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jgordosea
jgordosea, Enrolled Agent
Category: Tax
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Experience:  I've prepared all types of taxes since 1987.
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If the decedant estate has 1099 income, dividends and capital

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If the decedant estate has 1099 income, dividends and capital gains in 2009 I know I need to file a 1041 Estate Income Tax Return form the date of death until 12/31/09. In addition, I need to file a decedants tax return from 1/1/09 until date of death. My question is, if distributions are not made to the beneficiaries in 2009 do I still need to generate a K-1 for the beneficiaries? From what I understand, I would not need to generate a K-1 since the benficiaries did not receive a distribution and the estate would be subjected to the taxes not the beneficiaries. Also, if the estate does not have any 1099 income, interest of dividends for 2010 or if it is less than $600, a K-1 would not be generated for the beneficiaries either even if distributions were made in 2010 to the benficiaries. The intention is to move all the estate assets into a non interest bearing account for the remainder of 2009. Distributions will be made in 2010 to the beneficiaris thus not K-1 for 2009.
Submitted: 4 years ago.
Category: Tax
Expert:  jgordosea replied 4 years ago.

Greetings,

 

You wrote: "I know I need to file a 1041 Estate Income Tax Return form the date of death until 12/31/09."

In most cases the estate is not required to use a calendar year so can file a full year return for the year beginning on the date of death rather than a short year return ending 12/31.

You can choose a calendar year; but it is not required.

The estate's first tax year may be any period of 12 months or less that ends on the last day of a month. Once chosen, the same tax year must be used unless a change of accounting method is chosen and approval is gained.

See http://www.irs.gov/pub/irs-pdf/i1041.pdf page 8 Accounting Periods.

 

It is technically correct that a beneficiary who receives no distribution or an allocation of an item of the estate does not need to receive a K-1. It may still be desirable to provide the Schedule K-1 to beneficiaries that will not have any distribution or an allocation of an item of the estate to demonstrate and document what was done.

Generally the Schedule K-1 is prepared as part of the 1041 tax return regardless of distributions or an allocation of an item of the estate to the beneficiary or not.

 

So, you may want to consider only filing one fiscal year Form 1041 if the distributions will occur less than one year after the date of death that would distribute the income and expenses to the beneficiaries.

 

A final K-1 is almost always required to be given to beneficaries because of distributions and allocated items. It is any distribution, whether income or corpus, that triggers the requirement.

 

You also may want to confer with counsel in regard to whether having the trust pay taxes that may be able to passed through to beneficiaries (generally at a lower tax rate) and using a non-interest bearing account (rather than investing and earning) fulfills the fiduciary duties of the executor or administrator of the estate.

 

I hope this helps for the general rules for accouting periods and issuing Schedule K-1.

Please ask if clarification is needed.

 

Best wishes.

 

 

 

 

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3005
Experience: I've prepared all types of taxes since 1987.
jgordosea and 3 other Tax Specialists are ready to help you
Customer: replied 4 years ago.

The estate has not been distributed yet and is currently in a non interest bearing account. The 1099's will be less than $3k. From what I understand, if the assests are not distributed this year the Estate will pay the taxes on the earnings. In addition, since there is no distribution no K-1 is required.

 

Since the estate is in a non interest bearing account and when the assets are distributed to the beneficiaries in 2010 no K-1 is required since no 1099's will be generated on the estate.

 

In the end, I'm just trying to avoid K-1's for the benficiaries and if there are no 1099's in 2010 then I'm under the impression that it is not required to generate a K-1 since there is no income/interst to report.

 

Lastly, Couldn't I note on the 1041 that this is the final return since there will be no 1099's in 2010. In addition since there is no reportable income/interest a K-1 is not required as well. Thanks for you help.

Expert:  jgordosea replied 4 years ago.

Hello again,

 

You said: The estate has not been distributed yet and is currently in a non interest bearing account. The 1099's will be less than $3k. From what I understand, if the assests are not distributed this year the Estate will pay the taxes on the earnings. In addition, since there is no distribution no K-1 is required.

 

That is all correct so long as there are no other items that are allocable (which is likely).

You also said: In the end, I'm just trying to avoid K-1's for the benficiaries and if there are no 1099's in 2010 then I'm under the impression that it is not required to generate a K-1 since there is no income/interst to report.

 

That is not entirely correct.

Whenever the beneficiary gets a distribution - whether it is a distribution of income or of principal or both there should be a K-1 given to the beneficiary.

 

Also, there will be probably be allocable expenses in excess of income (since the income will be zero) that can be deducted in 2010 by the beneficiaries that get distirbutions.

 

The trust would not have to pay any tax if you use a fiscal year that will include distributions since the taxes would be paid by the beneficiaries that include the income in their claendar year when the estate fiscal year ends (2010 in this case). Usually the trust has to pay higher tax rates than individuals so your goal of not issuing K-1s may cost the trust some additional tax. Of course, you may still choose to do so.

 

Unfortunately there is no way not to issue a K-1 when there is a distibution (regardless of income).

 

I hope this helps to clarify for you.

Best regards.

jgordosea, Enrolled Agent
Category: Tax
Satisfied Customers: 3005
Experience: I've prepared all types of taxes since 1987.
jgordosea and 3 other Tax Specialists are ready to help you

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