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

ii. The personal representative, if applicable, should sign the tax return. If
decedent is survived by a spouse and the spouse is filing a joint return, the
spouse should also sign. For a surviving spouse, if no separate personal
representative is designated, the spouse should designate “Filing as
surviving spouse” on the signature line.
iii. To claim a refund for an unmarried (non-joint filing) decedent, file IRS
Form 1310 with the tax return. If the court has appointed a personal
representative, the court order should accompany the form.
2. Fiduciary personal liability.
a. Federal and state law holds fiduciaries liable for income and estate taxes where
there are insufficient funds available to pay tax liabilities. Often times this occurs
when amounts have been distributed without reserving enough to pay amounts
that become due. To prevent this from happening, the Fiduciary should promptly
review and assess the accuracy, completeness, and compliance with IRS
requirements. If problems arise, the Fiduciary should determine a way to rectify
the mistakes or omissions and assess the liabilities associated with the issues that
arise, including the estimated tax liability and costs of curing the problems (e.g.
tax professional fees). The necessary cash should be retained by the estate/trust
for payment of the eventual obligations.
b. Generally, the IRS has three years to assess tax liability deficiencies on income,
estate, and gift tax returns filed by decedent or the Fiduciary. Because most estate
and trust administrations do not go on that long, the Fiduciary should be aware of
his/her potential ongoing liability exposure and should be counseled as to how it
may be limited.
i. Notice of Fiduciary Capacity – See discussion above regarding filing IRS
Form 56.
ii. I.R.C. §6905(a) provides that, after a decedent’s individual (but not
fiduciary) income or gift tax return has been filed, a Fiduciary may file
IRS Form 5495 for release of the Fiduciary’s personal liability for such
income or gift tax. Treasury Regulations do not impose a time limit for
filing Form 5495.
If Form 5495 is properly filed, the IRS has nine months in which to notify
the Fiduciary of any deficiency for decedent’s applicable income or gift
tax returns. If the Fiduciary pays the additional tax, or if no notice is
received from the IRS within nine months from the date of filing Form
5495, the Fiduciary is then discharged from personal liability.
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