Estate Return, no filing requirements, IA wants to anyway

[DaveinTexas]

Hello all. I have a new client/friend of family. He is the Independent Administrator for his wife's grandmother's estate. He wants me to file an estate tax return when one isn't really required.

Here are the components of the Estate:
1. 1/3 interest in a free and clear Single Fam Residence. This is messy because to sell the home the other beneficiaries will need permission from the Estate Representative to sell the property; what a mess.
2. Interest earned on a small CD (might yield $92 in one year's time).
3. Sale of grandmother's personal vehicle. I suppose I could throw this on a Schedule D and wash it out as a personal loss. Non Taxable
4. Life insurance contract deposited to Estate account ($3,000 for a level term contract). Non Taxable
5. Cancer Policy pay out of $30,000 (Non taxable)

My advice is to not file the return if one is not required but the IA wants to do so to keep all ducks in a row. I think he may be afraid of family retribution, as the family is not all on the same page so to speak.

Any advice as how to proceed with this? Is there really anything else I should be aware of in this situation?

Thanks in advance!!

[Golden Rocket]

Consider Liability

This might be more of a legal consideration than anything else. If there are hostilities and other beneficiaries sue the IA, it is likely you will be drug into the suit. Make sure you have a clear-cut understanding that you are only responsible for the information that is given to you, as there may be more than meets the eye.

If a return is not really necessary, my guess is that the IA will reconsider when he finds out the cost of filing the return.

Notwithstanding a return, it sounds like ongoing bookkeeping will be required whether a return is filed or not. If you do this, everyone's liability will be lessened if a return is NOT filed. I had a situation like this where I had to do bookkeeping for 4 years before settlement and a return had to be filed. Every year I sent a copy of income/balance sheet and corroborating records to all beneficiaries requesting correction from any and all parties if the information was not believed to be correct.

[Roland Slugg]

I suppose there is no harm in filing F-706 when it isn't required, but I would advise against it. You might wish to try and determine what purpose the IA thinks will be served by filing needlessly.

There is now a reason, however, other than the value of an estate plus gifts, to file an Estate Tax Return when one would not have been required in the past. A return must be filed if the executor elects to transfer the DSUE amount to the surviving spouse.

[DaveinTexas]

Legal matters

Thanks for the words of caution, I really wouldn't want to get caught up in a family/legal matter.

[JohnH]

You said "new client" in the original post. I think it's especially important to establish a good working relationship with new clients, which includes listening to your advice. You should tell him a return isn't required and your advice is that he not file one. If he doesn't want to take your advice, then he should go somewhere else.

[DaveinTexas]

Got it

You said "new client" in the original post. I think it's especially important to establish a good working relationship with new clients, which includes listening to your advice. You should tell him a return isn't required and your advice is that he not file one. If he doesn't want to take your advice, then he should go somewhere else.

Well understood sir. Good advice.

[Snaggletooth]

Alternate Approach

Consider the desires of this "new" client. Apparently he wants everything to be kosher and well-accounted for, and proposes using the filing of a return to bring this about. I didn't understand from the original post whether it was an ESTATE return or an Estate INCOME return that is in question.

Consider in this case Accounting Services instead of Tax Services. If properly done and sent to all beneficiaries, this would accomplish this client's objective. That would give the beneficiaries the chance to "air out" differences, and has the advantages of not being carved in stone because no return has been filed. Filing a return sorta slams the door shut behind you except for the unsavory spectre of an amended return.

Helps get the beneficiaries on the same page, and lessens (rather than increases) the likelihood of a lawsuit.

[Burke]

I, like Snag, was unclear as to whether you meant an Estate Tax Return 706, or an Estate Income Tax return 1041. The latter is no big deal, but I agree with others -- no on the 706 unless required. I note you are in Texas, and the deceased was in IA? Need to familarize yourself with IA Estate Tax requirements. It appears that Iowa may not have an Estate tax any longer, but it does have an Inheritance tax, and a tax return form is required to be filed if the estate exceeds $25K. This is probably what they are talking about. Find out from the source (IA Tax Dept) what the requirements are, not the administrator.

See this link: www.iowa.gov/tax/educate/78517.html.

[Burke]

There is now a reason, however, other than the value of an estate plus gifts, to file an Estate Tax Return when one would not have been required in the past. A return must be filed if the executor elects to transfer the DSUE amount to the surviving spouse.

I think I know what you are talking about, but what exactly does DSUE stand for? Is "stepped-up" in there somewhere? Or is this the unused exemption passing to the spouse?

[JohnH]

In light of the other issues mentioned by Dave and Roland, it is of some concern that the word "SUE" is embedded in the acronymn.

[DaveinTexas]

My apologies

I, like Snag, was unclear as to whether you meant an Estate Tax Return 706, or an Estate Income Tax return 1041. The latter is no big deal, but I agree with others -- no on the 706 unless required. I note you are in Texas, and the deceased was in IA? Need to familarize yourself with IA Estate Tax requirements. It appears that Iowa may not have an Estate tax any longer, but it does have an Inheritance tax, and a tax return form is required to be filed if the estate exceeds $25K. This is probably what they are talking about. Find out from the source (IA Tax Dept) what the requirements are, not the administrator.

See this link: www.iowa.gov/tax/educate/78517.html.

I was referring to the 1041 return; estate was well under the $5+ million threshold. In fact, during 2013 (death in 2012) there is not expected to be any income beyond $600 so there may never be a requirement to file.

Thanks all!

[John of PA]

Perhap he is concerned if the IRS audits and finds unreported income, if the 1041 was filed he would not get hit with the late filing penalty.

[Burke]

I was referring to the 1041 return; estate was well under the $5+ million threshold. In fact, during 2013 (death in 2012) there is not expected to be any income beyond $600 so there may never be a requirement to file.
Thanks all!

There may be a requirement to file an Inheritance Tax return in IA, however. See previous post. This is separate from the Estate Tax (706) and/or Estate Income Tax (1041) returns. Some states charge the beneficiaries an Inheritance tax on what they receive. It is not clear from the OP who the benes actually are. See link above to determine if they may be exempt. It looks as if the executor/admin must file some sort of affadavit if the estate is exempt from filing this state return.

[abby]

Independent Administrator

There may be a requirement to file an Inheritance Tax return in IA, however. See previous post. This is separate from the Estate Tax (706) and/or Estate Income Tax (1041) returns. Some states charge the beneficiaries an Inheritance tax on what they receive. It is not clear from the OP who the benes actually are. See link above to determine if they may be exempt. It looks as if the executor/admin must file some sort of affadavit if the estate is exempt from filing this state return.

Looks like Iowa is not at issue - first post uses IA to indicate an Independent Administrator

[Burke]

Good grief. That escaped me entirely. Chuckle. So it is probably Texas law he is dealing with? These acronyms are driving me crazy. When I first got on the board, it took me forever to determine what OP and IMO/IMHO were.