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Well, you would prepare her final personal income tax returns for 2015 and if there are any taxes due in excess of what you are able to pay from her funds, you simply attach a statement to her final return indicating that she has no assets and is unable to pay the balance due on her taxes.
Are you sure that she will owe income taxed after considering medical expenses (nursing home costs?), personal exception, etc.?
So you are talking about a tax return for 2012?
How much did she withdraw from the IRA?
Have you heard from the IRS about the missing 2012 return?
Well, if I were you I'd just write a letter to the IRS and Indiana Department of Revenue informing them of her death & that there are no funds available to settle her tax bills.
Did you ever file a tax return for 2012?
I ask because between her personal exemption & Nursing Home Expenses for whatever went to the Nursing Home from her Social Security, I doubt that she would owe very much in income taxes.
What was done with the $23,000.?
In fact, her total taxes may be less than the $1,200.