unclaimed funds issued on 1099-B to EIN of Estate

[lshuling]

Client received a 1099-B for mom that died in 1978. The proceeds are in the EIN of Mom’s Estate. Just resolved probate in 2018. No tax returns have been filed for this estate. $72000.84 proceeds from Oklahoma unclaimed property are on the 1099-B. Apparently, it was Phoenix Balanced Fund A Mutual fund shares. Description is Unissued Shares 00000008878.

Is this taxable to the Estate? The paragraphs below are from the final district court documents:

"The Court further finds that pursuant to a disclosure from the OK Tax Commission dated 25th, day of due to the OK Tax Commission and that an estate tax return has not been filed with the IRS for the reason that said estate was not possessed of sufficient assets to require the filing of such return; and that all state, county, school and municipal taxes together with all state and federal income taxes, if any, have been paid and that the estate is ready for distribution.

The Court further finds that the requirement of an inventory and appraisal was timely filed, that all purposes of administration in said estate have been fulfilled, and that there are no receipts of income or disbursements that need be made in the administration of this estate."

So is this court document stating these were simply funds (tax free inheritance) distributed to beneficiaries? Not income? No 1041 required? Or are they saying a 706 is not required? Any help would be appreciated. Lisa

[Burke]

Assuming these funds were actually paid, to whom was the check made payable? And what was done with it? If it was to be passed through to the beneficiaries/heirs per the will, then the Estate would not have to pay tax on it. It would flow thru to heirs on K-1's. But it looks like a 1041 needs to be filed since it was reported under the Estate EIN. If no returns have previously been filed, then it would be an initial return and a final return. I interpret the wording of the court order to refer to Form 706 when it says "an estate tax return ...." as it refers to "assets." A 1041 is an income tax return and has different parameters for filing.

[lshuling]

That is how I am interpreting it also. The personal rep wants the estate to pay the taxes because the heirs are irresponsible and don't want the hassle. The only way I can do that is to make this the initial return and make a final return for 2019 with only my fee on it. I may end up doing that.

[Burke]

Be sure to report as a capital gain and deduct the basis as of DOD for the fund. If exec cannot find the info, the company surely has it. (It is unclear from your posts if actual shares were issued or if cash was received for redeeming them.) And were these funds obtained on behalf of the estate by an outside party who took a fee? Also, check to see how expensive reporting it on 1041 is going to be, as estate tax thresholds are much reduced and the income may be subject to a higher rate than passing it through on K-1's. Especially if it can be divided among several. What the heirs do is immaterial. It's their responsibility, not the executor's to make sure they pay the tax.