Canadian beneficiary

[Maggie]

A U.S. estate/trust has 4 canadian beneficiaries and 1 u.s. beneficiary. U.S. tax was withheld from the annuity payment to trust upon the death of the taxpayer. I will file the 1041 to get the refund of the U.S. taxes, since I understand that the withholding can't be allocated to the beneficiaries. Correct?

Do the Canadian beneficiaries need to get a U.S. SSN or ITIN? Am I required to withhold u.s. taxes when the beneficiaries receive their portion of the taxable annuity? I am planning on allocating the taxable portion of the annuity to each of the beneficiaries on the k-1.

The taxpayer died March 24, 2013. He only had a bank account in addition to the annuity. Can I file a first and final return for the short tax period 3/25/13 through 12/31/13? I don't see the need to have a second year. Is this correct?

Any guidance, opinions, suggestions are appreciated.
Thank you!

[Maggie]

W-8ben

To avoid the need to withhold taxes, should I have the Canadian beneficiaries complete For W-8BEN?

[Burke]

Are the "4 Canadian beneficiaries" US citizens who just happen to live in Canada? Or are they Canadian citizens? If so, they do not need to get US SSN's. If they are US citizens, they should already have SSN's issued by our SSA, and they will report the income in both countries under the appropriate rules. You do not need to withhold taxes.

Canada issues it own Social Security numbers, which are in a format just like ours. If you have them, be careful and do not use these on the K-1's when filing the 1041 with the IRS and/or your state.

You do not need to wait until 12/31/13. You can elect a short fiscal year for the first year ending in whatever month the annuity is distributed to get a refund of the taxes. However, you will need to file a 2nd return with a tax year beginning the following month -- (can still end in 2013 if estate is closed) -- for the follow-up distribution when the tax refund is received, and then distributed to the bene's. You will just need to keep the bank account open to be able to deposit the refund and pay the bene's. You can also file just one return if all is done, expenses paid, and distributions made except for the tax refund still outstanding, but you would have to show the full amt of the bene's share of the annuity including the pro-rata share of the tax refund as part of it on the K-1's.