OTHER RETURNS

If you or your late spouse were involved in a business enterprise, you will need to continue payroll and tax filings for such enterprise. Corporations must file Form 1120, S corporations file Form 1120S, partnerships and LLCs file Form 1065. Sole proprietorships file Form 1040 (Schedule C) and Form 1040 (Schedule E) must be filed for real estate investments. If you find any of these tax returns in your late spouse’s files, you need to follow up with your CPA, or the CPA who prepared the return, to make sure that you do not have a continuing obligation with respect to the listed entity.

WORD TO THE WISE

All Federal and state tax returns are filed under penalty of perjury. If you are signing returns, make sure they are accurate to the best of your knowledge. Ask questions. Don’t be persuaded to omit income or assets from any return. You’re the one that is on the hook and the one that will suffer the consequences of any misadventure. You may be thinking: “How does the IRS know I have this?” The answer is: “Don’t risk it.” The value of a good night’s sleep in your own home is too great to put at risk.

RECORD RETENTION

You are required to maintain records that would allow the IRS to confirm income, expenses, or tax liability. The IRS says that records should be held until the expiration of the statute of limitations for the return to which they relate. The statute of limitations ordinarily expires three (3) years after the return is due. The three (3) year period does not apply in cases of fraud or failure to file. Since you have the burden of showing that returns have been filed, it is advisable to permanently retain filed tax returns.

You should also permanently retain the following items:

1. Cancelled checks for all tax payments;
2. All estate tax returns (Form 706) as well as all gift tax returns (709s);
3. Closing letters received from the IRS and state agencies stating that your estate and inheritance tax returns have been accepted and your case is closed.

Although voluminous, you should save cancelled checks for at least six years. Cancelled checks can verify tax payments, satisfaction of a debt, or the making of a loan.

CHOOSING A CPA

If you already have a CPA, ask whether he or she is familiar with the topics discussed in this chapter. Not all CPAs have experience in the income taxation of trusts and estates. Even fewer have experience with estate (Form 706) and gift (Form 709) tax returns. So don’t accept a fast answer that he or she “does this stuff all the time.”

You might ask how many of each return mentioned in this chapter the CPA prepares each year. You might even engage him or her in a discussion about some of the things you have learned from this chapter and judge for yourself whether the answers jibe with what you have read. You should also ask about fees and how many years he or she has been practicing.

If you do not already have a CPA, ask your estate planning attorney to recommend one. If for some reason your attorney cannot help you, every state has an affiliate of the American Institute of Certified Public Accountants (AICPA) that licenses, supports and promotes local CPAs. The state association will be able to provide you with a list of CPAs in your area.

You should call at least three CPAs from the list, and interview at least two. Most CPA’s will be happy to meet with you for a free consultation. If you have access to the Internet, you should visit each accountant’s website. Be patient if you are trying to contact a CPA during tax season (February through April).