The IRS applied the refund to the earliest year, and there is a potential tax liability. The administrator/executor faces personal liability for distributing assets if there is a tax liability. I would have them try and get money back from the beneficiaries to pay the liability, otherwise they may be liable themselves.
The lesson here is when it comes to an estate, the executor/administrator needs to file all the returns, make a request for prompt assessment (IRS Form 4810, found here: https://www.irs.gov/pub/irs-pdf/f4810.pdf) and wait at least 18 months before distributing assets.
- This reply was modified 1 year, 5 months ago by Sandi Leyva.