New Penalties on Executors

[Golden Rocket]

In their rather obvious push to go after people other than taxpayers, I have learned there are now new penalties on Executors for failing to issue K-1s and other information on a timely basis.

I don't know that these comments ask for a reply, but I will make a series of statements. In your practice, what percentage of executors (or executrix) do you observe that are qualified accountants or attorneys? No answer, but just think about it. These are most likely to be a child of deceased or grantor. They think paying a CPA, EA, or attorney is a waste of money. Most of these I have encountered have botched up their SS-4 (bank requires an FEIN number and tells them it is just easy to get one online, right), don't know filing requirements, or better still don't really WANT to know. Even advice received from lawyers refers to property, local court authorities, etc, and very seldom to filing 1041s, K-1s, or other documentation.

And of course, if penalties are assessed, it is most often after closure of estate/trust.

No reply is necessary, but someone may wish to comment on whether there will be unintended consequences.

[JohnH]

I think we are moving more and more into an era of "gotcha" fines and penalties. They are not designed to encourage proper filing, but rather to trip people up over minor issues, burdening them with heavy fines & penalties, and treating them like criminals. More or less like the "speed trap" municipalities one encounters in a drive to vacation spots, for example. It may raise more revenue, but it gradually erodes the confidence people have in their government.

[New York Enrolled Agent]

GR writes: In their rather obvious push to go after people other than taxpayers, I have learned there are now new penalties on Executors for failing to issue K-1s and other information on a timely basis.


What penalties? Are you referencing the new consistent basis reporting requirement?

If you are, then only the executors of estates that are required to file a Form 706 are impacted. Since the threshold is now $5,430,000 before a Form 706 is required, I think those folks might find it useful to find professional help. Probably a good investment indeed.

[Gretel]

That's good to know. I thought all executors have to report basis to benis.

[Burke]

I have always done this on asset distributions when the K-1 is prepared. List under supplemental information with attachment.

[Burke]

No reply is necessary, but someone may wish to comment on whether there will be unintended consequences.

Unintended consequences? Of the executor being a family member, rather than an attorney or accountant? You asked what percentage of executors were qualified attorneys or accountants. In my practice, zero. I find unless I am involved in the beginning and guide them through the process, I spend a good deal of time (by the time they finally come to me for the tax returns and accounting) unraveling all sorts of things done wrong. The last one I just finished paid distributions to a relative who was not even named in the will! Thank goodness we were able to recover all the money. One paid himself cash from a deposit because he had spent a lot of time "doing paperwork." Another deposited estate money into another account and paid estate expenses from that non-estate account. It all had to be transferred and reimbursed to make it right. Another one spent tons of money on fixing up the personal residence to sell, then did not have enough funds left to cover specific bequests. Another gave the keys to the personal residence to a person who wanted to buy it so that he could make renovations, before the sale was closed or even a contract signed. The most common mistake is that they do not ask the bank for copies of the checks and they do not make copies themselves. That entails a lot of work for the executor getting the info after the fact. I could write a book.

[Gretel]

I could write a book.

Please do, I'll buy it!