Personal Representatives Assume ALL Tax Liabilities of the Estate They Administer

Uncategorized • Feb 11, 2015

In Florida being a Personal Representative for an estate obligates you to pay off all taxes owed. Few people realize this burden they are assuming when they take on a Personal Representative position for a friend of loved one. This is not a Florida thing at all actually, its federal law. See 31 U.S.C. §3713(b) and IRS Manual 5.17.13.8 (10-16-2007).

How as a Personal Representative can you be sure that the decedent was not cheating on their taxes? This is just one part of ensuring that all taxes are paid off.
Any probate litigator knows the first step is to collect the pertinent IRS forms that will illustrate the tax scenario for the decedent.
Specifically one should look to file IRS Form 56, IRS Form 4810 and IRS Form 5495.
A Form 56 needs to be filed twice: when your PR first gets appoint to let the IRS know who your PR is and where to send all tax notices; and again when your PR finishes his job and is discharged. This document ensures that any correspondence from the IRS having to do with the decedent’s taxes gets to your PR right away; the last thing you want is your PR to get sued for failing to pay the decedent’s back taxes because the deficiency notices went to the wrong address. Also, the instructions to Form 56 state that the filing of a Form 56 when your PR is discharged will “relieve [the PR] of any further duty or liability as a fiduciary.”
Not only do you want to make sure the IRS knows your PR exists and that this is the person they need to contact for all matters related to the decedent, you’ll also want to put the IRS on notice to make sure there are no unpaid back taxes involving the decedent. You do this by filing a Form 4810 (Request for Prompt Assessment for Income and Gift Taxes). A cautious PR will wait for the IRS to respond to this assessment request prior to making any distributions to the estate’s beneficiaries. You don’t want all the cash to go out the door only to be surprised by some huge tax assessment that puts your PR in the uncomfortable position of having to ask heirs to give money back to pay back taxes.
At the same time your PR files a Form 4810, he’ll also want to (but separately) file a Form 5495 (Request for Discharge from Personal Liability for Decedent’s Income and Gift Taxes). This is another way to make sure your PR gets notice of any of the decedent’s unpaid back taxes. If Form 5495 is properly filed, the IRS has nine months in which to notify the PR of any deficiency for the decedent’s applicable income or gift tax returns.
All of this will save the PR time down the road because, if the PR pays the additional tax, or if no notice is received from the IRS within nine months from the date of filing Form 5495, the PR is then discharged from personal liability.
Even if there is a Certified Public Accountant (CPA) working on the estate as well this is your responsibility under the law so take your own protective measures.

Until you are sure of all tax liabilities as a PR you should not be distributing any assets. In the event that you distribute assets and there is a deficit of funds to pay the taxes you are personally liable. See U.S.C. §3713.