Estate Tax and Income Tax Liabilities
- Created: Monday, 20 July 2015 11:43
by Kelli Madigan, Shareholder
If an estate has open income tax liabilities at the time of a taxpayers death, whether there is a time bar against those claims varies from state to state. Illinois does not allow the recovery of tax deficiencies by the Department of Revenue once claims against the estate have been barred. Illinois statute provides that every claim, excepting only claims for expenses of administration, are barred if not filed against the estate within 6 months of filing of notice pursuant to Section 5/18-3 or, in any event, within 2 years of the decedent’s date of death, whether or not letters of office are issued upon the estate of the decedent. Section 5/18-3 provides that the executor must publish for unknown claimants and mail or deliver directly to each creditor of decedent whose name and address are “reasonably ascertainable” by the executor. In fact, an Illinois court has concluded that the 2 year statute of limitations even bars claims of which the executor has actual knowledge. In Re Marriage of Epsteen, 339 Ill. App. 3d 586, 597. Whether the executor had knowledge or notice is irrelevant, but rather it only matters whether the claim was timely filed. Id.
In Missouri there is a similar 6 month statutory period during which claims must be made or else the creditor is barred from collecting; however, the Missouri statutory language dealing with the time period of barring claims states exempts not only expenses of administration, but also claims of any taxing authority within the United States. Mo. Ann. Stat. § 473.360 (West). A Missouri court, in deciding the meaning of “claims of any taxing authority within the United States,” held that it not only exempted Missouri tax claims from the non-claim statute, but also claims of any taxing authority within the United States. Matter of Estate of Thomas, 743 S.W.2d 74, 76 (Mo. 1988). There is also a general statute of limitations of one year for claims against a decedent’s estate regardless of whether administration of decedent’s estate has been commenced during said 12 month period and regardless of whether claimant has been given any notice. But, again, claims of any taxing authority within the US are expressly excepted from this statutory bar.
As a result, claims of the Illinois Department of Revenue for unpaid taxes and unfiled tax returns will be barred after 2 years from the date of the decedent’s death to the extent not brought by the DOR prior to that time, while there is no time bar for the potential claims of the Missouri Department of Revenue against an estate for unpaid taxes, penalties and interest. In the case of an unfiled income tax return, where there is no statutory limit on collection, the period for the DOR making a claim against the estate remains open indefinitely.
Kelli Madigan is a shareholder with Mathis, Marifian & Richter’s (MM&R) Belleville, Illinois office, who focuses her practice in business law, estate planning, taxation, real estate and banking.