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An investor died 5/24/2011, his spouse, also an investor request

shares be transferred to her...
An investor died 5/24/2011, his spouse, also an investor request shares be transferred to her and gets a new shareholder certificate 4/26/2012. When do you make the change of ownership/value on the taxes?
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5/1/2013
Jax Tax
Jax Tax, Tax Attorney
Category: Tax
Satisfied Customers: 1,408
Experience: JD, LL.M in Business and Taxation, IRS Enrolled Agent. Expert in Business and Tax Transactions
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Jax Tax :

Good morning. Welcome to JA.

Customer:

Good Morning

Customer:

Do you have a question

Jax Tax :

As far as making the changes to your books, it should be done as of the effective date of the transfer. This is likely the date of death unless the shares where held by his estate prior to the transfer. In that case the change would still be made but as the estate being the tranforee.

Jax Tax :

There are other rules based on the structure of the businesss. Was it a LLC CCorp or SCorp. What percentage ownership did the deceased have?

Jax Tax :

To clarify the first answer, the change should have been reflected on the 2011 tax return.

Customer:

llc- the deceased had .75 share, the spouse has .75 share, we understand deceased died intestate and the co attorney was requested to transfer shares to the spouse in 2012, which was completed on 4/26/12

Customer:

the 2011 tax return was completed before 4/15, he died end of 5/2011

Jax Tax :

With the small ownership percentage the additional rules for an LLC do not apply so that is good. As of the date of death, the profits reported or distributions made so reflected on the K1 should not be reported to the deceased. The effective

Jax Tax :

date of the transfer is the date of death.

Jax Tax :

A K1 would report to the deceased up to the date of death and then to the new owner from that point forward.

Jax Tax :

If the transfer is not documented on the 2011 return then you would be reporting income or losses to a deceased party.

Customer:

but the taxes and k-1's were file before 4/15/11, he did not die until 5/2011. Does that mean we should have re-done that taxes?

Jax Tax :

Now, the membership agreement may effect this. Based on the agreement between members, was the transfer automatic or was it something thst required a vote? If not automatic then it would be the LLC that reclaimed the % ownership during the period between death and the transfer. In that case all other member's ownership % would be adjusted upwards pro rata then adjusted again when the shares were issued.

Customer:

did not require a vote, we were contacted by the estate who advised spouse inheritrd his assets and therefore requested an updated certificate for souse in 2012

Jax Tax :

The bottomline is that the ownership cannot stay with the deceased. Typically it is reported to the estate, the person who inherits or buys the ownership, or the LLC buys out the deceased ownership based on the membership agreement.

Jax Tax :

5/24/11 is the date the change should have been reflected for tax purposes.

Jax Tax :

I see there was an estate. That changes a couple things.

Jax Tax :

If he had an estate the estate would be filing a 1041 and properly allocating the deceased income. So it would be fine to continue to show the decessed as owner until the actual transfer date. You could obtain the estates EIN and report the k1 directly to the estate but it is not required. The estate can sort it out on thier end.

Jax Tax :

So in that case the change can be reflected for tax purposes as of 4/26/2012.

Customer:

so we need to amend our 2012 tax return, which was filed before 4/15/2012

Customer:

I need to get to the office, please reply if we need to amend our 2012 tax return

Customer:

I have used Just Answer for many things in the past. I am disappointed that you did not finish our conversation, you just ended our chat. Your last post was at 8:14 am - "so in that case the change can be reflected for tax purposes as of 4/26/2012". My last two posts were- 8:15- "so we need to amend our 2012 tax return, which was filed before 4/15/2012" and at 8:16 - I need to get to the office, please reply if we need to amend our 2012 tax return".

Customer:

I wish you had taken the time to make sure all of my questions were fully answered BEFORE you clicked off the site.

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Customer reply replied 4 years ago

Yes, I still need to know if we need to amend our 2012 tax return even though the shares were not transferred to the other investor on 4/26 and our taxes were already filed before 4/15?


 


Hi

Thank you for your continued patience. We will continue the search for a professional for you.

Lindie
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R. Klein, EA
R. Klein, EA, Enrolled Agent
Category: Tax
Satisfied Customers: 3,375
Experience: Over 20 Years experience
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Thank you for contacting me about your Tax issue. I will work hard to help you understand the issue clearly.

 

I see questions about filing an amended return, but the dates in your posts are inconsistent. One shows filing a 2011 tax return on 4/15/12 with a date of death on May, 2011; another asks about a 2012 tax return when the return was filed 4/26/12 and the date of death was May 2012.

 

None of these combinations makes much sense. Before I make an advisement, can you please confirm the dates of the following: Which tax year tax return are you concerned about? What is the original decedent's date of death? What was the date you actually filed the tax return in question?

 

The reason for the concern is that one would not normally file a 2012 tax on 4/15/2012. The 2012 tax return is due in 2013.

 

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Customer reply replied 4 years ago


I am so sorry for the confusion- here is the story:


 


investor with .75 shares died 5/24/2011


spouse of investor (also a .75 shareholder) requested deceased shares be transferred to her, for which a certificate was completed on 4/26/2012


 


We have been told that we need to amend our 2011 tax return (filed before investors death) because investor died in that year


 


We have also been told that deceased investors shares should not have been transferred to the spouse as deceased investor died intestate and estate has not been probated, therefore, a new certificate should not have been issued in 2012, until estate has been probated.


 


The information has been provided to us by TurboTax.


 


I need to know what the procedure should be under these circumstances.


 


 

Thank you for the clarification.

The only change to your books is that the shareholder who died has the registration of his partnership interest changed to "Estate of firstname Lastname"

You should amend the 2011 partnership return using Form 1065X with the only difference is that instead of one K-1 to that investor for the entire year, you would have two K-1's; one for the portion of time while the investor was alive and one for the period where the investor was the estate. The main return will be the same and have no changes. Attach the corrected K-1s to the amendment, being sure that the one for the individual deceased taxpayer is marked both FINAL and AMENDED.

Again, this does not affect anything on the main tax return itself.




R. Klein, EA
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