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Fiduciary Liability For Unpaid Taxes — Part I

1. MUST AN EXECUTOR FILE A DECEDENT’S FINAL INCOME TAX RETURNS?
Let’s say you act as an executor for a decedent who died in 2011. The decedent died before filing his 2010 personal income tax return. Must you, as executor, file the decedent’s 2010 personal income tax returns? Answer: Yes. IRC §6012(b)(1) provides that if a decedent dies before filing his personal income tax return, the responsibility to file the income tax return falls upon his “executor, administrator, or other person charged with the property of such decedent.”

2. MUST AN EXECUTOR FILE A DECEDENT’S GIFT TAX RETURNS?
Let’s say you act as an executor for a decedent who died in 2011. The decedent died before filing his 2010 gift tax return for gifts made in 2010. Must you, as executor, file the decedent’s gift tax returns? Answer: Yes. Treasury Regulation §25.6019-1(g) places the responsibility for filing the decedent’s gift tax return on the executor or administrator.

3. MUST AN EXECUTOR PAY THE DECEDENT’S PRE-DEATH TAXES?
Must the executor also arrange for the payment of the decedent’s pre-death income and gift taxes? Answer: Yes. California Probate Code § 11420(a) sets out the priority of payments an executor must make. California Probate Code § 11420(a) provides that debts of the United States or California have preference and the executor must pay such debts first. In the case of the gift tax, Treasury Regulation §25.2502-2 makes the executor responsible to arrange for payment of the gift tax.