Estimates cause audits, FTB and deceased TP

[Strongsilence-CPA]

2015 estimates were used on a C.  The FTB has the return under audit.

2016 not filed.

2017 TP passed away (in February 2017)

The FTB wants returns for 2016 and 2017 but we have little information.

Listing obvious estimates seems right as we don't know the deductions. We have reasonable belief that the TP had business expenses.

Listing obvious estimates would not appeal as I am signing the return.  

The probate process will be finished by end of June. 

Question:

An FTB audit of 2016 would be likely in my opinion. But there will be no money after expenses and taxes.  I think the Executor would be personally liable.  The estate is my client, if I understand correctly.  Do I give advice to the Executor?

EDIT:  I am comfortable with the estimates.  And I am going to add a disclosure statement.

AICPA, SSTS #4

1. When records are missing or precise information about a transaction is not available at the time the return must be filed, a member may prepare a tax return using a taxpayer’s estimates of the missing data.

2. Estimated amounts should not be presented in a manner that provides a misleading impression about the degree of factual accuracy.

3. Specific disclosure that an estimate is used for an item in the return is not generally required; however, such disclosure should be made in unusual circumstances where nondisclosure might mislead the taxing authority regarding the degree of accuracy of the return as a whole. Some examples of unusual circumstances include the following:

   1. A taxpayer has died or is ill at the time the return must be filed.

[qbteachmt · Accepted solution]

Get the records. The IRS has a record of anything reported to them on behalf of this person. The Bank(s) and credit card companies, any vendors, will also have statements to send. You likely have to pay; I had to pay for 2 years' worth, back from before the only records I could find in the decedent's own filing system and unopened mail. Who got their computer(s)? Check with their State, such as sales tax filings or unemployment reporting for their staff for those years. See if someone is sitting on their records in a box in a storage unit. You'd be surprised what I have been able to reconstruct of a person's life just from doing these tasks. Then you also have supporting evidence for what you "estimated."

[Strongsilence-CPA]

I have transcripts from the IRS and FTB.  I have bank statements which are only of limited value.  The executor claims that there is nothing more he can get.  And with limited time, we are stuck with what we have.

I thank you and I would be surprised too were we to put a good effort into these tax returns.

[Strongsilence-CPA]

A reasonable cause request for not filing 2016 and 2017 would definitely get rid of 10K of penalties.  The attorney thinks the request and the process of filing for reasonable cause would slow down the process and perhaps "throw a monkey wrench" in the process.  The executor could possibly be personally liable for the penalties incurred by this estate.  Since I am preparing the estate taxes, what is my role with respect to the executor?  He seems unfazed by the prospect of paying the penalties.