Deceased Father's Tax Returns

[yaredcastro]

My father passed away in August 2023. He had not filed his 2021, 2022 or 2023 personal tax returns. As it turns out he will get a small refund for 2021 and 2022, but owes ~$30K for 2023. His refunds for 2021 and 2022 will be applied to amounts owed for 2023, but he will still owe quite a bit. Unfortunately, his estate had no money and was insolvent. We personally funded his probate attorney and burial expenses...  

What form do we file with his tax returns to tell the IRS his estate is insolvent and there is no money to pay for the taxes due?

[tagteam]

Form 982.

See https://www.irs.gov/instructions/i982

See also https://ttlc.intuit.com/community/retirement/discussion/1099c-for-deceased-final-return-filed-no-mon...

I am sorry for your loss.

[yaredcastro]

So all of the activity happened pre-death, he just spent all the money and didn't pay taxes on it... So we are filing 1040s not 1041s...  Do we still use that same form as there was no financial activity post death?

[tagteam]

Yes, but was a 1099-C issued?

[yaredcastro]

No 1099-C was issued. I am trying to figure out how to file his taxes. Just file them and the IRS will send a payment request to Probate court? Then we let them know the estate is insolvent?

[tagteam]

Is there a probate estate? I was under the impression that there were no assets.

[tagteam]

https://www.irs.gov/publications/p559#en_US_2023_publink100099498

Read the material at the link above.

[yaredcastro]

Yes, we probated his will and we paid out of pocket thinking he would have assets left, but turns out he does not... His house was worth what he owed and he didn't have any other assets...  So we are out about $40K with all end of life expenses... Now trying to figure out how to file his taxes and tell the IRS he has no money... 

[tagteam]

If the estate (i.e., personal rep) sold the house, then a 1041 most likely would have to be filed as a basis needs to be established and sales price reported to the IRS.

I presume a 1099-S was issued if the estate sold the house under its EIN.

[tagteam]

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@yaredcastro wrote:

.....So we are out about $40K with all end of life expenses... 

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Unfortunately, you won't be able to recover those expenses.

[yaredcastro]

Because he owed $450K and the house was worth $450K, my brother who was living with him just assumed the notes... The deed was transferred into his name. Our attorney recorded the market value and helped with the deed transfer... No tax forms were generated. 

[tagteam]

If your brother is the personal representative, he should consult with the attorney. 

He probably should request a discharge from personal liability for tax because, technically, debts to the U.S. Government (taxes) need to be satisfied first (before other creditors).

[yaredcastro]

Okay. So there was no money in the house. If we sold, the house would have been paid off and that is it...  No extra money. I am trying to figure out if there is a special form we file with his 1040s to tell the IRS there is no money in the estate? Or do we just wait for them to send a demand letter to the probate court?

[tagteam]

There is no specific form to file with his 1040 unless there has been a discharge of indebtedness (which there has not). As a result, Form 982 does not need to be filed with the return. 

You really should consult with the probate attorney regarding having the personal representative relieved of personal liability for any taxes that may be due.