The same filing requirements that apply to individuals determine if a final income tax return must be filed for the decedent. Filing requirements are discussed in chapter 1.

Filing to get a refund. If none of the filing requirements are met, but the decedent had tax withheld or paid estimated tax, a final return should be filed to get a refund. See Claiming a refund, later. A final return should also be filed if the decedent was entitled to a refundable credit such as the earned income credit. See chapters 37 and 38 for additional information on refundable credits.

Determining income and deductions. The method of accounting used by the decedent before death generally determines what income you must include and what deductions you can take on the final return. Generally, individuals use one of two methods of accounting: cash or accrual.

Cash method. If the decedent used the cash method of accounting, which most people use, report only the items of income that the decedent actually or constructively received before death and deduct only the expenses the decedent paid before death. For an exception for certain medical expenses not paid before death, see Medical costs, later, under Deductions.

Accrual method. If the decedent used an accrual method of accounting, report only those items of income that the decedent accrued, or earned, before death. Deduct those expenses the decedent was liable for before death, regardless of whether the expenses were paid.

Additional information. For more information on the cash and accrual methods, see Accounting Methods in chapter 1.

Who must file the return? The personal representative of the decedent is responsible for filing any income tax returns and paying any income tax that is due. This includes the final income tax return of the decedent (for the year of death) and any returns not filed for preceding years.

Example. Roberta Russell died on February 5, 1999, before filing her 1998 tax return. Her personal representative must file her 1998 tax return as well as her final tax return for 1999.

Exception. Under certain circumstances, a surviving spouse may be able to file a joint final return or joint returns for preceding years for which returns have not yet been filed. See Joint return, later.

Filing the return. When you file a return for the decedent, either as the personal representative or as the surviving spouse, you should write "DECEASED," the decedent's name, and the date of death across the top of the tax return. This same information should be included on any Form 1040X, Amended U.S. Individual Income Tax Return, that you file for the decedent.

If the decedent and surviving spouse are filing a joint return, you should write the name and address of the decedent and the surviving spouse in the name and address space. If you received a peel-off label with the correct information, you can use it. Be sure to enter your SSN, and the SSN of your spouse in the appropriate space.

If a joint return is not being filed, write the decedent's name in the name space and the personal representative's name and address in the remaining space.

Example 1. John Stone died in early 1998. He was survived by his wife Jane. Their final joint return included the required information as shown later in the illustration of the top of Form 1040.

Form 1040 Label and Signature Area

Signing the return. If a personal representative has been appointed, the personal representative must sign the return. If a joint return is filed, the surviving spouse must also sign it.

If no personal representative has been appointed by the due date for filing the return, the surviving spouse (on a joint return) should sign the return and write in the signature area "Filing as surviving spouse." See Joint return, later.

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."

Example 2. Assume in Example 1 that Mrs. Stone is filing as a surviving spouse. No personal representative has been appointed. She signs their final joint return as shown later in the illustration of the bottom of Form 1040.

Claiming a refund. Generally, a person who is filing a return for a decedent and claiming a refund must file Form 1310, Statement of Person Claiming Refund Due a Deceased Taxpayer, with the return.

Surviving spouse. If you are a surviving spouse filing a joint return with the decedent, you do not have to file Form 1310.

Appointed personal representative. If you are a court appointed or certified personal representative filing Form 1040, Form 1040A, or Form 1040EZ for the decedent, you also do not have to file Form 1310, but you must attach to the return a copy of the court certificate showing your appointment. If the certificate does not include your address, be sure that your address is shown on the return. See Filing the return, earlier.

Example. Joe Brown died on January 14, 1999, before filing his 1998 tax return. On April 5, 1999, you are appointed the personal representative for Joe's estate, and you file his Form 1040 for 1998 showing a refund due. You do not need to attach Form 1310 to claim the refund, but you must attach to his return a copy of the court certificate to show that you are the appointed personal representative of Joe's estate.

When and where to file. The final return is due by the date the decedent's return would have been due had death not occurred. The final return for a calendar year taxpayer is generally due by April 15 of the year following the year of death. However, when the due date for filing tax returns falls on a Saturday, Sunday, or legal holiday, you can file on the next business day.

File the decedent's final income tax return with the Internal Revenue Service Center for the area where you live.

Request for prompt assessment of tax. As the personal representative for the decedent's estate, you must see that any additional taxes that the decedent may owe are paid. The IRS usually has 3 years after the filing of a return to charge any additional tax that is due. Returns filed before the due date are treated as filed on the due date.

You can shorten the time that the IRS has to charge the decedent's estate any additional tax by requesting a prompt assessment of the decedent's income taxes. This request reduces the time the IRS has to charge any additional tax from 3 years from the date the return is filed to 18 months from the date the IRS receives the request. This may permit a quicker settlement of the tax liability of the estate and earlier distribution of the decedent's assets, such as money and property, to the beneficiaries.

You can make the request for any tax year still subject to additional tax charges, even if the return was filed before the decedent's death.

Requesting this prompt assessment will not shorten the time the IRS has to charge any additional tax if it can be charged beyond the 3 years from the date the return was filed or due. For example, additional tax can still be charged because of a substantial omission of income or if a fraudulent return was filed.

How to request. You can use Form 4810 for making this request. If Form 4810 is not used, you must clearly indicate that you are requesting a prompt assessment under section 6501(d) of the Internal Revenue Code and specify the year(s) involved. You must file the request separately from any other document. Address your request to the District Director and send it to the IRS office where the decedent's return was filed.

Request for discharge from personal liability for tax. An executor can make a written request for a discharge from personal liability for a decedent's income and gift taxes. The request must be made after the returns for those taxes are filed. For this purpose an executor is an executor or administrator that is appointed, qualified, and acting within the United States.

Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. 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.

Even if the executor is discharged, the IRS will still be able to assess tax deficiencies against the executor to the extent that he or she still has any of the decedent's property.

Form 5495. Form 5495 can be used for making this request. If Form 5495 is not used, you must clearly indicate that the request is for discharge from personal liability under section 6905 of the Internal Revenue Code.

Joint return. Generally, the personal representative and the surviving spouse can file a joint return for the decedent and the surviving spouse. However, the surviving spouse alone can file the joint return if:

1. The decedent did not file a return for that year, and
2. No personal representative is appointed before the due date for filing the return of the surviving spouse.

This also applies to the return for the preceding year if the decedent died after the close of the preceding tax year and before the due date for filing that return. The final joint return must show the decedent's income before death and the surviving spouse's income for the entire year.

If the surviving spouse remarried before the end of the year in which the decedent died, a final joint return with the deceased spouse cannot be filed. The filing status of the deceased spouse is then married filing separately.

Change to joint return. If a separate return was filed by or for the decedent, and the due date for filing that return has expired, that return can be changed to a joint return only by the personal representative on behalf of the decedent. The surviving spouse must also agree to the change. A surviving spouse cannot change a separate return to a joint return if no personal representative has been appointed.

Change to separate return. If the surviving spouse files a joint return with the decedent and a personal representative is later appointed by the court, the personal representative can change the joint return election. This is done by filing a separate return for the decedent within one year from the due date of the return (including any extensions).

If a separate return is filed for the decedent, the joint return then becomes the separate return of the surviving spouse. The decedent's items are excluded, and the tax liability of the surviving spouse is refigured.

How To Report Certain Income

This section explains how to report certain types of income on the final return. The rules on income discussed in the other chapters of this publication also apply to a decedent's final return. See chapters 6 through 17, if they apply.

Interest and Dividend Income (Forms 1099)

Payers of interest and dividends report amounts on Forms 1099 using the name and identification number of the person to whom the account is payable. After a person's death, the Forms 1099 must reflect the new owner's (the estate's or beneficiary's) name and identification number. As the personal representative, you must furnish this information to the payers.

For example, if an interest-bearing account becomes part of the estate, you must provide the estate's name and employer identification number (EIN) to the payer so that the Form 1099-INT, Interest Income, can reflect the correct payee information. If the interest-bearing account is transferred to a surviving joint owner, you must provide the survivor's name and taxpayer identification number (TIN) to the payer.

You should receive Forms 1099 for the decedent that report amounts of interest and dividends earned prior to death. The estate or beneficiary should receive separate Forms 1099 that report the amounts earned after death and that are payable to them.

If you receive Forms 1099 that include both income earned before the date of death (reportable on the decedent's final return) and income earned after the date of death (reportable by the estate or other recipient), then you will need to request new Forms 1099. You should contact the payers to ask them for corrected Forms 1099 that properly identify the recipient of the income (by name and identification number) and the correct amounts.

Capital Loss

A capital loss sustained by a decedent during his or her last tax year can be deducted only on the final return filed for the decedent. The capital loss limits discussed in chapter 17 still apply in this situation. The loss cannot be deducted by the estate or carried over to following years.

Accelerated Death Benefits

If certain requirements are met, accelerated death benefits are excluded from the recipient's income. Accelerated death benefits are amounts received under a life insurance contract before the death of the insured individual. These benefits also include amounts received on the sale or assignment of the contract to a viatical settlement provider. This exclusion applies only if the insured was a terminally or chronically ill individual.

Generally, if the decedent received accelerated death benefits either on his or her own life or on the life of another person, those benefits are not included in the decedent's income. For more information, see the discussion under Gifts, Insurance, and Inheritances under Other Tax Information, in Publication 559.

Business Income

This section discusses some of the business income which may have to be included on the final return.

Partnership income. If the decedent was a partner, his or her death generally does not close the partnership's tax year. See Closing of tax year under Tax Year in Publication 541, Partnerships.

If the partnership year ends with the death of a partner, see Deceased partner under Distributive Share in Year of Disposition in Publication 541.

As the personal representative, you must include on the final return the decedent's share of partnership income for the partnership's tax year that ends within or with the decedent's last tax year (the year ending on the date of death).

Do not include on the final return the decedent's share of partnership income for a partnership's tax year that ends after the date of death. In this case, partnership income earned up to and including the date of death is income in respect of the decedent, which is discussed later in this chapter. Income earned after the date of death to the end of the partnership's tax year is income to the estate or successor in interest (beneficiary).

Example. The XYZ Partnership and all the partners use a calendar year as their tax year. One of the partners dies on June 10. The decedent's share of the partnership income from January 1 through June 10 is income in respect of a decedent. The share of partnership income after June 10 is income to the estate or beneficiary.

S corporation income. If the decedent was a shareholder in an S corporation, you must include on the final return the decedent's share of S corporation income for the corporation's tax year that ends within or with the decedent's last tax year (the year ending on the date of death). The final return must also include the decedent's pro rata share of the S corporation's income for the period between the end of the corporation's last tax year and the date of death.

The income for the part of the S corporation's tax year after the shareholder's death is income to the estate or other person who has acquired the stock in the S corporation.

Self-employment income. You must include on the final return the self-employment income that the decedent actually or constructively received or accrued, depending on the decedent's accounting method. 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. For more information on how to compute the decedent's self-employment income, see Publication 533, Self-Employment Tax.

Medical Savings Account (MSA)

The treatment of a medical savings account at the death of the account holder depends on who acquires the interest in the account. If the estate of the holder acquires the interest, the fair market value of the assets in the account on the date of death is included in gross income on the decedent's final return. The estate tax deduction, discussed later, does not apply to this amount.

If a beneficiary acquires the interest, see the discussion under Income in Respect of the Decedent, later. For other information on MSAs, see Publication 969, Medical Savings Accounts (MSAs).

Deductions, Credits, and Exemptions

Generally, the rules for deductions, credits, and exemptions that apply to individuals also apply to the decedent's final income tax return. On the final return, claim deductible items that were paid before the decedent's death (or accrued, if the decedent reported deductions on an accrual method).

Deductions

All of the deductions that are discussed in this publication also apply to the final return as long as the decedent was eligible for the deduction at the time of death.

You can generally choose to claim itemized deductions or the standard deduction on the final return. See Standard deduction, later, for instances when you cannot choose the standard deduction or when the amount of the standard deduction may be limited.

If you have a choice, you should figure the amount of the decedent's itemized deductions before you decide whether to itemize or claim the standard deduction to be sure that you are using the method that gives you the lower tax.

Itemized deductions. If the total of the decedent's itemized deductions is more than the decedent's standard deduction, the federal income tax will generally be less if you claim itemized deductions on the final return. See chapters 23 through 30 for the types of expenses that are allowed as itemized deductions.

Note. The amount you can deduct for most itemized deductions is limited if adjusted gross income is more than $124,500 ($62,250 if married filing separately). See chapter 22 for more information.

Medical costs. If you itemize deductions on the final return, you may be able to deduct medical expenses of the decedent even though they were not paid before the date of death. See Decedents in chapter 23 for an explanation of how this election can be made.

Qualified medical expenses paid before death by the decedent are not deductible if paid with a tax-free distribution from a medical savings account.

Unrecovered investment in pension. If the decedent was receiving a pension or annuity and died without a surviving annuitant, you can take a deduction on the decedent's final return for the amount of the decedent's investment in the pension or annuity contract that remained unrecovered at death. The deduction is a miscellaneous itemized deduction that is not subject to the 2%-of-adjusted-gross-income limit. See chapter 30.

Standard deduction. You can generally claim the full amount of the standard deduction on the decedent's final return. However, you cannot use the standard deduction if the surviving spouse files a separate return and itemizes deductions. In that event, you must also itemize deductions on the decedent's final return.

The amount of the standard deduction for a decedent's final return is the same as it would have been had the decedent continued to live. However, if the decedent was not 65 or older at the time of death, the higher standard deduction for age cannot be claimed.

If another taxpayer can claim the decedent as a dependent, the amount you can claim for the decedent's standard deduction may be limited. See chapter 21 for more information on how to determine the amount of the standard deduction.

Credits

Any of the tax credits that are discussed in this publication also apply to the final return if the decedent was eligible for the credits at the time of death. These credits are discussed in chapters 33 through 38 of this publication.

Tax withheld and estimated payments. There may have been income tax withheld from the decedent's pay, pensions, or annuities before death, and the decedent may have paid estimated income tax. To get credit for these tax payments, you must claim them on the decedent's final return. For more information, see Credit for Withholding and Estimated Tax in chapter 5.

Exemptions

You can claim the full amount of the personal exemption on the decedent's final return unless the decedent can be claimed as a dependent by another taxpayer. In that case, the decedent's own exemption amount on the final return is zero. See chapter 3 for information on other dependency exemptions that may be allowed on the final return.

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