Executor can be hit with "phantom" assessments after estate has been closed and executor discharged.

Sec. 6501(d) can cut in half the statutory assessment period for fiduciary income tax returns filed by an estate and for a decedent's prior individual income tax returns. Failure to make a request for prompt assessment under Sec. 6501(d) can cause problems for an unsuspecting executor, as illustrated in Est. of Walker, 90 TC 253 (1988).

Decedent died on Mar. 14, 1984; an executor was appointed on Apr. 2, 1984. The executor gave proper notice to creditors and filed all necessary individual, fiduciary and estate tax returns, and paid all taxes due as indicated on the returns. On Dec. 12, 1984, the executor distributed all assets of the estate and was discharged by the court. On Dec. 19, 1984, the IRS issued an assessment notice addressed to the estate in the amount of $35,000 in income taxes for the year 1982. The executor claimed that the estate had no liability or responsibility, noting that all of the assets had been distributed and the executor discharged. The court ruled that the estate was responsible for taxes owed and unpaid in open years, and the court had authority to reopen the estate and reappoint an executor to represent it for this matter.

How could this problem have been avoided? The normal statute of limitations (SOL) for assessment of a deficiency of income tax against an estate or trust is three years. This period may be shortened by 18 months if the executor or personal representative of the estate or trust makes a request under Sec. 6501(d) for prompt assessment of taxes due for all open years. This request can be made using Form 4810, Request for Prompt Assessment Under Sec. 6501(d), or one's own format. The format must clearly indicate:

1. That it is a request for prompt assessment under Sec. 6501(d).

2. The kind of tax and tax periods.

3. The name and Social Security number or employer identification number shown on the returns.

4. The date and location of the IRS office where the returns were filed.

5. Verification of authority to act for the taxpayer (such as Letters Testamentary, Letters of Administration, etc.).

Caution: Form 4810 may only be used in connection with income tax returns. Requests by executors for determination of estate tax and discharge from personal liability are made pursuant to Sec. 2204.

Requests should not be filed until after the returns have been filed. Any returns filed subsequent to a prior request will require a new request. Requests must be filed separately from any other documents in a separate envelope addressed to the IRS office where the returns were originally filed. Several years' returns may be included in one request, as long as the returns have been filed by the time the request is filed.

Sec. 6501(d) will not be effective in shortening the SOL in all situations. Consider the following:

[] Surviving party to joint return: The three-year limitation period on tax assessment for the surviving spouse on a joint return was not shortened to 18 months when the executor of the deceased spouse's estate requested prompt assessment of tax (Rev. Rul. 72-338, superseding GCM 13592).

[] Transferee liability: Assessment could be made against the transferee of a decedent or dissolved corporation within one year after the normal three-year period for a transferor, even though the request for prompt assessment was made on the transferor's behalf (Rev. Rul. 64-305).

[] Omission of over 25% of gross income: Extended limitation period was applied despite prompt assessment, when an omission of over 25% of gross income existed (Est. of Foster, 131 F2d 405 (5th Cir. 1942)).

[] False or fraudulent returns: Sec. 6501(d) has no effect on the statute with respect to false or fraudulent returns. Tax may be assessed at any time (The National City Bank of N.Y., exec. O'Neil), 35 BTA 975 (1937), aff'd, 98 F2d 93 (2d Cir. 1938)).

All is not lost if an unpaid tax liability is discovered and a request under Sec. 6501(d) has not been made. In certain limited circumstances an executor may escape personal liability. An executor or administrator without personal knowledge of an unpaid income tax liability, and without such knowledge as would put a reasonably prudent man on inquiry, cannot be held personally liable for payment Rev. Rul. 66-43). From Jack Forster, Iskowitz Koo, Los Angeles, Cal.