Repayment of income for a deceased client ??

[nwtaxlady]

My client passed away on 9/23/14 with NO surviving spouse. The deceased client continued to received her PERS (Public Employees Retirement System) thru December. When PERS was notified of her death, the Personal Representative had to repay the monthly amounts after death. These repayments were made in 2015.
She said she had to repay also the taxes that were withheld, Federal & State.

The PERS 1099-R for 2014 is the total amount. PERS said they will not correct it because it was not repaid until the following tax year.

So how is this treated? I am filing her FINAL 2014 Personal tax return now. Remember, the repayment happened in 2015. What happens with the repayment of income that was made in the year after decedents death?

Thanks for any advise!

[kathyc2]

Interesting dilemma. 1099 showed both higher income and higher withholding than it would have if 1099 was issued net of repayment. If you calculate the return w/ the 1099 received, and then again with what you think the 1099 should have been, is the difference in bottom line to taxpayer benefit or detriment? And is the difference small enough to be considered insignificant?

[Bees Knees]

Well, technically, you only report income and deductions up to the date of death on the final 1040, and then any income and deductions after that date go on a 1041. Income received after the date of death is clearly reportable on the fiduciary return as income in respect of the decedent, even if a 1099 were issued with the decedent's SSN.

I would attempt to report only income up to the date of death on the final 1040, and then attach a statement to the return stating income earned after the date of death is going to be reported on the 1041 (get an EIN for the estate and include that number on the statement). Then you have the option to file a fiscal year 1041 which will report the income and repayment in the same fiscal year (assuming the repayment is made within the 12-month fiscal year you elect). That way it gets zeroed out on the 1041.

[Roland Slugg]

I would attempt to report only income up to the date of death on the final 1040.

Bees is quite correct, and I would only change his wording slightly ... as follows: I would definitely report only income received up to the date of death on the final 1040.