Income 2 years after death

[GTS1101]

My client's husband passed away in 2013. This month in 2015 she received a check for a settlement that took over 12 years to settle for her deceased husband. It was a wage dispute and she received a 1099-INT and a 1099-Misc that is about 28,000. It is in his name and his social security number. The bank is going to cash the check and give it to my client. I am thinking this needs to be filed on a form 1041 and we need to get a EIN number to put this income on form 1041? I have never run into a situation like this and was wondering if anyone else has and if my thinking about how to file it is correct.

Thanks!

GTS1101

[Roland Slugg]

Report the income on the woman's own return, since she received it and will be depositing it into her account. It would have been better if the check had been payable to her, but if the bank is willing to deposit it into her account anyway, I suppose that's a done deal.

It might be worth a try for the woman to contact the company that issued the payment and explain that her husband has died and that the $28,000 was, in effect, paid to her, and request that the 1099s use her name and SSN, not her late husband's. That might head-off a possible letter from the IRS when the 1099s don't match a return. If the company won't do that, it's no big deal, because if the IRS does send a letter of inquiry, it will be easy to explain what happened.

[Stringbean]

Self-Employment Tax

Agree with all the statements above, but wonder if the 1099-MISC is going to trigger inquiries from the IRS about self-employment tax. Recipient is dead and wife did not work for the money.

Also the deductibility of legal fees - clearly deductible on Sch A since the pursuit is for income, but I'm wondering if this can offset the 1099-MISC, even if the 1099 is reported on Line 21 instead of a Sch C.

[Burke]

My client's husband passed away in 2013. This month in 2015 she received a check for a settlement that took over 12 years to settle for her deceased husband. It was a wage dispute and she received a 1099-INT and a 1099-Misc that is about 28,000. It is in his name and his social security number. The bank is going to cash the check and give it to my client. I am thinking this needs to be filed on a form 1041 and we need to get a EIN number to put this income on form 1041? I have never run into a situation like this and was wondering if anyone else has and if my thinking about how to file it is correct. GTS1101

That is a perfectly acceptable procedure, but entirely unnecessary, IMO, as long as she is a surviving spouse and he left everything to her. It appears the bank is going to cooperate in this, so I would let them do it. It is taxable to her, but not subject to SE tax, so that is not a problem. The 1099 should have been in her name, the check payable to her, etc, etc, but there is not much sense in going to all the trouble to reverse and redo the transaction when the end result is going to be the same. IF the IRS sends a letter due to cross-matching the SSN's (and they may not), it can be explained.

[Burke]

Also the deductibility of legal fees - clearly deductible on Sch A since the pursuit is for income, but I'm wondering if this can offset the 1099-MISC, even if the 1099 is reported on Line 21 instead of a Sch C.

Yes, the legal fees can be deducted on Sche A under Misc Expenses since it was for the production of taxable income.

[taxea]

What is the settlement for? Have the issuer reissue the 1099 to her and be sure to include a statement of facts with her tax return.

[Kram BergGold]

1099 misc

It was a wage dispute so the dollar amount should be in box 3 not 7. If so, then no SE issue. If it is in the wrong box, then I would try to get them to redo it, to at least put the amount in the correct box.

[GTS1101]

Thank You all for your input. That helps me out a lot. The 1099-Misc was reported in the correct box so there will be no issues with self employment. I will just have to deal with the social security mismatch if and when I get a letter from the IRS.

GTS1101