Probate & Trust Law Section Conference Manual ... - Minnesota CLE

REPRESENTING THE FIDUCIARY WITH IRS AND MINNESOTA
REVENUE TAX CONTROVERSIES
1. Initial considerations
Claudia M. Revermann, JD, CPA
Reichert Wenner, P.A.
a. The Personal Representative or Trustee (the Fiduciary) is responsible for the
following:
i. Making sure all of decedent’s previous year’s federal and state income tax
returns were filed;
ii. Filing decedent’s final federal and state income tax returns;
iii. Filing the federal and state estate tax returns, if applicable;
iv. Filing the federal and state estate or trust income tax returns, if applicable;
v. Paying all outstanding tax liabilities of decedent, including income taxes,
property taxes, business taxes, etc.; and
vi. Reporting and paying income tax on any compensation he or she receives
as a result of services performed as a fiduciary.
b. Form 56, Notice Concerning Fiduciary Relationship, should be filed with the
Internal Revenue Service. Treas. Reg. §301.6903-1(a) and (b) state that every
fiduciary is required to give notice in writing to the IRS that he or she is acting for
another in a fiduciary capacity. Form 56 serves this purpose. The danger of not
providing notice is that any IRS notices will be sent directly to the Fiduciary and
will be deemed sufficient for IRS purposes of, for instance, assessing tax. Even
without the Fiduciary receiving notice, the IRS can move forward with collection
on the liability. In addition, regarding transferee liability under IRC §3713(b) and
assessment of personal liability against the Fiduciary, in the absence of a notice of
fiduciary relationship, any notice of §3713(b) liability mailed to the PR at his or
her last known address is sufficient.
Therefore, to comply with the Regulation and to protect the Fiduciary from an
assessment due to the failure to provide the IRS with the Fiduciary’s name and
address, Forms 56 should be filed for the estate (or Trust) and for the decedent. A
separate Form 56 must be filed for each person “whom you are acting in a
fiduciary capacity.” It is suggested that the Fiduciary file this form for the past
three years’ tax returns and to include a copy of the Trust or Letters of
Administration, as applicable.
In any case where the Fiduciary resigns or is removed by the court or the by the
trust instrument, the former Fiduciary should file Forms 56 notifying the IRS of
the termination of fiduciary relationship. Filing the termination of fiduciary
relationship should provide the former Fiduciary with protection against personal
liability arising from estate events or actions subsequent to the termination. The
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