When you have serious tax issues, you need someone who knows tax law

What happens if a loved one dies owing money to the IRS?

You’ve always paid your income taxes in full and on time. You’ve never had a problem with the Internal Revenue Service. Now a loved one has died, and it turns out they owed the IRS some money – a lot. While some debts disappear after the debtor dies, that’s not true of tax debts.

That debt is now owed to the IRS by the deceased’s estate, and the IRS will attach a lien to it for the amount owed. If the estate includes property, like a home, the lien may include that property. None of the estate’s assets can be distributed to heirs and beneficiaries or used to pay bills or other debts.

Your loved one would have received notifications from the IRS detailing how much they owed and seeking payment. Since your responsibilities as an executor include filing the deceased person’s final income tax return, the IRS will learn of the death then (if not sooner) and send a collection letter to you.

What if your family member was lax about paying their taxes for many years? You may have some relief from that debt. Under federal law, the statute of limitations for collecting taxes is ten years from the date the tax was assessed.

It’s important not to confuse back taxes owed with the federal estate taxes that are assessed on very large estates. For the tax year 2020, that’s any estate valued at over $1.58 million. That’s an entirely different tax. If you’re the executor of the estate, you’ll want to deal with the back taxes first.

Obviously, a large overdue tax bill can be an unwelcome surprise to surviving family members. It means there will be some delay in receiving the money and/or property you expected to get. Once the IRS is finished collecting what it’s owed, there may be nothing left.

However, you definitely don’t want to neglect these taxes. If you know (or even suspect) that your loved one owed back taxes, it’s wise to talk with an experienced tax attorney in addition to an estate planning attorney to help ensure that everything is handled correctly. You don’t want to pay more than you have to, but you don’t want to run afoul of the IRS, either.