Estate Return

[mtbbprez]

I have a client whose father died in May of 2022. The will was disputed and because of that it won't be settled until May of 2023. She received an EIN from the IRS and because of the dispute was told not to file a form 1041 until 04/15/2024. Her father has several trust accounts he was receiving income from. One of these accounts split his brokerage statements pre death and post death. Pre death statement was labeled with his social security number and I'm filing his last return. The post death statement was labeled with the estate EIN and reported to the IRS as distributed for tax year December 31, 2022. Despite the IRS telling her not to file until 04/15/2024, am I going to have to file a short year form 1041 for the post death distributions?

[BobKamman]

She cannot rely on incorrect advice from some IRS employee.  What did she do, call the IRS Taxpayer Service Trainee line?  

[sjrcpa]

An estate can have a fiscal year end.

This estate could run from May 2022 - April 30, 2023.

However, a trust can only have a calendar year.

If the trust accounts were for revocable/living/grantor trust, an election can be made to treat the trust as part of the estate.

[mtbbprez]

The post death income was distributed and reported to the IRS for tax year 2022. The trust should have just set up the estate account and not distributed the funds. But it's been reported as income to the estate. I'm just trying to find out if I need to file a form 1041 for May - Dec 2022.

[sjrcpa]

Not enough info to tell.

[mtbbprez]

In my 31 years of preparing taxes, I've never seen anything like this.

Thanks

[ajp · Accepted solution]

It is an estate. I would use an alternate year beginning at date of death.  First year, May 2022-April 2023.  Second year, May 2023-April 2024.  This isn't that unusual.  The 1041 may end up with a balance due if funds were held up/not distributed because of the disagreement.  Hopefully, the second return will be the final return.  

Amy

[BobKamman]

So now it's a trust and not an estate.  And to whom was the income distributed?  Is anyone in charge here, or is the court trying to decide who is the trustee and who is the executor?  You may not even be working for the responsible party.  (Already proven to be somewhat irresponsible, calling IRS instead of you.)  

[mtbbprez]

That's what I was thinking. Thanks for the confirmation.

[qbteachmt]

"or is the court trying to decide who is the trustee and who is the executor?"

Isn't this jumping too many steps ahead, though?

"Her father has several trust accounts he was receiving income from."

Then you start with that trust document or that trustee. It doesn't roll into his estate, if there is a trust for it. The trust controls what happens in the case of his death as a beneficiary (or grantor? or?). Whose trust is it?

"One of these accounts split his brokerage statements pre death and post death."

Did you mean, the brokerage account which is not in a trust has beneficiaries who inherit the account? Or, it has no beneficiaries and that's why it rolls into the Estate? Or, does he have a trust that was the sole beneficiary on the account?

Because there is a sequence to these ownership rights.

"Pre death statement was labeled with his social security number and I'm filing his last return."

You don't use Statements. Do you have 2022 tax documents for any of this? For example, that first account by reference to a trust, is there a trustee that provided documents (or should have) when notified of his death?

The will might be disputed, but a lot of what you laid out would not fall under a will if any of these other provisions are in place. They would take precedence.

[BobKamman]

"or is the court trying to decide who is the trustee and who is the executor?"

Isn't this jumping too many steps ahead, though?

My first step is always to make sure the client has the authority to sign and file a return.  It's not yours?

[ajp]

I disagree.  If he had several trust accounts, they may have all been revocable until his death, in which case, this would be treated as an estate.  

[qbteachmt]

"they may have all been revocable until his death, in which case, this would be treated as an estate."

Or he wasn't the grantor. He could have been the beneficiary of trusts set up by another person.

There just isn't enough info here.