Exemption allowed for 1041 Decedents Estate

[WhiteOleander]

Filed the final 1041 for a decedents estate. The will stipulated that the estate would pay any taxes due, rather than the beneficiaries.
Paid approx. $400.00 with the return. Did not take the $600.00 exemption because it is my understanding that the estate cannot take the exemption for the final year.
The IRS has retuned some of the money with interest stating that the exemption should be claimed.
Am I correct that they do not get the exemption? Or, since the estate had to pay the tax, do they now get the exemption?
Called the IRS and they said that you have to pay for a ruling. They won't answer those question anymore. I can't beleive how bad they have gotten.
Thanks.

[WhiteOleander]

Found the answer. The estate is not allowed the exemption in the final year. It cannot receive the benefit of the exemption.

[Bees Knees]

The estate gets a $600 exemption, period. There is nothing that says whether it can take it or not in the final year.

What the instructions for the 1041 says on page 20 is that the estate or trust can pass through excess deductions on termination, except for the exemption amount and charitable deductions. So in other words, if all income is being passed through to the beneficiaries in the final year, which they almost always are, you can’t pass the benefit of the $600 exemption through. In other words, the estate receives no benefit for the $600 exemption in the final year, because the estate pays no tax in the final year. It has passed all income through to the beneficiaries on their K-1s, plus any excess deductions on termination of the estate, not including the exemption amount and charitable contributions.

[Kram BergGold]

?

Mu understanding is the payment of tax follows the money. If the beni's get distribution equal to or in excess of income they pay the tax. If not the Estate would pay. Can this rule be superceded by a will's instructions?

[John of PA]

don't think so

I don't think the will can override tax law. I'am puzzed here. If there was a distribution, in excess of the taxable income, then the estate must pass through the income via K-1's to the beneficiaries 1040's; and cannot pay the tax at the 1041 level. The estate is not free to choose at which level to pay the tax.

[natiro]

1041

I'm confused about why the estate had to pay any tax at all on the final 1041. Didn't everything get passed out to the beneficiaries in the final year? I'm not sure what the IRS is talking about either, regarding taking the exemption. The estate doesn't need the exemption in the final year, since income, excess deductions, losses, etc., are passed out to the beneficiaries in the final year.

Why in the world would the IRS say you need a ruling for this?

I'm so confused!

Just out of curiosity, was the return marked final?