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How Does the IRS Handle Audits from Deceased People?

IRS Audits of Deceased People

How Does the IRS Handle Audits from Deceased People?

The Internal Revenue Service (IRS) handles audits of deceased people in the same way that it handles audits of living people. From the perspective of the person being audited, though, these audits are often confusing because they do not involve income that they made, themselves. Particularly if the deceased person was unorganized, did not keep good records, or made money in a variety of different ways, these audits can pose some serious difficulties.

Having effective legal representation during this chaotic and emotional time period can make a huge difference.

The IRS audit lawyers at the national law firm Oberheiden P.C. have helped numerous estate executors and loved ones of recently-deceased taxpayers protect the decedent’s estate from the clawing hands of the IRS.

Put our highly experienced team on your side

Dr. Nick Oberheiden
Dr. Nick Oberheiden



Lynette S. Byrd
Lynette S. Byrd

Former DOJ Trial Attorney


Brian J. Kuester
Brian J. Kuester

Former U.S. Attorney

Amanda Marshall
Amanda Marshall

Former U.S. Attorney

Local Counsel

Joe Brown
Joe Brown

Former U.S. Attorney

Local Counsel

John W. Sellers
John W. Sellers

Former Senior DOJ Trial Attorney

Linda Julin McNamara
Linda Julin McNamara

Federal Appeals Attorney

Aaron L. Wiley
Aaron L. Wiley

Former DOJ attorney

Local Counsel

Roger Bach
Roger Bach

Former Special Agent (DOJ)

Chris Quick
Chris J. Quick

Former Special Agent (FBI & IRS-CI)

Michael S. Koslow
Michael S. Koslow

Former Supervisory Special Agent (DOD-OIG)

Ray Yuen
Ray Yuen

Former Supervisory Special Agent (FBI)

Estate Executors are Responsible for Filing the Tax Returns

First and foremost, it is important to note that all of a person’s income is taxable. This includes what was earned in the tax year of their death. Obviously, they will be unable to file the tax return for that year, so it is up to the executor of the estate or the estate’s administrator, if the decedent named them, or to the decedent’s loved ones.

In the aftermath of a loved one’s death, filing their tax return is not near the top of the list of priorities. However, the IRS will still expect to receive it on time. The filing should generally include:

  • A Form 1040, detailing the decedent’s income
  • A Form 1041, stating the estate’s income, deductions, gains, and losses
  • A Form 706, if the decedent’s assets exceed the estate tax exclusion

If the decedent’s estate continues to earn income – like if the person who passed away was a published author and his or her books continue to sell – the executor has to continue to file tax returns on behalf of the estate.

4 Reasons Why Audits of a Dead Person’s Taxes are More Complicated

From the IRS’s perspective, an audit is the same regardless of whether the taxpayer is alive or has passed away. From the perspective of the target of the audit, though, there are four issues that complicate matters if the audit concerns a deceased person’s taxes.

First, there is the unfamiliarity with the deceased person’s finances, particularly if that person passed away while they were still professionally active and were making an income. This can make the tax filings more complex than if they were retired and on a fixed income. If the executor of the estate or the decedent’s loved one is unaware of a revenue stream, it can go unreported and drastically increase the likelihood that the filing gets audited. If the amount that is underreported is substantial enough, it can double the amount of time that the IRS has to conduct an audit, from three years up to six. During the audit, IRS agents may take advantage of the confusion by pursuing funds that they might not be entitled to.

Second, if the estate executor is a family member of the deceased, there is the emotional toll that these audits can take. It can feel insensitive for the IRS to audit someone who recently passed away.

Third, there is the emotional distance between the person handling the audit and the money that the IRS is pursuing: Because the person being audited is not the owner of the money, they might feel more detached from it and will not put the same amount of effort into dealing with the audit that they might have, had it been their own money on the line. The IRS may capitalize on this and pursue more than what is owed, hoping that they will go unchallenged or that you fight less vigorously.

Fourth, these tax issues also implicate inheritance and estate law. With more legal issues at play, the audit can become far more complex than one involving a living taxpayer.

The Statute of Limitations for Audits is Often 3 Years, But Can Lengthen

Typically, the IRS only has three years to conduct an audit on a tax filing. Known as a statute of limitations and codified at 26 U.S.C. § 6501, this forces the agency to act relatively quickly and allows taxpayers to relax once the time period has expired. While it has three years to conduct an audit, the IRS claims that it conducts most audits within two.

The three years that the IRS has begins on the later-occurring date:

  • When the taxes were due, or
  • When the taxes were actually filed.

For individuals, this means that the IRS can audit your timely-submitted return up until April 15, three years after it was filed. Returns that were filed late can be audited up to three years after they were actually filed.

However, there are some circumstances that can lengthen the statute of limitations.

If there are “substantial” errors on a tax return, 26 U.S.C. § 6501(e) gives the IRS up to six years to audit it. An error is “substantial” if it omits either of the following from the gross income on the return:

  • An amount that is over 25 percent of what is actually included on the return, or
  • Over $5,000 of income that needed to be reported as a foreign financial asset under 26 U.S.C. § 6038D.

Additionally, 26 U.S.C. § 6501(c) extends the statute of limitations in perpetuity if the IRS detects signs of tax evasion or fraud. Several examples of situations where this can occur are if:

  • No tax return was filed at all
  • The return was filed with the intention of committing tax evasion and contained false or fraudulent information on it
  • There was any other willful attempt to evade paying taxes

If the deceased person did any of these things, the executor of their estate could find themselves dealing with an IRS audit over a decade after the decedent passed away.

IRS Audit Lawyers at Oberheiden P.C.

No IRS audit is an enjoyable experience. However, when the audit concerns a deceased person’s tax returns, complications arise. Getting skilled legal representation on board as soon as possible can ensure that the estate is protected and the beneficiaries inherit what the decedent wanted them to receive – not what is left after the IRS has run through it.

The IRS defense lawyers at Oberheiden P.C. have law offices across the country to help you through this trying time. Contact them online or call their central intake number at (888) 680-1745.

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