Taxpayer died in March 2006. Return will be filed on a FYE July 31. Estate will receive final lottery winnings of $2M next March. While distibutions will attract DNI to the beneficiaries, tax withholding will be retained by the Estate? If so and distributions were to be made in January 2007, how might we go about "passing out" the withholding tax? Does the withholding get passed out as a distribution?
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TTB, page 21-3, "Withholding. Except for backup withholding, withheld income tax cannot be passed through to beneficiaries on either Form 1041-T or Schedule K-1. The estate or trust must claim a refund."
I don't know if the lottery winnings withholding tax is considered backup withholding or not. You would have to check. If it is, then you use Form 1041-T to pass the withholding tax through to the beneficiary in the final year of the estate only. If it is not considered backup withholding, you have to apply for a refund on the 1041, then give the refund to the beneficiaries to pay their tax.
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