1041 Decedents Estate

[JenMO]

I have just received an estate to do, I believe we are one month too long for a fiscal year. There is income (over $600) but no profit on a short year if I file a short year to 12-31-2011. If there is no tax due, will there be a late filing penalty? All I can find is that there is a penalty if there is tax due, but want to be sure.

[Burke]

What is the date of death? The executor can elect a fiscal year of any duration as long as it does not exceed 12 mos. This allows flexibility in allocating income and expenses to maximize tax benefits.

[Nashville]

Late Filing Penalty

JenMo, if you are already one month beyond filing a fiscal year, you are also several months beyond filing a 12/31/11 year. If there is a late filing penalty, you are going to have it either way - in fact worse if you select a 12/31/11 year. (All other factors being the same)

[John of PA]

Your not giving us enough facts, I would love to jump in but sorry.

[JenMO]

Client died 6-14-11, but last payments out of estate were 6-22-12. I'd like to pick a calendar year to start ending 12-31-11, and then do a final year 2012. Income for the first one is over $600, but it is capital gain income and figuring incost of assets will not generate any profit, so there will be no taxable income for year ending 12-31-11. Then 2012 will show excess deductions distributed to heirs. If no taxable income in 2011, but filed late, will there be a penalty for filing late?

[John of PA]

It sounds like you will have 2 1041's anyway. I would choose a fiscal year end 5-31-12 so you can net the expenses with the income on the initial 1041, then file a final 1041 for what little activity is left after 6-1-12. Hope this makes sense.

[Burke]

It may be possible to do only one 1041. You can elect a fiscal year, as John said, of 6/14/11 to 5/31/12. If the only thing left was to make distributions (done on 6/22/12) the fiduciary can treat those as being made within the prior estate tax year if they are done within 65 days of the close of that year. You do not say whether any distributions were made in 2011 or not. It also sounds as if, while there may not be any profit on the 1041 due to the sale of stock, there may be some losses to pass through to the heirs?

[John of PA]

Great points Burke.

[S T]

As with many posters on this board, Burke gives some clear and consise info about 1041 estates and trusts, and I so appreciate the knowledge from all that is shared.

Sandy

[JenMO]

I think I have to do two returns. Expenses which would result in excess deductions for Sch A were not paid until after 5-31-12 (which would be the end of a fiscal year). If late return is filed, and no tax is due, will there be a late filing penalty?

[Burke]

With a fiscal year-end of 5/31/12, the initial return is not due until 9/15/12, so there should not be a late return situation.

[JenMO]

I know I'm ok on the fiscal year, what about calendar year 2011. For 2011: more than $600 income, but no taxable income. Will there be a penalty for late filing with no taxable income? The way assets were sold, a calendar year 2011 is the best way for beneficiaries to take advantage of the sales, and then another return in 2012.

[Burke]

I know I'm ok on the fiscal year, what about calendar year 2011. For 2011: more than $600 income, but no taxable income. Will there be a penalty for late filing with no taxable income? The way assets were sold, a calendar year 2011 is the best way for beneficiaries to take advantage of the sales, and then another return in 2012.

I guess I am failing to see why a calendar year would be advantageous to the beneficiaries "to take advantage of the sales" since no losses will pass through to them for 2011. They would get the benefit of any net capital losses in 2012 using a fiscal year that ends in any month of 2012, since the estate terminates in 2012. Just because you have a 1099-B for 2011, does not mean you have to file a calendar year return for an estate. You can send me a PM with some exact figures if you want. Maybe we can thrash this out.