I am preparing a 1041 for an Estate and I have a couple of questions with respect to "Tax Exempt Income" (not tax exempt interest) which I need clarification and/or confirmation on.
(1) Life Insurance paid to the estate due to the fact there was no named beneficiary on file. Based on my research, my position is that these proceeds would be considered "Tax-Exempt Income" and therefore expenses have to be allocated to this income. Is that correct? I know they are not included in gross income of the Estate for purposes of Form 1041.
[2013 Form 1041 Instructions, page 21, "Allocation of Deductions for Tax-Exempt Income." It gives examples of tax-exempt income which includes "Certain Death Benefits (Section 101)." Section 101: With a couple of exceptions that don't apply to my case, the general rule states "gross income does not include amounts received under a life insurance contract, if such amounts are paid by reason of the death of the insured.]
(2) Lump sum payment for retirement contributions. I'm reading from the document that accompanied the check: "You are entitled to a lump sum payment because of the death of a former employee. This payment covers only benefits due from the Retirement Fund and consists of any unused contributions the former employee made to the Fund or any accrued annuity payable at the time of his/her death." In the comments section of this document it reads: "This is the Employee Contributions for DECEASED. This is not taxable." So would this also be considered "Tax-Exempt Income" for purposes of allocating expense?
Thanks in advance for your input.
(1) Life Insurance paid to the estate due to the fact there was no named beneficiary on file. Based on my research, my position is that these proceeds would be considered "Tax-Exempt Income" and therefore expenses have to be allocated to this income. Is that correct? I know they are not included in gross income of the Estate for purposes of Form 1041.
[2013 Form 1041 Instructions, page 21, "Allocation of Deductions for Tax-Exempt Income." It gives examples of tax-exempt income which includes "Certain Death Benefits (Section 101)." Section 101: With a couple of exceptions that don't apply to my case, the general rule states "gross income does not include amounts received under a life insurance contract, if such amounts are paid by reason of the death of the insured.]
(2) Lump sum payment for retirement contributions. I'm reading from the document that accompanied the check: "You are entitled to a lump sum payment because of the death of a former employee. This payment covers only benefits due from the Retirement Fund and consists of any unused contributions the former employee made to the Fund or any accrued annuity payable at the time of his/her death." In the comments section of this document it reads: "This is the Employee Contributions for DECEASED. This is not taxable." So would this also be considered "Tax-Exempt Income" for purposes of allocating expense?
Thanks in advance for your input.
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