1041 not required

[Strongsilence-CPA]

A 1041 is not required.  Client applied for an EIN.   Probate was needed for 1 bank account. It earned cents in interest and the legal expenses were paid with the estate bank account (which was not a probate and reported on a separate 1041.)

Do you wait for an IRS notice and respond to it?  Do you file one return - Initial and Final?

Client has told me she wants "no loose ends" so it might not reflect well on me should she get an IRS notice. Thoughts?

[IRonMaN · Accepted solution]

Personally, I wouldn't do anything.  If by chance a notice does show up, deal with it at that time.  Just tell the client you don't want to have to create needless fees for her by filing a return that isn't needed.  There must be close to a bazillion and one EIN applications filled out every year that a return is not needed and never filed.  The IRS isn't going to waste their time tracking down every single one so I wouldn't lose any sleep over it.

[BobKamman]

Probate was needed, and then there was an estate bank account, but it was not a probate.  What is wrong with this picture?  Maybe the estate-but-not-an-estate was a trust.  Maybe whoever was in charge of that made an election under Section 645 and you don't even know about it.  Who is in charge here?  PR and Trustee are not the same person?  In any case, what @IRonMaN said.  IRS is not going to follow up unless they get 1099's showing enough income to matter.  

[Strongsilence-CPA]

@BobKamman @IRonMaN 

About a different estate matter. Can you answer this question?

Person died intestate.  No will or trust existed.  All assets went into probate in CA.  (The court ordered an Inventory and Appraisal.)  By agreement of all beneficiaries and the court, it was decided that 1 beneficiary would receive property, while the other 3 received the net cash (principal less taxes, attorney fees, etc.)  Do all 4 get K-1s?

The executor claims only the 3 get a K-1. 

These 2 points are the only language in the agreement that I think is pertinent.

B.  Whereas, the legal heirs of the estate are his four siblings;

C. Whereas, "... the Heirs have a legal right to an equal, pro rata distribution of the estate;

Do I need to look to the CA Probate Code? 

[BobKamman]

Neither of us is in California, so obviously we are the best source for being impartial.  Let's make this a hypothetical:  There is a house worth $500K, and $1.5 million in cash.  One kid gets the house, the others split the cash.  Maybe the house is not worth exactly 25% of the distributable estate, but close enough considering who knows how soon it would sell and for what price.  

Is this considered a sale by B,C and D of their 25% interest each in the house, to A?  And meanwhile, there was $100K in dividends and capital gains before the cash was distributed.  Do you split this three ways on the Schedules K-1, or four ways?  

That's a good question.  Probably doesn't depend on local law.  But I think I'll pass.  You'd have to pay me to figure that one out.  

[IRonMaN]

I don't know the answer either.  But if all four received roughly equal values, that interest, dividends, etc got the cash people to equal the property person, so in effect the property person benefitted by those earnings, so why wouldn't he get a K-1?  How many dollars of income are we looking at splitting on the 1041?

[Strongsilence-CPA]

How many dollars of income are we looking at splitting on the 1041?

There was no income.  The executor, if he were also to receive a K-1, would save $1,000 (primarily from an NOL deduction).  It is a significant amount for him.

[Strongsilence-CPA]

Thank you.

In light of the potential reduced taxes for my client, I might ask him to pay me for that research.

[DTNY07]

I had this come up now as well.  Thanks for your help