to second thoughts.

Sincerely,

Eric

Eric C. Nelsen

SAYRE LAW OFFICES, PLLC

1320 University St

Seattle WA  98101-2837

phone 206-625-0092

fax 206-625-9040

From: wsbapt-bounces at lists.wsbarppt.com
<mailto:wsbapt-bounces at lists.wsbarppt.com>
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Tom Stuen
Sent: Thursday, December 11, 2014 5:14 PM
To: 'WSBA Probate & Trust Listserv'
Subject: Re: [WSBAPT] Administrator duty to search for indications of
pre-death unfiled tax returns?

Eric:  I use a form 5495 request for release.  And obtain a transcript if it
appears that tax returns were not filed.  I think the PR is responsible for
taxes to the extent of funds distributed to beneficiaries.  I once
represented an estate where the deceased received a deficiency notice 9
years after he had failed to file.

                Tom Stuen

From: wsbapt-bounces at lists.wsbarppt.com
<mailto:wsbapt-bounces at lists.wsbarppt.com>
[mailto:wsbapt-bounces at lists.wsbarppt.com] On Behalf Of Eric Nelsen
Sent: Thursday, December 11, 2014 3:25 PM
To: WSBA Probate & Trust listserve (wsbapt at lists.wsbarppt.com
<mailto:wsbapt at lists.wsbarppt.com> )
Subject: [WSBAPT] Administrator duty to search for indications of pre-death
unfiled tax returns?

How far does a PR's duty go to determine if a decedent failed to file income
tax returns? I have typically made sure that the decedent's final 1040 is
done, but unless something obvious crops up in the review of decedent's
papers, I don't do a huge search or explicitly query the IRS for records to
ensure they've been filed in all prior years.

I ask because I am having second thoughts about IRS Form 56, Notice of
Fiduciary Relationship. The instructions seem to require filing one for PR
as fiduciary for the estate (that is, estate tax and post-death income), and
one for PR as fiduciary for the decedent (that is, pre-death income). In
Section B entitled "nature of liability and tax notices," it essentially
asks the PR to say, "yeah, I'm liable for all income tax returns of the
decedent." Seems a bit much to me.

Am I overthinking?

Sincerely,

Eric

Eric C. Nelsen

SAYRE LAW OFFICES, PLLC

1320 University St

Seattle WA  98101-2837

phone 206-625-0092

fax 206-625-9040

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