1041 Marked Final but not actually Final

[DMICPA]

New client. Provided the prior year 2010 1041. Actually no filing requirement as the income was less than $600 but CPA filed it anyway and marked as First and Final.
No K-1s, just the 1041.

The Trust is no where near final. Assets have not been gathered yet. Called the prior CPA and he said he did not know and since I seem to have questions about the preparation, He resigned on the spot and told me to take over.

For 2011, I have to file the 1041 but since it was marked final, won't the IRS question this? Could I file an amended 1041 for 2010 only changing the box marked final?

Any ideas?

[Burke]

Are you sure the first & final K-1 is not for an estate? Sounds more like it. Perhaps the will caused all the assets to go into a trust? Do you have the will or trust documents? You need those to determine what has actually happened. You can always get a new EIN for the trust.

[DMICPA]

Trust Me, Its a Trust

Nope, this is a Trust. I just got the account on Thursday and am in the process of getting the Trust documents and Will.

It is a Trust

[erchess]

To my mind

it's silly to amend last year over a checked "final" box. You could and there won't be any trouble but there also won't be any trouble from filing this year the return you would file if last year had not been marked final. I have followed this course in cases where the previous preparer marked a corporate return as final and not had a problem. In one case I was the previous preparer. Other than being red faced nothing bad happened.

I'm just wondering what you know about this prior CPA. He seems awfully glad to get rid of the situation so I'm wondering if he knows more about that situation than you do. (I mean, the most likely scenarios from least to most likely seem to be that he felt over his head doing last year's return or he fired the client for issues of that client's payments to him or his perception of that client's honesty.) I think I would sit down while memory is fresh and document everything the client and this guy have told you and exactly what questions you raised. Your memory won't be as clear months or years down the road when his lawyer or a your Prof. Association or the IRS contacts you about the return. I think I might also collect from this client before doing work even if that isn't your policy for all clients.

[Burke]

The first question for me is, if this is a trust, when did it start? You mentioned a will, so there is (was) perhaps an estate involved? Assets have not yet been gathered, so maybe it was late in 2011. If it was originally a RLT, I have found that only rarely is everything inside the trust at death. But a pour-over clause could have remedied that.

[DMICPA]

Slippery Trust

The Trust started in 2009. There has been minimal activity and actually no filing requirement due to small interest income and dividends.

The other CPA apparently did not know too much about 1041's as he took the exemption on the final year, he did not accrue his accounting fee $1,400!, did not list any distributions or any k-1s, did not pass through any excess deductions etc. Did not file a state return.

He was a very nice gentlemen and partner of a large firm but the Trustee (his client) resigned and my client of over 30 years took over just to settle this thing. The Trustee and beneficiaries are all brothers and sisters. The CPA is in His late eighties and probably did not want to do it in the first place and when I came on the scene, he just passed it off to me.

I referred my client to an attorney that is reviewing all the documents.

I will confer with the attorney prior to doing anything but it looks like there is no filing requirement this year also.

The Trust document calls for an annual activity statement and there was none done that I am aware of other than the Brokers Statement. This could probably be waived by all the beneficiaries or they accept what they got.

This tax season I can probably file the individual returns as there are no K-1s to be tallied.

I do not have a Trust filing requirement but just might do one to "activate" it since it was marked "Final" There has never been a State return 1041 filed and I probably will not do it as long as there is no requirement.

[Burke]

If there is not enough income to even file every year, why in the world is it in a trust to begin with. Expenses are eating it up.

[DMICPA]

Disappearing Trust

Now that I am involved, I am going to the help the Trustee gather the assets and distribute them as soon as practical. I have experience in this and am looking forward to getting the job done.

As to why the prior accountant did what he did, I don't know but I do know that going forward, things will move along if I can help it.