Final 1040 or is estate income tax return required

[kamckinley]

Hi All,

I'm working on a client's final income tax return. She passed away in May 2015 and received one pension check (approx $2,000) after her date of death. There were also a couple of small stock sales ($200 gross, $2 loss) that occurred after she passed but before the accounts were distributed to her children.

All of this was reported under her SSN. Her son (the executor of the will), has not requested an EIN for the estate yet.

I have a couple of questions:

1. Is an estate income tax return required? I believe so since the amount was over $600. However, does it matter that the income was reported under her SSN and not an estate EIN?
2. If an estate income tax return is required, since the income was reported under her SSN, do you report the full amount on her final return and do nominee income for the amount that should go on the estate income tax return? For example, on the pension, if the 1099R is for $10K, but $2K was received after her passing, report $10K on her final 1040 and back $2K out for nominee income?

Also, I found out that one of the children has already filed their tax return, so she will have to amend if she gets a K-1. I know that the personal representative can choose to use May 2016 as the end of the year instead of December 31. This would push the K-1 income into the next year. Is this the best solution or would this be even messier given the incorrect 1099 reporting.

Any help is greatly appreciated. Thank you!

[Kram BergGold]

What I would do

I assume the decedent was over 65. Then her filing threshold is $11,850. It looks like she is under this so maybe no reason to file a 1040.
Yes I would file a 1041. If no distributions in 2015 then file calendar year and have estate pay the tax. If there were distributions then go fiscal year to avoid 2015 K-1's. And then divide the income as you described. The IRs is not going to challenge income on a 1041 that is not supported by an EIN.

[kamckinley]

I assume the decedent was over 65. Then her filing threshold is $11,850. It looks like she is under this so maybe no reason to file a 1040.
Yes I would file a 1041. If no distributions in 2015 then file calendar year and have estate pay the tax. If there were distributions then go fiscal year to avoid 2015 K-1's. And then divide the income as you described. The IRs is not going to challenge income on a 1041 that is not supported by an EIN.

Thanks Kram.

I apologize if this is a dumb question (this is my first estate income tax return - I have reviewed the Tax Book section on distributions, but still not sure of the answer), but what exactly constitutes a distribution? If the pension check that was received after she passed was used to pay her final medical and funeral expenses, and all other assets were passed according to beneficiary or TOD instructions, is there a distribution to report?

[Kram BergGold]

Distribution

A distribution is a payment to a beneficiary not expenses paid for the decedent. It sound like some money was given to a beneficiary but any account designated as TOD is not part of this equation. Those items pass directly to the bene and the income from them would show up on the decedent;s return or the bene's return. Never on the 1041.

[ATSMAN]

Hi All,

I'm working on a client's final income tax return. She passed away in May 2015 and received one pension check (approx $2,000) after her date of death. There were also a couple of small stock sales ($200 gross, $2 loss) that occurred after she passed but before the accounts were distributed to her children.

All of this was reported under her SSN. Her son (the executor of the will), has not requested an EIN for the estate yet.

I have a couple of questions:

1. Is an estate income tax return required? I believe so since the amount was over $600. However, does it matter that the income was reported under her SSN and not an estate EIN?
2. If an estate income tax return is required, since the income was reported under her SSN, do you report the full amount on her final return and do nominee income for the amount that should go on the estate income tax return? For example, on the pension, if the 1099R is for $10K, but $2K was received after her passing, report $10K on her final 1040 and back $2K out for nominee income?

Also, I found out that one of the children has already filed their tax return, so she will have to amend if she gets a K-1. I know that the personal representative can choose to use May 2016 as the end of the year instead of December 31. This would push the K-1 income into the next year. Is this the best solution or would this be even messier given the incorrect 1099 reporting.

Any help is greatly appreciated. Thank you!

If this is your first 1041 please proceed with caution because it is very easy to make a mistake that can have serious consequences for the beneficiaries of the estate.

Generally speaking after a person dies the next of kin (unless there is a will that has stipulations) will approach a probate attorney. The attorney or next of kin should apply for a decedent's EIN online or use W4 form. The IRS will issue the EIN and mail a form SS-4 that will be required to file the 1041 form. IRS rules require that the name of the estate be exactly as spelled in the SS-4 letter.

If there was income producing property (such as a rental) that remained rented and producing rent after the owner's death and is eventually sold it becomes even more complicated to apportion income and expenses between 1040 and 1041. Remember that the decedent's estate is created automatically by application of law upon death so any income after death has to be reported on form 1041.

If all assets are TOD, then you can get by filing the final 1040.