Estate beneficiary of IRA distributed to beneficiary Inherited IRAs

[janice-mcclellan]

The estate was listed as the beneficiary of an IRA.  Brokerage house created inherited IRAs for all of the estate beneficiaries and did direct transfers from the IRA in the estate's name to the inherited IRAs. A Form 1099R was issued to the estate.  The estate beneficiaries did not receive a Form 1099R.  How is this reported on Form 1041?  Do I report the distribution on Line 8 and back it out?  Or, do I issue K-1s to the beneficiaries showing the distributions and they show them as rollovers?  I don't prepare the beneficiaries personal tax returns.

[Brother Jack]

I have numerous questions on this but will start with

1. Who instructed the Brokerage house to create and distribute the account to the (ultimate) beneficiaries.Somebody had to provide them with the information

2. Did the beneficiaries liquidate their accounts before the end of the year? or do some remain beneficiary accounts

[janice-mcclellan]

The broker told the executrix, if the IRA proceeds from the estate IRA are directly transferred to inherited IRAs in the names of the estate beneficiaries, the proceeds would not be taxable to the estate.  The beneficiaries would have to withdraw the proceeds within 10 years.  The transfer into the beneficiary IRAs was done before 12/31.  As far as I know the beneficiaries have not withdrawn anything from those IRAs.  However, I'm not their accountant.

So, the executrix provided the brokerage firm with all of the beneficiary info.

[Brother Jack]

Do you know if the 1099R is for the complete account liquidation or perhaps just an RMD amount the decedent was required to take.

[janice-mcclellan]

Complete account liquidation.

[Brother Jack]

Something is not right with that. I don't think a 1099R should have been issued to the Trust if the account was transferred to beneficiary accounts. I assume the Box 7 distribution code is not a G  They should probably go back to the brokerage and have it corrected or certainly explain why it was issued.  Either that or the transfers to the inherited accounts was the wrong thing to do. You can't have it both ways.

Since the Trust received the 1099R,  if they are not correcting it, I have no idea what to do with the income report. I know of no provision to add the income and then back it out on a 1041 form. You wouldn't pass it through to the beneficiaries on a K-1. It would show as other income and not as a IRS/Pension distribution There is  not provision for them to "roll over" on their returns.

I think the 1099R needs correction.

[janice-mcclellan]

Thanks.  That was my first thought, that the 1099R needs to be corrected. It does not show a rollover.  However, I know that it is difficult to get the large brokerage firms to correct them.  Was hoping there was a solution I could deal with on the 1041.

[Brother Jack]

The Broker had no problem rolling the money over he should be brought in to fix  the issue.... but yes I know what you mean about the big houses and lack of service. Sometimes you get lucky.

It's kind of an odd mistake so I'm still not convinced the transactions were done correctly but that is not your problem...thankfully.