[WSBAPT] Personal Liability of PR and Income Taxes

[Philip N. Jones]

This is a subject that would require a lengthy law review article to adequately address.  A fiduciary who distributes assets when taxes are owing incurs a form of personal liability known as fiduciary liability.  And a beneficiary who receives such assets incurs a form of liability known as transferee liability.  Extreme care is needed in cases where the decedent might not have properly filed/paid.  Most accountants will not knowingly allow that risk to be shifted to themselves.  Why would they be willing to do that?  And the IRS will go after the fiduciary regardless.  Fiduciaries need to do lots of due diligence, as Bruce suggests.  Then ask the beneficiaries to indemnify the fiduciary, and/or hold back a sizable reserve. And ask the IRS to do a prompt assessment.
But first, find a long law review article on this subject.  A listserv cannot adequately address it.
Phil Jones

Philip N. Jones
Duffy Kekel LLP
Portland, OR
pjones at duffykekel.com
(503) 853-1482 cell

On Mar 1, 2022, at 5:08 PM, Bruce Moen <brm at moenlaw.com> wrote:


I have had this several times to me personally when I've been appointed as the Successor PR.

1.  I ask the IRS for the back transcripts.  How far back is ad hoc depending upon what else I know of the decedent, the estate, whether the decedent had an accountant, etc.

2.  I retain the services of an accountant to prepare the final 1040 and any 1041 Returns.

3.  I transfer the risk for liability in the engagement letter with the accounting firm. That is, I want in writing that they assess what is required to meet the filing requirements and that they will undertake on my behalf to meet all of the reporting requirements of the IRS and the Dept of Revenue.

If a large estate with a messy tax history, disputed back audits and the like, with large numbers, then I engage a large accounting firm with (hopefully) deep pockets for potential malpractice coverage. Then if I get sued for liability, then my carrier can bring in their carrier.

Summary:  spread the risk.  If you are not holding your office out as providing tax advice, then shift that risk to an accounting firm.

At least, that's what I have evolved over the years.  Alot depends upon your assessment of the level of risk.

Hope this is helpful.

  Bruce Moen



From: wsbapt-bounces at lists.wsbarppt.com <wsbapt-bounces at lists.wsbarppt.com> On Behalf Of Diane J. Kiepe
Sent: Tuesday, March 1, 2022 4:36 PM
To: 'WSBA Probate & Trust Listserv' <wsbapt at lists.wsbarppt.com>
Subject: [WSBAPT] Personal Liability of PR and Income Taxes

Please share your practice in addressing income taxes of a decedent for final years and prior years.  I am reconsidering my approach.

I have been fortunate enough to have not had any PRs receive a note from the IRS for past due taxes of a decedent but I did recently order transcripts for a decedent so we (the PR and myself) could satisfy ourselves as to no returns be delinquent and it did turn out a small amount was owed.  We were able to pay it off with estate assets and then make distributions.  In another odd case, it was discovered that the decedent, who fell into a very, very narrow niche, was entitled to a refund.  We got that paid to the estate.  We knew to look into that decedent’s taxes based on some paperwork found in the home.

Diane J. Kiepe

Diane J. Kiepe
Douglas Eden
717 W. Sprague Ave.
Suite 1500
Spokane, WA  99201
djkiepe at depdslaw.com<mailto:djkiepe at depdslaw.com>
509-455-5300

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