Delinquent Taxes in an Estate
- February 22, 2011
- David Greene
- Comments Off on Delinquent Taxes in an Estate
What are the obligations of the Personal Representative (formerly called an Executor) of an estate when the decedent owed delinquent taxes? The duty of any Personal Representative is to gather the assets of the estate, pay bills of the last illness and ongoing bills, pay creditors who properly file their claims and distribute the assets to the heirs.
If the decedent owed money to the IRS, it stands in the form of a creditor. This means it must file a claim for the delinquent taxes and put the Personal Representative on notice. Then the duty of the PR is to pay its claim as it would any other creditor. The other way the IRS can collect the debt is if it has a lien filed in the public records. Then, if real property is sold, the IRS will get paid first from the proceeds, just as a mortgage holder would.
The IRS will collect its debt from the assets of the estate, but not from the PR personally. The only exceptions to this are: (1) if the PR mishandles the estate or is negligent in administering the estate, then the PR can be held personally liable by any creditor and (2) the PR cannot prematurely take or sell assets out of the estate. If he does, he can be held liable for the estate debts, at least up to the amount of assets he removed. If there is not enough money to pay all of the debts, the debts will be paid according to a priority schedule governed by statute. As you can imagine, taxes are high on the priority list. If there are not enough assets to pay the taxes in full, the balance due will become uncollectible after the estate closes.