Fact Sheet – Limiting Fiduciary Liability for Taxes by Requesting Prompt Assessment and Discharge from Tax Liabilities

In general, a fiduciary (executor or personal representative of an estate or trustee of a trust) has the responsibility for collecting information concerning the decedent(s) and filing required income, estate, and gift tax returns. In most situations, the normal statute of limitations is three years from the date the tax return was filed. If the unreported income is substantial, however, the statute of limitations could be as long as seven years from the date the return was filed. Bear in mind that there is no statute of limitations for fraud or failure to report taxable income or estate assets.

If a fiduciary distributes funds from the estate or trust before tax is assessed, it is still responsible for paying the tax (after exhausting administrative or legal protests and appeals of the assessment). It may not be possible to recover funds from beneficiaries in such a situation. This could result in a significant unintended adverse financial burden to the fiduciary.

In order to reduce the exposure of personal representative for such tax assessments, the tax agencies provide fiduciary with the opportunity to request prompt assessment of the taxes.

Prompt Assessment of Federal Income Tax under Section 6501(d)

Under Section 6501(d) of the Internal Revenue Code (“IRC” or “Code”), a fiduciary can request that federal income tax associated with a decedent or its estate or trust be assessed within 18 months.

Prompt assessment under IRC Section 6501(d) is requested by filing Form 4810. The fiduciary needs to specify each form number, tax period, taxpayer name, identification number, and address, Internal Revenue Service Center where the return was filed and the date it was filed. Copies of the returns and evidence of the personal representative’s authority must be attached to the request. The request should be filed in the same Service Center where the returns were filed.

Prompt Assessment of California Income Tax under Revenue & Taxation Code Section 19517

Under R&TC Section 19517, a fiduciary can request that state income tax be assessed within 18 months.

Prompt assessment under R&TC Section 19517 is requested by writing a letter requesting the same to:
Franchise Tax Board
P.O. Box 1673
Sacramento, CA 95812-1673

The fiduciary needs to specify each form number, tax period, taxpayer name, identification number, and address, Internal Revenue Service Center where the return was filed and the date it was filed. Copies of the returns and evidence of the personal representative’s authority must be attached to the request.

Discharge of Fiduciary from Personal Liability under Section 2204 or 6905

Under Section 2204 of the Code, a fiduciary can request that it be discharged from liability for estate taxes within 9 months. Under Section 6905 of the Code, a fiduciary can request that it be discharged from liability for the decedent’s income and gift taxes within 9 months.

Discharge from personal liability under IRC Sections 2204 or 6905 are requested using Form 5495. The fiduciary needs to specify each form number, tax period, taxpayer name, identification number, and address, Internal Revenue Service Center where the return was filed and the date it was filed. Copies of the returns and evidence of the personal representative’s authority must be attached to the request. The request should be filed in the same Service Center where the returns were filed.

Tarlson & Associates

This fact sheet has been prepared for you by our firm in order to answer questions which come in in a variety of client matters in which we are involved. It Is being provided to you because it may be applicable to your case, in part or in whole. If you have any questions concerning these matters, please feel free to contact us.