Aretha Franklin’s estate is in the middle of a fight between multiple heirs and the Internal Revenue Service (IRS). The fight brings to mind the old saying: “in this world nothing can be said to be certain, except death and taxes.” When these two certainties collide, those who are left behind can find themselves expected to navigate quite a mess.
Navigating tax matters with the IRS is not easy in the best of situations. Add in the millions that make up the estate of the “Queen of Soul” with the emotional turmoil that comes with the passing of a loved one and dealing with the IRS could make the strongest at heart want to turn tail and run. Unfortunately, that is the exact situation Ms. Franklin’s estate must currently navigate.
The IRS states Franklin’s estate owed millions in tax obligations and penalties. To collect, the agency filed a claim in probate court. Although the final payment to the IRS is not yet known, the conflict provides an opportunity to discuss the obligations of an estate to the IRS.
When a person dies, the estate generally goes into probate. This is a public court process. One of the first steps involves the appointment of a legal representative. The court tasks this representative with collecting the decedent’s assets and paying off all the estate’s debts. The representative will then distribute the remaining assets amongst the heirs.
The court will consider a tax bill a form of debt. The representative will need to review two different tax obligations:
- The individual. The representative will need to file an income tax return for the individual that passed. If returns were not filed for previous years, the representative will need to complete these as well.
- The estate. The IRS considers the estate a separate entity. As such, the representative will need to file an income tax return for the estate.
The IRS will require additional paperwork if the estate includes a business. The representative will also need to file an estate tax return, generally only applicable on large estates.