Can the IRS Audit a Deceased Person? What to Know If the Unthinkable Happens

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A familiar cliché states that nothing is certain in life except death and taxes — but sometimes, these two unfortunate events are intertwined. Such is the case with federal taxes, which not only must be filed after death, but can also potentially be audited.

Which Tax Returns Should Be Filed For Deceased Individuals?

Multiple tax returns are required after somebody passes away. These include:

  • Form 1040. If the deceased person earned the minimum amount required for filing, Form 1040 must be completed and submitted on time.
  • Form 1041. This document reports a decedent individual’s estate or trust income and deductions, as well as gains and losses. The estate’s income tax liabilities must also be reported.
  • Form 706. If the value of a decedent’s assets exceeds the estate tax exclusion as of the date of death, Form 706 may be required. Upon filing this document, estate taxes will be assessed based on that year’s exclusion.

When Can the IRS Audit Tax Returns for a Decedent?

With the documents cited above, the IRS generally maintains a statute of limitations of three years. If, however, gross income or assets are significantly understated, the statute of limitations may increase. For this reason, attention to detail is critical when filing taxes on behalf of a deceased person. Unfortunately, audits may also involve tax returns filed directly by the decedent a full two years prior to that person’s death.

What Triggers Decedent-Related Audits?

Audits involving deceased taxpayers often occur due to underreporting. However, a variety of other issues can also lead to interference from the IRS. Carelessly prepared returns that include internal inconsistencies or lack supporting documents are more likely to end with audits.

Given the risks outlined above, it’s worth your while to seek support as you complete taxes on behalf of a loved one who passed away — or as you navigate the auditing process. Look to the Highland Tax Group for help with both matters.