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Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 11164
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Assume a non-IRA bank account held a CD with taxable interest

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Assume a non-IRA bank account held a CD with taxable interest for years (10 or more). The owner of the account allowed the account to go dormant (e.g., numerous address changes, etc). There is no evidence federal taxes were paid on the interest while the owner was alive and the account was dormant. Now the owner is deceased. A rightful heir can claim the dormant account from the State Unclaimed Property Division. Is the interest on the CD for all the years the property was dormant and held as Unclaimed Property taxable to the heir? Or, is the interest taxable to the deceased owner (for the years not deceased -- meaning, amended returns would need to be filed) Thanks.

NPVAdvisor :

Hi,

NPVAdvisor :

The income tax should have been paid by the owner

NPVAdvisor :

Was the estate probated?

NPVAdvisor :

When the estate went through probate, there should have been notice published for any creditors (including the IRS) to make claims against the estate

Customer:

No. There was no will. Very small estate. Utilized Small Estate Affidavit process for settling up affairs

NPVAdvisor :

OK, once the estate has been closed it's closed

Customer:

If the estate is considered closed, does heir have to file ameneded returns for the past years interest? Hard to imagine the State sending out 1099 notices for interest when the state does not have an address for the person. So, does this mean cumulative unreported interest taxed to heir in year of receipt of unclaimed property? Thanks

NPVAdvisor :

It would have been the bank that sent out 1099s (certainly while the person was alive)

NPVAdvisor :

Let me check comething

NPVAdvisor :

I bet you could call the cTX comptrollers office and ask the question, conceptually

NPVAdvisor :

1-800-654-FIND (3463).
1-512-463-3120 (direct in Austin)

Customer:

OK - gotta run. Thank you very much !

NPVAdvisor :

The worse case scenario? Heir owes income taxes since the estate was closed

Lane and 2 other Tax Specialists are ready to help you