Hard to Say Goodbye: Dealing with the loss of a loved one is hard. And the IRS aims to make it harder. What happens when a beloved family member passes away without paying their IRS debt? Will the debt become your problem? Or is the IRS not allowed to collect on a deceased person's debt? The answer may shock you.
A Grave Matter: The IRS is set on getting their money. But they're not going to dig up your dear husband's corpse and auction it off to get it. That's why they try to take care of seizing assets before your loved one was buried.
Don't Relax Yet: If you filed jointly with the deceased debtor, the debt will become your problem. This is the only way the entire debt can fall onto another after the debtor has died.
The Facts: The executor of the estate has to inventory all assets. Once that is done any debts the deceased had prior to his/ her death are paid, and the remaining assets both liquid and non liquid is distributed among the beneficiaries per the Will.
Dead Serious: If you receive an inheritance, don't go spending it yet. The IRS has plans for that money. Some of the inheritance is taxable income. So learn the details before you end up in debt to the IRS, too.
-If you receive a lump sum cash inheritance, it's considered income. So unfortunately, it's taxable. If you do receive a lump sum cash inheritance, make sure you report it as income on your tax report.
-If you receive property as an inheritance, such as houses or cars, the items are nontaxable. But if the assets are sold, you will have to report the sale of the inherited asset as income.
-Life Insurance payouts are non taxable. Life Insurance isn't considered income, it's used to take care of the funeral and provide for the family.
Play it Safe: Don't think you're in the green just yet! The IRS may wrongfully charge you with tax debt. If this happens, sharpen your claws and be ready to protest it. Like I stated earlier, the only reason you should be responsible for a tax debt a loved one left behind is if your filed your taxes jointly with that person. And make sure you report any inheritance as income where it applies if you don't want to end up in debt.
Now You Have The Smoking Gun...Use it!