Deceased Father who owes

[tinker2911]

My dad passed away April 2019 and didn't file his 2018 taxes.  He transferred money in 2018 from a 401k to an IRA.  Otherwise no other assets, no life insurance, no pension, no house, nothing.  He didn't transfer all of the money and kept out about $22,000.00 to live on.  He was diagnosed with cancer August 2018 and went on short term disability from work.  Anyways he owes now almost $6000.00 in taxes.  He had $2000. in his checking which helped pay for funeral expenses.  He is divorced and lived with my brother.  We are his next of kin, are we responsible for paying those taxes?

[tagteam]

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@tinker2911 wrote:

We are his next of kin, are we responsible for paying those taxes?

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I am sorry for your loss.

You should seek legal counsel (advice) in your jurisdiction but, generally, next of kin are not responsible for paying the federal income tax liability of a decedent unless they have received assets (e.g., real estate, securities, cash) from the decedent's estate. Even then, they could be held responsible only to the extent of the value of the property received.

[Carl]

I am sorry for your loss.

I am assuming your father was of retirement age or older when he passed. I am also assuming there was no will, and that you were named as a beneficiary recipient on the IRA. If that's the case, and there were "truely" no other assets, there's probably no need to create an estate for the deceased for the purpose of paying taxes and passing on any assets to heirs through probate court. Remember, the designated beneficiary on the IRA account over-rides what any will may say.

However, a final tax return does need to be prepared on behalf of the deceased. If taxes are owed they need to be paid out of that IRA "before" it it passed to you (if possible). If the IRA has already been passed to you and you received documentation to that effect already (such as a 1099-R with your name on it, if you took a distribution) then the taxes should be paid from those IRA proceeds before the beneficiary recipient takes any of it. That's because whatever the beneficiary recipient takes from the IRA after the IRA is passed to them, is taxable income to *that* beneficiary recipient, even if they use it to pay a tax liability of the deceased. There is a work-around for this if this is your case. But you'll need to seek professional help. This would be especially called for if your state also taxes personal income.

[dmertz]

The designated beneficiary of the IRA is responsible for the income taxes on distributions from the inherited IRA, not the estate, even if income taxes must be paid on behalf of the decedent for the year of death.  By operation of law, the designated beneficiary is the one for whom the IRA is maintained immediately upon the death of the participant, so the IRA custodian will normally require that the inherited IRA for the beneficiary be established before making any distributions after the death of the participant.  When the beneficiary is other than the estate of the decedent, distributions taxable to the estate are not permitted.

Whether the beneficiary takes a distribution from the IRA to pay the decedent's year-of-death tax bill or pays it from other funds is irrelevant.  If the decedent's gross estate (which includes the IRA no matter the beneficiary) had sufficient assets to satisfy the tax liability, the beneficiary is responsible for paying the decedent's year-of-death income tax if the probate estate has insufficient assets.  If the beneficiary does not make the payment, while the IRS can come after the beneficiary to obtain the payment, the IRS does not always make the effort.