Implications of Violating Income-Reporting Duties

Jay A. Soled (Professor, Rutgers Business School) recently published his article entitled Implications of Discovering Unreported Income, Improper Deductions, and Hidden Assets Upon a Taxpayer’s Death, 44 Ga. L. Rev. 697 (2010). The introduction is below:

If, as this Article will recommend, executors and estate beneficiaries had a duty to make affirmative inquiries and provide information about the decedent’s tax- reporting practices to the IRS, the opportunity to bequeath ill-gotten gains would be significantly diminished. Concomitantly, the incentive to commit tax fraud in the first instance would be considerably reduced if civil liability and criminal liability were imposed on executors and estate beneficiaries who violated these duties. Simply put, taxpayers willing to risk such liability for themselves might well decide to engage in more accurate tax-reporting practices when confronted with the prospect of passing along their liability to their executors and intended beneficiaries.

This Article addresses the legal and ethical challenges engendered when wayward taxpayers die owing income and estate taxes on unreported income, improper deductions, and undisclosed investments. Part II provides relevant background information and frames the issues that this Article seeks to address. Part III offers resolutions to these issues. Part IV sets forth policy recommendations designed to coax executors and estate beneficiaries to police decedents’ tax practices and thereby help close the tax gap. Finally, Part V concludes.