Deceased spouse’s taxes and wife’s responsibility

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    Mary Jo Walker

    Scenario: Husband and wife have always filed MFS; husband has a SCH C. He passes away and wife finds out that he owes the IRS $130,000 for past taxes. He has no assets other than $30,000 in a book of business (insurance sales) and receivables, a vehicle worth 10K and 50% of the family residence (total equity in house 130,000). Will she be responsible for paying the past taxes in full – or will the estate have to pay whatever the net assets are and the remainder will go away? The IRS has a lien on the property. Can that be released even if the taxes are never paid in full? Any input would be appreciated. Thanks!

    James Wade

    Mary Jo,

    The estate is going to be responsible. She needs to be very careful how this is handled.

    First, and I say this as a general rule because states have variance in laws, the lien normally survives the probate of the estate. When the real estate is transferred it will come to her subject to the IRS lien.

    Second, the IRS has priority for payment with the exception of the estate’s exemptions and administrative expenses. So she should not pay any creditors until the IRS tax debts are figured out. The IRS does not need to file a claim like other creditors, many people believe that the IRS has to file claims like other creditors and when it doesn’t they pay other creditors believing that the IRS is barred from getting paid. Big mistake.

    Eric may correct me on this but I think that the tax debts (equal to 1/2 the equity) will survive due to the lien. The IRS (at least in Maine) seems asleep at the wheel regarding tax debts owed by the deceased. I almost think you could get away with murder here but never say never. Normally, I recommend to the PR to contact the IRS about the situation and what it can expect from the estate. See what the IRS does.



    Eric Green

    Mary Jo, the estate would be opened and the IRS is another creditor. The estate will get settled – his assets minus his liabilities, including the IRS, which is secured because of its lien. This should be taken care of through the probate process, and I agree with James that it has to be handled properly but she should not be on the hook for the taxes. What may happen if she wants the house is she might have to refinance and pay to clear the IRS’s interest.

    Mary Jo Walker

    Thank you both, Jim and Eric. This is very helpful. I was going in that direction; the estate attorney was not interested in dealing with the IRS but, it is a responsibility to list the IRS liabilities and he has no choice with that piece.

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