Taking on the legal responsibility of managing an individual’s financial affairs is a daunting task. Whether you are stepping in to help an aging parent whose health is declining, acting as a guardian for a minor, or wrapping up the final affairs of a loved one, the paperwork can quickly become overwhelming.
One of the very first documents you are instructed to file is IRS Form 56, the Notice Concerning Fiduciary Relationship. To a layperson, sending a formal notification to the Internal Revenue Service can feel like drawing unwanted attention to the taxpayer’s account. Many newly appointed fiduciaries worry that this simple act of compliance could trigger an IRS audit. Understanding the relationship between this form and IRS scrutiny is essential to protecting both the taxpayer and yourself.
Does IRS Form 56 Trigger an Audit
To be clear, filing Form 56 does not automatically generate an audit notice. The form itself is an administrative tool designed to update the IRS database so that official mail goes to the right person.
However, while the form is not an automatic audit trigger, it does act as a catalyst. The moment the IRS processes the document, their automated compliance system reviews the account to ensure everything is up to date. If the individual you are representing has a pristine tax history, the system updates your contact information without issue.
The problem arises when the individual’s tax history is not clean. If there are missing tax returns from previous years, unfiled disclosures, or mismatched income reporting, your filing alerts the IRS that an active representative is now available to answer for those discrepancies. In a roundabout way, the form does not cause the audit, but it often accelerates the timeline for an audit that was already brewing.
How IRS Audits Affect Fiduciaries
When the IRS decides to audit an individual taxpayer, they are looking for specific red flags. For seniors or incapacitated individuals, these red flags often include sudden drops in reported income, unusually high medical expense deductions, or unexplained transfers of real estate and investment assets.
If you are the named fiduciary on file, you are the person who must legally stand in the gap. You will be the one receiving the IRS information document requests. You will be responsible for digging through old filing cabinets, tracking down missing bank statements, and explaining financial decisions that you did not personally make.
Trying to handle an individual IRS audit without professional representation is incredibly stressful. IRS auditors are trained to look for inconsistencies, and an innocent mistake or a missing receipt can result in the government disallowing valid deductions, leading to a massive unexpected tax bill.
Fiduciary Mistakes That Can Lead to IRS Penalties
Many individual fiduciaries treat tax compliance as a secondary task, assuming the IRS will be lenient because they are simply trying to help a family member. This is a dangerous misconception. The IRS applies penalty and interest calculations uniformly, regardless of your good intentions.
If you file tax returns on behalf of an individual and accidentally misreport income or miss a filing deadline, the resulting penalties can decimate the financial reserves you were appointed to protect. Furthermore, if you distribute funds to heirs or spend down an individual’s assets before ensuring their past federal tax liabilities are completely cleared, the IRS can hold you personally liable for the shortfall under federal priority laws.
Final Thoughts
Filing IRS Form 56 is a necessary step to gain legal access to an individual’s tax transcripts and communicate with the government. However, it should also serve as your cue to conduct a thorough financial health check on the person you are representing.
If you discover a history of unfiled returns, unpaid back taxes, or complex asset structures that could easily trigger IRS red flags, you should not face the government alone. Navigating audits and tax controversies requires specialized legal strategies. Partnering with a dedicated tax attorney allows you to establish your fiduciary authority safely, resolve past compliance issues under attorney-client privilege, and ensure that you never face the stress of an IRS collection action unprotected.
Steven N. Klitzner, P.A. is a tax attorney based in Miami, Florida. He has been practicing tax law for over 40 years, and currently holds a 10.0 rating by Avvo. Mr. Klitzner was appointed to the IRS Service Advisory Council in 2021 and is... 
