Form 1041 how to report IRD

[Anonymous]

Decedent received  a 1099-NEC and a 1099-MISC with his social security number.  Death was in 2020, 1099's received in 2021. Both amounts were for restricted stock.  The stock went into widow's investment account. In filing the 1041, how do I record these amounts?  I did an override on the K-1 and put both amounts in ordinary business income.  My thinking is that the total would've been on his W-2 if alive.  Is this correct even though it doesn't show the payers?  If I put it in other income, it shows up on the K-1 also on line 14 H and then passes through to the widow and is subject to additional net investment tax. Thanks in advance for any help.

Sandy Rogers

[BobKamman]

How did he receive them?  Delivered to the cemetery, or placed under the urn on the widow's mantel?  In either case, forget about the pieces of paper and follow the money.  You're doing a 1041 for what -- the estate?  A now-irrevocable trust?  How did the widow manage to deposit the money to her account if it belonged to the estate or trust?  Is there some other reason you are filing a 1041?  Sounds to me like IRD that goes on the widow's 1040.  

[Anonymous]

The stock was forwarded directly from his former employer to her brokerage account. I'm doing a 1041 for the estate because the 1099's, and also some bank interest, were made out with the deceased 's social security number.   She files Qualifying widow  for 2021, so can't go on her return.  Thanks. 

[BobKamman]

If I'm going to sign her return I'm going to make sure it shows all of her income, and not pay any attention to pieces of paper.  Was the bank account in his name only?  Sounds like he had named her as beneficiary of employee benefits -- to avoid having them go to an estate.  The SSN on the 1099's is meaningless on a situation like this.  Or it means, the employer forgot to ask for hers.  

[qbteachmt]

"My thinking is that the total would've been on his W-2 if alive."

Maybe the amount on the NEC, sure. One would be the Granting (-NEC) and one would be the Vesting (-Misc) events.

The granting date is available as basis, but your vesting date seems to be the same, perhaps because of a death clause. Perhaps they sold some stocks to pay backup withholding on the NEC? A -Misc might be used to show the difference between the vested basis and the sales price for generating the cash for withholding. You stated the widow got stocks, so there would be a difference in number of shares vested vs transferred.

[Anonymous]

So the real question is where to enter the amounts from the 1099-NEC and 1099-MISC in Lacerte 1041 detail.  Do they both go in the screen for other income?  If so, accounting income or corpus, or tax only (not in accounting income)?  It doesn't seem to matter since wherever I put it shows up in the same place on the K-1.  I just want to do it correctly. Thanks for the help. S

[qbteachmt]

You seem to have three events:

The -NEC seems to be the income that would have been late wages, not distributed as cash, because it represents taxable Value for the Stock granted/vested.

The stock is an asset with that basis (and FMV to the widow). Purchase date would be vesting, not grant, if that is different. That's assuming no one filed to elect grant date as basis date.

And the -Misc might be fractional sales and/or short term sales.

I have made a bit of assumptions. The broker might have some info.

[qbteachmt]

I offered this article just days ago, on another topic here:

https://www.investopedia.com/articles/tax/09/restricted-stock-tax.asp

[userafw]

The 1099-NEC would be self-employment income, like wages but no tax withheld, so the contractor is responsible for his own payroll taxes: in particular federal tax withheld, social security and medicare tax.. The other 1099-misc - is that classified as other income? Because if it is, that I believe is exactly where it goes on the 1041. So it depends exactly which box the income is located in: rents, royalties, fishing income, or other income.  

Next question: Are the wife of the deceased and the executor the same person? And is anyone else inheriting? If she is the sole inheritor, any money distributed to her account rather than an estate account would be shown as distributed on the K-1.

Or, perhaps she did not close the joint bank account when her husband died and open an estate account in its place. If there are multiple people inheriting, it is the responsibility of the executor or court-appointed administrator to ensure that all the funds go where they are supposed to, where creditors (like credit card companies and loans payable) and all inheritors are paid. . She may need to put some of the money back into the estate account if it was opened late. 

This is just general information that may or may not apply to any tax case. I have several years of tax experience, but am not a CPA. For more personalized advice, the services of an estate attorney and a tax attorney would be useful.