Decedents

Important Changes

Rollovers by surviving spouses.   For distributions after 2001, an employee's surviving spouse who receives an eligible rollover distribution may roll it over into an eligible retirement plan, including an IRA, a qualified plan, a section 403(b) annuity, or a section 457 plan. For distributions before 2002, surviving spouses could only roll the distribution over into an IRA.

Estate tax return.   Generally, if the decedent died during 2002, an estate tax return (Form 706) must be filed if the gross estate is more than $1,000,000.

Estate tax repeal.   The estate tax is repealed for decedents dying after 2009.

Important Reminder

Consistent treatment of estate items.   Beneficiaries must generally treat estate items the same way on their individual returns as they are treated on the estate's return. For more information, see How and When To Report under Distributions to Beneficiaries From an Estate in Publication 559, Survivors, Executors, and Administrators.

Introduction

This chapter discusses the tax responsibilities of the person who is in charge of the property (estate) of an individual who has died (decedent). It also covers the following topics.

• Filing the decedent's final return.
• Tax effects on survivors.

This chapter does not discuss the requirements for filing an income tax return of an estate (Form 1041). For information on Form 1041, see Income Tax Return of an Estate - Form 1041 in Publication 559. This chapter also does not discuss the requirements for filing an estate tax return (Form 706). For information, see Form 706 and its instructions.

Useful Items You may want to see:

Publication

• 559   Survivors, Executors, and Administrators

Form (and Instructions)

• 56   Notice Concerning Fiduciary Relationship
• 1310   Statement of Person Claiming Refund Due a Deceased Taxpayer
• 4810   Request for Prompt Assessment Under Internal Revenue Code Section 6501(d)

Personal Representative

A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property.

Executor.   Generally, an executor (or executrix) is named in a decedent's will to administer the estate (property and debts left by the decedent) and distribute properties as the decedent has directed.

Administrator.   An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve.

Personal representative.   In general, an executor and an administrator perform the same duties and have the same responsibilities. Because a personal representative for a decedent's estate can be an executor, administrator, or anyone in charge of the decedent's property, the term personal representative will be used throughout this chapter.

The surviving spouse may or may not be the personal representative, depending on the terms of the decedent's will or the court appointment.

Duties

The primary duties of a personal representative are to collect all of the decedent's assets, pay the creditors, and distribute the remaining assets to the heirs or other beneficiaries.

The personal representative also must perform the following duties.

1. Notify the IRS (as discussed below) that he or she is acting as the personal representative.
2. File any income tax and estate tax return when due. (See Final Return for the Decedent, next.)
3. Pay any tax determined up to the date of discharge from duties.
4. Provide the payers of any interest and dividends the name(s) and identification number(s) of the new owner(s). (See Interest and Dividend Income (Forms 1099), later.)

For more information on the duties and responsibilities of the personal representative, see Duties under Personal Representative in Publication 559.

Notifying the IRS.   If you are appointed to act in any fiduciary capacity for another, you must file a written notice with the IRS stating this. Form 56 can be used for this purpose. The instructions and other requirements are given on the back of the form.

Final Return for the Decedent

The same filing requirements that apply to individuals determine if a final income tax return must be filed for the decedent. Filing requirements are discussed in chapter 1.

Filing to get a refund.   A return should be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not required to be filed. See Claiming a refund, later. Also, the decedent may be entitled to other credits that result in a refund. See chapters 37 and 38 for additional information on refundable credits and see chapter 35 for information on the child tax credit.

Determining income and deductions.   The method of accounting regularly used by the decedent before death generally determines what income you must include and what deductions you can take on the final return. Generally, individuals use one of two methods of accounting: cash or accrual.

Cash method.   If the decedent used the cash method of accounting, include only the items of income actually or constructively received before death and deduct only the expenses the decedent paid before death. For an exception for certain medical expenses not paid before death, see Decedent in chapter 23.

Accrual method.   If the decedent used an accrual method of accounting, report only those items of income that the decedent accrued, or earned, before death. Deduct those expenses the decedent was liable for before death, regardless of whether the expenses were paid.

Additional information.   For more information on the cash and accrual methods, see Accounting Methods in chapter 1.

Who must file the return?   The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. A surviving spouse, under certain circumstances, may have to file the returns for the decedent. See Joint return, later.

Example.   Samantha Smith died on March 21, 2002, before filing her 2001 tax return. Her personal representative must file her 2001 return by April 15, 2002. Her final tax return is due April 15, 2003.

Filing the return.   The word DECEASED, the decedent's name, and the date of death should be written across the top of the tax return. In the name and address space, you should write the name and address of the decedent and, if a joint return, the surviving spouse. If a joint return is not being filed, the decedent's name should be written in the name space and the personal representative's name and address should be written in the remaining space.

Example.   John Stone died in early 2002. He was survived by his wife Jane. The top of their final joint return on Form 1040, which includes the required information, is illustrated on the next page.

Signing the return.   If a personal representative has been appointed, that person must sign the return. If it is a joint return, the surviving spouse must also sign it.

If no personal representative has been appointed, the surviving spouse (on a joint return) should sign the return and write in the signature area Filing as surviving spouse. See Joint return, later.

If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as personal representative.

Example.   Assume in the previous example that no personal representative has been appointed. The bottom of the final joint return, which shows that Jane is filing the return as the surviving spouse, is illustrated on the next page.

Third party designee.   You can check the Yes box in the Third Party Designee area of your return to authorize the IRS to discuss your return with a friend, family member, or any other person you choose. This allows the IRS to call the person you identified as your designee to answer any questions that may arise during the processing of your return. It also allows your designee to perform certain actions. See your income tax package for details.

Claiming a refund.   Generally, a person who is filing a return for a decedent and claiming a refund must file Form 1310 with the return. However, if the person claiming the refund is a surviving spouse filing a joint return with the decedent, or a court-appointed or certified personal representative filing an original return for the decedent, Form 1310 is not needed. The personal representative must attach to the return a copy of the court certificate showing that he or she was appointed the personal representative.

If the personal representative is filing a claim for refund on Form 1040X, Amended U.S. Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, then attach Form 1310 and write Certificate Previously Filed at the bottom of the form.

Example.   Mr. Green died before filing his tax return. You were appointed the personal representative for Mr. Green's estate and you file his Form 1040 showing a refund due. You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative.

When and where to file.   The final income tax return is due at the same time the decedent's return would have been due had death not occurred. The final return for a decedent who was a calendar year taxpayer is generally due April 15 following the year death occurred. However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next day that is not a Saturday, Sunday, or legal holiday.

Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. A tax return for a decedent cannot be electronically filed.

Request for prompt assessment (charge) of tax.   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax that is due. However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. This request can be made for any income tax return of the decedent and for the income tax return of the decedent's estate. This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries.

You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. This applies even though the returns were filed before the decedent's death.

Form 4810.   You can use Form 4810 to make this request. It must be filed separately from any other document. The request should be filed with the IRS office where the return was filed. If Form 4810 is not used, you must clearly indicate that you are making a request for prompt assessment under section 6501(d) of the Internal Revenue Code. You must identify the type of tax and the tax period for which the prompt assessment is requested.

Failure to report income.   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax.

Request for discharge from personal liability for tax.   An executor can make a written request for a discharge from personal liability for a decedent's income and gift taxes. The request must be made after the returns for those taxes are filed. It must clearly indicate that the request is for discharge from personal liability under section 6905 of the Internal Revenue Code. For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States.

Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period.

Even if the executor is discharged from personal liability, the IRS still will be able to assess tax deficiencies against the executor to the extent that he or she still has any of the decedent's property.

Joint return.   Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before the due date for filing that return. The income of the decedent that was includible on his or her return for the year up to the date of death (as explained under Determining income and deductions, earlier) and the income of the surviving spouse for the entire year must be included in the final joint return.

A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. The filing status of the decedent in this instance is married filing separate return.

Personal representative may revoke joint return election.   A court-appointed personal representative may revoke an election to file a joint return that was previously made by the surviving spouse alone. This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability.

Form 1040 Label and Signature Area

How To Report Certain Income

This section explains how to report certain types of income on the final return. The rules on income discussed in the other chapters of this publication also apply to a decedent's final return. See chapters 6 through 17, if they apply.

Interest and Dividend Income (Forms 1099)

A Form 1099 should be received for the decedent to report interest and dividends earned before death. These amounts must be included on the decedent's final return. A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts.

For example, a Form 1099-INT reporting interest payable to the decedent may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest, as shown next under How to report.

See U.S. savings bonds acquired from decedent in Publication 559 for information on savings bond interest that may have to be reported on the final return.

How to report.   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule 1 (Form 1040A) or on Schedule B (Form 1040). Next, enter a subtotal of the interest shown on Forms 1099 and the interest reportable from other sources for which you did not receive Forms 1099. Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. Identify this adjustment as a Nominee Distribution or other appropriate designation.

Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure.

Note.   If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. See General Instructions for Forms 1099, 1098, 5498, and W-2G, for more information on filing forms 1099.

Accelerated Death Benefits

Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider.

Generally, if the decedent received accelerated death benefits either on his or her own life or on the life of another person, those benefits are not included in the decedent's income. This exclusion applies only if the insured was a terminally or chronically ill individual. For more information, see Accelerated death benefits under Gifts, Insurance, and Inheritances in Publication 559.

Business Income

This section discusses some of the business income which may have to be included on the final return.

Partnership income.   The death of a partner closes the partnership's tax year for that partner. Generally, it does not close the partnership's tax year for the remaining partners. The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year.

On the decedent's final return, include the decedent's distributive share of partnership items for the following periods.

1. The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death).
2. The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death.

S corporation income.   If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods.

1. The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death).
2. The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death.

Self-employment income.   Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. (See Income To Include, under Final Return for Decedent, in Publication 559 for an explanation of the concept.) For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. For this purpose, the partnership income or loss is considered to be earned ratably over the partnership's tax year. For more information on how to compute self-employment income, see Publication 533, Self-Employment Tax.

Coverdell Education Savings Account (ESA)

Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. The estate tax deduction, discussed later, does not apply to this amount. If a beneficiary acquires the interest, see the discussion under Income in Respect of the Decedent, later.

The age 30 limit does not apply if the individual for whom the account was established, or the beneficiary that acquires the account, is an individual with special needs. This includes an individual who because of a physical, mental, or emotional condition (including a learning disability) requires additional time to complete his or her education.

For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education.

Archer MSA

The treatment of an Archer MSA or a Medicare+Choice MSA, at the death of the account holder, depends on who acquires the interest in the account. If the decedent's estate acquires the interest, the fair market value of the assets in the account on the date of death is included in income on the decedent's final return. The estate tax deduction, discussed later, does not apply to this amount.

If a beneficiary acquires the interest, see the discussion under Income in Respect of the Decedent, later. For more information on Archer MSAs, see Publication 969, Medical Savings Accounts (MSAs).

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