When a taxpayer passes away, it becomes the responsibility of the surviving spouse or administrator (personal representative) of the deceased’s estate to file the taxpayer’s tax returns for the final time. If your spouse has passed away, you may file his or her tax returns, assuming your deceased spouse was within the taxable income bracket. When you do so, you can file a joint tax return (use married filing jointly tax status) provided you have not remarried within the tax year your spouse died.
In the tax return Form 1040, you need to add the word “Deceased” after your spouse’s name. Fill in the form as if your spouse were still alive and include all income earned up to the year of death. Write your name and the name of your deceased spouse in the name and address area. At the end, you should sign it and write in the signature area, "filing as surviving spouse." The final tax return should have the date of death written across the top of the tax return form.
If you are not the surviving spouse, you must complete Form 1310 and submit it together with the tax return. If a refund is due to the estate of the deceased, you can only claim the refund if you have completed Form 1310. If you are the appointed administrator or personal representative of the deceased’s estate, in addition to Form 1310 you should also attach a copy of the court certificate showing you as the administrator or executor of the estate.
With regards to payment, if you cannot afford to pay the total tax on your deceased spouse’s estate (which may include taxes other than income tax e.g. estate duty tax), you should negotiate a payment plan with the IRS. If even a payment plan is beyond your affordability, you have two options:
1. Make an offer in compromise
An offer in compromise (OIC) is an offer made to settle the tax debt with an amount less than what is owed. If you meet the IRS’ stringent requirement status for OIC, your offer will be accepted and you can pay the offered amount in full settlement of the total tax debt. Your offer has to be an amount that reflects "the reasonable collection potential of the account" meaning as much as you can reasonably afford. To qualify for an OIC, you must show the IRS that either you can never afford to pay the total amount or paying the full amount would cause undue financial hardship to you.
2. Have your tax debt classified as “currently not collectible”
“Currently not collectible” tax means the total tax amount cannot be collected for the time being because of financial constraints. If the IRS is convinced that this is the case for you, they will grant you this relief. But this is not a permanent status. Typically after one year, the IRS will ask for your latest financial status to see if you can afford it by then. If so, then the IRS will resume collection efforts.