Resolving Tax Compliance for Long‑Delayed Estates

I. Introduction

When an estate remains open for many years without completing its income tax filings, the new executor or administrator inherits not only the assets of the estate but also a complex set of potential tax liabilities and administrative issues. This situation commonly arises when a prior executor fails to obtain an Employer Identification Number (EIN), file fiduciary returns, or close the estate. The Internal Revenue Service (IRS) treats each estate as a separate taxpayer, and compliance must be restored before distributions or closure can occur.

This article outlines the key steps to bring an unfiled estate into compliance, focusing on IRS procedures, fiduciary obligations, and penalty mitigation, with citations to relevant legal authority.

II. Establishing Fiduciary Authority and Notice to the IRS

The first step in any estate representation is confirming the executor’s appointment through the probate court. Under 26 C.F.R. § 601.503(b)(4), the IRS will recognize an executor or administrator as the taxpayer’s legal representative upon proof of appointment under state law. Certified Letters Testamentary or Letters of Administration serve as the foundational evidence of authority.

The executor must also file IRS Form 56 to notify the IRS that a fiduciary relationship has been established. Form 56 identifies the decedent, the executor or administrator, the court of appointment, and the EIN under which the estate will file. Failure to file Form 56 may delay processing of any returns or correspondence, as the IRS will have no record of a recognized fiduciary. See IRC § 6903 and Treas. Reg. § 301.6903‑1, which require notice to the IRS before fiduciary authority becomes effective for federal tax purposes.

III. Obtaining the Estate EIN

Every estate must have its own Employer Identification Number (EIN). The EIN identifies the estate as a separate taxpayer distinct from the decedent’s Social Security number. See Treas. Reg. § 301.6109‑1(a)(2). If no EIN was previously issued, the new executor should obtain one via Form SS‑4 or through the IRS online EIN Assistant. This EIN will be used for all fiduciary income tax returns (Forms 1041) and correspondence.

IV. Filing Delinquent Estate Income Tax Returns

An estate must file Form 1041, U.S. Income Tax Return for Estates and Trusts, if it has gross income of $600 or more during the tax year or a beneficiary who is a nonresident alien. See IRC § 6012(a)(3) and Treas. Reg. § 1.6012‑3(a)(1). In cases where no returns were filed because no EIN existed, the IRS will have no account history for the estate. The executor may file multiple prior‑year Forms 1041 together, accompanied by an explanatory statement detailing the estate’s administrative history and asserting reasonable cause for late filing.

The statement should include the date of death and probate court jurisdiction, the fact that no EIN was obtained by the prior executor, the continuity of estate ownership and administration, and a description of corrective actions now taken. Penalty abatement requests should reference Treas. Reg. § 301.6651‑1(c)(1), which permits relief for late filing or payment when failure “is due to reasonable cause and not due to willful neglect.”

V. The Decedent’s Final Individual Return

A separate final Form 1040 must be filed for the decedent covering the period from January 1 through the date of death. See IRC § 6012(b)(1) and Treas. Reg. § 1.6012‑3(b)(1). The return reports only pre‑death income and is filed under the decedent’s Social Security number by the executor as personal representative. If no income records exist and significant time has elapsed, the executor may document the absence of income and rely on Treas. Reg. § 301.6651‑1(c) to justify non‑filing due to lack of available information.

VI. Fiduciary Duty and Executor Liability

Under IRC §§ 6901(a) and 6905(a), an executor can be personally liable for estate tax or income tax deficiencies to the extent of estate assets distributed before taxes are paid. Filing Form 5495, Request for Discharge from Personal Liability, allows an executor to seek formal IRS clearance once all returns are filed. If the IRS fails to act within nine months, the executor is released from personal liability for any later‑assessed tax. This discharge protection is particularly important in long‑delayed estates where historical records are incomplete.

VII. Reporting and Distribution Issues

When income earned in prior years is finally distributed, IRC §§ 662(a) and 643(a) govern the deduction for distributions and the calculation of Distributable Net Income (DNI). Because DNI applies on an annual accounting basis, the executor cannot ordinarily “roll forward” undistributed income from earlier years into the final year’s beneficiary K‑1s. See Treas. Reg. §§ 1.662(a)‑1 and 1.663(b)‑2.

VIII. Closing the Estate

Once all required Forms 1041 have been filed and distributions completed, the executor may file a final Form 1041 marked “Final Return,” Form 5495 for discharge of liability, and a final Form 56 terminating the fiduciary relationship. Upon discharge, the IRS will update its records to reflect the closure of the fiduciary account.

IX. Conclusion

Restoring tax compliance for an estate that has remained open for many years requires careful coordination of probate and tax procedures. The executor must establish fiduciary authority under state law, notify the IRS via Forms 56 and 2848, file all required Form 1041 returns, and protect themselves through Form 5495 discharge. With proper documentation and reliance on the reasonable cause standards of Treas. Reg. § 301.6651‑1(c), it is possible to bring even long‑dormant estates into compliance while minimizing exposure to penalties and personal liability.

References

• Internal Revenue Code §§ 6012, 6109, 662, 663, 6901, 6903, 6905
• Treasury Regulations §§ 1.6012‑3, 1.662(a)‑1, 1.663(b)‑2, 301.6109‑1, 301.6651‑1, 301.6903‑1
• IRS Publications 559 (Survivors, Executors, and Administrators) and 947 (Practice Before the IRS and Power of Attorney).

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About the Author

Gene M. Bowman, Attorney in Huntsville, Alabama

Bowman Law Firm, LLC is a tax practice based in Huntsville, Alabama. The firm advises executors, trustees, and business owners on IRS compliance and complex tax matters.