In the complex and often emotional journey of managing a deceased loved one’s estate, few tasks are as critical and revealing as pulling tax transcripts. A recent interaction I had with another tax professional sheds light on the indispensable value of this practice, especially in today’s economic landscape where assets can easily remain hidden, leading to unexpected tax implications for personal representatives and beneficiaries.
The Spark: An Unexpected 1099-INT
The inquiry from their client started with a call about receiving a 1099-INT form for the 2023 calendar year, issued in the name of his mother who had passed away in 2020. Although he hadn’t received any funds since a refund in 2021, the appearance of this form under her Social Security Number raised both confusion and concern. The lack of recent financial activity suggested the possibility of an unclaimed refund check. Cashing such a check becomes a challenge if the estate’s bank account has already been closed, necessitating the reopening of an account—a process that involves providing the SS-4 form for the estate’s EIN, setting up debit card passwords, and more, all for the sake of depositing and then closing the account again after the check clears. To avoid these complications, we focus on proactively tackling the underlying issue at the earliest opportunity.
The Root of Surprise Tax Forms
This scenario isn’t uncommon. Assets, often forgotten or unknown, can surface years after a decedent’s passing. With interest rates on the rise, even dormant accounts can generate enough interest to necessitate a 1099-INT. For those managing estates, such surprises can not only be a logistical hassle but also rekindle emotional turmoil. In this case, the possibility is an outstanding refund from prior tax year’s was still processing. Another issue is the impact on retroactive tax laws, or IRS administration giving forms of penalty relief such as Notice 2024-7: Relief from Additions to Tax for Certain Taxpayers’ Failure to Timely Pay Income Tax for Taxable Years 2020 and 2021. If the IRS has been processing a refund and has not sent payment, due to administrative delays they owe the decedent interest. It is common this happens in estate’s especially as individuals age there maybe issues with prior returns, that delay refund processing. So the question in this case, was is this common? And if so what can we do to navigate these risks for clients.
Why Pull Three Years of Transcripts?
At Corridor Consulting, our approach is proactive. We pull three years of transcripts for every deceased taxpayer we work with. This practice isn’t just about diligence; it’s a discovery process. Beyond identifying outstanding refunds or processing errors, transcripts reveal unreported accounts and assets that the attorney, personal representative, and beneficiaries might not know exist.
A Real-World Example
Consider the son above receiving a 1099-INT in 2023 for his mother who passed in 2020. In this case it is likely transcripts would have offered clarity, showcasing outstanding refunds and alerting us to issues that might otherwise remain obscured. At Corridor Consulting we have seen many examples in our time working on Estates & Trusts that pulling transcripts would have helped prevent issues in the future – so that is what we do now for every decedent.
The Value Proposition
Facing the prospect of hidden complications, some might question the cost of pulling transcripts. Our response is straightforward: the initial investment in ensuring a clean, issue-free estate far outweighs the potential costs and headaches of untangling unforeseen tax problems down the line.
At Corridor Consulting, we’ve adjusted our fees to reflect this essential service, finding that clients appreciate the foresight once they understand the potential for future complications.
Beyond Assumptions: A Professional Standard
The resistance some might feel towards pulling transcripts, viewing it as unnecessary if a prior year’s 1040 is available, overlooks a critical reality. Wage and Income transcripts can unveil a wealth of information that wasn’t included—or was purposely omitted—on the decedent’s filed returns. From undisclosed crypto transactions to accounts opened in moments of clarity by individuals with fading memory, the stories these transcripts tell are invaluable.
Conclusion: Making the Unknown Known
The lesson from our experience, and our fellow tax professional client’s unexpected 1099-INT, is clear. Pulling transcripts for decedents isn’t just about due diligence; it’s about uncovering the unknown and ensuring those managing estates are fully informed. It’s a practice that Corridor Consulting champions, not only to prevent surprises but to provide peace of mind in a process that is inherently fraught with emotional and financial complexity.
