Source: http://www.heltzel.com/compass/2012/winter/tax-law/protecting-fiduciaries-against-personal-liability-for-decedents-taxes.php
Timestamp: 2019-04-18 22:17:21+00:00

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A person serving as a fiduciary of a decedent's estate (either as a personal representative or trustee) may accrue personal liability for the decedent's tax debts. Federal law, for example, provides that a fiduciary who distributes estate funds or pays estate creditors before paying a federal tax debt of the estate may become personally liable (to the extent of the distribution or payment).1 Similarly, fiduciaries may incur personal liability for an estate's Oregon tax debts by failing to file a required tax return or failing to exercise due diligence in determining or satisfying a tax obligation.2 Thus, a fiduciary who is dealing with potential tax liabilities of the decedent or limited funds to pay taxes must proceed carefully.
The first step that a fiduciary should take is filing Form 56 (Notice Concerning Fiduciary Relationship) with the Internal Revenue Service ("IRS"). This notifies the IRS that it should send any notices regarding taxes owed by the decedent to the fiduciary rather than the decedent's last address. When the estate or trust terminates, the fiduciary should file a follow-up Form 56 to notify the IRS of termination of the fiduciary relationship. In some instances, a fiduciary may also consider filing a Form 4506 or 4506-T to request copies or transcripts of tax returns filed by the decedent.3 The remainder of this article summarizes some of the steps that a fiduciary can take to minimize his or her personal liability exposure for specific federal and Oregon taxes.
One other tool available to personal representatives is the judgment of discharge from the probate court.11 While not binding on the IRS, such a judgment may prevent ODR from holding the personal representative personally liable for the decedent's taxes.
Discharge from fiduciary liability, as discussed in this article, applies only to a fiduciary's personal assets. If a fiduciary remains in control of a decedent's assets or if the fiduciary is a beneficiary of the decedent's assets, taxing authorities may seek recovery of a decedent's tax debt from those assets. Discussion of this additional liability (known as "transferee liability") is beyond the scope of this article.
Fiduciaries should conduct a thorough search for potential unpaid tax liabilities of a decedent. If the decedent did not file tax returns, the fiduciary should ascertain whether the decedent had a filing requirement. In cases in which tax liabilities exist, fiduciaries should consider applying to federal and Oregon tax authorities to seek discharge from personal liability and shorten the statute of limitations for assessment of such tax liabilities. The chart below summarizes the tax forms used for such purposes, as discussed in this article.
2 See, e.g., OAR 150-316.382.
3 There is a fee for requesting return copies. Transcripts are often free of charge and may also be ordered online at www.IRS.gov or by calling 1-800-908-9946.
4 IRC §6905(a). This section may not apply to fiduciary income taxes as it refers to liability "of a decedent" for taxes. The author, however, has obtained a certificate of discharge from the IRS for fiduciary income taxes in a probate estate.
5 IRC §6905(a); Treas Reg §301.6905-1(a).
7 IRC §6501(a). There is no time limitation, however, if there was no return filed or the filed return was false or fraudulent. IRC §6501(c).
8 IRC §6501(d); Treas Reg §301.6501(d)-1(b).
9 ORS 316.387(1). There is no time limitation, however, if there was no return filed or the filed return was false or fraudulent. ORS 316.387(3).
13 Treas Reg §20.2204-1(a). Form 5495 may be used to request discharge from personal liability for estate tax, but it does not specifically request determination of the estate tax.

References: §6905
 §6905
 §301
 §6501
 §6501
 §6501
 §301
 §20