How can I check to see if we owe the IRS before filing taxes?
Friday, April 23rd, 2010 at
5:34 am
My husband inherited money from his dad. It was in the form of a check. No property, or belongings were left in his name, just the money. We did not claim this on our taxes of 2008 as we thought money was not taxable. His brother filed a return for 2009, and the IRS sent him something basically saying, "No way, you owe us"! (He also received money). How do I find out if I owe the IRS or not? They have not billed us. But then again they have not billed his brother either.
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Inheritance is not taxable on your Federal tax return. It is not considered income and there is no Federal Inheritance Tax. There is a Federal estate Tax, except for 2010, but Estate Tax is paid by the Estate before the estate is distributed. Inheritance Tax is a state tax paid by the person who inherits based on the amount that they inherit. Some states, like New Jersey, have an Inheritance Tax but most states, like California, do not.
You should see a CPA just for your own peace of mind but realistically, unless it was money from an inherited IRA or 401(k) you probably don’t owe anything.
legally, you owe the money. But i will say the IRS is a big entity, and they tend not to catch everything or even a majority of things. If it’s a moral issue, claim it. If you’re worried about getting caught, claim it. But, if you like to gamble a little, i would say don’t.
Was it life insurance, or a check from the estate after it was settled?
This is from the IRS website:
Question: Is the money received from the sale of inherited property considered taxable income?
Answer: To determine if the sale of inherited property is taxable, you must first determine your basis in the property. The basis of inherited property is generally one of the following:
The fair market value (FMV) of the property on the date of the decedent’s death.
* The FMV of the property on the alternate valuation date if the executor of the estate chooses to use alternate valuation. See the Form 706 Instructions, United States Estate (and Generation-Skipping Transfer) Tax Return.
If you or your spouse gave the property to the decedent within one year before the decedent’s death, see Publication 551, Basis of Assets.
Report the sale on Form 1040, Schedule D (PDF), Capital Gain and Losses:
There are no inheritance taxes at the Federal level. Your brother’s tax issue has nothing to do with the inheritance, assuming that the estate didn’t generate any taxable income after your father’s death. If it had, you would have received Schedules K-1 that outlined the taxable income which you would have then reported on your tax returns last year.
Since you were given a check you don’t put this on Schedule D or anywhere else for that matter. If the estate generated any taxable capital gains those would have been reflected on the Schedule K-1 that the executor of the estate would have provided to you.
Assuming that you either didn’t move since you filed your 2008 return or if you did you filed a change of address notice with the Post Office, the IRS would have most likely been in touch by now if the figured that you owed them any money.
You can call 1-800-TAX-1040 and either hang on the line without pressing anything or press ‘0′ to be routed to a human. They can tell you if you have an outstanding debt with the IRS. Be prepared for an extended hold time, however.
Assuming it was actually taxable income, you legally owe the money whether the IRS catches it or not. The way you find out how much you owe is to get professional tax help and file an amended return for 2008.
Of course its possible that it wasn’t actually taxable, and your Brother in law’s tax issue was either related to something else, or a mistake by the IRS. Many times when a person dies and their assets are transferred, its not taxable income for the heir.
If you’re worried about them taking your 2009 tax refund, don’t be. If they had caught a mistake from 2008 they would have notified you. Since they haven’t notified you, its safe to assume they don’t have a tax debt on your record, so they won’t withhold your 2009 tax refund. That’s no guarantee that they won’t catch it later.
So, exactly *what* did your husband inherit?
Cash that was in the bank when his dad died isn’t taxable.
Cash that was gotten from liquidating a retirement account *is* taxable.
Cash that was gotten from liquidating a house or stocks and bonds is taxable, but only for the amount of gain between the time the dad died and the assets were sold.
If the money is from an IRA, your husband would get either a 1099-R or a 1041 schedule K-1. Ask the executor *exactly* what he did if a 1041 was required.