Schedule K-1 (form 1041) Question

[Peachie]

I have a client that recently received a K-1, for a 2005 settlement, this year. An amount of $60,000 was paid to her late father's estate and shared between five children. According to her note to me--the total amount was $62,000, with $12,000 going to the IRS for taxes. Her amount was $10,000, as was the amount for the others. This is the first I have heard about this transaction. I know I need to file an amended return to include this other income. According to the K-1, it needs to go on line 33 of the schedule E. There is nothing showing that any taxes have been paid to the government. Can someone help make clear what I need to do at this point. If the taxpayer should be credited with $2400 in taxes withheld, shouldn't I have some document showing this? What?

This isn't an area that I am well-versed in because I don't usually have to do 1041's. Any comments will be appreciated. Thanks.

Peachie

[Koss]

Not tax withheld

Don't really have enough info, and you might have to talk to the accountant who prepared the 1041 (and the K-1 that was issued to your client) in order to really figure this out.

Chances are...

The $12000 that went to the IRS was a payment of estate tax made by the estate itself. Form 1041 is the tax return for the estate. The estate is a separate entity, just like a corporation or a partnership.

So what your client was told was not necessarily inaccurate, but the tax that was paid was not allocated to her individual tax account. It was paid to satisfy a tax obligation of the estate itself. She's still on the hook for individual income tax on the income.

With that being said, I think there might be an itemized deduction available for the individual's "share" of the estate tax... if there is such a deduction, and it is applicable to your client's situation, it's one of those things that goes on line 28 of Schedule A...

I think the ICD-9 code is 88216: Miscellaneous Deduction Not Otherwise Specified

LMAO (Better just ignore that last remark unless you work in health care. My efforts at humor get more and more warped as we get closer to April 15.)

[veritas]

Sounds like to me

the estate may have recieved some income like an IRA or pension distribution. There could have been taxes withheld.

[Peachie]

Funny Koss! More info obtained through research

Don't really have enough info, and you might have to talk to the accountant who prepared the 1041 (and the K-1 that was issued to your client) in order to really figure this out.

Chances are...

The $12000 that went to the IRS was a payment of estate tax made by the estate itself. Form 1041 is the tax return for the estate. The estate is a separate entity, just like a corporation or a partnership.

So what your client was told was not necessarily inaccurate, but the tax that was paid was not allocated to her individual tax account. It was paid to satisfy a tax obligation of the estate itself. She's still on the hook for individual income tax on the income.

With that being said, I think there might be an itemized deduction available for the individual's "share" of the estate tax... if there is such a deduction, and it is applicable to your client's situation, it's one of those things that goes on line 28 of Schedule A...

I think the ICD-9 code is 88216: Miscellaneous Deduction Not Otherwise Specified

LMAO (Better just ignore that last remark unless you work in health care. My efforts at humor get more and more warped as we get closer to April 15.)

I, too, am LMAO--funny thing is--She's a nurse!

More info: This case is actually the Black Farmer's Settlement Case. Through some research, I have learned the $50,000 is the cash award to the plaintiffs and the $12,500-previously stated as $12,000-is the estimated tax payment on behalf of the plaintiff to the IRS. I have some info from Taxpayer Advocate that may help me get through all of this in one piece. It is offering specific guidelines for me to follow. Say what you will about The Internet--thanks to it and the great people on this board, I am on my way. My client may not like the outcome, but out of five taxpayers--her preparer is the only one that did something to get to the bottom of this and it's now 2008. The others took the money and ran with no explanation at all. I reprimanded her for not even mentioning the money to me in 2005. Every other time she asks me a million questions, that time she asked none. Sad to say, she will suffer the consequences of her inaction. Thought I taught her better.

Thanks for responding and adding a bit of laughter to my evening.

Peachie.