Table of Contents
A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. 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.
In general, an executor and an administrator perform the same duties and have the same responsibilities.
For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term executor includes anyone in actual or constructive possession of any property of the decedent. It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country.
A personal representative for a decedent's estate can be an executor, administrator, or anyone in charge of the decedent's property, so the term personal representative will be used throughout this publication.
The primary duties of a personal representative are to collect all 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.
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Apply for an employer identification number (EIN) for the estate.
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File any income tax return and the estate tax return when due.
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Pay the tax determined up to the date of discharge from duties.
Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent.
All personal representatives must include in their gross income fees paid to them from an estate. If paid to a professional executor or administrator, self-employment tax also applies to such fees. For a nonprofessional executor or administrator (a person serving in such capacity in an isolated instance, such as a friend or relative of the decedent), self-employment tax only applies if a trade or business is included in the estate's assets, the executor actively participates in the business, and the fees are related to operation of the business.
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.
The gross income, age, and filing status of a decedent generally determine whether a return must be filed. Gross income usually is all income received by an individual in the form of money, goods, property, and services that is not tax-exempt. It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. In general, filing status depends on whether the decedent was considered single or married at the time of death. See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information.
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. Also, the decedent may be entitled to other credits that result in a refund. These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments.
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.
If the decedent was a nonresident alien who would have had to file Form 1040NR, U.S. Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. See the instructions for Form 1040NR for the filing requirements, due date, and where to file.
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 filing the return for that year. The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) 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 a separate return.
For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information.
The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. The method of accounting regularly used by the decedent before death also determines the income includible on the final return. This section explains how some types of income are reported on the final return.
For more information about accounting methods, see Publication 538, Accounting Periods and Methods.
If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included in the final return.
Generally, under an accrual method of accounting, income is reported when earned.
If the decedent used an accrual method, only the income items normally accrued before death are included in the final return.
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.
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The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death).
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The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death.
Example.
Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. The partnership uses a tax year ending June 30. Mary died August 31, 2007, and her estate established its tax year through August 31.
The distributive share of partnership items based on the decedent's partnership interest is reported as follows.
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Final Return for the Decedent—January 1 through August 31, 2007, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2007, and (b) the partnership tax year beginning July 1, 2007, and ending August 31, 2007 (the date of death).
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Income Tax Return of the Estate—September 1, 2007, through August 31, 2008, includes XYZ partnership items for the period September 1, 2007, through June 30, 2008.
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.
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The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death).
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The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death.
Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. 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's income or loss is considered to be earned ratably over the partnership's tax year.
If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. For more information, see Publication 555, Community Property.
A Form 1099 should be received for the decedent reporting interest and dividends earned before death and 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 under Income in Respect of the Decedent, later, for information on savings bond interest that may have to be reported on the final return.
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.
The treatment of a health savings account (HSA), an Archer MSA, or a Medicare Advantage 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 (FMV) 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 other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Account and Other Tax-Favored Health Plans.
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 limitation 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.
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 the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later.
Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. This section contains a detailed discussion of medical expenses because, under certain conditions, the tax treatment can be different for the medical expenses of the decedent. See Medical Expenses, later.
You can claim the decedent's personal exemption on the final income tax return. If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return.
If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. For information on the appropriate standard deduction, see the income tax return instructions or Publication 501.
Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. This includes expenses for the decedent, as well as for the decedent's spouse and dependents.
Example.
Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. Mr. Brown died on June 1, 2007, after incurring $800 in medical expenses. Of that amount, $500 was incurred in 2006 and $300 was incurred in 2007. Richard itemized his deductions when he filed his 2006 income tax return. The personal representative of the estate paid the entire $800 liability in August 2007.
The personal representative may file an amended return (Form 1040X) for 2006 claiming the $500 medical expense as a deduction, subject to the 7.5% limit. The $300 of expenses incurred in 2007 can be deducted on the final income tax return if deductions are itemized, subject to the 7.5% limit. The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future.
A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. A net operating loss on the decedent's final income tax return can be carried back to prior years. (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts.) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return.
This section includes brief discussions of some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments that are reported on the final return of a decedent.
You can claim on the final income tax return any tax credits that applied to the decedent before death. Some of these credits are discussed next.
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Was a “qualified individual,” and
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Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits.
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Adopted an eligible child and paid qualified adoption expenses or
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Has a carryforward of an adoption credit from a prior year.
Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040.
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Net earnings from self-employment (excluding income described in (2)) were $400 or more.
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Wages from services performed as a church employee were $108.28 or more.
The word “DECEASED,” the decedent's name, and the date of death should be written across the top of the tax return. If filing a joint return, you should write the name and address of the decedent and the surviving spouse in the name and address space. If a joint return is not being filed, write the decedent's name in the name space and the personal representative's name and address in the remaining space.
The final income tax return is due at the same time the decedent's return would have been due had death not occurred. A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that 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 business day.
The tax return must be prepared on a form for the year of death regardless of when during the year death occurred.
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 can be electronically filed. A personal representative may also obtain an income tax filing extension on behalf of a decedent.
Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut.
If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. For this purpose, a qualified hazardous duty area is treated as a combat zone.
If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded.
Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. Also, if any tax was collected after the date of death, that amount will be credited or refunded.
The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. This is true even if death actually occurred earlier.
For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide.
The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred:
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While a U.S. employee, and
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In a military or terrorist action.
The forgiveness applies to the tax year in which death occurred and for any prior tax year in the period beginning with the year before the year in which the wounds or injury occurred.
Example.
The income tax liability of a civilian employee of the United States who died in 2006 because of wounds incurred while a U.S. employee in a terrorist attack that occurred in 1998 will be forgiven for 2006 and for all prior tax years in the period 1997 through 2005. Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later.
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Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies.
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Any military action involving the U.S. Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression.
The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years.
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The April 19, 1995, terrorist attack on the Alfred P. Murrah Federal Building (Oklahoma City).
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The September 11, 2001, terrorist attacks.
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The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002.
The Act also exempts from federal income tax the following types of income.
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Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack.
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Certain disability payments received in tax years ending after September 10, 2001 for injuries sustained in a terrorist attack.
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Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack.
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Payments from the September 11th Victim Compensation Fund 2001.
The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information.
For astronauts who died in the line of duty after December 31, 2002, legislation extended the tax relief available under The Victims of Terrorism Tax Relief Act of 2001 (the Act). The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut rather than September 11, 2001).
For more information on the Act, see Publication 3920.
If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. If any tax is still due, it will be canceled. The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later.
If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by:
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The amount of time served in the combat zone (including any period in which the individual was in missing status), plus
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The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus
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The next 180 days.
Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years.
This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation.
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If a U.S. individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. Form W-2, Wage and Tax Statement, must accompany all returns.
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If a U.S. individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. You must file a separate Form 1040X for each year in question.
P.O. Box 4053
Woburn, MA 01888 Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. On Forms 1040 and 1040X, write the same phrase on the line for total tax. If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. An attachment should include a computation of the decedent's tax liability and a computation of the amount that is to be forgiven. On joint returns, you must make an allocation of the tax as described later under Joint returns. If you cannot make a proper allocation, you should attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. You must attach Form 1310 to all returns and claims for refund. However, for exceptions to filing Form 1310, see Form 1310 under Refund, earlier. You must also attach proof of death that includes a statement that the individual was a U.S. employee on the date of injury and on the date of death and died as the result of a military or terrorist action. For military and civilian employees of the Department of Defense, attach DD Form 1300. For other U.S. civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. For other U.S. civilian employees killed overseas, attach a certification from the Department of State. If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information.
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Figure the income tax for which the decedent would have been liable if a separate return had been filed.
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Figure the income tax for which the spouse would have been liable if a separate return had been filed.
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Multiply the joint tax liability by a fraction. The numerator of the fraction is the amount in (1), above. The denominator of the fraction is the total of (1) and (2).
To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures.
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Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return.
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If a personal representative has been appointed, the personal representative must sign the return. If it is a joint return, the surviving spouse must also sign it.
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If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return.