The executor of my client's estate had the brokerage sell her stocks and disburse the proceeds directly to the four beneficiaries without first transferring them to an estate account.  The sale therefore was reported on my client's 1099B.  It seems the substance of the transaction is that it should be reported to her estate with a stepped-up basis and the gain/loss reported to the beneficiaries on Schedules K-1;  however, I would expect the IRS' matching system to look for the transactions on her personal return and generate a nastygram when these sales are absent.  The sale amounts and theoretical capital gains based on the date my client obtained the stocks are significant but negligible using valuations as of date of death.  Reporting the sale on her 1040 using a stepped-up basis might sidestep the nastygram but may not be an equitable reporting of the tax liability vs. reporting the gains to the beneficiaries.  Thoughts?