Tax Law

What Happens When Someone Dies, and They Owe the IRS?

Key Takeaways:

  • If someone dies owing tax debt, the IRS can collect by placing a lien on the person’s property or by filing a claim against their estate.
  • The IRS has 3 years to back-audit a deceased person’s taxes, but can go back as far as 6 years if they find unreported income.
  • If a person’s estate does not have sufficient funds to pay tax debt, the IRS is treated like any other creditor and is paid accordingly.
  • You cannot be held accountable for your deceased spouse’s tax debts unless you are a co-owner of that debt.
  • When someone dies, their joint bank accounts revert to the sole ownership of the other owner. The bank accounts they solely own cannot be accessed until the probate process is initiated and the Executor is appointed.

If a person dies owing money to the IRS, there are two ways that the government can recover taxes from that deceased person.

  • Placing a Lien: One way for the IRS to recover money from a deceased person is to place a lien on their assets—specifically, their real estate. This way, if any of their property is sold by the deceased person’s estate, the lien would have to be paid before the property can be given to the buyer with clean title.
  • Filing a Claim Against the Estate: The other way that the IRS usually attempts to collect funds from a deceased person is by filing a claim against their estate, just like any creditor. They get paid through that method like any other creditor would get paid.
What Happens If Someone Dies with an IRS Tax Debt and Their Estate Does Not Have Sufficient Funds to Cover the Debt?

In a case like this, where there is no property to place a lien against, the IRS would have filed a claim against the estate for the taxes due. Assuming this person had other creditors, when there is not enough money to pay every creditor, then the task of sorting the matter out falls to the Executor of the estate, or the personal representative of the deceased person. The Executor has the job of prorating the available funds among each of the creditors. So, each of the creditors would get part of the money according to how much they were owed.

How Far Back Can the IRS Audit a Deceased Person’s Taxes?

Generally, the IRS has 3 years to go back and audit any taxpayer, living or deceased. However, if the IRS finds that a person was receiving unreported income, then they can go back 6 years to audit tax returns.

Who Will Receive a Deceased Person’s Tax Refund if There is One?

If there is a tax refund for a deceased person, the deceased person’s Executor or personal representative will receive the refund. They are authorized to sign the check into the estate bank account. At that point, that money will be dealt with just like the rest of the funds that are contained within the estate.

How Can I Protect Myself from my Deceased Spouse’s Debts?

If we are talking about tax debt, then all you have to do is not file a joint tax return. Any joint tax return puts liability on both of the parties—i.e., both you and your deceased spouse. In general, any debt belonging to one person is not the debt of their spouse, unless the spouse signs the document that created the debt in the first place (i.e., a mortgage).

What if There is Not Enough in my Spouse’s Estate to Cover Outstanding Debts? Will I be Liable for Those Debts?

No, you will not be liable for any outstanding debts in your deceased spouse’s name. Neither the deceased person’s spouse nor their Executor/personal representative has any personal liability for the debts of a deceased person. You would have liability only if you were a joint debtor with the deceased.

Does a Bank Account Get Frozen When Someone Dies?

What happens to the bank accounts of a deceased person depends on what sort of accounts they were.If the account in question is a joint bank account with someone else, then the other, living owner becomes the automatic owner of the account, and it goes on like they exclusively owned it all along.If the account in question is owned exclusively by the deceased person, it is not technically frozen, but it cannot be accessed by anyone until the probate estate is opened and an Executor/personal representative is appointed.Once the Executor/personal representative is appointed, they alone will have access to the account until the estate is settled.

How do I Gain Access to my Deceased Spouse’s Bank Account if my Name Was Not Listed on His or Her Account?

There is only one way to gain access to a deceased spouse’s bank account if your name was not listed on the account. A probate estate has to be opened for the deceased person, and an Executor/personal representative—probably you, as the spouse—has to be appointed. Once an Executor/personal representative is appointed, he or she can gain access to that account.

What Happens When an Estate Does Not Have Enough Funds to Pay Beneficiaries? What Does the Executor Have to do at That Point?

Any specific request made in an estate plan—such as person A gets $3000—would be paid first. Then in general, all of the rest of the estate’s assets would be pooled to pay all the creditors. So, the Executor/personal representative would add up all the debts, and then get the percentage of each creditor’s debt to the whole, and pay that percentage to the creditor with the funds that are available.

For more information on Owing Tax Debts To The IRS Upon Death In SC, an initial consultation is your next best step. Get the information and legal answers you are seeking by calling (864) 271-7940 today.

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