24 Mar When a trust tax return isn’t filed
Photo: cohdra/morguefile.comQ. I have an inherited IRA that’s in a trust from my father who died five years ago, and I get required distributions each year. I just switched accountants and learned the trust should have been filing tax returns but it never did. What should I do, and how much in penalties do I have to worry about?
— In trouble
A. You may not be in the kind of trouble you think.
The trustee, and not the beneficiary, is responsible for filing the tax returns, said Shirley Whitenack, an estate planning attorney with Schenck, Price, Smith & King in Florham Park.
She said penalties and interest are based upon the amount of taxes that are unpaid.
“If the only asset in the trust was the inherited IRA and all of the income was distributed to the reader, then the trust would not owe any taxes and no penalties would be imposed,” she said. “The trustee should file the past due tax returns as soon as possible and pay any taxes and penalties.”
Whitenack said it may be possible to reduce penalties if there was reasonable cause that the tax returns were not filed. Reasonable cause may include bad advice from your accountant, death of a family member, mental incapacitation or mental illness and chronic alcoholism.
“If the reader is the trustee, the reader should seek assistance from the new accountant or a tax attorney,” she said. “If substantial penalties are imposed, the reader may have a surcharge claim against the trustee if the trustee is someone other than the reader, or the former accountant.”
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This story was first posted in March 2016.
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