Inherited IRA tax reporting

[kimcm]

My husband's father died in 2004 leaving an IRA with no named beneficiary. His wife, my husband's mother, never rolled the IRA over to her own account. She died in 2006. My husband is the administrator & sole benificiary of her estate. The IRA was distributed to his mother's estate in 2007 and the money was then distributed to my husband's personal account. We received a 1099-R showing the IRA distribution to his mother's estate. How do we report this? Do we file a 1041 for the estate & then a schedule K-1 to my husband? How should it be reported on our 1040? Also, fed income tax was withheld on the distribution. Does the estate get this back as a refund or is there a way to pass this credit along to my husband?

[Burke]

Things would have been simpler had no taxes been withheld. Does the 1099R show the EIN of the estate and not your mother-in-law's SSN? What distribution code number is in Box 7?

[kimcm]

Agreed, numerous bad decisions were made....but, nothing to do about that now, just need to get it reported properly.

Yes, the 1099-R was issued to the estate's EIN.

[Roland Slugg]

IRS Pub 590

Dear kimcm

Distributions from the IRA are taxable to the estate on F-1041, and the withholding also gets taken into account there.

Please see IRS Pub 590. You should find the answers to your questions on p.37. Special rules apply when the beneficiary is not an individual.

[kimcm]

Appreciate your response, but actually no, page 37 of pub. 590 does not address my situation at all. First, the orginal owner of the IRA died AFTER his required beginning date and therefore was already taking distributions. Second, that fact is neither here nor there since I'm not trying to determine what should be done with the IRA. It has already been distributed in total and therefore no longer exists. I'm simply (ha!) trying to determine the best means of reporting the distribution to the IRS -- and of course, the means by which we will pay the least amount in tax! I believe that letting the estate pay the tax via form 1041 will result in a higher tax rate than showing the IRA passing through to the ultimate beneficiary and allowing him to pay the income tax. But if I'm mistaken someone please correct me! (Remember that regardless of whether the tax is paid via 1041 or 1040, my husband is actually the one paying the bill.)

[thomtax]

Pro Job

No disrepect intended, but this situation seems like a ditch digger attempting to put in the Suez Canal. You have enough variations, that you are asking about, that seem to need to make an appointment and discuss your problem with a tax professional that works with estates, etc.

Best of luck.

[Roland Slugg]

Perhaps if you had read ALL of p.37, instead of just the bold caption near the top of the first column, you would have found your answer.

You would be wise to take the advice offered by "thomtax" above.

[Burke]

Appreciate your response, but actually no, page 37 of pub. 590 does not address my situation at all. First, the orginal owner of the IRA died AFTER his required beginning date and therefore was already taking distributions. Second, that fact is neither here nor there since I'm not trying to determine what should be done with the IRA. It has already been distributed in total and therefore no longer exists. I'm simply (ha!) trying to determine the best means of reporting the distribution to the IRS -- and of course, the means by which we will pay the least amount in tax! I believe that letting the estate pay the tax via form 1041 will result in a higher tax rate than showing the IRA passing through to the ultimate beneficiary and allowing him to pay the income tax. But if I'm mistaken someone please correct me! (Remember that regardless of whether the tax is paid via 1041 or 1040, my husband is actually the one paying the bill.)

See someone about filing the 1041. It will work out.