Deceased taxpayer and SE tax

[MarkCTX]

Client is widow of a man who appeared in TV commercials and occasionaly receives a residual payment. While he was alive he paid income tax along with SE tax. However, he died in 2009 and widow receives payment in 2011. Payment is arounf $1,800. Is SE tax due on this amount? Is there IRS authority on this issue? No estate tax issues.

Mark

[Burke]

Was the check made payable to the widow? Was a 1099MISC issued to her in her SSN? Was it coded in Box 3, Other Income? His estate may have (or may be in the future) entitled to this income, and as such, it is taxable to his estate -- or to his beneficiary if it passed through to her. It should not be subject to SE tax, however. No further SE credits can accrue to the deceased, and the resulting payment is not on account of the widow's trade or business. Even wages received after the year of death are reported this way, and not subject to FICA. See Instructions for Form 1099-MISC.

[MarkCTX]

The checks were made to the deceased husband's name. Seems like the widow should have this "entertainment asset" placed in her name. This is not a copyright which is governed by federal law. The 1099MISC was made out to the husband as well. There will not be an estate return filed. Is this matter discussed in any of the IRS publications?

Mark

[Burke]

I referred to the Instructions for 1099-MISC which is the only reference I have at hand at the moment dealing with this issue. Technically, the payments are Income in Respect of a Decedent, would have gone on Line 8 of the Form 1041 if there had been one, and passed through to the beneficiary(ies) of his estate per his will. Then it would have been taxable income to that/those persons on the K-1. Just pretend that is what happened and treat accordingly. Report on the widow's 1040, line 21. She should also contact the payor and have them change their records to show the proper payee if she expects any future payments. How did she cash the check 2 years down the road?

[ChEAr$]

How did she cash the check 2 years down the road?

My guess is that she lives in and deals with a small town bank. (grin

[oceanlovin'ea]

similar situation

I have a client (friend) whose husband died in 2010. He sold advertising in these little coupon books that are in businesses. Until the contract for the businesses runs out or they discontinue the ads, she received the commission. But it was not her business or her earned income.
Actually it was complicated by the fact that their daughter is also in the same business. She had the residuals sent to her business and then she sent the money to her mother. She then sent her mother a 1099-misc. She did that to be able to expense it from her business, but it created a problem for mother.
I put it on Schedule C and took it off as expense. Then I put it on line 22 as other income. I also enclosed a statement explaining what I had done and why.

If wife didn't do any work to earn the money, she owes no SE tax. It would be income though.

Linda, EA

[MarkCTX]

Thanks for the comments. i did find some IRS guidance in Pub 559 and Rev Rul 59-162. Basically since the widow did not earn the residuals that would otherwise be subject to SE tax during the husband's lifetime, the residual income is not subject to SE tax. She would, however, pay income tax on the amounts. If the amounts were reported on 1099 MISC Box 7 then an attachement explaning the circumstances would be a good idea.

Mark

[Burke]

True, but in your case, the 1099 is not going to match against her return anyway, so I am not sure that is necessary.