Deceased mother's returns

[ED SMITH]

Bond basis

I work on a daily basis with IRS Wage & Income transcripts. They do not provide the basis for stock or bonds. Was the bond basis taken into account in preparing the returns? If not, there may be no tax liability.

[FEDUKE404]

Basis not an issue?

I work on a daily basis with IRS Wage & Income transcripts. They do not provide the basis for stock or bonds. Was the bond basis taken into account in preparing the returns? If not, there may be no tax liability.

I think the original post made reference to savings bonds.

If so, the bank should have calculated the appropriate interest amount per the government redemption tables and then reported it on Form 1099-INT. (There is always the extremely unlikely scenario where the savings bond owner had reported the income as it was "earned" over the years.)

In any case, unless these were corporate bonds, or perhaps bank bonds (or even CDs) bought/sold through a securities firm, the cost basis is a non-issue. Such a "sale" would show up on a Form 1099-B and then Schedule D, including cost basis, would be a requirement for the tax return.

Sadly, I still feel the executor/executrix dropped the ball at least regarding the due diligence requirement for properly filing the decedent's income tax returns.

FE

[Lion]

My Experience

Before I was doing taxes for anyone but myself and my son, my father passed away. My sister lived out there and dealt with the funeral and lawyer and stuff; I was several states away but said I'd prepare his personal income tax returns. I grabbed up all his prior year returns to bring with me when I returned from his funeral. He died the end of February that year before preparing his return. He'd owed NO additional taxes the prior four years, so I sent in an extension and waited until I had more time (was a single mom with a long commute and behind at work due to Daddy's illness and then funeral) to prepare his return with a state that was new to me. As it turned out, that year he'd sold some grain from a farm he'd inherited from my mom for the first time since it had been his. That sale, along with his small pension (the pension had withholding) was enough to make some of his social security taxable and left him owing $1,500. I filed the return and paid the tax and interest, or maybe we still had a checking account for his estate that paid. The outside accountant for the company where I worked let me use his software to prepare my tax returns and my son's and that year my dad's too. He worded a letter asking for the penalty to be waived due to us not knowing that this year was different than his prior years. It worked. The executor (which was my sister, but I was NOT a tax pro at that time either) wouldn't know everything she should know about the decedent's tax return until she gets into it and researches it and until she uncovers all the documents. For instance, just preparing my return and my son's and looking at my dad's prior returns with NO social security, I didn't know when I filed an extension and not until I got into the preparation of his return that a certain level of income would make some of his social security taxable. What's due diligence for a grieving executor who never prepared her parents' tax returns? And, even if she knew all the questions to ask, the decedent is after all deceased and not answering questions. Cut her a little slack and help her get the penalties waived. Wish I still had the letter the accountant wrote. Some of you must have wording that has worked for you in the past...

[FEDUKE404]

No intent to be harsh

Lion,

The way I read the first post ("Is my client responsible for this?") indicated, at least to me, some confusion as to whether the taxes should have to be paid at all. In my earliest post, my comment was "I would think the executor/heirs should just file the tax return, pay the interest, beg for forgiveness on the lateness, and get on with things."

In no attempt to sound harsh, I essentially feel that is the way to go. As you certainly know, the IRS will never waive interest expenses but a well-written letter, perhaps followed up by a later telephone call, can stand an excellent chance of making the other fees and/or penalties disappear or be reduced significantly. The tax returns in question apparently have very small tax liabilities in the first place.

That should certainly fall within the realm of "cut her a little slack."

In my state, to "close" an estate the executor must sign a statement certifying, among other things, that a properly filed income tax return has been prepared for the decedent. Once any grieving issues can be reasonably set aside, that fundamental responsibility does not change.

FE