Form 56: Telling the IRS You Are the Fiduciary

Of all the forms an executor files, Form 56 is the one most often skipped. It has no tax on it. It does not request a refund. It just tells the IRS who is in charge. That sounds like paperwork for paperwork's sake.

It is not. Form 56, Notice Concerning Fiduciary Relationship, is the difference between getting the IRS's letters and having them sit in a dead person's mailbox while deadlines run.

What the law requires

IRC 6903(a) provides that once notice is given to the IRS that a person is acting in a fiduciary capacity for another, the fiduciary assumes the powers, rights, duties and privileges of that person with respect to the tax. Treas. Reg. 301.6903-1(a) adds that every person acting for another in a fiduciary capacity shall give that notice in writing.

A fiduciary, under IRC 7701(a)(6), means a guardian, trustee, executor, administrator, receiver, conservator, or any person acting in any fiduciary capacity for any person. For a Sarasota family, that typically means the court-appointed personal representative, the successor trustee of a revocable trust, or both.

The regulation contains one sentence that executors find reassuring: the tax is ordinarily not collectible from the personal estate of the fiduciary, but from the estate of the taxpayer. Filing Form 56 does not make you liable for the decedent's taxes. Your separate exposure comes from how you handle estate assets, which is the subject of the guide to executor personal liability.

The real reason to file: notices

Treas. Reg. 301.6903-1(c) explains what happens when no notice is filed. If the IRS sends a statutory notice of deficiency to the taxpayer's last known address and no Form 56 is on file, the IRS does not have to send a copy to the fiduciary. The mailing to the last known address is sufficient, even though the taxpayer is deceased.

Then the clock runs. If no petition is filed with the Tax Court within 90 days, the tax is assessed and demand for payment is made. IRC 6901(g) says the same thing for transferee and fiduciary liability notices.

Think about what that means in practice. The decedent's house is empty or sold. Mail is forwarded to a relative, or not forwarded at all. A notice of deficiency for the decedent's last return arrives, nobody opens it, and the right to challenge the tax in Tax Court disappears before anyone knew it existed. That is how a disputable adjustment becomes a final assessment.

Form 56 cannot make every letter reach you, because IRS systems are what they are. It does put the IRS on notice of your address, and it means a deficiency notice mailed only to the decedent is no longer sufficient.

Form 56 is not Form 2848

People confuse these two constantly.

• Form 56 says: I am the fiduciary. I stand in the taxpayer's shoes.
• Form 2848 says: I authorize this attorney, CPA or enrolled agent to represent me.

A power of attorney the decedent signed during life ends at death. IRM 5.8.10.4.1 states it directly: a third party authorization on Form 2848 or Form 8821 expires with the death of the taxpayer. So the estate's lawyer or CPA cannot keep using the old one.

The right sequence is: the executor files Form 56 first, then the executor signs a new Form 2848 for the estate's representative, in the executor's fiduciary capacity. Without the Form 56 on file, the IRS has no way to know the person signing that new Form 2848 has authority to do it.

What to put on it

Under Treas. Reg. 301.6903-1(b)(2), the notice must be signed by the fiduciary and must state:

• The name and address of the person for whom you are acting.
• The nature of the liability: the type of tax and the years involved, or a transferee or fiduciary liability.

The form itself asks for the decedent's Social Security number, the date of death, the type of fiduciary relationship, the type of tax (income, gift, estate), the federal tax form numbers involved, and the years or periods.

Be generous with the years. If you list only the year of death, and the IRS is working on an unfiled return from three years earlier, the notice may not connect to that period. List every year you have reason to think is open, and every form: Form 1040, Form 709, Form 706, and the estate's Form 1041.

The regulation requires the fiduciary to retain satisfactory evidence of authority, such as a certified copy of the Florida letters of administration or the trust instrument. The IRS may ask for it later. Keep it handy.

Where and when to file

The notice is filed with the IRS service center where the person for whom you are acting is required to file returns. The Form 56 instructions list the address. Do not staple it to the final return and hope it gets routed. File it on its own, as soon as you are appointed or begin acting.

Two filings are often needed. One Form 56 for the decedent, using the decedent's Social Security number. A second for the estate itself, using the estate's employer identification number, once the estate has one and starts filing Form 1041. A successor trustee of a trust that becomes irrevocable at death files for the trust as well.

Ending the relationship

Fiduciary relationships end. The estate closes, a trustee resigns, a successor is appointed. The regulation and the form provide for that too.

Part II of Form 56 is used to give notice that the fiduciary relationship has terminated. If a new fiduciary has been appointed, include that person's name and address. Until you file the termination, the IRS will continue to treat you as the person with the duties of the taxpayer. That can mean letters, and occasionally questions, long after you thought you were done.

File the termination after the IRS issues are actually finished: final returns filed, prompt assessment periods run, and any discharge request resolved. Closing the IRS relationship before the IRS is done with the estate just means the next notice goes nowhere.

Trustees and surviving spouses

Form 56 is not only for executors. A successor trustee of a revocable trust that became irrevocable at death is a fiduciary for the trust. If the trust holds most of the assets and no probate is opened, the trustee may be the only person positioned to deal with the IRS at all. The guide to revocable trusts after death explains how the trust and any estate coordinate their filings.

A surviving spouse is a different case. A spouse who filed joint returns with the decedent already has independent rights and liabilities on those joint years, and does not need Form 56 to deal with the IRS on them. But if the spouse is also acting as personal representative for the decedent's separate years or for the estate, the spouse should file Form 56 in that capacity.

Common mistakes

1. Never filing it, and relying on a Form 2848 the decedent signed years ago.
2. Listing only one year or one form type.
3. Using the estate EIN when the issue is the decedent's individual return, or the reverse.
4. Forgetting to update the address after moving the estate's mail to the attorney's office.
5. Terminating the relationship before the IRS issues are resolved.

None of these are complicated. All of them are avoidable. Form 56 is the cheapest insurance in estate administration.

If notices are already arriving for someone who has passed and you are not sure what they mean, call (813) 229-7100. Let's talk.