Going Nowhere!!!

[SueBaby]

Had this same problem last month and I muddled through it. 5 people came to me on their grandfather dying and grandmother sold the land and house for $82,500. Split it up on kids and grandkids. They all got a "sheet" substitute form 1099-S from the lawyer on their share.

I have done research; called IRS --with different people; called lawyer (which was rude); called another CPA (did not have the time); called and called and everyone gave me a different story on how to put on return.

One has $25,000 and the grandkids all got over $7,000. Some say NO that was a gift and they did not own it don't put it anywhere; some say YES put it on Sch D and it is all gain; some say it is a lost and some say put on line 21 of the 1040 and the last one today said
K1 (no K1) and put it on form 4797.

So you see how mixed up about the matter is to me! So once again I bother you in suggestions about what to do the RIGHT thing about this. One grandson did not want it on the taxes so he did not show it to me and really did not care about it. I am getting that way myself!!!!

[MRTAX4EA]

Who Gave them the $$$

Did the grandmother write checks to the kids & grandkids? In that case she sold the property and gifted the money to them.

If the lawyer gave them the substitute 1099S they should have received the money directly from the sale. Seems strange unless they already owned shares in the property. Doesn't sound correct to me.

You said the grandmother sold the property.

If the grandfather left it all to the kids, it would not be the grandmother's decision to sell.

Ask to see the applicable documents: will, deed, sale documents, whatever applies.

[JohnH]

Extensions

I'd hand them all an extension form and tell them to get back to me when they all agree on a decision on what to do (which might include getting a written opinion from the lawyer on why he handled it the way he did).

They will let you hold the bag on how this is handled if you allow them to do so, and if there's an inconsistency that caues a problem, guess who they will expect to pay the penalties & interest? So if I were you and they decided I should be the one who sorts out this mess, I'd have a clear understanding with them concerning what it's going to cost and who will be paying for the research. (And that they will be expected to pay even if some of them don't like the conclusions)

[taxladyea]

one thought

one thought that comes to mind is it possible that grandfather died in testate and only the grandmother and grandkids around to inherit. That would put another whole light on this quagmire.

[geekgirldany]

They all got a "sheet" substitute form 1099-S from the lawyer on their share.

Sounds like that did not get a a "real" 1099-S just a sheet showing how much they each got. If granny is still alive and wrote the checks out to them it could be a gift.

[SueBaby]

Sounds like that did not get a a "real" 1099-S just a sheet showing how much they each got. If granny is still alive and wrote the checks out to them it could be a gift.

No not a real 1099-S just a sheet from the lawyer (but went to the IRS) and the grandmother sold to someone else but each childs name on deed. She even got money too.

[Jesse]

>>.........One grandson did not want it on the taxes so he did not show it to me and really did not care about it. I am getting that way myself!!!!<<

Sit down and figure out what you actually have, take your mess and disect it. You can't just do what he said or she says, you need to figure out what you are dealing with. If you're too busy maybe it's best you just say no or as someone else suggested file an extension and look at it again with a clear mind.

Care enough to send them to someone who can figure it out, not because you can't, but because it sounds like you just don't have the time.

[JohnH]

Quagmire alert

It's extension time.
This one has the potential to haunt you for a long time to come, even if you do manage to get it sorted out.

[Zee]

What did the lawyer tell you?

[SueBaby]

What did the lawyer tell you?

The lawyer tried to avoid me. The secretary puts me to his voice mail everytime and finally when I did talk to him, he said he don't remember he has too many people. He will call me back on it, yeah, in my lifetime.

[SueBaby]

What did the lawyer tell you?

Question here: Do I put their portion on the return or the whole amount of the house and land on each? $82,500 although they got a portion of it on their 1099-S? Which one is $25,000 and the others is over $7,000. Thanks

[cathyan103]

When were the (grand) kids names put on the deed? If there was a will, did grandfather have tenancy rights? How soon after he died was the property sold? (This may not have anything to do with it, unless someone who was NOT on the deed received money) Find everyone was was eligible to inherit, if there was no will. All states vary on this.
Get some more information, and I'm sure we can help you thru this one.

[Koss]

Sounds like that did not get a a "real" 1099-S just a sheet showing how much they each got. If granny is still alive and wrote the checks out to them it could be a gift.

No not a real 1099-S just a sheet from the lawyer (but went to the IRS) and the grandmother sold to someone else but each childs name on deed. She even got money too.

Okay, hold on a minute here... I'm gonna weigh in on this issue...

A Substitute Form 1099-S is just a valid as a "real" 1099-S, and SueBaby has indicated that it was filed with the IRS. I don't want to launch into a lengthy monologue here, but the term substitute form is a term of art that has a formal definition. Pull out the file on the last client you did that sold some stock, and you'll find a Substitute Form 1099-B issued by the broker. In this context, "substitute" simply means that the issuer generated the form on their own, instead of using original OCR forms provided by the IRS. It's still a valid information return.

If SueBaby's client received a document bearing the title "Form 1099-S", with a valid OMB number, then the sales proceeds were reported to the IRS, and probably need to be reported on the client's tax return. The questions of where to report it, what the basis was, and whether the gain is taxable, are separate issues.

SueBaby's post, cited above, also says that Grandma "sold to someone else but each child's name on deed." This suggests that each child had an interest in the property before it was sold. But this still leaves open at least two different possibilities:

(i) Grandpa died, and in his will, left the property in various shares to his wife and grandchildren, and after his death, the deed was changed to reflect the new owners, and then the property was sold, or

(ii) Grandpa died, and left the property entirely to his wife, or died without a will, and the property passed entirely to his wife by operation of law, and then Grandma, in her infinite wisdom and with the assistance of an attorney, made a gift to each of the children by transferring an ownership interest to each of them and adding their name to the deed.

If it is (i), then you are dealing with an inheritance. The basis of inherited property is FMV on the date of Grandpa's death. If the property was sold shortly after Grandpa died (whatever shortly means), then it may be reasonable to infer that the value of the property did not change between the date of death and the date of sale. Therefore, there may be no gain or loss.

If it is (ii) then you are dealing with a nontaxable gift.

- - - - - - - - -

EDITED on 03/25 at 8:30 PM eastern time

Well, wait a minute... if Grandma gifted the property to each child first, and then the property was sold, then each child theoretically has a gain or loss on the disposition... each child's basis would be... the donor's basis, which is Grandma's basis, and her basis is... FMV on the date of Grandpa's death, which appears to leave us right back where we started.

If there was no meaningful time lapse between the death and the sale, then there may be no gain or loss, because the basis will be equal to the proceeds. The basis might even be greater than the proceeds, due to expenses of the sale. So theoretically there might be a small loss.

It should probably be reported on Schedule D with the basis equal to the proceeds.

- - - - - -

Good luck with this one. Maybe you should go down to the county offices and take a look at the deeds. I'm not suggesting a lengthy research project, nor am I suggesting anything that would encroach on the practice of law. To the contrary, if the property was sold, there must have already been an exhaustive search of the history of the property performed by the title insurance company or its agent. But just looking at the most recent deeds may help clear this up. Charge extra for that time and research.

[SueBaby]

Okay, hold on a minute here... I'm gonna weigh in on this issue...

A Substitute Form 1099-S is just a valid as a "real" 1099-S, and SueBaby has indicated that it was filed with the IRS. I don't want to launch into a lengthy monologue here, but the term substitute form is a term of art that has a formal definition. Pull out the file on the last client you did that sold some stock, and you'll find a Substitute Form 1099-B issued by the broker. In this context, "substitute" simply means that the issuer generated the form on their own, instead of using original OCR forms provided by the IRS. It's still a valid information return.

If SueBaby's client received a document bearing the title "Form 1099-S", with a valid OMB number, then the sales proceeds were reported to the IRS, and probably need to be reported on the client's tax return. The questions of where to report it, what the basis was, and whether the gain is taxable, are separate issues.

SueBaby's post, cited above, also says that Grandma "sold to someone else but each child's name on deed." This suggests that each child had an interest in the property before it was sold. But this still leaves open at least two different possibilities:

(i) Grandpa died, and in his will, left the property in various shares to his wife and grandchildren, and after his death, the deed was changed to reflect the new owners, and then the property was sold, or

(ii) Grandpa died, and left the property entirely to his wife, or died without a will, and the property passed entirely to his wife by operation of law, and then Grandma, in her infinite wisdom and with the assistance of an attorney, made a gift to each of the children by transferring an ownership interest to each of them and adding their name to the deed.

If it is (i), then you are dealing with an inheritance. The basis of inherited property is FMV on the date of Grandpa's death. If the property was sold shortly after Grandpa died (whatever shortly means), then it may be reasonable to infer that the value of the property did not change between the date of death and the date of sale. Therefore, there may be no gain or loss.

If it is (ii) then you are dealing with a nontaxable gift.

- - - - - - - - -

EDITED on 03/25 at 8:30 PM eastern time

Well, wait a minute... if Grandma gifted the property to each child first, and then the property was sold, then each child theoretically has a gain or loss on the disposition... each child's basis would be... the donor's basis, which is Grandma's basis, and her basis is... FMV on the date of Grandpa's death, which appears to leave us right back where we started.

If there was no meaningful time lapse between the death and the sale, then there may be no gain or loss, because the basis will be equal to the proceeds. The basis might even be greater than the proceeds, due to expenses of the sale. So theoretically there might be a small loss.

It should probably be reported on Schedule D with the basis equal to the proceeds.

- - - - - -

Good luck with this one. Maybe you should go down to the county offices and take a look at the deeds. I'm not suggesting a lengthy research project, nor am I suggesting anything that would encroach on the practice of law. To the contrary, if the property was sold, there must have already been an exhaustive search of the history of the property performed by the title insurance company or its agent. But just looking at the most recent deeds may help clear this up. Charge extra for that time and research.

Finally answers to this:
Grandfather was alive put names on deed. The FMV of home and land when died was $78,000. They sold it for $82,500. Split 6 ways. So I divide the $78,000 six ways and that would be each of their basis---right? Everyone and everthing in this and has been very very confussing with different numbers and different stories.

[Zee]

It appears the transfer was a gift

IMHO, the grandfather appears to have gifted the home to each recipient prior to his death. As such, here is the link to an IRS FAQ that might help you, and an excerpt from that link.

http://www.irs.gov/faqs/faq-kw77.html

10.1 Capital Gains, Losses/Sale of Home: Property (Basis, Sale of Home, etc.)

What is the basis of property received as a gift?

To figure the basis of property you receive as a gift, you must know its adjusted basis to the donor just before it was given to you. You also must know its fair market value (FMV) at the time it was given to you. and whether any gift tax was paid.

If the FMV of the property at the time of the gift is less than the donor's adjusted basis, your basis depends on whether you have a gain or loss when you dispose of the property. Your basis for figuring gain is the same as the donor's adjusted basis, plus or minus any required adjustments to basis while you held the property. Your basis for figuring a loss is the FMV of the property when you received the gift, plus or minus any required adjustments to basis while you held the property.

If you use the donor's adjusted basis for figuring a gain and get a loss, and then use the FMV for figuring a loss and get a gain, you have neither a gain nor loss on the sale or disposition of the property.

If the FMV is equal to or greater than the donor's adjusted basis, your basis is the donor's adjusted basis at the time you received the gift. Increase your basis by all or part of any gift tax paid, depending on the date of the gift. See Gifts received before 1977 in Publication 551, Basis of Assets. Also, for figuring gain or loss, you must increase or decrease your basis by any required adjustments to basis while you held the property.