The Internal Revenue Service (IRS) has the authority to audit the tax returns of deceased individuals, but the time frame for such audits is limited. Understanding the statute of limitations for IRS audits is crucial for estate executors and beneficiaries to ensure proper handling of the deceased’s tax affairs.
Statute of Limitations for IRS Audits
Generally, the IRS has three years from the date a tax return is filed to initiate an audit. However, there are exceptions to this rule that may extend the statute of limitations:
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Underreporting of Income: If the IRS determines that a deceased individual underreported their income by 25% or more, the statute of limitations is extended to six years from the filing date.
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Fraudulent Returns: In cases where a fraudulent tax return was filed, the IRS has no statute of limitations and can audit the return at any time.
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Estate Tax Returns: The IRS has up to three years to audit an estate tax return (Form 706) from the date it was filed.
Audits After Death
When a person dies, the responsibility of handling their tax affairs falls upon the executor of their estate. The executor is required to file a final income tax return for the deceased individual, covering the period from the beginning of the year until the date of death.
If the IRS initiates an audit after the deceased individual’s death, the executor will be responsible for providing the necessary documentation and responding to the IRS’s inquiries. The executor should work closely with a tax professional to ensure that the audit is handled properly and that any potential tax liabilities are minimized.
Estate Tax Audits
In addition to income tax audits, the IRS may also conduct audits of estate tax returns. The purpose of an estate tax audit is to ensure that the correct amount of estate tax has been paid. The IRS may request documentation related to the deceased individual’s assets, liabilities, and expenses to determine the value of the estate and calculate the tax liability.
Protecting Against Audits
While the IRS has limited time to audit a deceased individual’s tax returns, it is still important for executors and beneficiaries to take steps to protect against potential audits. These steps include:
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Filing Accurate Returns: Ensuring that all tax returns are filed accurately and on time can reduce the risk of an audit.
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Keeping Records: Maintaining detailed records of the deceased individual’s income, expenses, and assets can help support the accuracy of tax returns and provide evidence in the event of an audit.
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Seeking Professional Advice: Consulting with a tax professional can provide valuable guidance on tax matters and help minimize the risk of an audit.
The IRS has the authority to audit the tax returns of deceased individuals, but the statute of limitations for such audits is generally three years from the filing date. However, there are exceptions that may extend the statute of limitations, such as underreporting of income or fraudulent returns. Executors and beneficiaries should be aware of the potential for audits and take steps to protect against them by filing accurate returns, keeping records, and seeking professional advice when necessary.
How Far Back Can The IRS Audit YOU? | Tax Lawyer David Greene Explains
FAQ
Can the IRS go after a deceased person?
Can the IRS audit you from 10 years ago?
How long does the IRS have to audit an estate?
How does the IRS know when someone dies?
How far back can the IRS audit your tax returns?
When it comes to IRS audits, many taxpayers wonder how far back the IRS can go when reviewing their tax returns. The general rule is that the IRS can audit your tax returns within the last three years. However, there are certain circumstances that may extend this period beyond three years, such as substantial errors or potential tax fraud.
How long should a tax return be kept after a death?
In some specific instances it can be longer. Financial experts suggest that records be held for an additional two to three years in case there are questions about the deceased’s final return. Keep proof of income and expenses for the same time you keep the tax return. For income, this includes W-2s, 1099s, bank or brokerage statements and K-1s.
How long does a deceased person have to file taxes?
In addition to collecting taxes, the IRS may also audit the tax returns filed by a deceased person in the years prior to his or her death. Typically, the statute of limitations for tax audits is three years. However, in cases in which a person’s income was underreported by at least 25 percent, this time limit may be extended to six years.
How long does a decedent have to file a tax return?
Until the decedent’s assets are transferred to beneficiaries, any income earned on the assets will be reported on Form 1041. For all three of the above returns, the IRS generally has three years from the date the returns were filed to audit the returns. This time period is known as the “statute of limitations.”