Prosecutions for filing a false Form 706, the federal estate tax return, have been rare. Recently, a federal prosecutor announced a guilty plea by an individual charged with estate tax fraud. The guilty plea may well be a harbinger of a new “get tough” policy by the IRS in an area that up until now has not had a reputation for vigorous criminal enforcement.The defendant in this case was the executor of her mother’s estate. She admitted that she intentionally filed a Form 706 that omitted assets worth about $400,000 that should have been included in the estate. The executor could face a term of imprisonment, followed by a term of supervised release, and a large fine.
Individuals who stand to be affected by the new emphasis from the IRS on using a carrot and a stick include executors, tax return preparers, and essentially anyone responsible for the completeness and accuracy of an estate tax return. It is important to remember that old income tax returns and other documents that the IRS can obtain in an audit often will allow it to discover assets that have gone unreported. The recently publicized guilty plea by an executor is a not-very-subtle warning by the IRS that estate tax fraud can have consequences beyond dollars and cents.