Estate 1041 Tax Return - no income - K-1's required?

[Gretel]

I will need to file an estate tax return solely for the purpose of reporting basis from stock sales - there will be no gain or loss due to step up, or very little. I wished there was a way to not even file this tax return. This will be the first and final one and I am not sure if I need to issue K-1's. Please advise.

[New York Enrolled Agent]

I will need to file an estate tax return solely for the purpose of reporting basis from stock sales - there will be no gain or loss due to step up, or very little. I wished there was a way to not even file this tax return. This will be the first and final one and I am not sure if I need to issue K-1's. Please advise.

An estate return is only required to be filed when the gross income exceeds $600. Gross proceeds are not gross income. Unless the stock sales occurred on the DOD, there will be gain or loss. Calculate the gross income.

§6034A(a) says if an estate return is required to be filed then the fiduciary is required to provide an information statement (i.e. the K-1) to each beneficiary. If you decide to file (even if perhaps not required) then I think a "best practice" would be to provide the K-1.

[Gretel]

An estate return is only required to be filed when the gross income exceeds $600. Gross proceeds are not gross income. Unless the stock sales occurred on the DOD, there will be gain or loss. Calculate the gross income.

§6034A(a) says if an estate return is required to be filed then the fiduciary is required to provide an information statement (i.e. the K-1) to each beneficiary. If you decide to file (even if perhaps not required) then I think a "best practice" would be to provide the K-1.

Thanks, New York Enrolled Agent and yes, I agree with the K-1's. With little income there will be a small loss to pass through. Sales were close to DOD and it's not much in value, gain is very likely under $600. However, I am somewhat surprised by your wording "If you decide", If enough sales proceeds are reported to the IRS with the wrong basis (pre-DOD) thereby showing a higher gain (and more than $600) the Estate will get a letter if not reported, or am I wrong?

[New York Enrolled Agent]

Thanks, New York Enrolled Agent and yes, I agree with the K-1's. With little income there will be a small loss to pass through. Sales were close to DOD and it's not much in value, gain is very likely under $600. However, I am somewhat surprised by your wording "If you decide", If enough sales proceeds are reported to the IRS with the wrong basis (pre-DOD) thereby showing a higher gain (and more than $600) the Estate will get a letter if not reported, or am I wrong?

Gretel - you’re an enrolled agent. If the IRS sends a letter, I’m fully confident you would easily handle it. Simply cite IRC 6012(a)(3).

[Burke]

Sales were close to DOD and it's not much in value, gain is very likely under $600., If enough sales proceeds are reported to the IRS with the wrong basis (pre-DOD) thereby showing a higher gain (and more than $600) the Estate will get a letter if not reported, or am I wrong?

You are correct, and this happens all the time due to brokers (and/or executors) not changing the account to an Estate EIN before the sales -- as they don't want to go to the trouble. The estate may very well get a letter which will be more work for you. It will land on your desk from the fiduciary. And it may be 2 years later. And maybe given to another tax preparer. I would do the return.