2022 1099-INT for a closed Estate. What to do?

[SecondCor521]

I have a similar question:
Mom died in June and today I received her 1099R from her state pension.

I also received a separate 1099R from the same state agency addressed to "the estate of" for $110. I'm assuming this was some resudual payment after her death (?) There's no special notations stating why.

Right now, I've entered it into TT just as a second 1099R and plan to let it go at that unless the collective here has a better idea.

Comments?

Edit: the 1099R sent to "the estate of" has a distribution code of "4" for "death", instead of the usual 7, so I think I'm ok.

You would report the first 1099-R on her 2022 tax return as usual. The main difference is that you would indicate that she died in 2022 (probably easy in TT), and if she is due a refund and is the second-to-die, you'd have to fill out an extra form as executor to get that refunded properly to the estate.

The second 1099-R should *not* be reported on her 2022 tax return. It would be reported on a 1041. But since it's only for $110, if that's the only estate income, it would be below the $600 exemption mentioned earlier, and probably no 1041 filing requirement would exist. I would just save it in a "2022 Mom 1041" folder, not file a return, and maybe make some notes in case there is any question later.

This approach is (a) likely correct, and (b) saves paying federal taxes on that $110.

As an aside, if your Mom had made employee contributions to her pension, was using the simplified method, and died before using up all of her contribution basis, then she is entitled to a Schedule A itemized deduction on her final Form 1040 for that remaining contribution basis. If this applies and you want more details, let me know and I'll give you a pointer to the specific line on Schedule A.

 

[marko]

You would report the first 1099-R on her 2022 tax return as usual. The main difference is that you would indicate that she died in 2022 (probably easy in TT), and if she is due a refund and is the second-to-die, you'd have to fill out an extra form as executor to get that refunded properly to the estate.

The second 1099-R should *not* be reported on her 2022 tax return. It would be reported on a 1041. But since it's only for $110, if that's the only estate income, it would be below the $600 exemption mentioned earlier, and probably no 1041 filing requirement would exist. I would just save it in a "2022 Mom 1041" folder, not file a return, and maybe make some notes in case there is any question later.

This approach is (a) likely correct, and (b) saves paying federal taxes on that $110.

As an aside, if your Mom had made employee contributions to her pension, was using the simplified method, and died before using up all of her contribution basis, then she is entitled to a Schedule A itemized deduction on her final Form 1040 for that remaining contribution basis. If this applies and you want more details, let me know and I'll give you a pointer to the specific line on Schedule A.

Thanks so much! I hope your *(a) likely correct* is correct!

 

[SecondCor521]

Thanks so much! I hope your *(a) likely correct* is correct!

You're welcome.

I try to be careful in my language here when sharing tax information (or anything, really). When I'm sure of something and the circumstances are clear, I'll use more definitive language. When the circumstances are less clear or it is an area with which I am less familiar, I will use language like "likely correct" to precisely let you know that I'm probably right but there could be things I'm missing (because I don't know or you didn't say) and if you wanted to be 1000% sure you'd research it yourself or consult a local qualified tax preparer. (Although to be honest, I'm probably better than most run of the mill tax preparers in your area. And @cathy63 is better than me.)

 

[ERD50]

I'm reading along, but I've never dealt with this situation and don't have any suggestions beyond what you've already gotten. I do agree with SecondCor521 that sending money to the IRS without a return is probably not the right solution.

Thanks. But darn it! Sending in a payment w/o a return sounded like the easiest, and since the IRS got the money, no penalties should accrue.

Pretty much all the suggestions here have merit, I'm torn.

I could just paper file a Fed and IL, but now I'm thinking, wouldn't the 1099-INT have to be distributed through a K-1? So now I have to generate K-1's (I'd just put it all on mine, I'm not going to involve the other beneficiaries), and then handle that on my taxes? Just seems like a ridiculous amount of effort.

So now I am leaning back to 'just ignore it'. What if I get a letter - would they just say I have $20 taxes due (ignoring any K-1 distribution, since it wasn't 'claimed'? - plus any penalties, which would be small)? So can I just pay it and never file? Or would they still force me to file? (edit - I did just read that in some cases, the IRS will just calculate the taxes, essentially filing for you - that's fine by me, if I can count on it).

I also considered filing for an extension - they still require a payment, so just pay $20 (ignoring K-1 effects), and assume I'll never hear anything again, that they won't bother chasing it down, since they got the $20? Or are computers still going to send me a nasty-gram?

At this point, I'm thinking of finding a way to 'decline' and return $200 of the interest to IL. Then it is below $600, no filing required. I'm sure that won't be easy either, and the corrected 1099-INT will probably get wrapped up in paperwork anyhow.

-ERD50

 

[SecondCor521]

Thanks. But darn it! Sending in a payment w/o a return sounded like the easiest, and since the IRS got the money, no penalties should accrue.

Pretty much all the suggestions here have merit, I'm torn.

I could just paper file a Fed and IL, but now I'm thinking, wouldn't the 1099-INT have to be distributed through a K-1?

No. You would not have to do any K-1s. K-1s are only needed to shift the income taxation from the estate to the beneficiaries. The approach I have been suggesting on this thread (report $800 of interest income, $200 tax prep fees, $600 exemption, $0 taxable income $0 taxes) keeps the income taxation on the estate.

K-1s are usually used because the taxation is better on the beneficiaries' returns rather than the estate return. But in this scenario, you can keep all the taxation of the income on the estate return. The estate is paying $0 in taxes on the $800 of income, so no need for K-1s.

No shifting needed, no K-1's needed.

So now I have to generate K-1's (I'd just put it all on mine, I'm not going to involve the other beneficiaries), and then handle that on my taxes? Just seems like a ridiculous amount of effort.

Nope. This is not necessary as mentioned above. Second, if you did decide to do only one K-1 to yourself and not involve other beneficiaries, your probably violating your legal and ethical duties as the executor because you're not distributing the funds according to his will. Nobody would probably know or care, but it's still the incorrect way to do it.

So now I am leaning back to 'just ignore it'. What if I get a letter - would they just say I have $20 taxes due (ignoring any K-1 distribution, since it wasn't 'claimed'? - plus any penalties, which would be small)? So can I just pay it and never file? Or would they still force me to file? (edit - I did just read that in some cases, the IRS will just calculate the taxes, essentially filing for you - that's fine by me, if I can count on it).

I don't know what the IRS will do if you ignore it. They may calculate the tax and figure it's $20 and not worth the paperwork to chase after you.

There are penalties for not paying, which aren't too bad. But there are also penalties for not filing, which are worse.

I don't know if you can count on them calculating the taxes and essentially filing for you. The IRS will calculate certain things in certain parts of a return if you elect to let them (such as underpayment penalties), but I've never heard of them filing a whole return on someone's behalf.

I will reiterate that paying without filing is probably the most confusing outcome from the IRS' point of view.

...

By the way, I think you're making this out to be more difficult than it is. We're talking about printing out two pages of IRS Form 1041, filling in some boxes and fields on the top, and maybe two or three numbers on the entire form, plus a few totals here and there. Make a copy for your records, envelope, stamp, mail. You could have been done by now.

I'll even try to answer questions on how to do it if you like, either on this thread or via PM. And @cathy63 can watch over my answers and weigh in if she wants to.

I also considered filing for an extension - they still require a payment, so just pay $20 (ignoring K-1 effects), and assume I'll never hear anything again, that they won't bother chasing it down, since they got the $20? Or are computers still going to send me a nasty-gram?

I don't know if estates can file for an extension like individuals can. Maybe they can. But really, come on, we're talking about an hour's worth of work in the next 75 days.

The extension is one piece of paper, an envelope, and a stamp.
The tax return is two pieces of paper, an envelope, and a stamp.

You're not really gaining yourself much with an extension.

At this point, I'm thinking of finding a way to 'decline' and return $200 of the interest to IL. Then it is below $600, no filing required. I'm sure that won't be easy either, and the corrected 1099-INT will probably get wrapped up in paperwork anyhow.

-ERD50

That approach is at least five times the amount of work for you as the method I suggested. It's also more work for the IRS and the state of Illinois. It's likely the state of Illinois would not know how to process your request.

 

[ERD50]

.... No shifting needed, no K-1's needed. ....

By the way, I think you're making this out to be more difficult than it is. We're talking about printing out two pages of IRS Form 1041, filling in some boxes and fields on the top, and maybe two or three numbers on the entire form, plus a few totals here and there. Make a copy for your records, envelope, stamp, mail. You could have been done by now. ....

I'm convinced, thanks. That K-1 was the last thing bugging me about filing.

Filing is obviously the cleanest, the right way, and provides certainty (as certain as anyone can be with the IRS!), and with no K-1, probably as simple/simpler than any other approach.

Just do it!

PS: I'm not going to claim any tax prep fees. For the $20 delta in tax due, I just don't need to add a question mark to anything, regardless how far-fetched it may be that the IRS would actually follow up on it.

-ERD50

 

[SecondCor521]

I'm convinced, thanks. That K-1 was the last thing bugging me about filing.

Filing is obviously the cleanest, the right way, and provides certainty (as certain as anyone can be with the IRS!), and with no K-1, probably as simple/simpler than any other approach.

Just do it!

PS: I'm not going to claim any tax prep fees. For the $20 delta in tax due, I just don't need to add a question mark to anything, regardless how far-fetched it may be that the IRS would actually follow up on it.

-ERD50

Yay! Sounds like a great plan!

I agree with the P.S. also. It's a very conservative and simple approach.

 

[Texas Proud]

No, do not claim it on your 1040. The IRS computers pay particular attention to matching TINs, EINs, SSNs, and dollar figures.

If I were in your shoes, I would charge your father's estate $200 to print out a paper copy of a 2022 1041 and fill in the following:

1 interest income $800
14 attorney, accountant, and preparer fees $200
21 exemption $600
23 taxable income $0

Plus all applicable subtotal lines and the rest of the return.

I'd then check to convince myself that the above is permissible based on the 1041 instructions.

I'd then file the return by mail with zero payment to the IRS. I'd also probably check the final box on this 1041 as well. Make copies and file those with your dad's estate paperwork.

And yeah, check your state's filing requirements for their equivalent form. In my state I think it follows the federal rules pretty closely, so a state return would probably be required but no state tax due.

Then actually distribute the $200 to yourself for preparing the return, and distribute the remaining $600 according to the terms of your Dad's will (equally among you and your siblings or whatever).

This assumes that the money is still in the estate... from the first post I assume it was distributed to somebody... hence no tax due...

 

[SecondCor521]

This assumes that the money is still in the estate... from the first post I assume it was distributed to somebody... hence no tax due...

I did not make the assumption. The OP indicated that the money was paid to the estate, therefore it was in the estate before being distributed.

Regardless of whether it was distributed or not, it is regular interest income and therefore taxable income.

Whether income tax is actually due in turn depends on who recognizes the taxable income (estate or beneficiaries) and the rest of that entity or individual's tax return.

 

[Texas Proud]

I did not make the assumption. The OP indicated that the money was paid to the estate, therefore it was in the estate before being distributed.

Regardless of whether it was distributed or not, it is regular interest income and therefore taxable income.

Whether income tax is actually due in turn depends on who recognizes the taxable income (estate or beneficiaries) and the rest of that entity or individual's tax return.

If an estate makes income it can be distributed by passing it along to the beneficiaries... so if $800 came into the estate and the estate paid it to a beneficiary then the estate has zero taxable income... there should be a K-1 showing the $800 to the beneficiary... without filling out a tax return you can just have the beneficiary claim the income and pay taxes on it...



I have been doing that for my mom since 1980... and the IRS has never sent anything to us about these funds...

 

[ERD50]

If an estate makes income it can be distributed by passing it along to the beneficiaries... so if $800 came into the estate and the estate paid it to a beneficiary then the estate has zero taxable income... there should be a K-1 showing the $800 to the beneficiary... without filling out a tax return you can just have the beneficiary claim the income and pay taxes on it...


I have been doing that for my mom since 1980... and the IRS has never sent anything to us about these funds...

But, but, but... to create a K-1 showing $800 to the beneficiary, the Estate would need to file a tax return showing it accepted the 1099-INT, and distributed it via the K-1, right? The K-1 is part of the filing process, right?

So the Estate still needs to file a tax return, right? It's just simpler to file w/o the K-1 (as I'm planning at this time), and not have to deal with it on either side.

-ERD50

 

[SecondCor521]

If an estate makes income it can be distributed by passing it along to the beneficiaries... so if $800 came into the estate and the estate paid it to a beneficiary then the estate has zero taxable income... there should be a K-1 showing the $800 to the beneficiary... without filling out a tax return you can just have the beneficiary claim the income and pay taxes on it...

Yes, I know that the income could be distributed via a K-1 to the beneficiaries. That was the transfer process I mentioned in my earlier reply to you, and would result in taxation of that $800 on the beneficiary return(s).

Your earlier statement implied that the $800 would not be taxed if it were distributed, which is inaccurate.

And as ERD50 correctly points out in his reply, in order to do what you're describing properly, an estate tax return would have to be filed anyway, and K-1s would have to be generated. ERD50 didn't want to generate K-1s.

I have been doing that for my mom since 1980... and the IRS has never sent anything to us about these funds...

Just because the IRS hasn't sent you anything doesn't mean you're doing it right. I'm not sure why you've had an estate in progress for 42 years, but that's a mystery I don't need to figure out. It could be a trust instead, which also issues K-1s and files a 1041 tax return. The treatment of trusts and estates is similar but differ in some respects.

But, but, but... to create a K-1 showing $800 to the beneficiary, the Estate would need to file a tax return showing it accepted the 1099-INT, and distributed it via the K-1, right? The K-1 is part of the filing process, right?

So the Estate still needs to file a tax return, right?

Correct on all counts. With the minor footnote that K-1s are not required if the estate elects to retain taxation of all income on the estate return, as mentioned previously. So K-1s are technically optional, even though they're used in many cases.

 

[ERD50]

Near the finish line! (I hope)

OK, I think I got this, but I'm awful at reading tax instruction legalese.

So I fill out 1041, with FIL's EIN (the 1099-INT “RECIPIENT'S TIN” was with his EIN, with my name/address as “RECIPIENT'S name”). I'll get a copy of his FINAL 1041 (stored at my SIL's now) to get the “Name of Estate” as an exact match. My name/address for “Name and title of fiduciary” (and maybe check “Change in fiduciary's name” and “Change in fiduciary's address” as the 2019 'Final' 1041 would have had our tax guy's info?) . I guess I just check “Decedent's estate”, and “Final Return” (even though a Final has already been filed). Number of K-1's attached: zero.

L1 Interest Income from the 1099-INT (also the total for L9) ~ $800
L21 $600 exemption
L23 Taxable income is the difference, ~ $200
L24 Total Tax ~ $20

Also applied the $20 “Total Tax” to SCHED G L1a, 1d, 3, 9. Just says no credits, so Total tax is the same $20. No payments made.

Everything to “Other Information” is a “NO”.

Not so fast.... Line 8 of “Other Information”: If the decedent’s estate has been open for more than 2 years, attach an explanation for the delay in closing the estate, and check here

So I guess I need an explanation? They'd probably ignore it, but I guess I'll add:

“A Final 1041 was filed for Tax Year 2019, but later, we discovered there was lost property held by the State of IL. In 2022, IL issued an interest payment for the time they held those funds, and IL generated a 1099-INT for that interest payment, so I am filing a 2022 1041 to reflect tax due on that interest.”

I suppose that technically, without a K-1, this money is still in the trust, I didn't 'formally' remove it? Again, I doubt the IRS is going to question that, but who knows?

And the 1041-V with the check.

Geez, what a lot of work for $20 in tax!

Now on to ILLINOIS...

IL State Instructions (had to search for this, IL doesn't link it to the IL-1041 page!!!):

https://tax.illinois.gov/content/da...rentyear/business/fiduciary/il-1041-instr.pdf

Step 4; Line 31 Standard exemption. Residents only: See instructions before completing.

page 12 of instructions:

Line 31 — The standard exemption is $1,000. If you have a change in your tax year end, and the result is a tax period of less than 12 months, the standard exemption is prorated based on the number of days in the short tax year. However, if this is your first or final return, you are allowed to use the full-year standard exemption even if it is a short tax year.

It looks like IL has a $1,000 exemption, so I guess I don't even need to file for IL?

-ERD50

 

[38Chevy454]

It sure seems you have spent at least $200 in fiduciary expenses.......
which makes your tax liability zero.

 

[SecondCor521]

I'll get a copy of his FINAL 1041 (stored at my SIL's now) to get the “Name of Estate” as an exact match. My name/address for “Name and title of fiduciary” (and maybe check “Change in fiduciary's name” and “Change in fiduciary's address” as the 2019 'Final' 1041 would have had our tax guy's info?).

Getting a copy of the previous "final" 1041 is a smart idea. The top part should be pretty much the same.

The fiduciary in this case should have been the executor of the estate, which I think is you, not your tax guy. So probably no need to check the two "change" boxes.

I guess I just check “Decedent's estate”, and “Final Return” (even though a Final has already been filed). Number of K-1's attached: zero.

L1 Interest Income from the 1099-INT (also the total for L9) ~ $800
L21 $600 exemption
L23 Taxable income is the difference, ~ $200
L24 Total Tax ~ $20

Also applied the $20 “Total Tax” to SCHED G L1a, 1d, 3, 9. Just says no credits, so Total tax is the same $20. No payments made.

Everything to “Other Information” is a “NO”.

You should also put a total on line 22. It'll be $600.
You should also put a total on line 28. It'll be $20.

Not so fast.... Line 8 of “Other Information”: If the decedent’s estate has been open for more than 2 years, attach an explanation for the delay in closing the estate, and check here

So I guess I need an explanation? They'd probably ignore it, but I guess I'll add:

“A Final 1041 was filed for Tax Year 2019, but later, we discovered there was lost property held by the State of IL. In 2022, IL issued an interest payment for the time they held those funds, and IL generated a 1099-INT for that interest payment, so I am filing a 2022 1041 to reflect tax due on that interest.”

That should work. Also check the box on Other information line 8.

I suppose that technically, without a K-1, this money is still in the trust, I didn't 'formally' remove it? Again, I doubt the IRS is going to question that, but who knows?

No. The K-1 is related to taxation of the income. Now that the estate has received the income and paid taxes on it (the $20), the $800 becomes a trust asset and can be distributed to the beneficiaries without further complication. You can just send checks to the beneficiaries written on the trust checking account. Or if it's easier I think it would be fine to distribute the $800 all to you then send money to the other beneficiaries via Paypal or Venmo or whatever.

And the 1041-V with the check.

Geez, what a lot of work for $20 in tax!

Yep and yep.

Make a copy before putting it in the envelope.

Put a stamp on the envelope.

Now on to ILLINOIS...

[...]

It looks like IL has a $1,000 exemption, so I guess I don't even need to file for IL?

-ERD50

No clue. You might read the instructions for that form to see if it requires you to file a return just because you filed a federal 1041. It might. If so, it's a few more bits of paperwork, and probably no tax due.

My state likes to see a complete copy of the federal return also. IL might do the same or might not.

HTH.

 

[Texas Proud]

But, but, but... to create a K-1 showing $800 to the beneficiary, the Estate would need to file a tax return showing it accepted the 1099-INT, and distributed it via the K-1, right? The K-1 is part of the filing process, right?

So the Estate still needs to file a tax return, right? It's just simpler to file w/o the K-1 (as I'm planning at this time), and not have to deal with it on either side.

-ERD50

Technically right... but what I am saying is that the person who got the money just put the $800 on their tax return AS IF and estate filed and sent a K-1...

If the IRS ever came asking, just point to the individual tax return and be done with it... (I doubt that they ever would do so but who knows for sure)... they just want to get their money and as long as the income was on some return they got it...


And if they really get on your you can always file without penalty with the K-1 (if it ever got here I would buy a lottery ticket as this probably has less chance than winning the lottery)...




Edit to add.... As someone mentioned, I am NOT doing it right... I am doing what is convenient and also pays taxes on the income...

 

[ERD50]

Technically right... but what I am saying is that the person who got the money just put the $800 on their tax return AS IF and estate filed and sent a K-1...

If the IRS ever came asking, just point to the individual tax return and be done with it... (I doubt that they ever would do so but who knows for sure)... they just want to get their money and as long as the income was on some return they got it...


And if they really get on your you can always file without penalty with the K-1 (if it ever got here I would buy a lottery ticket as this probably has less chance than winning the lottery)...


Edit to add.... As someone mentioned, I am NOT doing it right... I am doing what is convenient and also pays taxes on the income...

Yeah, but...

I suspect this will cause a problem, since the SSN of the payer doesn't match the EIN on the 1099-INT.

I got caught up in a typo on the EIN for these 1041's before (kinda long story) - there was a tax due of ~ $100, it was paid, and the IRS cashed the check. But because of the mismatch, the check didn't get credited to the tax return for that EIN. The IRS started sending me (the executor) nasty letters threatening to freeze my accounts (and we were in the process of buying/selling homes). I spent tens of hours on hold trying to get through to the IRS to clear this simple matter up (by this time, I had copies of the cashed checks). Many days, I'd be on hold for hours and hours, just to get a "all lines are busy - click". And I'd start all over the next day.

And it took 3 different phone calls to get it straight, with those waits each time.


No thanks, I'm not risking that . Further, the estate will only pay about $20 on $800 interest after the $600 exemption and 10% tax rate. For me, the entire $800 will be on top, at 12% or 22%. I'm just going to file the 1041 and pay the $20, which is the right way to do it.

-ERD50

 

[Texas Proud]

Yep, sounds like an easy fix for you. And you hopefully do not have to worry about this going forward. It is an easy return to do so no software needed.


For me, I have a royalty and it cost a lot more money than it is worth to get the name changed as it is filed as property that my mom never did do it...

 

[ERD50]

Aug2023 update!!!

Geez, I see in my "Informed Delivery" I'm getting a letter from IRS regarding this trust 1041. The $20 check was cashed just a few weeks after I mailed in the 1041 at the end of Feb 2023.
Mail came early, so I didn't have to worry too long. I open the letter, they claim I didn't sign it!

Hmmmm, I'm so OCD about stuff like this, but I only have the pdfs with entries on my computer, I just can't imagine I didn't sign them after I printed them, but sometimes you get so hung up on details you miss the obvious.

OK, I find pics on my phone, the addressed, stamped envelope, the contents (signed!!!), and the check. So there's just no way I brain-farted this.

Well, they say I can sign the doc they sent and mail or fax it in, so I'll get on one of those free-fax sites and give it a try. I fear that this only means they didn't go any further in the review, and they may still come back in a year and say.... hey, we need this or that info....

Maybe part of the reason the IRS is so backed up is incompetence?They handle everything 27 times?

arghhh!!!!! -ERD50

 

[Texas Proud]

LOL... I got the same letter for a trust... but did not have any pics so I thought I did not sign it...


I now think it was an IRS problem... but I did sign and send it back in and never heard back...

 

[ERD50]

Geez (again)... Yesterday, I see *another* letter from the IRS in my "Informed Delivery" email. Same sending address/dept.

The letter I got last Friday had a slight typo in the address street name.

Yesterday's letter had a slight typo in *my* name, but the street address correct.

Makes me wonder, is all this getting hand entered? Wouldn't they have my address on record, in a , gee, I dunno, a COMPUTER?!

At any rate, the letter yesterday was a duplicate, they wanted my signature. Well, I already gave that to them via fax, and the EIN is all the same, so I'll ignore this one. After all, I had to pay $2.09 to use a fax service on-line, since the dang thing is 4 pages (5 with cover-letter), and that's the service free limit.

I fear this is going to go on a long time, over $20 (that I paid, and they cashed the check).

I think I know why the IRS is backlogged, and could probably be fixed w/o hiring thousands more agents.

-ERD50