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H&r block advantage Publication 559 - Main Content Table of Contents Personal RepresentativeDuties Fees Received by Personal Representatives Final Income Tax Return for Decedent—Form 1040Name, Address, and Signature When and Where To File Filing Requirements Income To Include Exemptions and Deductions Credits, Other Taxes, and Payments Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Filing Reminders Other Tax InformationTax Benefits for Survivors Income in Respect of a Decedent Deductions in Respect of a Decedent Estate Tax Deduction Gifts, Insurance, and Inheritances Other Items of Income Income Tax Return of an Estate— Form 1041Filing Requirements Income To Include Exemption and Deductions Credits, Tax, and Payments Name, Address, and Signature When and Where To File Distributions to BeneficiariesIncome That Must Be Distributed Currently Other Amounts Distributed Discharge of a Legal Obligation Character of Distributions How and When To Report Bequest Termination of Estate Estate and Gift TaxesApplicable Credit Amount Gift Tax Estate Tax Generation-Skipping Transfer Tax Comprehensive ExampleFinal Return for Decedent—Form 1040 Income Tax Return of an Estate—Form 1041 How To Get Tax HelpLow Income Taxpayer Clinics Personal Representative A personal representative of an estate is an executor, administrator, or anyone who is in charge of the decedent's property. H&r block advantage Generally, an executor (or executrix) is named in a decedent's will to administer the estate and distribute properties as the decedent has directed. H&r block advantage An administrator (or administratrix) is usually appointed by the court if no will exists, if no executor was named in the will, or if the named executor cannot or will not serve. H&r block advantage In general, an executor and an administrator perform the same duties and have the same responsibilities. H&r block advantage For estate tax purposes, if there is no executor or administrator appointed, qualified, and acting within the United States, the term “executor” includes anyone in actual or constructive possession of any property of the decedent. H&r block advantage It includes, among others, the decedent's agents and representatives; safe-deposit companies, warehouse companies, and other custodians of property in this country; brokers holding securities of the decedent as collateral; and the debtors of the decedent who are in this country. H&r block advantage Duties The primary duties of a personal representative are to collect all the decedent's assets, pay his or her creditors, and distribute the remaining assets to the heirs or other beneficiaries. H&r block advantage The personal representative also must perform the following duties. H&r block advantage Apply for an employer identification number (EIN) for the estate. H&r block advantage File all tax returns, including income, estate and gift tax returns, when due. H&r block advantage Pay the tax determined up to the date of discharge from duties. H&r block advantage Other duties of the personal representative in federal tax matters are discussed in other sections of this publication. H&r block advantage If any beneficiary is a nonresident alien, see Publication 515, Withholding of Tax on Nonresident Aliens and Foreign Entities, for information on the personal representative's duties as a withholding agent. H&r block advantage Penalty. H&r block advantage   There is a penalty for failure to file a tax return when due unless the failure is due to reasonable cause. H&r block advantage Reliance on an agent (attorney, accountant, etc. H&r block advantage ) is not reasonable cause for late filing. H&r block advantage It is the personal representative's duty to file the returns for the decedent and the estate when due. H&r block advantage Identification number. H&r block advantage   The first action you should take if you are the personal representative for the decedent is to apply for an EIN for the estate. H&r block advantage You should apply for this number as soon as possible because you need to enter it on returns, statements, and other documents you file concerning the estate. H&r block advantage You also must give the number to payers of interest and dividends and other payers who must file a return concerning the estate. H&r block advantage   You can get an EIN by applying online at www. H&r block advantage irs. H&r block advantage gov (click on "Apply for an EIN Online" under the Tools heading). H&r block advantage Generally, if you apply online, you will receive your EIN immediately upon completing the application. H&r block advantage You can also apply using Form SS-4, Application for Employer Identification Number. H&r block advantage Generally, if you apply by mail, it takes about 4 weeks to get your EIN. H&r block advantage See the form instructions for other ways to apply. H&r block advantage   Payers of interest and dividends report amounts on Forms 1099 using the identification number of the person to whom the account is payable. H&r block advantage After a decedent's death, Forms 1099 must reflect the identification number of the estate or beneficiary to whom the amounts are payable. H&r block advantage As the personal representative handling the estate, you must furnish this identification number to the payer. H&r block advantage For example, if interest is payable to the estate, the estate's EIN must be provided to the payer and used to report the interest on Form 1099-INT, Interest Income. H&r block advantage If the interest is payable to a surviving joint owner, the survivor's identification number, such as an SSN or ITIN, must be provided to the payer and used to report the interest. H&r block advantage   If the estate or a survivor may receive interest or dividends after you inform the payer of the decedent's death, the payer should give you (or the survivor) a Form W-9, Request for Taxpayer Identification Number and Certification (or a similar substitute form). H&r block advantage Complete this form to inform the payer of the estate's (or if completed by the survivor, the survivor's) identification number and return it to the payer. H&r block advantage    Do not use the deceased individual's identifying number to file an individual income tax return after the decedent's final tax return. H&r block advantage Also do not use it to make estimated tax payments for a tax year after the year of death. H&r block advantage Penalty. H&r block advantage   If you do not include the EIN or the taxpayer identification number of another person where it is required on a return, statement, or other document, you are liable for a penalty for each failure, unless you can show reasonable cause. H&r block advantage You also are liable for a penalty if you do not give the taxpayer identification number of another person when required on a return, statement, or other document. H&r block advantage Notice of fiduciary relationship. H&r block advantage   The term fiduciary means any person acting for another person. H&r block advantage It applies to persons who have positions of trust on behalf of others. H&r block advantage A personal representative for a decedent's estate is a fiduciary. H&r block advantage Form 56. H&r block advantage   If you are appointed to act in a fiduciary capacity for another, you must file a written notice with the IRS stating this. H&r block advantage Form 56, Notice Concerning Fiduciary Relationship, is used for this purpose. H&r block advantage See the Instructions for Form 56 for filing requirements and other information. H&r block advantage   File Form 56 as soon as all the necessary information (including the EIN) is available. H&r block advantage It notifies the IRS that you, as the fiduciary, are assuming the powers, rights, duties, and privileges of the decedent. H&r block advantage The notice remains in effect until you notify the IRS (by filing another Form 56) that your fiduciary relationship with the estate has terminated. H&r block advantage Termination of fiduciary relationship. H&r block advantage   Form 56 should also be filed to notify the IRS if your fiduciary relationship is terminated or when a successor fiduciary is appointed if the estate has not been terminated. H&r block advantage See Form 56 and its instructions for more information. H&r block advantage   At the time of termination of the fiduciary relationship, you may want to file Form 4810, Request for Prompt Assessment Under Internal Revenue Code Section 6501(d), and Form 5495, Request for Discharge From Personal Liability Under Internal Revenue Code Section 2204 or 6905, to wind up your duties as fiduciary. H&r block advantage See below for a discussion of these forms. H&r block advantage Request for prompt assessment (charge) of tax. H&r block advantage   The IRS ordinarily has 3 years from the date an income tax return is filed, or its due date, whichever is later, to charge any additional tax due. H&r block advantage However, as a personal representative, you may request a prompt assessment of tax after the return has been filed. H&r block advantage This reduces the time for making the assessment to 18 months from the date the written request for prompt assessment was received. H&r block advantage This request can be made for any tax return (except the estate tax return) of the decedent or the decedent's estate. H&r block advantage This may permit a quicker settlement of the tax liability of the estate and an earlier final distribution of the assets to the beneficiaries. H&r block advantage Form 4810. H&r block advantage   Form 4810 can be used for making this request. H&r block advantage It must be filed separately from any other document. H&r block advantage   As the personal representative for the decedent's estate, you are responsible for any additional taxes that may be due. H&r block advantage You can request prompt assessment of any of the decedent's taxes (other than federal estate taxes) for any years for which the statutory period for assessment is open. H&r block advantage This applies even though the returns were filed before the decedent's death. H&r block advantage Failure to report income. H&r block advantage   If you or the decedent failed to report substantial amounts of gross income (more than 25% of the gross income reported on the return) or filed a false or fraudulent return, your request for prompt assessment will not shorten the period during which the IRS may assess the additional tax. H&r block advantage However, such a request may relieve you of personal liability for the tax if you did not have knowledge of the unpaid tax. H&r block advantage Request for discharge from personal liability for tax. H&r block advantage   An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. H&r block advantage The request must be made after the returns for those taxes are filed. H&r block advantage To make the request, file Form 5495. H&r block advantage For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States. H&r block advantage   Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. H&r block advantage If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. H&r block advantage If the IRS has not notified the executor, he or she will be discharged from personal liability at the end of the 9-month period. H&r block advantage    Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property. H&r block advantage Insolvent estate. H&r block advantage   Generally, if a decedent's estate is insufficient to pay all the decedent's debts, the debts due to the United States must be paid first. H&r block advantage Both the decedent's federal income tax liabilities at the time of death and the estate's income tax liability are debts due to the United States. H&r block advantage The personal representative of an insolvent estate is personally responsible for any tax liability of the decedent or of the estate if he or she had notice of such tax obligations or failed to exercise due care in determining if such obligations existed before distribution of the estate's assets and before being discharged from duties. H&r block advantage The extent of such personal responsibility is the amount of any other payments made before paying the debts due to the United States, except where such other debt paid has priority over the debts due to the United States. H&r block advantage Income tax liabilities need not be formally assessed for the personal representative to be liable if he or she was aware or should have been aware of their existence. H&r block advantage Fees Received by Personal Representatives All personal representatives must include fees paid to them from an estate in their gross income. H&r block advantage If you are not in the trade or business of being an executor (for instance, you are the executor of a friend's or relative's estate), report these fees on your Form 1040, line 21. H&r block advantage If you are in the trade or business of being an executor, report fees received from the estate as self-employment income on Schedule C or Schedule C-EZ of your Form 1040. H&r block advantage If the estate operates a trade or business and you, as executor, actively participate in the trade or business while fulfilling your duties, any fees you receive related to the operation of the trade or business must be reported as self-employment income on Schedule C (or Schedule C-EZ) of your Form 1040. H&r block advantage Final Income Tax Return for Decedent—Form 1040 The personal representative (defined earlier) must file the final income tax return (Form 1040) of the decedent for the year of death and any returns not filed for preceding years. H&r block advantage A surviving spouse, under certain circumstances, may have to file the returns for the decedent. H&r block advantage See Joint Return, later. H&r block advantage Return for preceding year. H&r block advantage   If an individual died after the close of the tax year, but before the return for that year was filed, the return for the year just closed will not be the final return. H&r block advantage The return for that year will be a regular return and the personal representative must file it. H&r block advantage Example. H&r block advantage Samantha Smith died on March 21, 2013, before filing her 2012 tax return. H&r block advantage Her personal representative must file her 2012 return by April 15, 2013. H&r block advantage Her final tax return covering the period from January 1, 2013, to March 20, 2013, is due April 15, 2014. H&r block advantage Name, Address, and Signature Write the word “DECEASED,” the decedent's name, and the date of death across the top of the tax return. H&r block advantage If filing a joint return, write the name and address of the decedent and the surviving spouse in the name and address fields. H&r block advantage If a joint return is not being filed, write the decedent's name in the name field and the personal representative's name and address in the address field. H&r block advantage Third party designee. H&r block advantage   You can check the “Yes” box in the Third Party Designee area on page 2 of the return to authorize the IRS to discuss the return with a friend, family member, or any other person you choose. H&r block advantage This allows the IRS to call the person you identified as the designee to answer any questions that may arise during the processing of the return. H&r block advantage It also allows the designee to perform certain actions. H&r block advantage See the Instructions for Form 1040 for details. H&r block advantage Signature. H&r block advantage   If a personal representative has been appointed, that person must sign the return. H&r block advantage If it is a joint return, the surviving spouse must also sign it. H&r block advantage If no personal representative has been appointed, the surviving spouse (on a joint return) signs the return and writes in the signature area “Filing as surviving spouse. H&r block advantage ” If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. H&r block advantage ” Paid preparer. H&r block advantage   If you pay someone to prepare, assist in preparing, or review the tax return, that person must sign the return and fill in the other blanks in the Paid Preparer Use Only area of the return. H&r block advantage See the Form 1040 instructions for details. H&r block advantage When and Where To File The final income tax return is due at the same time the decedent's return would have been due had death not occurred. H&r block advantage A final return for a decedent who was a calendar year taxpayer is generally due on April 15 following the year of death, regardless of when during that year death occurred. H&r block advantage However, when the due date falls on a Saturday, Sunday, or legal holiday, the return is filed timely if filed by the next business day. H&r block advantage The tax return must be prepared for the year of death regardless of when during the year death occurred. H&r block advantage Generally, you must file the final income tax return of the decedent with the Internal Revenue Service Center for the place where you live. H&r block advantage A tax return for a decedent can be electronically filed. H&r block advantage A personal representative may also obtain an income tax filing extension on behalf of a decedent. H&r block advantage Filing Requirements The gross income, age, and filing status of a decedent generally determine whether a return must be filed. H&r block advantage Gross income is all income received by an individual from any source in the form of money, goods, property, and services that is not tax-exempt. H&r block advantage It includes gross receipts from self-employment, but if the business involves manufacturing, merchandising, or mining, subtract any cost of goods sold. H&r block advantage In general, filing status depends on whether the decedent was considered single or married at the time of death. H&r block advantage See the income tax return instructions or Publication 501, Exemptions, Standard Deduction, and Filing Information. H&r block advantage Refund A return must be filed to obtain a refund if tax was withheld from salaries, wages, pensions, or annuities, or if estimated tax was paid, even if a return is not otherwise required to be filed. H&r block advantage Also, the decedent may be entitled to other credits that result in a refund. H&r block advantage These advance payments of tax and credits are discussed later under Credits, Other Taxes, and Payments. H&r block advantage Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer. H&r block advantage   Form 1310 does not have to be filed if you are claiming a refund and you are: A surviving spouse filing an original or amended joint return with the decedent, or A court-appointed or certified personal representative filing the decedent’s original return and a copy of the court certificate showing your appointment is attached to the return. H&r block advantage   If the personal representative is filing a claim for refund on Form 1040X, Amended U. H&r block advantage S. H&r block advantage Individual Income Tax Return, or Form 843, Claim for Refund and Request for Abatement, and the court certificate has already been filed with the IRS, attach Form 1310 and write “Certificate Previously Filed” at the bottom of the form. H&r block advantage Example. H&r block advantage Edward Green died before filing his tax return. H&r block advantage You were appointed the personal representative for Edward's estate, and you file his Form 1040 showing a refund due. H&r block advantage You do not need Form 1310 to claim the refund if you attach a copy of the court certificate showing you were appointed the personal representative. H&r block advantage    If you are a surviving spouse and you receive a tax refund check in both your name and your deceased spouse's name, you can have the check reissued in your name alone. H&r block advantage Return the joint-name check marked “VOID” to your local IRS office or the service center where you mailed your return, along with a written request for reissuance of the refund check. H&r block advantage A new check will be issued in your name and mailed to you. H&r block advantage Death certificate. H&r block advantage   When filing the decedent's final income tax return, do not attach the death certificate or other proof of death to the final return. H&r block advantage Instead, keep it for your records and provide it if requested. H&r block advantage Nonresident Alien If the decedent was a nonresident alien who would have had to file Form 1040NR, U. H&r block advantage S. H&r block advantage Nonresident Alien Income Tax Return, you must file that form for the decedent's final tax year. H&r block advantage See the Instructions for Form 1040NR for the filing requirements, due date, and where to file. H&r block advantage Joint Return Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. H&r block advantage However, the surviving spouse alone can file the joint return if no personal representative has been appointed before the due date for filing the final joint return for the year of death. H&r block advantage This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before filing the return for that year. H&r block advantage The income of the decedent that was includible on his or her return for the year up to the date of death (see Income To Include, later) and the income of the surviving spouse for the entire year must be included in the final joint return. H&r block advantage A final joint return with the decedent cannot be filed if the surviving spouse remarried before the end of the year of the decedent's death. H&r block advantage The filing status of the decedent in this instance is married filing a separate return. H&r block advantage For information about tax benefits to which a surviving spouse may be entitled, see Tax Benefits for Survivors, later, under Other Tax Information. H&r block advantage Personal representative may revoke joint return election. H&r block advantage   A court-appointed personal representative may revoke an election to file a joint return previously made by the surviving spouse alone. H&r block advantage This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions). H&r block advantage The joint return made by the surviving spouse will then be regarded as the separate return of that spouse by excluding the decedent's items and refiguring the tax liability. H&r block advantage Relief from joint liability. H&r block advantage   In some cases, one spouse may be relieved of joint liability for tax, interest, and penalties on a joint return for items of the other spouse that were incorrectly reported on the joint return. H&r block advantage If the decedent qualified for this relief while alive, the personal representative can pursue an existing request, or file a request, for relief from joint liability. H&r block advantage For information on requesting this relief, see Publication 971, Innocent Spouse Relief. H&r block advantage Income To Include The decedent's income includible on the final return is generally determined as if the person were still alive except that the taxable period is usually shorter because it ends on the date of death. H&r block advantage The method of accounting regularly used by the decedent before death also determines the income includible on the final return. H&r block advantage This section explains how some types of income are reported on the final return. H&r block advantage For more information about accounting methods, see Publication 538, Accounting Periods and Methods. H&r block advantage Cash Method If the decedent accounted for income under the cash method, only those items actually or constructively received before death are included on the final return. H&r block advantage Constructive receipt of income. H&r block advantage   Interest from coupons on the decedent's bonds is constructively received by the decedent if the coupons matured in the decedent's final tax year, but had not been cashed. H&r block advantage Include the interest income on the final return. H&r block advantage   Generally, a dividend is considered constructively received if it was available for use by the decedent without restriction. H&r block advantage If the corporation customarily mailed its dividend checks, the dividend was includible when received. H&r block advantage If the individual died between the time the dividend was declared and the time it was received in the mail, the decedent did not constructively receive it before death. H&r block advantage Do not include the dividend in the final return. H&r block advantage Accrual Method Generally, under an accrual method of accounting, income is reported when earned. H&r block advantage If the decedent used an accrual method, only the income items normally accrued before death are included on the final return. H&r block advantage Interest and Dividend Income (Forms 1099) Form(s) 1099 reporting interest and dividends earned by the decedent before death should be received and the amounts included on the decedent's final return. H&r block advantage A separate Form 1099 should show the interest and dividends earned after the date of the decedent's death and paid to the estate or other recipient that must include those amounts on its return. H&r block advantage You can request corrected Forms 1099 if these forms do not properly reflect the right recipient or amounts. H&r block advantage For example, a Form 1099-INT, reporting interest payable to the decedent, may include income that should be reported on the final income tax return of the decedent, as well as income that the estate or other recipient should report, either as income earned after death or as income in respect of the decedent (discussed later). H&r block advantage For income earned after death, you should ask the payer for a Form 1099 that properly identifies the recipient (by name and identification number) and the proper amount. H&r block advantage If that is not possible, or if the form includes an amount that represents income in respect of the decedent, report the interest as shown next under How to report. H&r block advantage See U. H&r block advantage S. H&r block advantage savings bonds acquired from decedent under Income in Respect of a Decedent, later, for information on savings bond interest that may have to be reported on the final return. H&r block advantage How to report. H&r block advantage   If you are preparing the decedent's final return and you have received a Form 1099-INT for the decedent that includes amounts belonging to the decedent and to another recipient (the decedent's estate or another beneficiary), report the total interest shown on Form 1099-INT on Schedule B (Form 1040A or 1040), Interest and Ordinary Dividends. H&r block advantage Next, enter a subtotal of the interest shown on Forms 1099, and the interest reportable from other sources for which you did not receive Forms 1099. H&r block advantage Then, show any interest (including any interest you receive as a nominee) belonging to another recipient separately and subtract it from the subtotal. H&r block advantage Identify the amount of this adjustment as “Nominee Distribution” or other appropriate designation. H&r block advantage   Report dividend income for which you received a Form 1099-DIV, Dividends and Distributions, on the appropriate schedule using the same procedure. H&r block advantage    Note. H&r block advantage If the decedent received amounts as a nominee, you must give the actual owner a Form 1099, unless the owner is the decedent's spouse. H&r block advantage See General Instructions for Certain Information Returns (Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2G) for more information on filing Forms 1099. H&r block advantage Partnership Income The death of a partner closes the partnership's tax year for that partner. H&r block advantage Generally, it does not close the partnership's tax year for the remaining partners. H&r block advantage The decedent's distributive share of partnership items must be figured as if the partnership's tax year ended on the date the partner died. H&r block advantage To avoid an interim closing of the partnership books, the partners can agree to estimate the decedent's distributive share by prorating the amounts the partner would have included for the entire partnership tax year. H&r block advantage On the decedent's final return, include the decedent's distributive share of partnership items for the following periods. H&r block advantage The partnership's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). H&r block advantage The period, if any, from the end of the partnership's tax year in (1) to the decedent's date of death. H&r block advantage Example. H&r block advantage Mary Smith was a partner in XYZ partnership and reported her income on a tax year ending December 31. H&r block advantage The partnership uses a tax year ending June 30. H&r block advantage Mary died August 31, 2013, and her estate established its tax year through August 31. H&r block advantage The distributive share of partnership items based on the decedent's partnership interest is reported as follows. H&r block advantage Final Return for the Decedent—January 1 through August 31, 2013, includes XYZ partnership items from (a) the partnership tax year ending June 30, 2013, and (b) the partnership tax year beginning July 1, 2013, and ending August 31, 2013 (the date of death). H&r block advantage Income Tax Return of the Estate—September 1, 2013, through August 31, 2014, includes XYZ partnership items for the period September 1, 2013, through June 30, 2014. H&r block advantage S Corporation Income If the decedent was a shareholder in an S corporation, include on the final return the decedent's share of the S corporation's items of income, loss, deduction, and credit for the following periods. H&r block advantage The corporation's tax year that ended within or with the decedent's final tax year (the year ending on the date of death). H&r block advantage The period, if any, from the end of the corporation's tax year in (1) to the decedent's date of death. H&r block advantage Self-Employment Income Include self-employment income actually or constructively received or accrued, depending on the decedent's accounting method. H&r block advantage For self-employment tax purposes only, the decedent's self-employment income will include the decedent's distributive share of a partnership's income or loss through the end of the month in which death occurred. H&r block advantage For this purpose, the partnership's income or loss is considered to be earned ratably over the partnership's tax year. H&r block advantage Community Income If the decedent was married and domiciled in a community property state, half of the income received and half of the expenses paid during the decedent's tax year by either the decedent or spouse may be considered to be the income and expenses of the other. H&r block advantage For more information, see Publication 555, Community Property. H&r block advantage HSA, Archer MSA, or Medicare Advantage MSA The treatment of an HSA (health savings account), an Archer MSA (medical savings account), or a Medicare Advantage MSA at the death of the account holder, depends on who acquires the interest in the account. H&r block advantage If the decedent's estate acquires the interest, the fair market value (FMV) of the assets in the account on the date of death is included in income on the decedent's final return. H&r block advantage The estate tax deduction, discussed later, does not apply to this amount. H&r block advantage If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. H&r block advantage For other information on HSAs, Archer MSAs, or Medicare Advantage MSAs, see Publication 969, Health Savings Accounts and Other Tax-Favored Health Plans. H&r block advantage Coverdell Education Savings Account (ESA) Generally, the balance in a Coverdell ESA must be distributed within 30 days after the individual for whom the account was established reaches age 30, or dies, whichever is earlier. H&r block advantage The treatment of the Coverdell ESA at the death of an individual under age 30 depends on who acquires the interest in the account. H&r block advantage If the decedent's estate acquires the interest, the earnings on the account must be included on the final income tax return of the decedent. H&r block advantage The estate tax deduction, discussed later, does not apply to this amount. H&r block advantage If a beneficiary acquires the interest, see the discussion under Income in Respect of a Decedent, later. H&r block advantage The age 30 limitation does not apply if the individual for whom the account was established or the beneficiary that acquires the account is an individual with special needs. H&r block advantage This includes an individual who, because of a physical, mental, or emotional condition (including a learning disability), requires additional time to complete his or her education. H&r block advantage For more information on Coverdell ESAs, see Publication 970, Tax Benefits for Education. H&r block advantage Accelerated Death Benefits Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. H&r block advantage These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. H&r block advantage Generally, if the decedent received accelerated death benefits on the life of a terminally or chronically ill individual, whether on his or her own life or on the life of another person, those benefits are not included in the decedent's income. H&r block advantage For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, later. H&r block advantage Exemptions and Deductions Generally, the rules for exemptions and deductions allowed to an individual also apply to the decedent's final income tax return. H&r block advantage Show on the final return deductible items the decedent paid (or accrued, if the decedent reported deductions on an accrual method) before death. H&r block advantage This section contains a detailed discussion of medical expenses because the tax treatment of the decedent's medical expenses can be different. H&r block advantage See Medical Expenses, later. H&r block advantage Exemptions You can claim the decedent's personal exemption on the final income tax return. H&r block advantage If the decedent was another person's dependent (for example, a parent's), you cannot claim the personal exemption on the decedent's final return. H&r block advantage Standard Deduction If you do not itemize deductions on the final return, the full amount of the appropriate standard deduction is allowed regardless of the date of death. H&r block advantage For information on the appropriate standard deduction, see the Form 1040 income tax return instructions or Publication 501. H&r block advantage Medical Expenses Medical expenses paid before death by the decedent are deductible, subject to limits, on the final income tax return if deductions are itemized. H&r block advantage This includes expenses for the decedent, as well as for the decedent's spouse and dependents. H&r block advantage Beginning in 2013, medical expenses exceeding 10% of adjusted gross income (AGI) may be deducted, unless the decedent or their spouse is age 65 or older. H&r block advantage In that case medical expenses exceeding 7. H&r block advantage 5% of AGI may be deducted. H&r block advantage Qualified medical expenses are not deductible if paid with a tax-free distribution from an HSA or an Archer MSA. H&r block advantage Election for decedent's expenses. H&r block advantage   Medical expenses not paid before death are liabilities of the estate and are shown on the federal estate tax return (Form 706). H&r block advantage However, if medical expenses for the decedent are paid out of the estate during the 1-year period beginning with the day after death, you can elect to treat all or part of the expenses as paid by the decedent at the time they were incurred. H&r block advantage   If you make the election, you can claim all or part of the expenses on the decedent's income tax return (if deductions are itemized) rather than on the federal estate tax return (Form 706). H&r block advantage You can deduct expenses incurred in the year of death on the final income tax return. H&r block advantage You should file an amended return (Form 1040X) for medical expenses incurred in an earlier year, unless the statutory period for filing a claim for that year has expired. H&r block advantage   The amount you can deduct on the income tax return is the amount above 10% of adjusted gross income (or 7. H&r block advantage 5% of adjusted gross income if the decedent or the decedent's spouse was born before January 2, 1949). H&r block advantage Amounts not deductible because of this percentage cannot be claimed on the federal estate tax return. H&r block advantage Making the election. H&r block advantage   You make the election by attaching a statement, in duplicate, to the decedent's income tax return or amended return. H&r block advantage The statement must state that you have not claimed the amount as an estate tax deduction, and that the estate waives the right to claim the amount as a deduction. H&r block advantage This election applies only to expenses incurred for the decedent, not to expenses incurred to provide medical care for dependents. H&r block advantage Example. H&r block advantage Richard Brown used the cash method of accounting and filed his income tax return on a calendar year basis. H&r block advantage Richard died on June 1, 2013, at the age of 78, after incurring $800 in medical expenses. H&r block advantage Of that amount, $500 was incurred in 2012 and $300 was incurred in 2013. H&r block advantage Richard itemized his deductions when he filed his 2012 income tax return. H&r block advantage The personal representative of the estate paid the entire $800 liability in August 2013. H&r block advantage The personal representative may file an amended return (Form 1040X) for 2012 claiming the $500 medical expense as a deduction, subject to the 7. H&r block advantage 5% limit. H&r block advantage The $300 of expenses incurred in 2013 can be deducted on the final income tax return if deductions are itemized, subject to the 7. H&r block advantage 5% limit. H&r block advantage The personal representative must file a statement in duplicate with each return stating that these amounts have not been claimed on the federal estate tax return (Form 706), and waiving the right to claim such a deduction on Form 706 in the future. H&r block advantage Medical expenses not paid by estate. H&r block advantage   If you paid medical expenses for your deceased spouse or dependent, claim the expenses on your tax return for the year in which you paid them, whether they are paid before or after the decedent's death. H&r block advantage If the decedent was a child of divorced or separated parents, the medical expenses can usually be claimed by both the custodial and noncustodial parent to the extent paid by that parent during the year. H&r block advantage Insurance reimbursements. H&r block advantage   Insurance reimbursements of previously deducted medical expenses due a decedent at the time of death and later received by the decedent's estate are includible in the income tax return of the estate (Form 1041) for the year the reimbursements are received. H&r block advantage The reimbursements are also includible in the decedent's gross estate. H&r block advantage No deduction for funeral expenses can be taken on the final Form 1040 of a decedent. H&r block advantage These expenses may be deductible for estate tax purposes on Form 706. H&r block advantage Deduction for Losses A decedent's net operating loss deduction from a prior year and any capital losses (including capital loss carryovers) can be deducted only on the decedent's final income tax return. H&r block advantage A net operating loss on the decedent's final income tax return can be carried back to prior years. H&r block advantage (See Publication 536, Net Operating Losses (NOLs) for Individuals, Estates, and Trusts. H&r block advantage ) You cannot deduct any unused net operating loss or capital loss on the estate's income tax return. H&r block advantage At-risk loss limits. H&r block advantage   Special at-risk rules apply to most activities that are engaged in as a trade or business or for the production of income. H&r block advantage   These rules limit the deductible loss to the amount which the individual was considered at-risk in the activity. H&r block advantage An individual generally will be considered at-risk to the extent of the money and the adjusted basis of property that he or she contributed to the activity and certain amounts the individual borrowed for use in the activity. H&r block advantage An individual will be considered at-risk for amounts borrowed only if he or she was personally liable for the repayment or if the amounts borrowed were secured by property other than that used in the activity. H&r block advantage The individual is not considered at-risk for borrowed amounts if the lender has an interest in the activity or if the lender is related to a person who has an interest in the activity. H&r block advantage For more information, see Publication 925, Passive Activity and At-Risk Rules. H&r block advantage Passive activity rules. H&r block advantage   A passive activity is any trade or business activity in which the taxpayer does not materially participate. H&r block advantage To determine material participation, see Publication 925. H&r block advantage Rental activities are passive activities regardless of the taxpayer's participation, unless the taxpayer meets certain eligibility requirements. H&r block advantage   Individuals, estates, and trusts can offset passive activity losses only against passive activity income. H&r block advantage Passive activity losses or credits not allowed in one tax year can be carried forward to the next year. H&r block advantage   If a passive activity interest is transferred because a taxpayer dies, the accumulated unused passive activity losses are allowed as a deduction against the decedent's income in the year of death. H&r block advantage Losses are allowed only to the extent they are greater than the excess of the transferee's (recipient of the interest transferred) basis in the property over the decedent's adjusted basis in the property immediately before death. H&r block advantage The part of the accumulated losses equal to the excess is not allowed as a deduction for any tax year. H&r block advantage   Use Form 8582, Passive Activity Loss Limitations, to summarize losses and income from passive activities and to figure the amounts allowed. H&r block advantage For more information, see Publication 925. H&r block advantage Credits, Other Taxes, and Payments Discussed below are some of the tax credits, types of taxes that may be owed, income tax withheld, and estimated tax payments reported on the final return of a decedent. H&r block advantage Credits On the final income tax return, you can claim any tax credits that applied to the decedent before death. H&r block advantage Some of these credits are discussed next. H&r block advantage Earned income credit. H&r block advantage   If the decedent was an eligible individual, you can claim the earned income credit on the decedent's final return even though the return covers less than 12 months. H&r block advantage If the allowable credit is more than the tax liability for the year, the excess is refunded. H&r block advantage   For more information, see Publication 596, Earned Income Credit (EIC). H&r block advantage Credit for the elderly or the disabled. H&r block advantage   This credit is allowable on a decedent's final income tax return if the decedent met both of the following requirements in the year of death. H&r block advantage The decedent: Was a “qualified individual,” and Had income (adjusted gross income (AGI) and nontaxable social security and pensions) less than certain limits. H&r block advantage   For details on qualifying for or figuring the credit, see Publication 524, Credit for the Elderly or the Disabled. H&r block advantage Child tax credit. H&r block advantage   If the decedent had a qualifying child, you may be able to claim the child tax credit on the decedent's final return even though the return covers less than 12 months. H&r block advantage You may be able to claim the additional child tax credit and get a refund if the credit is more than the decedent's liability. H&r block advantage For more information, see the Instructions for Form 1040. H&r block advantage Adoption credit. H&r block advantage   Depending upon when the adoption was finalized, this credit may be taken on a decedent's final income tax return if the decedent: Adopted an eligible child and paid qualified adoption expenses, or Has a carryforward of an adoption credit from a prior year. H&r block advantage   Also, if the decedent is survived by a spouse who meets the filing status of qualifying widow(er), unused adoption credit may be carried forward and used following the death of the decedent. H&r block advantage See Form 8839, Qualified Adoption Expenses, and its instructions for more details. H&r block advantage General business tax credit. H&r block advantage   The general business credit available to a taxpayer is limited. H&r block advantage Any credit arising in a tax year beginning before 1998 that has not been used up can be carried forward for up to 15 years. H&r block advantage Any unused credit arising in a tax year beginning after 1997 has a 1-year carryback and a 20-year carryforward period. H&r block advantage   After the carryforward period, a deduction may be allowed for any unused business credit. H&r block advantage If the taxpayer dies before the end of the carryforward period, the deduction generally is allowed in the year of death. H&r block advantage   For more information on the general business credit, see Publication 334, Tax Guide for Small Business. H&r block advantage Other Taxes Taxes other than income tax that may be owed on the final return of a decedent include self-employment tax and alternative minimum tax, which are reported on Form 1040. H&r block advantage Self-employment tax. H&r block advantage   Self-employment tax may be owed on the final return if either of the following applied to the decedent in the year of death: Net earnings from self-employment (excluding income described in (2)) were $400 or more; or Wages from services performed as a church employee were $108. H&r block advantage 28 or more. H&r block advantage Alternative minimum tax (AMT). H&r block advantage   The tax laws give special treatment to certain types of income and allow special deductions and credits for certain types of expenses. H&r block advantage The alternative minimum tax (AMT) was enacted so taxpayers who benefit from these laws still pay at least a minimum amount of tax. H&r block advantage In general, the AMT is the excess of the tentative minimum tax over the regular tax shown on the return. H&r block advantage Form 6251. H&r block advantage    Use Form 6251, Alternative Minimum Tax—Individuals, to determine if this tax applies to the decedent. H&r block advantage See the form instructions for information on when you must attach Form 6251 to Form 1040. H&r block advantage Form 8801. H&r block advantage   If the decedent paid AMT in a previous year or had a credit carryforward, the decedent may be eligible for a minimum tax credit. H&r block advantage See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts. H&r block advantage Payments of Tax The income tax withheld from the decedent's salary, wages, pensions, or annuities, and the amount paid as estimated tax are credits (advance payments of tax) that must be claimed on the final return. H&r block advantage Tax Forgiveness for Armed Forces Members, Victims of Terrorism, and Astronauts Income tax liability may be forgiven for a decedent who dies due to service in a combat zone, due to military or terrorist actions, as a result of a terrorist attack, or while serving in the line of duty as an astronaut. H&r block advantage Combat Zone If a member of the Armed Forces of the United States dies while in active service in a combat zone or from wounds, disease, or injury incurred in a combat zone, the decedent's income tax liability is abated (forgiven) for the entire year in which death occurred and for any prior tax year ending on or after the first day the person served in a combat zone in active service. H&r block advantage For this purpose, a qualified hazardous duty area is treated as a combat zone. H&r block advantage If the tax (including interest, additions to the tax, and additional amounts) for these years has been assessed, the assessment will be forgiven. H&r block advantage If the tax has been collected (regardless of the date of collection), that tax will be credited or refunded. H&r block advantage Any of the decedent's income tax for tax years before those mentioned above that remains unpaid as of the actual (or presumptive) date of death will not be assessed. H&r block advantage If any unpaid tax (including interest, additions to the tax, and additional amounts) has been assessed, this assessment will be forgiven. H&r block advantage Also, if any tax was collected after the date of death, that amount will be credited or refunded. H&r block advantage The date of death of a member of the Armed Forces reported as missing in action or as a prisoner of war is the date his or her name is removed from missing status for military pay purposes. H&r block advantage This is true even if death actually occurred earlier. H&r block advantage For other tax information for members of the Armed Forces, see Publication 3, Armed Forces' Tax Guide. H&r block advantage Military or Terrorist Actions The decedent's income tax liability is forgiven if, at death, he or she was a military or civilian employee of the United States who died because of wounds or injury incurred: While a U. H&r block advantage S. H&r block advantage employee, and In a military or terrorist action. H&r block advantage The forgiveness applies to the tax year in which death occurred and for any earlier tax year, beginning with the year before the year in which the wounds or injury occurred. H&r block advantage Example. H&r block advantage The income tax liability of a civilian employee of the United States who died in 2013 because of wounds incurred while a U. H&r block advantage S. H&r block advantage employee in a terrorist attack that occurred in 2008 will be forgiven for 2013 and for all prior tax years in the period 2007 through 2012. H&r block advantage Refunds are allowed for the tax years for which the period for filing a claim for refund has not ended, as discussed later. H&r block advantage Military or terrorist action defined. H&r block advantage   A military or terrorist action means the following. H&r block advantage Any terrorist activity that most of the evidence indicates was directed against the United States or any of its allies. H&r block advantage Any military action involving the U. H&r block advantage S. H&r block advantage Armed Forces and resulting from violence or aggression against the United States or any of its allies, or the threat of such violence or aggression. H&r block advantage   Terrorist activity includes criminal offenses intended to coerce, intimidate, or retaliate against the government or civilian population. H&r block advantage Military action does not include training exercises. H&r block advantage Any multinational force in which the United States is participating is treated as an ally of the United States. H&r block advantage Determining if a terrorist activity or military action has occurred. H&r block advantage   You may rely on published guidance from the IRS to determine if a particular event is considered a terrorist activity or military action. H&r block advantage Specified Terrorist Victim The Victims of Terrorism Tax Relief Act of 2001 (the Act) provides tax relief for those injured or killed as a result of terrorist attacks, certain survivors of those killed as a result of terrorist attacks, and others who were affected by terrorist attacks. H&r block advantage Under the Act, the federal income tax liability of those killed in the following attacks (specified terrorist victim) is forgiven for certain tax years. H&r block advantage The April 19, 1995, terrorist attack on the Alfred P. H&r block advantage Murrah Federal Building (Oklahoma City). H&r block advantage The September 11, 2001, terrorist attacks. H&r block advantage The terrorist attacks involving anthrax occurring after September 10, 2001, and before January 1, 2002. H&r block advantage The Act also exempts from federal income tax the following types of income. H&r block advantage Qualified disaster relief payments made after September 10, 2001, to cover personal, family, living, or funeral expenses incurred because of a terrorist attack. H&r block advantage Certain disability payments received in tax years ending after September 10, 2001, for injuries sustained in a terrorist attack. H&r block advantage Certain death benefits paid by an employer to the survivor of an employee because the employee died as a result of a terrorist attack. H&r block advantage Payments from the September 11th Victim Compensation Fund 2001. H&r block advantage The Act also reduces the estate tax of individuals who die as a result of a terrorist attack. H&r block advantage See Publication 3920, Tax Relief for Victims of Terrorist Attacks, for more information. H&r block advantage Astronauts Legislation extended the tax relief available under the Victims of Terrorism Tax Relief Act of 2001 (the Act) to astronauts who died in the line of duty after December 31, 2002. H&r block advantage The decedent's income tax liability is forgiven for the tax year in which death occurs, and for the tax year prior to death. H&r block advantage For information on death benefit payments and the reduction of federal estate taxes, see Publication 3920. H&r block advantage However, the discussions in that publication under Death Benefits and Estate Tax Reduction should be modified for astronauts (for example, by using the date of death of the astronaut instead of September 11, 2001). H&r block advantage For more information on the Act, see Publication 3920. H&r block advantage Claim for Credit or Refund If any of these tax-forgiveness situations applies to a prior year tax, any tax paid for which the period for filing a claim has not ended will be credited or refunded. H&r block advantage If any tax is still due, it will be canceled. H&r block advantage The normal period for filing a claim for credit or refund is 3 years after the return was filed or 2 years after the tax was paid, whichever is later. H&r block advantage If death occurred in a combat zone or from wounds, disease, or injury incurred in a combat zone, the period for filing the claim is extended by: The amount of time served in the combat zone (including any period in which the individual was in missing status), plus The period of continuous qualified hospitalization for injury from service in the combat zone, if any, plus The next 180 days. H&r block advantage Qualified hospitalization means any hospitalization outside the United States and any hospitalization in the United States of not more than 5 years. H&r block advantage This extended period for filing the claim also applies to a member of the Armed Forces who was deployed outside the United States in a designated contingency operation. H&r block advantage Filing a claim. H&r block advantage   Use the following procedures to file a claim. H&r block advantage If a U. H&r block advantage S. H&r block advantage individual income tax return (Form 1040, 1040A, or 1040EZ) has not been filed, you should make a claim for refund of any withheld income tax or estimated tax payments by filing Form 1040. H&r block advantage Form W-2, Wage and Tax Statement, must accompany all returns. H&r block advantage If a U. H&r block advantage S. H&r block advantage individual income tax return has been filed, you should make a claim for refund by filing Form 1040X. H&r block advantage You must file a separate Form 1040X for each year in question. H&r block advantage   You must file these returns and claims at the following address for regular mail (U. H&r block advantage S. H&r block advantage Postal Service). H&r block advantage    Internal Revenue Service 333 W. H&r block advantage Pershing, P5–6503 Kansas City, MO 64108   Identify all returns and claims for refund by writing “Iraq—KIA,” “Enduring Freedom—KIA,” “Kosovo Operation—KIA,” “Desert Storm—KIA,” or “Former Yugoslavia—KIA” in bold letters on the top of page 1 of the return or claim. H&r block advantage On the applicable return, write the same phrase on the line for total tax. H&r block advantage If the individual was killed in a terrorist or military action, put “KITA” on the front of the return and on the line for total tax. H&r block advantage   Include an attachment showing the computation of the decedent's tax liability and a computation of the amount to be forgiven. H&r block advantage On joint returns, make an allocation of the tax as described below under Joint returns. H&r block advantage If you cannot make a proper allocation, attach a statement of all income and deductions allocable to each spouse and the IRS will make the proper allocation. H&r block advantage   You must attach Form 1310 to all returns and claims for refund. H&r block advantage However, for exceptions to filing Form 1310, see Form 1310. H&r block advantage Statement of Person Claiming Refund Due a Deceased Taxpayer, under Refund, earlier. H&r block advantage   You must also attach proof of death that includes a statement that the individual was a U. H&r block advantage S. H&r block advantage employee on the date of injury and on the date of death and died as the result of a military or terrorist action. H&r block advantage For military and civilian employees of the Department of Defense, attach DD Form 1300, Report of Casualty. H&r block advantage For other U. H&r block advantage S. H&r block advantage civilian employees killed in the United States, attach a death certificate and a certification (letter) from the federal employer. H&r block advantage For other U. H&r block advantage S. H&r block advantage civilian employees killed overseas, attach a certification from the Department of State. H&r block advantage   If you do not have enough tax information to file a timely claim for refund, you can suspend the period for filing a claim by filing Form 1040X. H&r block advantage Attach Form 1310, any required documentation currently available, and a statement that you will file an amended claim as soon as you have the required tax information. H&r block advantage Joint returns. H&r block advantage   If a joint return was filed, only the decedent's part of the income tax liability is eligible for forgiveness. H&r block advantage Determine the decedent's tax liability as follows. H&r block advantage Figure the income tax for which the decedent would have been liable if a separate return had been filed. H&r block advantage Figure the income tax for which the spouse would have been liable if a separate return had been filed. H&r block advantage Multiply the joint tax liability by a fraction. H&r block advantage The numerator of the fraction is the amount in (1), above. H&r block advantage The denominator of the fraction is the total of (1) and (2). H&r block advantage   The resulting amount from (3) above is the decedent's tax liability eligible for forgiveness. H&r block advantage Filing Reminders To minimize the time needed to process the decedent's final return and issue any refund, be sure to follow these procedures. H&r block advantage Write “DECEASED,” the decedent's name, and the date of death across the top of the tax return. H&r block advantage If a personal representative has been appointed, the personal representative must sign the return. H&r block advantage If it is a joint return, the surviving spouse must also sign it. H&r block advantage If you are the decedent's spouse filing a joint return with the decedent and no personal representative has been appointed, write “Filing as surviving spouse” in the area where you sign the return. H&r block advantage If no personal representative has been appointed and if there is no surviving spouse, the person in charge of the decedent's property must file and sign the return as “personal representative. H&r block advantage ” To claim a refund for the decedent, do the following. H&r block advantage If you are the decedent's spouse filing a joint return with the decedent, file only the tax return to claim the refund. H&r block advantage If you are the personal representative and the return is not a joint return filed with the decedent's surviving spouse, file the return and attach a copy of the certificate that shows your appointment by the court. H&r block advantage (A power of attorney or a copy of the decedent's will is not acceptable evidence of your appointment as the personal representative. H&r block advantage ) If you are filing an amended return, attach Form 1310 and a copy of the certificate of appointment (or, if you have already sent the certificate of appointment to IRS, write “Certificate Previously Filed” at the bottom of Form 1310). H&r block advantage If you are not filing a joint return as the surviving spouse and a personal representative has not been appointed, file the return and attach Form 1310. H&r block advantage Other Tax Information Discussed below is information about the effect of an individual's death on the income tax liability of the survivors (including widows and widowers), the beneficiaries, and the estate. H&r block advantage Tax Benefits for Survivors Survivors can qualify for certain benefits when filing their own income tax returns. H&r block advantage Joint return by surviving spouse. H&r block advantage   A surviving spouse can file a joint return for the year of death and may qualify for special tax rates for the following 2 years, as explained under Qualifying widows and widowers, later. H&r block advantage Decedent as your dependent. H&r block advantage   If the decedent qualified as your dependent for a part of the year before death, you can claim the exemption for the dependent on your tax return, regardless of when death occurred during the year. H&r block advantage   If the decedent was your qualifying child, you may be able to claim the child tax credit or the earned income credit. H&r block advantage To determine if you qualify for the child tax credit, see the instructions for Form 1040, line 51; Form 1040A, line 33; or Form 1040NR, line 48. H&r block advantage To determine if you qualify for the earned income credit, see the instructions for Form 1040, lines 64a and 64b or Form 1040A, lines 38a and 38b. H&r block advantage Qualifying widows and widowers. H&r block advantage   If your spouse died within the 2 tax years preceding the year for which your return is being filed, you may be eligible to claim the filing status of qualifying widow(er) with dependent child and qualify to use the married-filing-jointly tax rates. H&r block advantage Requirements. H&r block advantage   Generally, you qualify for this special benefit if you meet all of the following requirements. H&r block advantage You were entitled to file a joint return with your spouse for the year of death—whether or not you actually filed jointly. H&r block advantage You did not remarry before the end of the current tax year. H&r block advantage You have a child, stepchild, or foster child who qualifies as your dependent for the tax year. H&r block advantage You provide more than half the cost of maintaining your home, which is the principal residence of that child for the entire year except for temporary absences. H&r block advantage Example. H&r block advantage William Burns' wife died in 2010. H&r block advantage William has not remarried and continued throughout 2011 and 2012 to maintain a home for himself and his dependent child. H&r block advantage For 2010, he was entitled to file a joint return for himself and his deceased wife. H&r block advantage For 2011 and 2012, he qualifies to file as a qualifying widower with dependent child. H&r block advantage For later years, he may qualify to file as a head of household. H&r block advantage Figuring your tax. H&r block advantage   Check the box on line 5 (Form 1040 or 1040A) under Filing Status on your tax return. H&r block advantage Use the Tax Rate Schedule or the column in the Tax Table for Married filing jointly, which gives you the split-income benefits. H&r block advantage   The last year you can file jointly with, or claim an exemption for, your deceased spouse is the year of death. H&r block advantage Joint return filing rules. H&r block advantage   If you are the surviving spouse and a personal representative is handling the estate for the decedent, you should coordinate filing your return for the year of death with this personal representative. H&r block advantage See Joint Return under Final Income Tax Return for Decedent—Form 1040, earlier. H&r block advantage Income in Respect of a Decedent All income the decedent would have received had death not occurred that was not properly includible on the final return, discussed earlier, is income in respect of a decedent. H&r block advantage If the decedent is a specified terrorist victim (see Specified Terrorist Victim, earlier), income received after the date of death and before the end of the decedent's tax year (determined without regard to death) is excluded from the recipient's gross income. H&r block advantage This exclusion does not apply to certain income. H&r block advantage For more information, see Publication 3920. H&r block advantage How To Report Income in respect of a decedent must be included in the income of one of the following. H&r block advantage The decedent's estate, if the estate receives it. H&r block advantage The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it. H&r block advantage Any person to whom the estate properly distributes the right to receive it. H&r block advantage If you have to include income in respect of a decedent in your gross income and an estate tax return (Form 706) was filed for the decedent, you may be able to claim a deduction for the estate tax paid on that income. H&r block advantage See Estate Tax Deduction, later. H&r block advantage Example 1. H&r block advantage Frank Johnson owned and operated an apple orchard. H&r block advantage He used the cash method of accounting. H&r block advantage He sold and delivered 1,000 bushels of apples to a canning factory for $2,000, but did not receive payment before his death. H&r block advantage The proceeds from the sale are income in respect of a decedent. H&r block advantage When the estate was settled, payment had not been made and the estate transferred the right to the payment to his widow. H&r block advantage When Frank's widow collects the $2,000, she must include that amount in her return. H&r block advantage It is not reported on the final return of the decedent or on the return of the estate. H&r block advantage Example 2. H&r block advantage Assume the same facts as in Example 1, except that Frank used the accrual method of accounting. H&r block advantage The amount accrued from the sale of the apples would be included on his final return. H&r block advantage Neither the estate nor the widow would realize income in respect of a decedent when the money is later paid. H&r block advantage Example 3. H&r block advantage On February 1, George High, a cash method taxpayer, sold his tractor for $3,000, payable March 1 of the same year. H&r block advantage His adjusted basis in the tractor was $2,000. H&r block advantage George died on February 15, before receiving payment. H&r block advantage The gain to be reported as income in respect of a decedent is the $1,000 difference between the decedent's basis in the property and the sale proceeds. H&r block advantage In other words, the income in respect of a decedent is the gain the decedent would have realized had he lived. H&r block advantage Example 4. H&r block advantage Cathy O'Neil was entitled to a large salary payment at the date of her death. H&r block advantage The amount was to be paid in five annual installments. H&r block advantage The estate, after collecting two installments, distributed the right to the remaining installments to you, the beneficiary. H&r block advantage The payments are income in respect of a decedent. H&r block advantage None of the payments were includible on Cathy's final return. H&r block advantage The estate must include in its income the two installments it received, and you must include in your income each of the three installments as you receive them. H&r block advantage Example 5. H&r block advantage You inherited the right to receive renewal commissions on life insurance sold by your father before his death. H&r block advantage You inherited the right from your mother, who acquired it by bequest from your father. H&r block advantage Your mother died before she received all the commissions she had the right to receive, so you received the rest. H&r block advantage The commissions are income in respect of a decedent. H&r block advantage None of these commissions were includible in your father's final return. H&r block advantage The commissions received by your mother were included in her income. H&r block advantage The commissions you received are not includible in your mother's income, even on her final return. H&r block advantage You must include them in your income. H&r block advantage Character of income. H&r block advantage   The character of the income you receive in respect of a decedent remains the same as it would have been to the decedent if he or she were alive. H&r block advantage If the income would have been a capital gain to the decedent, it will be a capital gain to you. H&r block advantage Transfer of right to income. H&r block advantage   If you transfer your right to income in respect of a decedent, you must include in your income the greater of: The amount you receive for the right, or The fair market value of the right you transfer. H&r block advantage   If you make a gift of such a right, you must include in your income the fair market value of the right at the time of the gift. H&r block advantage   If the right to income from an installment obligation is transferred, the amount you must include in income is reduced by the basis of the obligation. H&r block advantage See Installment obligations, later. H&r block advantage Transfer defined. H&r block advantage   A transfer for this purpose includes a sale, exchange, or other disposition, the satisfaction of an installment obligation at other than face value, or the cancellation of an installment obligation. H&r block advantage Installment obligations. H&r block advantage   If the decedent sold property using the installment method and you are collecting payments on an installment obligation acquired from the decedent, use the same gross profit percentage the decedent used to figure the part of each payment that represents profit. H&r block advantage Include in your income the same profit the decedent would have included had death not occurred. H&r block advantage For more information, see Publication 537, Installment Sales. H&r block advantage   If you dispose of an installment obligation acquired from a decedent (other than by transfer to the obligor), the rules explained in Publication 537 for figuring gain or loss on the disposition apply to you. H&r block advantage Transfer to obligor. H&r block advantage   A transfer of a right to income, discussed earlier, has occurred if the decedent (seller) sold property using the installment method and the installment obligation was transferred to the obligor (buyer or person legally obligated to pay the installments). H&r block advantage A transfer also occurs if the obligation was canceled either at death or by the estate or person receiving the obligation from the decedent. H&r block advantage An obligation that becomes unenforceable is treated as having been canceled. H&r block advantage   If such a transfer occurs, the amount included in the income of the transferor (the estate or beneficiary) is the greater of the amount received or the fair market value of the installment obligation at the time of transfer, reduced by the basis of the obligation. H&r block advantage The basis of the obligation is the decedent's basis, adjusted for all installment payments received after the decedent's death and before the transfer. H&r block advantage   If the decedent and obligor were related persons, the fair market value of the obligation cannot be less than its face value. H&r block advantage Specific Types of Income in Respect of a Decedent This section explains and provides examples of some specific types of income in respect of a decedent. H&r block advantage Wages. H&r block advantage   The entire amount of wages or other employee compensation earned by the decedent but unpaid at the time of death is income in respect of a decedent. H&r block advantage The income is not reduced by any amounts withheld by the employer. H&r block advantage If the income is $600 or more, the employer should report it in box 3 of Form 1099-MISC, Miscellaneous Income, and give the recipient a copy of the form or a similar statement. H&r block advantage   Wages paid as income in respect of a decedent are not subject to federal income tax withholding. H&r block advantage However, if paid during the calendar year of death, they are subject to withholding for social security and Medicare taxes. H&r block advantage These taxes should be included on the decedent's Form W-2 along with the taxes withheld before death. H&r block advantage These wages are not included in box 1 of Form W-2. H&r block advantage   Wages paid as income in respect of a decedent after the year of death generally are not subject to withholding for any federal taxe
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The H&r Block Advantage

H&r block advantage Publication 556 - Main Content Table of Contents Examination of ReturnsIf Your Return Is Examined Interest Netting Abatement of Interest Due to Error or Delay by the IRS Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions Offer in Compromise Appeal RightsAppeal Within the IRS Appeals to the Courts Refund or Credit of Overpayments Before Final Determination Claims for RefundTime for Filing a Claim for Refund Limit on Amount of Refund Processing Claims for Refund Reduced Refund How To Get Tax Help Examination of Returns Your return may be examined for a variety of reasons, and the examination may take place in any one of several ways. H&r block advantage After the examination, if any changes to your tax are proposed, you can either agree with those changes and pay any additional tax you may owe, or you can disagree with the changes and appeal the decision. H&r block advantage Examination selection criteria. H&r block advantage   Your return may be selected for examination on the basis of computer scoring. H&r block advantage A computer program called the Discriminant Inventory Function System (DIF) assigns a numeric score to each individual and some corporate tax returns after they have been processed. H&r block advantage If your return is selected because of a high score under the DIF system, the potential is high that an examination of your return will result in a change to your income tax liability. H&r block advantage   Your return may also be selected for examination on the basis of information received from third-party documentation, such as Forms 1099 and W-2, that does not match the information reported on your return. H&r block advantage Or, your return may be selected to address both the questionable treatment of an item and to study the behavior of similar taxpayers (a market segment) in handling a tax issue. H&r block advantage   In addition, your return may be selected as a result of information received from other sources on potential noncompliance with the tax laws or inaccurate filing. H&r block advantage This information can come from a number of sources, including newspapers, public records, and individuals. H&r block advantage The information is evaluated for reliability and accuracy before it is used as the basis of an examination or investigation. H&r block advantage Notice of IRS contact of third parties. H&r block advantage    The IRS must give you reasonable notice before contacting other persons about your tax matters. H&r block advantage You must be given reasonable notice in advance that, in examining or collecting your tax liability, the IRS may contact third parties such as your neighbors, banks, employers, or employees. H&r block advantage The IRS must also give you notice of specific contacts by providing you with a record of persons contacted on both a periodic basis and upon your request. H&r block advantage    This provision does not apply: To any pending criminal investigation, When providing notice would jeopardize collection of any tax liability, Where providing notice may result in reprisal against any person, or When you authorized the contact. H&r block advantage Taxpayer Advocate Service. H&r block advantage   The Taxpayer Advocate Service is an independent organization within the IRS whose goal is to help taxpayers resolve problems with the IRS. H&r block advantage If you have an ongoing issue with the IRS that has not been resolved through normal processes, or your problems with the IRS are causing financial difficulty, contact the Taxpayer Advocate Service. H&r block advantage    Before contacting the Taxpayer Advocate Service, you should first discuss any problem with a supervisor. H&r block advantage Your local Taxpayer Advocate will assist you if you are unable to resolve the problem with the supervisor. H&r block advantage   For more information, see Publication 1546. H&r block advantage See How To Get Tax Help , near the end of this publication, for more information about contacting the Taxpayer Advocate Service. H&r block advantage Comments from small business. H&r block advantage    The Small Business and Agricultural Regulatory Enforcement Ombudsman and 10 Regional Fairness Boards have been established to receive comments from small business about federal agency enforcement actions. H&r block advantage The Ombudsman will annually evaluate the enforcement activities of each agency and rate their responsiveness to small business. H&r block advantage If you wish to comment on the enforcement actions of the IRS, you can take any of the following steps. H&r block advantage Fax your comments to 1-202-481-5719. H&r block advantage Write to the following address: Office of the National Ombudsman U. H&r block advantage S. H&r block advantage Small Business Administration 409 3rd Street, SW Washington, DC 20416 Call 1-888-734-3247. H&r block advantage Send an email to ombudsman@sba. H&r block advantage gov. H&r block advantage File a comment or complaint online at www. H&r block advantage sba. H&r block advantage gov/ombudsman. H&r block advantage If Your Return Is Examined Some examinations are handled entirely by mail. H&r block advantage Examinations not handled by mail can take place in your home, your place of business, an Internal Revenue office, or the office of your authorized representative. H&r block advantage If the time, place, or method is not convenient for you, the examiner will try to work out something more suitable. H&r block advantage However, the IRS makes the final determination of when, where, and how the examination will take place. H&r block advantage Throughout the examination, you can act on your own behalf or have someone represent you or accompany you. H&r block advantage If you filed a joint return, either you or your spouse, or both, can meet with the IRS. H&r block advantage The person representing you can be any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled agent (a person enrolled to practice before the IRS), an enrolled actuary, or the person who prepared the return and signed it as the preparer. H&r block advantage If you want someone to represent you in your absence, you must furnish that person with proper written authorization. H&r block advantage You can use Form 2848 or any other properly written authorization. H&r block advantage If you want to consult with an attorney, a certified public accountant, an enrolled agent, or any other person permitted to represent a taxpayer during an interview for examining a tax return or collecting tax, you should make arrangements with that person to be available for the interview. H&r block advantage In most cases, the IRS must suspend the interview and reschedule it. H&r block advantage The IRS cannot suspend the interview if you are there because of an administrative summons. H&r block advantage Third party authorization. H&r block advantage   If you checked the box in the signature area of your income tax return (Form 1040, Form 1040A, or Form 1040EZ) to allow the IRS to discuss your return with another person (a third party designee), this authorization does not replace Form 2848. H&r block advantage The box you checked on your return only authorizes the other person to receive information about the processing of your return and the status of your refund during the period your return is being processed. H&r block advantage For more information, see the instructions for your return. H&r block advantage Confidentiality privilege. H&r block advantage   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. H&r block advantage   Confidential communications are those that: Advise you on tax matters within the scope of the practitioner's authority to practice before the IRS, Would be confidential between an attorney and you, and Relate to noncriminal tax matters before the IRS, or Relate to noncriminal tax proceedings brought in federal court by or against the United States. H&r block advantage   In the case of communications in connection with the promotion of a person's participation in a tax shelter, the confidentiality privilege does not apply to written communications between a federally authorized practitioner and that person, any director, officer, employee, agent, or representative of that person, or any other person holding a capital or profits interest in that person. H&r block advantage   A tax shelter is any entity, plan, or arrangement, a significant purpose of which is the avoidance or evasion of income tax. H&r block advantage Recordings. H&r block advantage    You can make an audio recording of the examination interview. H&r block advantage Your request to record the interview should be made in writing. H&r block advantage You must notify the examiner 10 days in advance and bring your own recording equipment. H&r block advantage The IRS also can record an interview. H&r block advantage If the IRS initiates the recording, you must be notified 10 days in advance and you can get a copy of the recording at your expense. H&r block advantage Transfers to another area. H&r block advantage    Generally, your return is examined in the area where you live. H&r block advantage But if your return can be examined more quickly and conveniently in another area, such as where your books and records are located, you can ask to have the case transferred to that area. H&r block advantage Repeat examinations. H&r block advantage    The IRS tries to avoid repeat examinations of the same items, but sometimes this happens. H&r block advantage If your tax return was examined for the same items in either of the 2 previous years and no change was proposed to your tax liability, please contact the IRS as soon as possible to see if the examination should be discontinued. H&r block advantage The Examination An examination usually begins when you are notified that your return has been selected. H&r block advantage The IRS will tell you which records you will need. H&r block advantage The examination can proceed more easily if you gather your records before any interview. H&r block advantage Any proposed changes to your return will be explained to you or your authorized representative. H&r block advantage It is important that you understand the reasons for any proposed changes. H&r block advantage You should not hesitate to ask about anything that is unclear to you. H&r block advantage The IRS must follow the tax laws set forth by Congress in the Internal Revenue Code. H&r block advantage The IRS also follows Treasury Regulations, other rules, and procedures that were written to administer the tax laws and court decisions. H&r block advantage However, the IRS can lose cases that involve taxpayers with the same issue and still apply its interpretation of the law to your situation. H&r block advantage Most taxpayers agree to changes proposed by examiners, and the examinations are closed at this level. H&r block advantage If you do not agree, you can appeal any proposed change by following the procedures provided to you by the IRS. H&r block advantage A more complete discussion of appeal rights is found later under Appeal Rights . H&r block advantage If You Agree If you agree with the proposed changes, you can sign an agreement form and pay any additional tax you may owe. H&r block advantage You must pay interest on any additional tax. H&r block advantage If you pay when you sign the agreement, the interest is generally figured from the due date of your return (excluding any extension of time to file) to the date of your payment. H&r block advantage If you do not pay the additional tax when you sign the agreement, you will receive a bill that includes interest. H&r block advantage If you pay the amount due within 10 business days of the billing date, you will not have to pay more interest or penalties. H&r block advantage This period is extended to 21 calendar days if the amount due is less than $100,000. H&r block advantage If you are due a refund, you will receive it sooner if you sign the agreement form. H&r block advantage You will be paid interest on the refund. H&r block advantage If the IRS accepts your tax return as filed, you will receive a letter in a few weeks stating that the examiner proposed no changes to your return. H&r block advantage You should keep this letter with your tax records. H&r block advantage If You Do Not Agree If you do not agree with the proposed changes, the examiner will explain your appeal rights. H&r block advantage If your examination takes place in an IRS office, you can request an immediate meeting with the examiner's supervisor to explain your position. H&r block advantage If an agreement is reached, your case will be closed. H&r block advantage If you cannot reach an agreement with the supervisor at this meeting, or if the examination took place outside of an IRS office, the examiner will write up your case explaining your position and the IRS's position. H&r block advantage The examiner will forward your case for processing. H&r block advantage Fast track mediation. H&r block advantage   The IRS offers fast track mediation services to help taxpayers resolve many disputes resulting from: Examinations (audits), Offers in compromise, Trust fund recovery penalties, and Other collection actions. H&r block advantage   Most cases that are not docketed in any court qualify for fast track mediation. H&r block advantage Mediation can take place at a conference you request with a supervisor, or later. H&r block advantage The process involves an Appeals Officer who has been trained in mediation. H&r block advantage You may represent yourself at the mediation session, or someone else can act as your representative. H&r block advantage For more information, see Publication 3605. H&r block advantage 30-day letter and 90-day letter. H&r block advantage   Within a few weeks after your closing conference with the examiner and/or supervisor, you will receive a package with: A letter (known as a 30-day letter) notifying you of your right to appeal the proposed changes within 30 days, A copy of the examination report explaining the examiner's proposed changes, An agreement or waiver form, and A copy of Publication 5. H&r block advantage You generally have 30 days from the date of the 30-day letter to tell the IRS whether you will accept or appeal the proposed changes. H&r block advantage The letter will explain what steps you should take, depending on which action you choose. H&r block advantage Be sure to follow the instructions carefully. H&r block advantage Appeal Rights are explained later. H&r block advantage 90-day letter. H&r block advantage   If you do not respond to the 30-day letter, or if you later do not reach an agreement with an Appeals Officer, the IRS will send you a 90-day letter, which is also known as a notice of deficiency. H&r block advantage You will have 90 days (150 days if it is addressed to you outside the United States) from the date of this notice to file a petition with the Tax Court. H&r block advantage Filing a petition with the Tax Court is discussed later under Appeals to the Courts and Tax Court . H&r block advantage The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. H&r block advantage Suspension of interest and penalties. H&r block advantage   Generally, the IRS has 3 years from the date you filed your return (or the date the return was due, if later) to assess any additional tax. H&r block advantage However, if you file your return timely (including extensions), interest and certain penalties will be suspended if the IRS does not mail a notice to you, stating your liability and the basis for that liability, within a 36-month period beginning on the later of: The date on which you filed your tax return, or The due date (without extensions) of your tax return. H&r block advantage If the IRS mails a notice after the 36-month period, interest and certain penalties applicable to the suspension period will be suspended. H&r block advantage   The suspension period begins the day after the close of the 36-month period and ends 21 days after the IRS mails a notice to you stating your liability and the basis for that liability. H&r block advantage Also, the suspension period applies separately to each notice stating your liability and the basis for that liability received by you. H&r block advantage    The suspension does not apply to a: Failure-to-pay penalty, Fraudulent tax return, Penalty, interest, addition to tax, or additional amount with respect to any tax liability shown on your return or with respect to any gross misstatement, Penalty, interest, addition to tax, or additional amount with respect to any reportable transaction that is not adequately disclosed or any listed transaction, or Criminal penalty. H&r block advantage Seeking relief from improperly assessed interest. H&r block advantage   You can seek relief if interest is assessed for periods during which interest should have been suspended because the IRS did not mail a notice to you in a timely manner. H&r block advantage   If you believe that interest was assessed with respect to a period during which interest should have been suspended, submit Form 843, writing “Section 6404(g) Notification” at the top of the form, with the IRS Service Center where you filed your return. H&r block advantage The IRS will review the Form 843 and notify you whether interest will be abated. H&r block advantage If the IRS does not abate interest, you can pay the disputed interest assessment and file a claim for refund. H&r block advantage If your claim is denied or not acted upon within 6 months from the date you filed it, you can file suit for a refund in your United States District Court or in the United States Court of Federal Claims. H&r block advantage   If you believe that an IRS officer or employee has made an unreasonable error or delay in performing a ministerial or managerial act (discussed later under Abatement of Interest Due to Error or Delay by the IRS ), file Form 843 with the IRS Service Center where you filed the tax return. H&r block advantage If the IRS denies your claim, the Tax Court may be able to review that determination. H&r block advantage See Tax Court can review failure to abate interest later under Abatement of Interest Due to Error or Delay by the IRS . H&r block advantage If you later agree. H&r block advantage    If you agree with the examiner's changes after receiving the examination report or the 30-day letter, sign and return either the examination report or the waiver form. H&r block advantage Keep a copy for your records. H&r block advantage You can pay any additional amount you owe without waiting for a bill. H&r block advantage Include interest on the additional tax at the applicable rate. H&r block advantage This interest rate is usually for the period from the due date of the return (excluding any extension of time to file) to the date of payment. H&r block advantage The examiner can tell you the interest rate(s) or help you figure the amount. H&r block advantage   You must pay interest on penalties and additions to tax for failing to file returns, for overstating valuations, for understating valuations on estate and gift tax returns, and for substantially understating tax liability. H&r block advantage Interest is generally figured from the date (including extensions) the tax return is required to be filed to the date you pay the penalty and/or additions to tax. H&r block advantage   If you pay the amount due within 10 business days after the date of notice and demand for immediate payment, you will not have to pay any additional penalties and interest. H&r block advantage This period is extended to 21 calendar days if the amount due is less than $100,000. H&r block advantage How To Stop Interest From Accruing If you think that you will owe additional tax at the end of the examination, you can stop the further accrual of interest by sending money to the IRS to cover all or part of the amount you think you will owe. H&r block advantage Interest on part or all of any amount you owe will stop accruing on the date the IRS receives your money. H&r block advantage You can send an amount either in the form of a deposit in the nature of a cash bond or as a payment of tax. H&r block advantage Both a deposit and a payment stop any further accrual of interest. H&r block advantage However, making a deposit or payment will stop the accrual of interest on only the amount you sent. H&r block advantage Because of compounding rules, interest will continue to accrue on accrued interest, even though you have paid the underlying tax. H&r block advantage To stop the accrual of interest on both tax and interest, you must make a deposit or payment for both the tax and interest that has accrued as of the date of deposit or payment. H&r block advantage Payment or Deposit Deposits differ from payments in two ways: You can have all or part of your deposit returned to you without filing for a refund. H&r block advantage However, if you request and receive your deposit and the IRS later assesses a deficiency for that period and type of tax, interest will be figured as if the funds were never on deposit. H&r block advantage Also, your deposit will not be returned if one of the following situations applies: The IRS assesses a tax liability. H&r block advantage The IRS determines that, by returning the deposit, it may not be able to collect a future deficiency. H&r block advantage The IRS determines that the deposit should be applied against another tax liability. H&r block advantage Deposits returned to you will include interest based on the Federal short-term rate determined under section 6621(b). H&r block advantage The deposit returned will be treated as a tax payment to the extent of the disputed tax. H&r block advantage A disputed tax means the amount of tax specified at the time of deposit as a reasonable estimate of the maximum amount of any tax owed by you, such as the deficiency proposed in the 30-day letter. H&r block advantage Notice not mailed. H&r block advantage    If you send money before the IRS mails you a notice of deficiency, you can ask the IRS to treat it as a deposit. H&r block advantage You must make your request in writing. H&r block advantage   If, after being notified of a proposed liability but before the IRS mails you a notice of deficiency, you send an amount large enough to cover the proposed liability, it will be considered a payment unless you request in writing that it be treated as a deposit. H&r block advantage Keep copies of all correspondence you send to the IRS. H&r block advantage   If the amount you send is at least as much as the proposed liability and you do not request that it be treated as a deposit, the IRS will not send you a notice of deficiency. H&r block advantage If you do not receive a notice of deficiency, you cannot take your case to the Tax Court. H&r block advantage See Tax Court , later under Appeal Rights . H&r block advantage Notice mailed. H&r block advantage    If, after the IRS mails the notice of deficiency, you send money without written instructions, it will be treated as a payment. H&r block advantage You will still be able to petition the Tax Court. H&r block advantage   If you send money after receiving a notice of deficiency and you have specified in writing that it is a “deposit in the nature of a cash bond,” the IRS will treat it as a deposit if you send it before either: The close of the 90-day or 150-day period for filing a petition with the Tax Court to appeal the deficiency, or The date the Tax Court decision is final, if you have filed a petition. H&r block advantage Using a Deposit To Pay the Tax If you agree with the examiner's proposed changes after the examination, your deposit will be applied against any amount you may owe. H&r block advantage The IRS will not mail you a notice of deficiency and you will not have the right to take your case to the Tax Court. H&r block advantage If you do not agree to the full amount of the deficiency after the examination, the IRS will mail you a notice of deficiency. H&r block advantage Your deposit will be applied against the proposed deficiency unless you write to the IRS before the end of the 90-day or 150-day period stating that you still want the money to be treated as a deposit. H&r block advantage You will still have the right to take your case to the Tax Court. H&r block advantage Installment Agreement Request You can request a monthly installment plan if you cannot pay the full amount you owe. H&r block advantage To be valid, your request must be approved by the IRS. H&r block advantage However, if you owe $10,000 or less in tax and you meet certain other criteria, the IRS must accept your request. H&r block advantage Before you request an installment agreement, you should consider other less costly alternatives, such as a bank loan. H&r block advantage You will continue to be charged interest and penalties on the amount you owe until it is paid in full. H&r block advantage Unless your income is below a certain level, the fee for an approved installment agreement has increased to $105 ($52 if you make your payments by electronic funds withdrawal). H&r block advantage If your income is below a certain level, you may qualify to pay a reduced fee of $43. H&r block advantage For more information about installment agreements, see Form 9465, Installment Agreement Request. H&r block advantage Interest Netting If you owe interest to the IRS on an underpayment for the same period the IRS owes you interest on an overpayment, the IRS will figure interest on the underpayment and overpayment at the same interest rate (up to the amount of the overpayment). H&r block advantage As a result, the net rate is zero for that period. H&r block advantage Abatement of Interest Due to Error or Delay by the IRS The IRS may abate (reduce) the amount of interest you owe if the interest is due to an unreasonable error or delay by an IRS officer or employee in performing a ministerial or managerial act (discussed later). H&r block advantage Only the amount of interest on income, estate, gift, generation-skipping, and certain excise taxes can be reduced. H&r block advantage The amount of interest will not be reduced if you or anyone related to you contributed significantly to the error or delay. H&r block advantage Also, the interest will be reduced only if the error or delay happened after the IRS contacted you in writing about the deficiency or payment on which the interest is based. H&r block advantage An audit notification letter is such a contact. H&r block advantage The IRS cannot reduce the amount of interest due to a general administrative decision, such as a decision on how to organize the processing of tax returns. H&r block advantage Ministerial act. H&r block advantage    This is a procedural or mechanical act, not involving the exercise of judgment or discretion, during the processing of a case after all prerequisites (for example, conferences and review by supervisors) have taken place. H&r block advantage A decision concerning the proper application of federal tax law (or other federal or state law) is not a ministerial act. H&r block advantage Example 1. H&r block advantage You move from one state to another before the IRS selects your tax return for examination. H&r block advantage A letter stating that your return has been selected is sent to your old address and then forwarded to your new address. H&r block advantage When you get the letter, you respond with a request that the examination be transferred to the area office closest to your new address. H&r block advantage The examination group manager approves your request. H&r block advantage After your request has been approved, the transfer is a ministerial act. H&r block advantage The IRS can reduce the interest because of any unreasonable delay in transferring the case. H&r block advantage Example 2. H&r block advantage An examination of your return reveals tax due for which a notice of deficiency (90-day letter) will be issued. H&r block advantage After you and the IRS discuss the issues, the notice is prepared and reviewed. H&r block advantage After the review process, issuing the notice of deficiency is a ministerial act. H&r block advantage If there is an unreasonable delay in sending the notice of deficiency to you, the IRS can reduce the interest resulting from the delay. H&r block advantage Managerial act. H&r block advantage    This is an administrative act during the processing of a case that involves the loss of records or the exercise of judgment or discretion concerning the management of personnel. H&r block advantage A decision concerning the proper application of federal tax law (or other federal or state law) is not a managerial act. H&r block advantage Example. H&r block advantage A revenue agent is examining your tax return. H&r block advantage During the middle of the examination, the agent is sent to an extended training course. H&r block advantage The agent's supervisor decides not to reassign your case, so the work is unreasonably delayed until the agent returns. H&r block advantage Interest from the unreasonable delay can be abated since both the decision to send the agent to the training class and not to reassign the case are managerial acts. H&r block advantage How to request abatement of interest. H&r block advantage    You request an abatement (reduction) of interest on Form 843. H&r block advantage You should file the claim with the IRS Service Center where you filed the tax return that was affected by the error or delay. H&r block advantage   If you have already paid the interest and you would like a credit or refund of interest paid, you must file Form 843 within 3 years from the date you filed your original return or 2 years from the date you paid the interest, whichever is later. H&r block advantage If you have not paid any of the interest, these time limitations for filing Form 843 do not apply. H&r block advantage   Generally, you should file a separate Form 843 for each tax period and each type of tax. H&r block advantage However, complete only one Form 843 if the interest is from an IRS error or delay that affected your tax for more than one tax period or for more than one type of tax (for example, where 2 or more tax years were being examined). H&r block advantage   If your request for abatement of interest is denied, you can appeal the decision to the IRS Appeals Office. H&r block advantage Tax Court can review failure to abate interest. H&r block advantage    The Tax Court can review the IRS's refusal to abate (reduce) interest if all of the following requirements are met: You filed a request for abatement of interest (Form 843) with the IRS after July 30,1996. H&r block advantage The IRS has mailed you a notice of final determination or a notice of disallowance. H&r block advantage You file a petition with the Tax Court within 180 days of the mailing of the notice of final determination or the notice of disallowance. H&r block advantage   The following requirements must also be met: For individual and estate taxpayers — your net worth must not exceed $2 million as of the filing date of your petition for review. H&r block advantage For this purpose, individuals filing a joint return shall be treated as separate individuals. H&r block advantage For charities and certain cooperatives — you must not have more than 500 employees as of the filing date of your petition for review. H&r block advantage For all other taxpayers — your net worth must not exceed $7 million, and you must not have more than 500 employees as of the filing date of your petition for review. H&r block advantage Abatement of Interest for Individuals Affected by Presidentially Declared Disasters or Military or Terrorist Actions If you are (or were) affected by a Presidentially declared disaster occurring after 1996 or a terrorist or military action occurring after September 10, 2001, the IRS may abate (reduce) the amount of interest you owe on certain taxes. H&r block advantage The IRS may abate interest for the period of any additional time to file or pay that the IRS provides on account of the disaster or the terrorist or military action. H&r block advantage The IRS will issue a notice or news release indicating who are affected taxpayers and stating the period of relief. H&r block advantage If you are eligible for relief from interest, but were charged interest for the period of relief, the IRS may retroactively abate your interest. H&r block advantage To the extent possible, the IRS can take the following actions: Make appropriate adjustments to your account. H&r block advantage Notify you when the adjustments are made. H&r block advantage Refund any interest paid by you where appropriate. H&r block advantage For more information on disaster area losses, see Disaster Area Losses in Publication 547. H&r block advantage For more information on other tax relief for victims of terrorist attacks, see Publication 3920. H&r block advantage Offer in Compromise In certain circumstances, the IRS will allow you to pay less than the full amount you owe. H&r block advantage If you think you may qualify, you should submit your offer by filing Form 656, Offer in Compromise. H&r block advantage The IRS may accept your offer for any of the following reasons: There is doubt about the amount you owe (or whether you owe it). H&r block advantage There is doubt as to whether you can pay the amount you owe based on your financial situation. H&r block advantage An economic hardship would result if you had to pay the full amount owed. H&r block advantage Your case presents compelling reasons that the IRS determines are a sufficient basis for compromise. H&r block advantage If your offer is rejected, you have 30 days to ask the Appeals Office of the IRS to reconsider your offer. H&r block advantage The IRS offers fast track mediation services to help taxpayers resolve many issues including a dispute regarding an offer in compromise. H&r block advantage For more information, see Publication 3605. H&r block advantage Generally, if you submit an offer in compromise, the IRS will delay certain collection activities. H&r block advantage The IRS usually will not levy (take) your property to settle your tax bill during the following periods: While the IRS is evaluating your offer in compromise. H&r block advantage The 30 days immediately after the offer is rejected. H&r block advantage While your timely-filed appeal is being considered by Appeals. H&r block advantage Also, if the IRS rejects your original offer and you submit a revised offer within 30 days of the rejection, the IRS generally will not levy your property while it considers your revised offer. H&r block advantage For more information about submitting an offer in compromise, see Form 656. H&r block advantage Appeal Rights Because people sometimes disagree on tax matters, the IRS has an appeals system. H&r block advantage Most differences can be settled within this system without expensive and time-consuming court trials. H&r block advantage However, your reasons for disagreeing must come within the scope of the tax laws. H&r block advantage For example, you cannot appeal your case based only on moral, religious, political, constitutional, conscientious, or similar grounds. H&r block advantage In most instances, you may be eligible to take your case to court if you do not reach an agreement at your appeals conference, or if you do not want to appeal your case to the IRS Office of Appeals. H&r block advantage See Appeals to the Courts , later, for more information. H&r block advantage Appeal Within the IRS You can appeal an IRS tax decision to a local Appeals Office, which is separate from and independent of the IRS office taking the action you disagree with. H&r block advantage The Appeals Office is the only level of appeal within the IRS. H&r block advantage Conferences with Appeals Office personnel are held in an informal manner by correspondence, by telephone, or at a personal conference. H&r block advantage If you want an appeals conference, follow the instructions in the letter you received. H&r block advantage Your request will be sent to the Appeals Office to arrange a conference at a convenient time and place. H&r block advantage You or your representative should be prepared to discuss all disputed issues at the conference. H&r block advantage Most differences are settled at this level. H&r block advantage If agreement is not reached at your appeals conference, you may be eligible to take your case to court. H&r block advantage See Appeals to the Courts , later. H&r block advantage Protests and Small Case Requests When you request an Appeals conference, you may also need to file either a formal written protest or a small case request with the office named in the letter you received. H&r block advantage Also, see the special appeal request procedures in Publication 1660. H&r block advantage Written protest. H&r block advantage   You need to file a written protest in the following cases: All employee plan and exempt organization cases without regard to the dollar amount at issue. H&r block advantage All partnership and S corporation cases without regard to the dollar amount at issue. H&r block advantage All other cases, unless you qualify for the small case request procedure, or other special appeal procedures such as requesting Appeals consideration of liens, levies, seizures, or installment agreements. H&r block advantage   If you must submit a written protest, see the instructions in Publication 5 about the information you need to provide. H&r block advantage The IRS urges you to provide as much information as you can, as it will help speed up your appeal. H&r block advantage That will save you both time and money. H&r block advantage    Be sure to send the protest within the time limit specified in the letter you received. H&r block advantage Small case request. H&r block advantage   If the total amount for any tax period is not more than $25,000, you may make a small case request instead of filing a formal written protest. H&r block advantage In figuring the total amount, include a proposed increase or decrease in tax (including penalties), or claimed refund. H&r block advantage If you are making an offer in compromise, include total unpaid tax, penalty, and interest due. H&r block advantage For a small case request, follow the instructions in our letter to you by sending a letter: Requesting Appeals consideration, Indicating the changes you do not agree with, and Indicating the reasons why you do not agree. H&r block advantage Representation You can represent yourself at your appeals conference, or you can be represented by any federally authorized practitioner, including an attorney, a certified public accountant, an enrolled actuary, or an enrolled agent. H&r block advantage If your representative attends a conference without you, he or she can receive or inspect confidential information only if you have filed a power of attorney or a tax information authorization. H&r block advantage You can use a Form 2848 or any other properly written power of attorney or authorization. H&r block advantage You can also bring witnesses to support your position. H&r block advantage Confidentiality privilege. H&r block advantage   Generally, the same confidentiality protection that you have with an attorney also applies to certain communications that you have with federally authorized practitioners. H&r block advantage See Confidentiality privilege under If Your Return Is Examined , earlier. H&r block advantage Appeals to the Courts If you and the IRS still disagree after the appeals conference, you may be entitled to take your case to the United States Tax Court, the United States Court of Federal Claims, or a United States District Court. H&r block advantage These courts are independent of the IRS. H&r block advantage If you elect to bypass the IRS's appeals system, you may be able to take your case to one of the courts listed above. H&r block advantage However, a case petitioned to the United States Tax Court will normally be considered for settlement by an Appeals Officer before the Tax Court hears the case. H&r block advantage If you unreasonably fail to pursue the IRS's appeals system, or if your case is intended primarily to cause a delay, or your position is frivolous or groundless, the Tax Court may impose a penalty of up to $25,000. H&r block advantage See Appeal Within the IRS, earlier. H&r block advantage Prohibition on requests to taxpayers to give up rights to bring civil action. H&r block advantage   The Government cannot ask you to waive your right to sue the United States or a Government officer or employee for any action taken in connection with the tax laws. H&r block advantage However, your right to sue can be waived if: You knowingly and voluntarily waive that right, The request to waive that right is made in writing to your attorney or other federally authorized practitioner, or The request is made in person and your attorney or other representative is present. H&r block advantage Burden of proof. H&r block advantage   For court proceedings resulting from examinations started after July 22, 1998, the IRS generally has the burden of proof for any factual issue if you have met the following requirements: You introduced credible evidence relating to the issue. H&r block advantage You complied with all substantiation requirements of the Internal Revenue Code. H&r block advantage You maintained all records required by the Internal Revenue Code. H&r block advantage You cooperated with all reasonable requests by the IRS for information regarding the preparation and related tax treatment of any item reported on your tax return. H&r block advantage You had a net worth of $7 million or less and not more than 500 employees at the time your tax liability is contested in any court proceeding if your tax return is for a corporation, partnership, or trust. H&r block advantage    The burden of proof does not change on an issue when another provision of the tax laws requires a specific burden of proof with respect to that issue. H&r block advantage Use of statistical information. H&r block advantage   In the case of an individual, the IRS has the burden of proof in court proceedings based on any IRS reconstruction of income solely through the use of statistical information on unrelated taxpayers. H&r block advantage Penalties. H&r block advantage   The IRS has the burden of initially producing evidence in court proceedings with respect to the liability of any individual taxpayer for any penalty, addition to tax, or additional amount imposed by the tax laws. H&r block advantage Recovering litigation or administrative costs. H&r block advantage   These are the expenses that you pay to defend your position to the IRS or the courts. H&r block advantage You may be able to recover reasonable litigation or administrative costs if all of the following conditions apply: You are the prevailing party. H&r block advantage You exhaust all administrative remedies within the IRS. H&r block advantage Your net worth is below a certain limit (see Net worth requirements , later). H&r block advantage You do not unreasonably delay the proceeding. H&r block advantage You apply for administrative costs within 90 days of the date on which the final decision of the IRS Office of Appeals as to the determination of the tax, interest, or penalty was mailed to you. H&r block advantage You apply for litigation costs within the time frames provided by Tax Court Rule 231, found at http://www. H&r block advantage ustaxcourt. H&r block advantage gov  www. H&r block advantage ustaxcourt. H&r block advantage gov . H&r block advantage   Prevailing party, reasonable litigation costs, and reasonable administrative costs are explained later. H&r block advantage Note. H&r block advantage If the IRS denies your award of administrative costs, and you want to appeal, you must petition the Tax Court within 90 days of the date on which the IRS mails the denial notice. H&r block advantage Prevailing party. H&r block advantage   Generally, you are the prevailing party if: You substantially prevail with respect to the amount in controversy or on the most significant tax issue or set of issues in question, and You meet the net worth requirements, discussed later. H&r block advantage   You will not be treated as the prevailing party if the United States establishes that its position was substantially justified. H&r block advantage The position of the United States is presumed not to be substantially justified if the IRS: Did not follow its applicable published guidance (such as regulations, revenue rulings, notices, announcements, private letter rulings, technical advice memoranda, and determination letters issued to the taxpayer) in the proceeding (This presumption can be overcome by evidence. H&r block advantage ), or Has lost in courts of appeal for other circuits on substantially similar issues. H&r block advantage   The court will generally decide who is the prevailing party. H&r block advantage Reasonable litigation costs. H&r block advantage   These include the following costs: Reasonable court costs. H&r block advantage The reasonable costs of studies, analyses, engineering reports, tests, or projects found by the court to be necessary for the preparation of your case. H&r block advantage The reasonable costs of expert witnesses. H&r block advantage Attorney fees that generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. H&r block advantage See Attorney fees , later. H&r block advantage Reasonable administrative costs. H&r block advantage   These include the following costs: Any administrative fees or similar charges imposed by the IRS. H&r block advantage The reasonable costs of studies, analyses, engineering reports, tests, or projects. H&r block advantage The reasonable costs of expert witnesses. H&r block advantage Attorney fees that generally may not exceed $125 per hour. H&r block advantage See Attorney fees , later. H&r block advantage Timing of costs. H&r block advantage    Administrative costs can be awarded for costs incurred after the earliest of: The date the first letter of proposed deficiency is sent that allows you an opportunity to request administrative review in the IRS Office of Appeals, The date you receive notice of the IRS Office of Appeals' decision, or The date of the notice of deficiency. H&r block advantage Net worth requirements. H&r block advantage   An individual taxpayer may be able to recover litigation or administrative costs if the following requirements are met: For individuals — your net worth does not exceed $2 million as of the filing date of your petition for review. H&r block advantage For this purpose, individuals filing a joint return are treated as separate individuals. H&r block advantage For estates — your net worth does not exceed $2 million as of the date of the decedent's death. H&r block advantage For charities and certain cooperatives — you do not have more than 500 employees as of the filing date of your petition for review. H&r block advantage For all other taxpayers — as of the filing date of your petition for review, your net worth does not exceed $7 million, and you must not have more than 500 employees. H&r block advantage Qualified offer rule. H&r block advantage    You can also receive reasonable costs and fees and be treated as a prevailing party in a civil action or proceeding if: You make a qualified offer to the IRS to settle your case, The IRS does not accept that offer, and The tax liability (not including interest, unless interest is at issue) later determined by the court is equal to or less than the amount of your qualified offer. H&r block advantage You must also meet the remaining requirements, including the exhaustion of administrative remedies and the net worth requirement, discussed earlier, to get the benefit of the qualified offer rule. H&r block advantage Qualified offer. H&r block advantage    This is a written offer made by you during the qualified offer period. H&r block advantage It must specify both the offered amount of your liability (not including interest) and that it is a qualified offer. H&r block advantage   To be a qualified offer, it must remain open from the date it is made until the earliest of: The date it is rejected, The date the trial begins, or 90 days from the date it is made. H&r block advantage Qualified offer period. H&r block advantage    This period begins on the day the IRS mails you the first letter of proposed deficiency that allows you to request review by the IRS Office of Appeals. H&r block advantage It ends 30 days before your case is first set for trial. H&r block advantage Attorney fees. H&r block advantage   Attorney fees generally may not exceed $125 maximum hourly rate as set by statute and indexed for inflation. H&r block advantage However, this amount can be higher in certain limited circumstances depending on the level of difficulty of the issues in the case and the local availability of tax expertise. H&r block advantage See IRS. H&r block advantage gov for more information. H&r block advantage    Attorney fees include the fees paid by a taxpayer for the services of anyone who is authorized to practice before the Tax Court or before the IRS. H&r block advantage In addition, attorney fees can be awarded in civil actions for unauthorized inspection or disclosure of a taxpayer's return or return information. H&r block advantage   Fees can be awarded in excess of the actual amount charged if: You are represented for no fee, or for a nominal fee, as a pro bono service, and The award is paid to your representative or to your representative's employer. H&r block advantage Jurisdiction for determination of employment status. H&r block advantage    The Tax Court can review IRS employment status determinations (for example, whether individuals hired by you are in fact your employees or independent contractors) and the amount of employment tax under such determinations. H&r block advantage Tax Court review can take place only if, in connection with an audit of any person, there is a controversy involving a determination by the IRS that either: One or more individuals performing services for that person are employees of that person, or That person is not entitled to relief under Section 530(a) of the Revenue Act of 1978 (discussed later). H&r block advantage   The following rules also apply to a Tax Court review of employment status: A Tax Court petition to review these determinations can be filed only by the person for whom the services are performed, If you receive a Notice of Determination by certified or registered mail, you must file a petition for Tax Court review within 90 days of the date of mailing that notice (150 days if the notice is addressed to you outside the United States), If during the Tax Court proceeding, you begin to treat as an employee an individual whose employment status is at issue, the Tax Court will not consider that change in its decision, Assessment and collection of tax is suspended while the Tax Court review is taking place, Payment of the asserted employment tax deficiency is not required to petition the U. H&r block advantage S. H&r block advantage Tax Court for a determination of employment status. H&r block advantage There can be a de novo review by the Tax Court (a review which does not consider IRS administrative findings), and At your request and with the Tax Court's agreement, small tax case procedures (discussed later) are available to simplify the case resolution process when the amount at issue (including additions to tax and penalties) is $50,000 or less for each tax period involved. H&r block advantage   For further information, see Publication 3953, Questions and Answers About Tax Court Proceedings for Determination of Employment Status Under IRC Section 7436. H&r block advantage Section 530(a) of the Revenue Act of 1978. H&r block advantage   This section relieves an employer of certain employment tax responsibilities for individuals not treated as employees. H&r block advantage It also provides relief to taxpayers under audit or involved in administrative or judicial proceedings. H&r block advantage Tax Court review of request for relief from joint and several liability on a joint return. H&r block advantage    As discussed later, at Relief from joint and several liability on a joint return under Claims for Refund, you can request relief from liability for tax you owe, plus related penalties and interest, that you believe should be paid by your spouse (or former spouse). H&r block advantage You also can petition (ask) the Tax Court to review your request for innocent spouse relief or separation of liability if either: The IRS sends you a determination notice denying, in whole or in part, your request, or You do not receive a determination notice from the IRS within 6 months from the date you file Form 8857. H&r block advantage   If you receive a determination notice, you must petition the Tax Court to review your request during the 90-day period that begins on the date the IRS mails the notice. H&r block advantage See Publication 971 for more information. H&r block advantage Note. H&r block advantage Your spouse or former spouse may file a written protest and request an Appeals conference to protest your claim of innocent spouse relief or separation of liability. H&r block advantage See Rev. H&r block advantage Proc. H&r block advantage 2003-19, which is on page 371 of the Internal Revenue Bulletin 2003-5 at  www. H&r block advantage irs. H&r block advantage gov/pub/irs-irbs/irb03-05. H&r block advantage pdf. H&r block advantage Tax Court You can take your case to the United States Tax Court if you disagree with the IRS over: Income tax, Estate tax, Gift tax, Employment tax involving IRS employment status determinations, or Certain excise taxes of private foundations, public charities, qualified pension and other retirement plans, or real estate investment trusts. H&r block advantage For information on Tax Court review of a determination of employment status, see Jurisdiction for determination of employment status, earlier. H&r block advantage For information on Tax Court review of an IRS refusal to abate interest, see Tax Court can review failure to abate interest, earlier under Examination of Returns. H&r block advantage For information on Tax Court review of Appeals determinations with respect to lien notices and proposed levies, see Publication 1660. H&r block advantage You cannot take your case to the Tax Court before the IRS sends you a notice of deficiency. H&r block advantage You can only appeal your case if you file a petition within 90 days from the date the notice is mailed to you (150 days if it is addressed to you outside the United States). H&r block advantage The notice will show the 90th (or 150th) day by which you must file your petition with the Tax Court. H&r block advantage Withdrawal of notice of deficiency. H&r block advantage If you consent, the IRS can withdraw a notice of deficiency. H&r block advantage A notice of deficiency may be rescinded if the notice was issued as a result of an administrative error; the taxpayer submits information establishing the actual tax due is less than the amount shown in the notice; the taxpayer specifically requests a conference with the appropriate Appeals office for the purpose of entering into settlement negotiations. H&r block advantage However, the notice may be rescinded only if the appropriate Appeals office first decides that the case is susceptible to agreement. H&r block advantage See Revenue Procedure 98-54 for a more detailed explanation of the requirements. H&r block advantage Once withdrawn, the limits on credits, refunds, and assessments concerning the notice are void, and you and the IRS have the rights and obligations that you had before the notice was issued. H&r block advantage The suspension of any time limitation while the notice of deficiency was issued will not change when the notice is withdrawn. H&r block advantage After the notice is withdrawn, you cannot file a petition with the Tax Court based on the notice. H&r block advantage Also, the IRS can later issue a notice of deficiency in a greater or lesser amount than the amount in the withdrawn deficiency. H&r block advantage Generally, the Tax Court hears cases before any tax has been assessed and paid; however, you can pay the tax after the notice of deficiency has been issued and still petition the Tax Court for review. H&r block advantage If you do not file your petition on time, the proposed tax will be assessed, a bill will be sent, and you will not be able to take your case to the Tax Court. H&r block advantage Under the law, you must pay the tax within 21 days (10 business days if the amount is $100,000 or more). H&r block advantage Collection can proceed even if you think that the amount is excessive. H&r block advantage Publication 594 explains IRS collection procedures. H&r block advantage If you filed your petition on time, the court will schedule your case for trial at a location convenient to you. H&r block advantage You can represent yourself before the Tax Court or you can be represented by anyone admitted to practice before that court. H&r block advantage Small tax case procedure. H&r block advantage   If the amount in your case is $50,000 or less for any 1 tax year or period, you can request that your case be handled under the small tax case procedure. H&r block advantage If the Tax Court approves, you can present your case to the Tax Court for a decision that is final and that you cannot appeal. H&r block advantage You can get more information regarding the small tax case procedure and other Tax Court matters from the United States Tax Court, 400 Second Street, N. H&r block advantage W. H&r block advantage , Washington, DC 20217. H&r block advantage More information can be found on the Tax Court's website at www. H&r block advantage ustaxcourt. H&r block advantage gov. H&r block advantage Motion to request redetermination of interest. H&r block advantage   In certain cases, you can file a motion asking the Tax Court to redetermine the amount of interest on either an underpayment or an overpayment. H&r block advantage You can do this only in a situation that meets all of the following requirements: The IRS has assessed a deficiency that was determined by the Tax Court. H&r block advantage The assessment included interest. H&r block advantage You have paid the entire amount of the deficiency plus the interest claimed by the IRS. H&r block advantage The Tax Court has found that you made an overpayment. H&r block advantage You must file the motion within one year after the decision of the Tax Court becomes final. H&r block advantage District Court and Court of Federal Claims Generally, the District Courts and the Court of Federal Claims hear tax cases only after you have paid the entire tax and penalties, and filed a claim for a credit or refund. H&r block advantage The taxpayer may litigate certain types of employment tax cases in either the United States District Court or the United States Court of Federal Claims. H&r block advantage Before taxpayers can initiate suit in either of these courts with respect to certain employment taxes, they will have to pay, at a minimum, the employment tax assessment attributable to one employee for any one quarter and file a claim for refund of the tax. H&r block advantage Once the claim for refund is denied or 6 months elapse without any action by the IRS, the taxpayer may initiate suit. H&r block advantage As explained later under Claims for Refund, you can file a claim with the IRS for a credit or refund if you think that the tax you paid is incorrect or excessive. H&r block advantage If your claim is totally or partially disallowed by the IRS, you should receive a notice of claim disallowance. H&r block advantage If the IRS does not act on your claim within 6 months from the date you filed it, you can then file suit for a refund. H&r block advantage You generally must file suit for a credit or refund no later than 2 years after the IRS informs you that your claim has been rejected. H&r block advantage However, you can file suit if it has been 6 months since you filed your claim and the IRS has not yet delivered a decision. H&r block advantage You can file suit for a credit or refund in your United States District Court or in the United States Court of Federal Claims. H&r block advantage However, you cannot appeal to the United States Court of Federal Claims if your claim is for credit or refund of a penalty that relates to promoting an abusive tax shelter or to aiding and abetting the understatement of tax liability on someone else's return. H&r block advantage For information about procedures for filing suit in either court, contact the Clerk of your District Court or of the United States Court of Federal Claims. H&r block advantage Refund or Credit of Overpayments Before Final Determination Any court with proper jurisdiction, including the Tax Court, can order the IRS to refund any part of a tax deficiency that the IRS collects from you during a period when the IRS is not permitted to assess that deficiency, or to levy or engage in any court proceeding to collect that deficiency. H&r block advantage In addition, the court can order a refund of any part of an overpayment determined by the Tax Court that is not at issue on appeal to a higher court. H&r block advantage The court can order these refunds before its decision on the case is final. H&r block advantage Taxpayers should thoroughly review IRS settlement offers before signing a Tax Court Decision document to ensure that all adjustments are correct, including the inclusion of any tax credits that the taxpayer is allowed to claim. H&r block advantage Note. H&r block advantage The court may no longer order a refund of an overpayment after the case is final. H&r block advantage Generally, the IRS is not permitted to take action on a tax deficiency during: The 90-day (or 150-day if outside the United States) period that you have to petition a notice of deficiency to the Tax Court, or The period that the case is under appeal if a bond is provided. H&r block advantage Claims for Refund If you believe you have overpaid your tax, you have a limited amount of time in which to file a claim for a credit or refund. H&r block advantage You can claim a credit or refund by filing Form 1040X. H&r block advantage See Time for Filing a Claim for Refund , later. H&r block advantage File your claim by mailing it to the IRS Service Center where you filed your original return. H&r block advantage File a separate form for each year or period involved. H&r block advantage Include an explanation of each item of income, deduction, or credit on which you are basing your claim. H&r block advantage Corporations should file Form 1120X, Amended U. H&r block advantage S. H&r block advantage Corporation Income Tax Return, or other form appropriate to the type of credit or refund claimed. H&r block advantage See Publication 3920 for information on filing claims for tax forgiveness for individuals affected by terrorist attacks. H&r block advantage Requesting a copy of your tax return. H&r block advantage   You can obtain a copy of the actual return and all attachments you filed with the IRS for an earlier year. H&r block advantage This includes a copy of the Form W-2 or Form 1099 filed with your return. H&r block advantage Use Form 4506 to make your request. H&r block advantage You will be charged a fee, which you must pay when you submit Form 4506. H&r block advantage Requesting a copy of your tax account information. H&r block advantage   Use Form 4506-T, Request for Transcript of Tax Return, to request free copies of your tax return transcript, tax account transcript, record of account, verification of nonfiling, or Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript. H&r block advantage The tax return transcript contains most of the line items of a tax return. H&r block advantage A tax account transcript contains information on the financial status of the account, such as payments, penalty assessments, and adjustments. H&r block advantage A record of account is a combination of line item information and later adjustments to the account. H&r block advantage Form W-2, Form 1099 series, Form 1098 series, or Form 5498 series transcript contains data from these information returns. H&r block advantage Penalty for erroneous claim for refund. H&r block advantage   If you claim an excessive amount of tax refund or credit relating to income tax (other than a claim relating to the earned income credit), you may be liable for a penalty of 20% of the amount that is determined to be excessive. H&r block advantage An excessive amount is the amount of the claim for refund or credit that is more than the amount of claim allowable for the tax year. H&r block advantage The penalty may be waived if you can show that you had a reasonable basis for making the claim. H&r block advantage Time for Filing a Claim for Refund Generally, you must file a claim for a credit or refund within 3 years from the date you filed your original return or 2 years from the date you paid the tax, whichever is later. H&r block advantage If you do not file a claim within this period, you may no longer be entitled to a credit or a refund. H&r block advantage If the due date to file a return or a claim for a credit or refund is a Saturday, Sunday, or legal holiday, it is filed on time if it is filed on the next business day. H&r block advantage Returns you filed before the due date are considered filed on the due date. H&r block advantage This is true even when the due date is a Saturday, Sunday, or legal holiday. H&r block advantage Disaster area claims for refund. H&r block advantage   If you live in a Presidentially declared disaster area or are affected by terroristic or military action, the deadline to file a claim for a refund may be postponed. H&r block advantage This section discusses the special rules that apply to Presidentially declared disaster area refunds. H&r block advantage    A Presidentially declared disaster is a disaster that occurred in an area declared by the President to be eligible for federal assistance under the Disaster Relief and Emergency Assistance Act. H&r block advantage Postponed refund deadlines. H&r block advantage   The IRS may postpone for up to 1 year the deadlines for filing a claim for refund. H&r block advantage The postponement can be used by taxpayers who are affected by a Presidentially declared disaster. H&r block advantage The IRS may also postpone deadlines for filing income and employment tax returns, paying income and employment taxes, and making contributions to a traditional IRA or Roth IRA. H&r block advantage For more information, see Publication 547. H&r block advantage   If any deadline is postponed, the IRS will publicize the postponement in your area and publish a news release, revenue ruling, revenue procedure, notice, announcement, or other guidance in the Internal Revenue Bulletin. H&r block advantage A list of the areas eligible for assistance under the Disaster Relief and Emergency Assistance Act is available at the Federal Emergency Management Agency (FEMA) website at www. H&r block advantage fema. H&r block advantage gov and at the IRS website at www. H&r block advantage irs. H&r block advantage gov. H&r block advantage Nonfilers can get refund of overpayments paid within 3-year period. H&r block advantage   The Tax Court can consider taxes paid during the 3-year period preceding the date of a notice of deficiency for determining any refund due to a nonfiler. H&r block advantage This means that if you do not file your return, and you receive a notice of deficiency in the third year after the due date (with extensions) of your return and file suit with the Tax Court to contest the notice of deficiency, you may be able to receive a refund of excessive amounts paid within the 3-year period preceding the date of the notice of deficiency. H&r block advantage The IRS may postpone for up to 1 year certain tax deadlines, including the time for filing claims for refund, for taxpayers who are affected by a terrorist attack occurring after September 10, 2001. H&r block advantage For more information, see Publication 3920. H&r block advantage Claim for refund by estates electing the installment method of payment. H&r block advantage   In certain cases where an estate has elected to make tax payments through the installment method, the executor can file a suit for refund with a U. H&r block advantage S. H&r block advantage District Court or the U. H&r block advantage S. H&r block advantage Court of Federal Claims before all the installment payments have been made. H&r block advantage However, all the following must be true before a suit can be filed: The estate consists largely of an interest in a closely-held business. H&r block advantage All installment payments due on or before the date the suit is filed have been made. H&r block advantage No accelerated installment payments have been made. H&r block advantage No Tax Court case is pending with respect to any estate tax liability. H&r block advantage If a notice of deficiency was issued to the estate regarding its liability for estate tax, the time for petitioning the Tax Court has passed. H&r block advantage No proceeding is pending for a declaratory judgment by the Tax Court on whether the estate is eligible to pay tax in installments. H&r block advantage The executor has not included any previously litigated issues in the current suit for refund. H&r block advantage The executor does not discontinue making installment payments timely, while the court considers the suit for refund. H&r block advantage    If in its final decision on the suit for refund the court redetermines the estate's tax liability, the IRS must refund any part of the estate tax amount that is disallowed. H&r block advantage This includes any part of the disallowed amount previously collected by the IRS. H&r block advantage Protective claim for refund. H&r block advantage   If your right to a refund is contingent on future events and may not be determinable until after the time period for filing a claim for refund expires, you can file a protective claim for refund. H&r block advantage A protective claim can be either a formal claim or an amended return for credit or refund. H&r block advantage Protective claims are often based on current litigation or expected changes in the tax law, other legislation, or regulations. H&r block advantage A protective claim preserves your right to claim a refund when the contingency is resolved. H&r block advantage A protective claim does not have to state a particular dollar amount or demand an immediate refund. H&r block advantage However, to be valid, a protective claim must: Be in writing and be signed, Include your name, address, social security number or individual taxpayer identification number, and other contact information, Identify and describe the contingencies affecting the claim, Clearly alert the IRS to the essential nature of the claim, and Identify the specific year(s) for which a refund is sought. H&r block advantage   Generally, the IRS will delay action on the protective claim until the contingency is resolved. H&r block advantage Once the contingency is resolved, the IRS may obtain additional information necessary to process the claim and then either allow or disallow the claim. H&r block advantage   Mail your protective claim for refund to the address listed in the instructions for Form 1040X, under Where To File. H&r block advantage Exceptions The limits on your claim for refund can be affected by the type of item that forms the basis of your claim. H&r block advantage Special refunds. H&r block advantage   If you file a claim for refund based on one of the items listed below, the limits discussed earlier under Time for Filing a Claim for Refund may not apply. H&r block advantage These special items are: A bad debt, A worthless security, A payment or accrual of foreign tax, A net operating loss carryback, and A carryback of certain tax credits. H&r block advantage   The limits discussed earlier also may not apply if you have signed an agreement to extend the period of assessment of tax. H&r block advantage For information on special rules on filing claims for an individual affected by a terrorist attack, see Publication 3920. H&r block advantage Periods of financial disability. H&r block advantage   If you are an individual (not a corporation or other taxpaying entity), the period of limitations on credits and refunds can be suspended during periods when you cannot manage your financial affairs because of physical or mental impairment that is medically determinable and either: Has lasted or can be expected to last continuously for at least 12 months, or Can be expected to result in death. H&r block advantage    The period for filing a claim for refund will not be suspended for any time that someone else, such as your spouse or guardian, was authorized to act for you in financial matters. H&r block advantage   To claim financial disability, you generally must submit the following statements with your claim for credit or refund: A written statement signed by a physician, qualified to make the determination, that sets forth: The name and a description of your physical or mental impairment, The physician's medical opinion that your physical or mental impairment prevented you from managing your financial affairs, The physician's medical opinion that your physical or mental impairment was or can be expected to result in death, or that it has lasted (or can be expected to last) for a continuous period of not less than 12 months, and To the best of the physician's knowledge, the specific time period during which you were prevented by such physical or mental impairment from managing your financial affairs, and A written statement by the person signing the claim for credit or refund that no person, including your spouse, was authorized to act on your behalf in financial matters during the period described in paragraph (1)(d) of the physician's statement. H&r block advantage Alternatively, if a person was authorized to act on your behalf in financial matters during any part of the period described in that paragraph, the beginning and ending dates of the period of time the person was so authorized. H&r block advantage    The period of limitations will not be suspended on any claim for refund that (without regard to this provision) was barred as of July 22, 1998. H&r block advantage Limit on Amount of Refund If you file your claim within 3 years after filing your return, the credit or refund cannot be more than the part of the tax paid wi