- 5.5.3 Working Decedent Cases
- 22.214.171.124 Overview
- 126.96.36.199 General Collection Guidelines on Decedent Accounts
- 188.8.131.52 Automated Collection System (ACS) Actions
- 184.108.40.206 Field Collection Actions
- 220.127.116.11 Contact With The Fiduciary
- 18.104.22.168.1 Probing Questions
- 22.214.171.124 Notice of Federal Tax Lien
- 126.96.36.199 Styling and Mailing of Notices
- 188.8.131.52 Notice of Levy
- 184.108.40.206 Fiduciary or Transferee Liability
- 220.127.116.11 Closing as Currently Not Collectible
- 18.104.22.168 Advisory Referrals
- 22.214.171.124 Indications of Fraud
Part 5. Collecting Process
Chapter 5. Decedent Estates and Estate Taxes
Section 3. Working Decedent Cases
This IRM chapter provides direction and guidance for employees investigating and collecting delinquent returns and balances due from a deceased taxpayer's estate. It provides a roadmap to investigation, collection and resolution of decedent cases.
Use IRM 5.17.13, Legal Reference Guide, Insolvency and Decedents Estates, and confer with local Counsel and/or Advisory when working decedent cases. Procedures may vary and require local modification based on specific legal requirements for each state.
Publication 559, Survivors, Executors, and Administrators
Publication 950, Introduction to Estate and Gift Taxes
Remember the following collection guidelines when working an IMF liability that involves a deceased taxpayer.
If it is a joint liability and Then the secondary taxpayer is deceased pursue collection from the primary taxpayer the primary taxpayer is deceased pursue collection from the secondary taxpayer both taxpayers are deceased follow the guidelines for a single deceased taxpayer
Remember the following collecting guidelines when working a BMF liability that involves a deceased taxpayer.
If it is a partnership liability and Then all partners are deceased follow the guidelines for a single deceased taxpayer there are one or more surviving partners pursue collection from surviving partners
If a joint liability is due and there is a surviving spouse, make a collection determination based on the surviving spouse's assets, as well as the assets in the decedent's estate.
The normal 10-year collection statute applies to collection from the non-probate assets of the decedent and the assets of the surviving spouse on joint liabilities. The probate proceeding extends the collection statute for the decedent's liability only and only with respect to the probate assets in control of the court.
Generally, if there is collection potential on a joint balance due from a decedent's estate, a proof of claim may be filed or other fiduciary notice given. However, a TC 520 should not be input (unless there is an imminent CSED) because collection action continues on the surviving spouse.
For collection of taxes assessed after death, you must look to the fiduciary and recipients of the decedent's assets. Give Form 10492, Notice of Federal Taxes Due, and a copy of the NFTL to the party holding the decedent's assets to notify them of outstanding taxes due. Consult with Advisory regarding the possibility of assessing transferee liability against persons receiving property or asserting personal liability against the fiduciary after researching IRM 5.17.13 and IRM 5.17.14.
For additional information on individuals who may have access to information regarding deceased individuals, see IRM 126.96.36.199.11 .
ACS will secure and document information such as domicile at the date of death and probate court information. Refer to IRM 188.8.131.52.3 for specific research conducted by ACS prior to sending an account to the field for collection action.
ACS will make a lien determination on all decedent accounts in accordance with IRM 184.108.40.206 lien procedures. Revenue officers working decedent accounts must verify that Notices of Federal Tax Lien (NFTL's) are recorded in the proper filing location.
Per IRM 220.127.116.11.3.1, if the taxpayer owned real property secured by a NFTL at the time of death, ACS will update the account to status 26 for assignment to a revenue officer. The revenue officer will determine the need for any required collection action.
If there is an open probate proceeding or assets were distributed prior to outstanding taxes being paid, ACS will forward a referral to the appropriate Advisory unit.
Fact finding required in a decedent case includes research of probate or surrogate records, as well as internal and third party resources. Proper collection action on a decedent case begins once fact finding actions are complete.
Prior to contact with the fiduciary, research all internal resources such as ACS history and IDRS. These sources should provide:
date of death
place of death (including county)
taxpayer's home address (including county) on the date of death
tax returns that may be due
whether a probate proceeding was or is open, docket number and contact information of fiduciary
Information Return Program (IRP) can help identify assets owned prior to death and whether those assets have been distributed. IRP should be checked for the year prior to death, the year of death and the year after death.
Research the Automated Lien System (ALS) to determine if a NFTL was recorded. Determine if the NFTL was recorded in the proper filing location. If not, an NFTL should be recorded in the proper filing location where assets are located.
After you have checked internal sources, make a field call to the probate or surrogate's court to determine the type of proceeding that has been filed and to secure copies of pertinent documentation such as:
letters testamentary or other documents identifying the fiduciary and the fiduciary's contact information
list of assets, such as an inventory and appraisement
proceedings that outline distribution or litigation of the deceased's assets
list of heirs and their contact information
bonds posted by the fiduciary (this may be a levy source)
accountings that indicate liabilities, especially if taxes are listed as a debt of the estate
documents related to a business owned by the decedent
Search county courthouse records to:
obtain copies of deeds that show what real property the taxpayer owned prior to death and how title is currently held in real property
determine whether assets were transferred after death, after assessment of taxes or after the NFTL was recorded.
Research Accurint to determine if the deceased owned property out of state.
Request input of the TC 540 on the deceased individual's SSN for the year of death if it is not already input.
Opening a probate proceeding may not be required in some states under certain circumstances. For example, where all property of the taxpayer is passed by right of survivorship to the surviving spouse no probate proceeding is necessary because the decedent's interest ceased at death.
If no probate filing can be located, assets may be identified using resources such as:
IDRS and IRP information
Credit bureau reports
It may be necessary to contact heirs or third parties familiar with the taxpayer for information; follow procedures in IRM 5.1.17, Third Party Contacts. In addition to the sources in IRM 18.104.22.168, the following resources may provide contacts:
local obituary of deceased
tax returns may list dependents
state inheritance tax return
Another alternative to a will and probate administration would be the creation of a trust. A trust involves any arrangement whereby property is transferred from one person to be administered by a trustee for a third party's benefit (the beneficiary).
Assets can be transferred to a trust before or after death.
It is necessary to secure a copy of the written trust document to determine:
the type of trust
the trustee of the trust
the beneficiaries of the trust
specific assets to be transferred to the trust
when the assets will be transferred to the trust
ability to modify the trust, terms and conditions
Some common forms of trusts related to probate are:
Irrevocable Trust - a trust that cannot be altered, changed, modified or revoked after its creation (absent extenuating circumstances). Once the grantor transfers property to an irrevocable trust, the grantor can no longer take the property back from the trust.
Living Trust or Inter Vivos Trust - a trust created during the lifetime of a grantor that can be altered, changed, modified or revoked. The grantor transfers title to property to a trust and has the power to remove the property from the trust during their lifetime. Typically the grantor is the initial trustee as well as the initial beneficiary of the trust, and his/her spouse and children are the ultimate beneficiaries of the trust.
Testamentary Trust - a trust that is included under the terms and conditions of a will. Such trusts take effect after the death of the person making the will.
When considering collection against assets in a trust, it is important to determine when the tax lien arose or was recorded in relation to when assets were transferred to the trust.
Local Counsel should be consulted to review terms/conditions of the trust and the impact of the tax lien before pursuing collection against assets in a trust.
Once you complete the fact-finding phase, contact the fiduciary and make demand for any tax due or outstanding returns. Follow requirements in IRM 22.214.171.124.2 for an effective initial contact. Give Form 10492, Notice of Federal Taxes Due, and a copy of the NFTL to the fiduciary. Form 10492 warns the fiduciary of personal liability if lower priority claims are paid ahead of the Service's claim. Advise the fiduciary that penalties and interest continue to accrue until the balance is paid in full.
Collection against assets not controlled by the court is not restricted. Recording a NFTL or other collection action may continue. Make every effort to work with fiduciaries to secure payment or returns prior to enforcement. Consult with Counsel or Advisory before levy or seizure of probate assets, or if you are unsure whether or not assets are under court control.
Ensure that information provided by a fiduciary or beneficiary regarding assets and debts is corroborated by your own investigation.
Ideally, research is conducted before interviewing a fiduciary or third party about the current status of assets. Useful questions during the fact finding phase include:
Is the probate proceeding open?
Is there a listing of probate assets?
Did the taxpayer own assets out of state?
Did the taxpayer have assets in a trust?
Did the taxpayer own publicly traded stock or stock in a closely held corporation?
Are there any exempt, abandoned or after acquired assets?
Were the probate assets distributed?
Who received assets and when? Ask for a description of the assets and the names, addresses and contact information of those who received assets.
Did the deceased own a business? If yes, what is the EIN? Who is currently operating the business?
What is the type of business entity (sole proprietorship, partnership)? Are there business assets?
Is a financial statement available for the business?
Is the business in compliance with filing and paying requirements?
Is there current litigation pending that affects probate assets?
Determine whether the NFTL was recorded, when it was recorded in relation to the date of death and whether it was recorded in the appropriate filing location that coincides with property owned by the decedent.
If there is an error with the styling of the NFTL or the location in which the NFTL was recorded, take action to either file a new NFTL or amend the recorded NFTL. See IRM 126.96.36.199.11, Correcting Lien Notices, for guidance on correcting lien errors.
It is important to determine what property the lien attaches to and the Government's position among other creditors.
If assessment is made: Then the assessment lien attaches to: before death property owned by the taxpayer and follows property into probate or to the transferee. after death any probate property in the taxpayer's estate at the time of assessment.
If the NFTL is recorded on an assessment made before death, it attaches to assets owned by the taxpayer and follows those assets into the estate or the hands of the transferee. The Service's priority position with respect to those assets, is determined based on the date of the filing of the NFTL before the taxpayer's death. It is important to determine during your research what assets the taxpayer owned before death and how they were titled, when the lien was recorded. Consult with Advisory or Area Counsel concerning levy or seizure of these assets.
If the NFTL is recorded on a post-death assessment, it would not reach any property that passed to heirs automatically at the time of death (non-probate property), but it would reach any probate property in the taxpayer's"estate" at the time of the assessment. Title to the decedent's property passes to the estate or heirs upon death. It is important to determine during your research what assets were in the taxpayer's "estate" when the lien was recorded.
Probate and non-probate property are described in IRM 188.8.131.52.
If a decedent account is under Advisory control, Advisory is responsible for filing, amending and re-filing NFTL's as necessary.
Notices of Federal Tax Lien (NFTL's) and notices such as final demand letters or CDP notice, should be styled and sent as indicated in the table below. In this example, John Smith is the decedent, Jane Smith is his surviving spouse, and Robert Drew is the executor, where applicable.
IF the liability is... Then styling should include... a joint assessment, Name: John Smith (Deceased) and Jane Smith
Address: Jane Smith's address
Notices must be sent separately to the last known addresses of both spouses.
an individual assessment, and a fiduciary has been appointed, Name: John Smith (Deceased)
Address: John Smith's last known address
Send notices to the fiduciary, Robert Drew, at his address.
an individual assessment, and no fiduciary has been appointed, Name: John Smith (Deceased)
Address: John Smith's last known address
Send notices to John Smith's last known address
based on Form 1041, Name: Estate of John Smith
Address: John Smith's last known address
Send notices to the fiduciary, Robert Drew, at his address.
The NFTL must identify the taxpayer, the party against whom the assessment was made. The fiduciary or his address should not be added to the NFTL.
Notices must be mailed to the fiduciary. If no fiduciary is appointed, notices should be mailed to the decedent's last known address. The fiduciary for the decedent has the authority to exercise CDP rights on the behalf of decedent.
The Service cannot levy on property in control of the probate court. Consult local Area Counsel regarding the effect of probate and local law regarding property interests.
Revenue officers can levy on any property subject to the assessment lien or property of the taxpayer's estate.
If the fiduciary has control of estate assets, a levy can be served on the fiduciary. If there is a levy source that has some sort of income due to the estate (e.g., rental or interest income), you may levy that source directly. If the estate generates income that becomes property of the estate, it can be reached by levy.
If a notice of levy will be issued, L1058 must be sent to the fiduciary.
Seek advice from Advisory or Counsel concerning other federal and state remedies that may be available to force the fiduciary or beneficiaries to pay the decedent's income or business tax debt. These remedies may include transferee actions against beneficiaries who received property before the taxes were paid or actions asserting the personal liability of the fiduciary under 31 U.S.C. Section 3713. See IRM 5.17.13 or IRM 184.108.40.206 for further guidance.
A fiduciary is a person entrusted with the property of another. It is the responsibility of a legally appointed or designated fiduciary to control, maintain, and distribute that property in a manner defined by law. The general rule is that in a case involving a decedent the fiduciary must pay the federal tax claim before other claims. A fiduciary who fails to pay federal tax claims may be held personally liable under 31 U.S.C. § 3713.
If you determine during your research that the fiduciary distributed assets of the estate and taxes were not paid:
determine if and when the fiduciary had knowledge of the balance due or unfiled returns. Documents submitted in probate proceedings or accountings may provide this information.
determine if a claim or other notification was made for taxes due, either by proof of claim, Form 10492 or recorded NFTL.
determine who received assets and the value of these assets.
The Statute of Limitations for suit against a fiduciary under 31 U.S.C. § 3713 is normally ten years from the date the tax was assessed. A suit referral should be made as early as possible to allow Counsel time to review the case and authorize the Department of Justice (D.O.J.) to file a suit. D.O.J. needs time to prepare and take litigation action.
If you determine during your fact finding research that assets were transferred before death, consult with Advisory regarding possible transferee issues.
The periods of limitation under IRC § 6901(c) for the assessment of the liability for an initial transferee is one year after the assessment period against the transferor ends. For a fiduciary, the statute of limitations is one year after the fiduciary liability arises or the date the period for collection of the tax ends, whichever is the later.
Another collection avenue is a suit to foreclose the federal tax lien. This is particularly advisable if there are unknown heirs that may have an interest in a property the Service is considering for seizure and sale action.
For more information concerning suits, see IRM 5.17.4, Suits by the United States.
Investigation and collection of taxes due continues despite the death of a taxpayer. You may find during the fact finding phase that the taxpayer owned few or no assets, or that liabilities against the assets exceed equity. If research verifies there are no assets, the account may be closed uncollectible without a lien filed. If assets were transferred before death or distributed by the administrator without payment of the outstanding taxes, continue your investigation. The Government is generally entitled to have its claim paid first, see IRM 5.17.13.
Use Closing code (cc) 08 when reporting a decedent's account currently not collectible.
Closing code 08 is appropriate for IMF joint liabilities only when both taxpayers are deceased and a determination has been made that there is no collection potential from assets owned by either taxpayer at the time of death.
Closing code 08 may be used when the primary taxpayer is deceased and a determination has been made that there is no collection potential from the decedent's individual or business assets or from persons in possession of such assets. Collection may also be pursued from the surviving spouse on joint liabilities. Request a mandatory follow-up for the surviving spouse if appropriate.
Do not use cc 08 when only the secondary taxpayer is deceased. A TC 540 should be input on the secondary taxpayer's SSN for the year of death. Collection may be pursued from the decedent's individual or business assets or from persons in possession of such assets. Collection may also be pursued from the primary taxpayer on joint liabilities. If the primary taxpayer is determined to be uncollectible, the account should be closed using a hardship closing code. A Collection Information Statement must be secured from the primary taxpayer.
Closing code 08 also applies to BMF sole proprietorships and partnerships only if all of the partners are deceased and taxes were due at the time of death.
In situations where the owner of an LLC is identified as the liable taxpayer and is deceased, closing code 08 is appropriate.
When reporting accounts CNC using closing code 08, do not request separate input of TC 540 to delete the master file filing requirements. TC 530 cc 08 generates a TC 540.
Revenue officers should take appropriate collection actions before referring cases to Advisory. Collection action generally can proceed against distributed assets if the assessment was made before distributing, either through administrative procedures or suit to enforce the lien.
If you determine the assets:
are under the control of the probate or surrogate's court, copy pertinent documents regarding these assets and prepare a referral to Advisory
were not reported to the court, contact Advisory or Counsel for guidance on how to proceed with collection action against these assets
have been transferred before payment of the outstanding taxes or assets are involved in litigation, contact Advisory or Counsel for guidance on how to proceed with collection action against these assets.
State laws vary regarding the requirements involving probate proceedings. Some states require a timely proof of claim to be filed with the probate court where other states do not. If you work in a state that requires a proof of claim, contact Advisory and discuss referring the case for the filing of a proof of claim. Ask the advisor about documentation required to forward a referral so the claim can be filed accurately and timely.
Send referrals to Advisory on Form 4488, Proof of Claim Report for Advisory/Insolvency. This form identifies pertinent information and documentation that Advisory generally needs when filing a proof of claim in decedent cases.
Once a referral of a probate case is accepted by Advisory, an advisor will request input of the TC 520, if appropriate. Once the TC 520 posts on IDRS, the ICS case will close unless outstanding return delinquencies are assigned to the revenue officer.
Advisory may issue an Other Investigation (OI) for necessary field actions related to a decedent case under their control.
If an you uncover indications of fraud during an investigation, follow guidelines in IRM 25.1.2, Fraud Handbook, Collection Field Function.
Possible indicators of fraud might include:
suspected intentional omission or concealment of assets
suspected concealment or alterations of records or documents
deliberate false statements regarding the valuation of property
deliberate unsupportable claims for debts or expenses
deliberate falsification of affidavits pertaining to attorney's fees or executor's commissions.