1041 Estate & K-1

[newbie]

Taxpayer filed an extension waiting on the K-1 from a deceased Uncle. Brought the K-1 in yesterday. There is interest, dividends, capital gains, and other income from IRA's and annuities of just over $40,000. The taxpayer did not receive any of this income as all accounts are being closed and "dumped" into a savings account. The are waiting on the pending sale of his home and after the home sells the savings account will be be distributed to all beneficiaries.

My question, doesn't the income need to be distributed to "flow" through the K-1 and be included on the taxpayers return? Or can the Estate just decide whether to pay the tax or pass it through to the beneficiaries?

[Roland Slugg]

Doesn't the income need to be distributed to "flow" through the K-1 and be included on the taxpayers return?

Yes, it does.

However, income can be "deemed" to have been distributed if it is made available on demand by the beneficiary. The beneficiary in your case may wish to make such a demand. (See Code §643, §651, §652, §661 and related Regs.)

[abby]

any distributions at all?

Were any estate items distributed, including non income producing items such as personal property? Any distribution can 'drag' out income to the beneficiary.

[Burke]

If the income items were "dumped" into {one} savings account, it sounds like it is still in the estate to me. Ask the executor what EIN/SSN is on that account.

[veritas]

Being the negative nabob

I can often be.

I'm thinking the estate did not get closed timely and the preparer is trying to shift income (improperly) because of the horendous tax rates at the estate level.

Was the K-1 marked final?

[newbie]

Yes, it does.

However, income can be "deemed" to have been distributed if it is made available on demand by the beneficiary. The beneficiary in your case may wish to make such a demand. (See Code §643, §651, §652, §661 and related Regs.)

Thank you I will look into this. There doesn't appear to be any family disputes and a distribution was possible. I think that they thought it simplify things to keep everything together until the house sells and then just close the book by distributing the funds.

Were any estate items distributed, including non income producing items such as personal property? Any distribution can 'drag' out income to the beneficiary.

The only items distributed were some personal household items like furniture and dishes.

If the income items were "dumped" into {one} savings account, it sounds like it is still in the estate to me. Ask the executor what EIN/SSN is on that account.

It is still the assets of the estate and I believe it is EIN number but I'll check for sure, as I understand it they agreed to keep the monies in one account until the house sells and then split all funds.

I can often be.

I'm thinking the estate did not get closed timely and the preparer is trying to shift income (improperly) because of the horendous tax rates at the estate level.

Was the K-1 marked final?

It is not final, will not be final until the house sells.