Deceased Taxpayer

[Matt Sova]

In 2002 taxpayer (X) has $5,800 of Div and Int income. Sells stocks totaling 200k+. Obviously X should have filed a return for 2002.

In 2003 X has Div an Int income of $1700 and sells stocks totaling 135k+.

X did not file an '02 or an '03 return because her preparer told her she did not have enough income and was not required to file. Apparently the stock sales were losses.

X dies in 2004 and there is an Annuity that is split amongst the beneficiaries. The IRS has sent a letter addressed to X stating that X has to file an '02 and '03 return. What would happen if the returns are not filed? Would the IRS go after the beneficiaries of that annuity which was paid out in '04? The problem is recreating the cost basis for these sales could be cumbersome, if not impossible.

Matt

[taxmandan]

Deceased TP

Whoever is the executor of the estate needs to figure out the cost basis on those '02 & '03 sales and file the returns. It's part of their duties.

I don't know how the annuity was structured, but theIRS is likely to demand the proceeds from the beneficiaries to pay any taxes owed. It would be easier and less expensive to file the returns showing the losses on the sales than to fight with theIRS about who gets the annuity money. You really need some legal advise from an estate lawyer about whether theIRS can collect taxes from the annuity proceeds.

[JON]

Executor

Go first after him. Whoever enabled the splitting of the assets would be considered the executor as far as the IRS is concerned. The IRS can go after executor or whoever they want for amounts-usually will go after the easiest to collect from....

[Bucky]

I would file both years recreating the basis as well as possible. You have some room before taxes would be due without loss. It could prove time consuming if the it was a lot of different stocks but beat the headache they will have if they don't file. I have never seen a sch D audit. As long as the proceeds match what is turned in I think you have 95% of the battle won.

[Matt Sova]

thanks

for the replies. It is what I thought.

Matt