In our last post we looked at the first element of the due diligence questions that a personal representative must answer prior to seeking clearance with Revenue. We now look at the remaining parts of the due diligence form.

The Due Diligence Form – Questions 8 to 14

Have assets been disposed of in the 10 years prior to date of death. If assets have been disposed in the 10 years prior to date of death, details of disposals should be ascertained – Year/Asset Description/Nature of Disposal/Consideration?

So this is a challenging question, in that it requires a good degree of knowledge of the testators past financial transactions which may not be readily available to any per rep. There could be many reasons why a deceased may dispose of assets in the 10 years prior to death (to accelerate an inheritance for a child, to fund nursing home care, to have liquid funds available for other expenses). So there is a very real possibility in many cases that a testator will have conducted this exercise. At this section of the form, the Revenue require the per rep simply to list out these disposals and list their details.

Have all such disposals been declared for CGT?

As in previous questions, recourse will have to be made to professional or other financial advisors to the testator to determine this. Records of the testator may be available at their dwelling to demonstrate this.

Was CGT due paid?

If one can locate the copies of the capital gains returns for prior disposals it is likely that CGT was paid. If work has been conducted to make and submit the return, there also would be further correspondence from Revenue notifying the testator of the outstanding CGT if not paid.

Was there a “Tax Creditor” provision in the latest Accounts and Balance Sheet of the deceased?

This will particularly apply to sole trader deceased individuals. If there is a provision for tax liability in the accounts of the sole trader this indicates a potential liability to Revenue and a flag to any per rep to investigate the matter. Recourse will have to be made to the individuals who prepared the accounts of the deceased to determine the liability.

Are there any outstanding tax compliance matters in respect of which a Qualifying Disclosure should be made?

As the name suggests a Qualifying Disclosure is any disclosure to Revenue (whether prompted or unprompted) in cases where the deceased:-

• did not report all of his/her income or gains for tax and duty; or
• made an error on a tax return; or
• made an error while making a tax relief or refund claim.

As part of a common theme in looking at this area, this again places a significant burden on a per rep in examining their affairs. It is one thing to perhaps spot the failure to return certain income. How is a per rep to know that an error was made on a return or a relief was applied in circumstances where it shouldn’t?

Are there any tax compliance matters of doubt that should be drawn to Revenue’s attention in connection with this application for clearance? For example, this includes any tax matters under appeal which are not yet finalised?

A broad catch all question from Revenue which places a serious burden on a per rep. All that a per rep can do in good faith is answer the question after due enquiries. Again reliance on professional advisors will be key here.

Are there any pending legal actions? (if not covered by the SA2)

The consequence of this means that an application for clearance cannot be made to the extent that there is ongoing legal action regarding the estate . This creates difficulties in the management of an estate that has a litigation element as clearance can only be applied for once the litigation is over. Thus adding to further potential delay. This is somewhat unfair, as litigation would tend to impact on the extent of a benefit rather than the historic income/CGT tax position of the deceased.

Further it is unclear what is meant by “if not covered by the SA2” as the current iteration of the SA2 does not contain a section to deal with litigation of the estate.

Conclusion

It is obvious that the new due diligence questionnaire procedure will significantly increase the burden on a per rep in dealing with an estate. This becomes all the more onerous if the deceased had not appointed a professional advisor during their lifetime.

We will look in the next blog at some of the practical steps that solicitors should be taking in approaching how to manage this new compliance burden.

In the meantime, if you have any queries on tax matters, probate or will drafting, please do not hesitate to reach out to ckelly@hcalaw.ie.