Whether you are filing tax returns for the living or the dead, you need to follow the rules. Penalties for failing to amend an estate tax return can include criminal and civil penalties.
Here's an ethical dilemma. You learn that your late mother had a safe with $100,000 cash in it after the estate has been finalized. Do you pocket the cash and tell no one, or add it to her assets? The temptation is obvious, but the right and legal thing to do is correct the error.
New Jersey 101.5 says in its recent article, "Why it's important for executors to report all estate assets," that the executor of an estate must prepare and file the necessary returns. In doing this, he or she has to collect, value and report all of the assets of the estate.
If a failure to include the cash in the inventory of the estate assets keeps the estate below the reporting threshold and no return was filed, the unpaid tax on the cash will accrue interest. Plus, the estate and executor may be subject to penalties for nonpayment, as well as facing civil and criminal penalties if this failure to file is deemed fraudulent.
Unlike cases where a return is filed, there's no statute of limitations where assets are not reported; the assets haven't been disclosed, and the tax authorities haven't been given an opportunity to review and evaluate reported information.
Even if the failure to file is an honest mistake, if the estate is audited, the executor can be personally liable for the unpaid tax, interest and penalties because he has distributed the estate's assets.
If you properly prepared but filed the return late, if one was never filed or if one was filed but the cash not reported, taking care of this should give a person peace of mind that it's likely to be a pretty small tax cost.
An experienced estate attorney will be able to help you fix this error before it becomes a serious problem for you and your family.
Reference: New Jersey 101.5 (April 5, 2016) "Why it's important for executors to report all estate assets"