Taxes of the deceased, But he never filed in the past.. How do I move forward.

[sbpilates]

A very close friend of mine passed away in 2022.  The Local Court has appointed me as the PR / Administrator of his estate.   As i dig in to his past i see he has never filed any taxes with the IRS or States.  I request the last 3 years of Taxes from the IRS and they reported back nothing on file..   How Do I move forward?  Even the CPA is at a loss because they want to see what the IRS has on file for him as his past income.  But there appears to be no way to get that info from the IRS as I cannot log into the IRS website with Face Recognition now to see what they have collected for income over the years.   They suggest i visit the IRS offices however the closest IRS location is more than 3 hours away (one direction)  and I am concerned they will just try to ask me questions I do not have answers for and end up auditing the deceased for the last 10 years.   And of course I have very little records for his past..    How do I move forward. People that do not pay taxes dont really keep records.  Ugg.

[CatinaT1]

Have you tried to request a Wage and Income transcript from the IRS? 

You can request transcripts by mail, phone, or online and can receive transcripts by mail or online.  

The fastest way to get a transcript is to use Get Transcript Online on the IRS website. You'll need to establish an online account to use this. Then you can view, print, or download the transcripts.    

If you don't have online access you can request a transcript by mail. You'll need to submit Form 4506-T to the IRS address in the instructions or fax the form to the number in the instructions. 

Alternatively, you can call the IRS automated phone transcript service at 800.908.9946.   

Note - if you are requesting a Transcript by mail, Transcripts will not be forwarded from an old address. To get them mailed to a current address you would need to submit Form 8822, Change of Address, to the IRS before requesting a transcript by mail. A change of address request generally takes 4 to 6 weeks to process.

[Edited 2/2/23 | 5:09am]   

[sbpilates]

yes for the last 3 years , the IRS reported nothing on file.  And you can only do this via the Mail. I cannot create an account for him as he is deceased.  So the system will not move past that.  But they did mail to his mail box the info as above. 

[Opus 17]

@CatinaT1  A power of attorney dissolves when the person dies.  There is other paperwork the representative needs, but not a POA.

[Opus 17]

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@sbpilates wrote:

yes for the last 3 years , the IRS reported nothing on file.  And you can only do this via the Mail. I cannot create an account for him as he is deceased.  So the system will not move past that.  But they did mail to his mail box the info as above. 

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There is no record of tax returns, or nothing in the wage and income transcript either?  (No W-2s, no 1099-R, 1099-SA, 1099-G, 1099-NEC?)  If he had no income reported to the IRS, what was his source of income?

Was he self-employed and worked under the table?

[Opus 17]

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@sbpilates wrote:

yes for the last 3 years , the IRS reported nothing on file.  And you can only do this via the Mail. I cannot create an account for him as he is deceased.  So the system will not move past that.  But they did mail to his mail box the info as above. 

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A followup question.  Does he have an estate/assets to distribute?  If his taxes are not paid and the IRS audits, they can claw back his property or money from his heirs.  But does he have property, money or other assets to distribute?

[fanfare]

did he have income or tax withheld in 2022?

As personal representative you can file a final tax return for year of death.

Or not, if it is not needed.

If he owes back taxes, that's not your problem.

@sbpilates 

[sbpilates]

Nothing for the last 3 years that i requested.  And I know he never in 74 years filed any Taxes. 

In the recent past he was collecting small SS,   And still working jobs that paid him as an employee.  Most of his life he did not make enough money to file taxes.,. And again.. How do i move forward. As the PR of the Estate my job is to file his last years  taxes. And maybe prior years but with out any data i am not sure how i can possibly do this.

[Opus 17]

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@fanfare wrote:

If he owes back taxes, that's not your problem.

@sbpilates 

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If taxes are not paid, and the IRS audits, the IRS can demand payment from the heirs.  The taxes should be paid before any residual estate is paid to the heirs. 

[sbpilates]

only in the last 2 years did he.  His Parents passed away and he inherited some funds.. He invested that in the Stock market. Made a Big gain in 2021, then pretty much lost it all in 2022.  He has a very small amount of funds left.  No Property, only a Truck and some funds left in the brokerage account..  I assume he owes taxes for the 2021 year where he made a gain. But without any other info its pretty hard to file.  And if i simply reach out to the IRS they will try to bait me into something that I have no clue about .  Its really amazing that the CPAs i have been talking to seem to have no clue in this case..  Its also amazing to me that the IRS never ever audited him.

[sbpilates]

incorrect its my issue as the PR/ Administrator. So the IRS can come after me if they think i did not report or file his taxes correctly. And if his Hires inherit anything from his estate then they can go after them.

[Opus 17]

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@sbpilates wrote:

Nothing for the last 3 years that i requested.  And I know he never in 74 years filed any Taxes. 

In the recent past he was collecting small SS,   And still working jobs that paid him as an employee.  Most of his life he did not make enough money to file taxes.,. And again.. How do i move forward. As the PR of the Estate my job is to file his last years  taxes. And maybe prior years but with out any data i am not sure how i can possibly do this.

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It's early and you are still in the information gathering phase.  Employers and pensions are not required to mail W-2s and 1099-R forms until 1/31, and it might be several more days before you receive them.  The wage and income transcript won't have 2022 information until March at the earliest.  You can also file an extension to give you until October to sort things out.

If his only income was social security, it is not taxable and no tax return is required.  If he had wages, he would still owe no tax and not be required to file unless the wages were more than one of two thresholds:

a. half his social security plus his wages and other income is more than $25,000, or

b. his wages and other income are more than $12,950.

If he was 74, it's possible he has legitimately not needed to file a tax return since he retired, as long as his non-SS income was under those limits.  Standard transcripts only go back 3 years, you might find something if you went way back but there's no reason to dig so deep.  

If you think he had wages more than the limits but was being paid under the table, and no W-2 will be issued (or if he was self-employed and working under the table), and you want to do the right thing, you could look at his bank statements for the year and try and identify any deposits that can't be accounted for as gifts or social security checks.  That might be his wages.  That's what the IRS would do (or at least could do) if they audited him looking for undeclared income.  

[Opus 17]

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@sbpilates wrote:

only in the last 2 years did he.  His Parents passed away and he inherited some funds.. He invested that in the Stock market. Made a Big gain in 2021, then pretty much lost it all in 2022.  He has a very small amount of funds left.  No Property, only a Truck and some funds left in the brokerage account..  I assume he owes taxes for the 2021 year where he made a gain. But without any other info its pretty hard to file.  And if i simply reach out to the IRS they will try to bait me into something that I have no clue about .  Its really amazing that the CPAs i have been talking to seem to have no clue in this case..  Its also amazing to me that the IRS never ever audited him.

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Gains are only taxable if he cashed them out (sold the stocks with the gain).  Then the broker would generate a 1099-B form, and that would be in. the wage and income transcript.  If the stocks increased in value and he let them ride, and then they lost in value, there won't be a taxable gain.  Gains are only taxed when they are realized, speculative gains are not taxed.

If you have broker statements you can contact the broker directly and ask for copies of the 2021 and 2022 combined statement.  Depending on what he was invested in, he might get a 1099-INT, a 1099-DIV, a 1099-MISC, and/or a 1099-B.  Most brokers issue one document called a "combined statement" that includes all those details.

And again, even if he realized his gain, it's only taxable if his total income passes one of the two tests I described above.  And remember, if he inherited stock, his gain is calculated based on the value on the day the previous owner died, not on the price the previous owner paid.  So the taxable gain might not be that much, even if he made a lot of cash. 

And on top of that, his long term capital gains are tax-free unless his total taxable income (including the gains and half his SS) are more than $54,000.  

So there might be legitimate reasons he did not file a tax return or owe tax. 

You need to think of yourself in the investigative/document gathering stage.  Don't worry about preparing a return for a while.

[sbpilates]

As I stated. he did make a good sized gain in 2021 that he then rolled in to Crypto and lost in 2022. Right now my concern is the Gain he made in 2021.   His only other source of income was SS and i think that was under the 25K.   Thus the Question How do i move forward since he has no IRS records that they can find.  the last 3 years of Transcripts simply came back as nothing on file.  And that should have been for his Income and Taxes paid or due.

[sbpilates]

Yes, However the court only gives me 4 months to get this done.  Once the Taxes are field we have to wait on the IRS to confirm and allow us to close probate.  The issue here is the Gain he made in his Brokerage account.  He did not realize that removing the funds and reinvesting them in a new investment (crypto) would cause a Taxable realized gain in that year of 2021.  Now in 2022 he did lose all of the gain due to the crypto market crash.  

But Hes still going to be on the hook for the Gain in 2021 as far as i can tell..  The only other income he had at this point was under the 25k Threshold and from SS.   So I was expecting to see in his transcript sent to him for the last 3 years some income reported via 1099 from both the Brokerage account and the Crypto account but the IRS simply stated nothing on file.   

If i Go to the IRS I am concerned they will try to then open an Audit for the last ten years in order to increase what ever funds they might get..  And While its true they can only take what he has..  I need to be able to get this done and closed in order to have my own life back.    I woudl think the IRS would have a deceased person dept in order to help with this type of issues.. 

Also I am not at all clear how to move forward with the State he lived in ..   

And thank you Opus 17.