Form 1041 & K-1

[ginaballard]

If an estate has an initial fiscal year of 5/1/07-4/30/08 and the only income is $699.00 taxable interest income, no other income (only other cash assets to be distributed), and attorney fees of approximately $5,000, would this be a loss on the 1041 form.

If so, when would the loss pass through to beneficiaries on the K-1? The estate will close in the next couple of months (approx 9/08). Would the loss be held and carried forward to the final return and K-1's?

[dwert]

Get Creative

My guess is the legal fees did not get paid until the later part of your "tax year" If so the first tax year does not have to be a full 12 months. Make the first year from May to September 2007 and file regardless of whether there is sufficient income, in order to establish with IRS your tax year (the first return determines the tax year end). Losses in any year but the final do not carry forward - they are lost (except Capital Losses). In the final year "excess deductions" will carry out to the K-1. So the second tax year will be from October 2007 to September 2008 and will probably include the deductions you are looking for. Sometimes I look at every month's gain or loss and see what combination fits the situation I am looking for in regards to what is best for the estate and the beneficiaries. Good Luck.

[Davc]

Losses in any year but the final do not carry forward - they are lost (except Capital Losses).

An estate can also have a NOL which can carry forward and eventually be distributed to the beneficiary. However, it's calculated in the same manner as for individuals, not just the bottom line like C Corps.

[ginaballard]

1041 & K-1

Ok. Can I use a short tax year that would end in 9/07? Wouldn't I be penalized for not filing the return by 1/08? Also, the interest was earned from date of death - 4/15/07 till 9/17/07. Would that be included on the first year?

One more question: beneficiaries are grandchildren not of age so have a couple of trusts set up (the attorney is the trustee). How does that work if the loss is passed through?

Help!

[ginaballard]

1041

Asking question to dwert, but if anyone has a suggestion, i would appreciate.

[Roland Slugg]

If the DOD was 4/15/07 (as you wrote in a later post, not your first one), then the estate's initial tax year started on 4/16/07 and must have ended NLT 3/31/08. If the initial F-1041 has not yet been filed, nor an extension filed, you are now precluded from using a fiscal year and must use a calendar year. Thus, the estate's first return will cover the period from 4/16/07 to 12/31/07, and it is several months late.

You should have hired a qualified professional, such an a CPA or an EA, to advise you on matters such as the fiscal year and the other questions you asked.

[Burke]

I agree with Roland. Calendar year ending 12/31/07, although filing deadline for fiscal year was only 7/15/08. But take another look. The taxable interest is $699. The exemption amount is $600. So I am assuming only $99 net taxable income? What about costs of filing will at probate, filing of inventory, etc. These are deductible administration expenses. Could be no taxable income at all for the first year. Still need to file return. Also, were the trusts set up under the will? What in the world is the attorney charging $5,000 for? Is he the executor? Any annual net income (or net losses upon termination) on the 1041 pass thru to the bene's, whether they are indivduals or trusts. K-1's will show trust EINs if that is the case.

[ginaballard]

1041 & K-1

Thanks for your input, Burke. The trusts were created for minor grandchildren. The attorney is the trustee. I'm trying to verify but i think the fees were not paid until after Jan. May have this minimal income for first year and loss in final year.