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The final individual income tax return of a decedent is prepared and filed in the same manner as when they were alive. All income up to the date of death must be reported and all credits and deductions to which the decedent is entitled may be claimed. File the return using Form 1040 or, if the decedent qualifies, one of the simpler forms in the 1040 series (Forms 1040-A or 1040-EZ).
The income your sister had in 2015 would be included on her final return this includes the annuity that was cashed in on her behalf.
If your sister is due a refund of any individual income tax (Form 1040), you may claim that refund using IRS Form 1310, Statement of a Person Claiming Refund Due a Deceased Taxpayer.
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