How do I report the reduction of 1099-R and 1099-B income that was reported to decedent's SSN for the amount received by the estate after DOD?

[david3]

I don't see where on the input for forms 1099-R or 1099-B I can reduce the income for the amount of income received by the estate. I have searched the help section but can't find out how to accomplish this.

I know the 1099-R amount received by the estate should be reported on Form 1041 line 8 and the stock sale that occurred after DOD should be reported on Form 1041 Schedule D. I would think it would be straightforward to do the opposite - reduce the corresponding amounts as taxable income on the decedent's return.

Thanks for your help.

[claudetcb]

Very simple: Up to date of death, income, and expenses, are reported on the 1040; after date of death, it gets reported on the 1041. If you have a taxable 706, income reported as a decedent becomes a subtraction on the 1040; and expenses in respect to a decedent becomes an addback on the 1040, with the exception of funeral expenses, which are only a subtraction on the 706.

I would include a footnote on the 1040 in how you arrived at the income, or expenses, reported on the 1040. 

[Just-Lisa-Now-]

If the docs arrived with the SSN on everything, Id include the full amounts on the 1040, then make adjustments on Line 21 for the retirement that will go over to the 1041, report full amounts on the 1040 for the 1099B entries and and then make an adjusting entries on the Sch B and/or D for the amount being carried over to the 1041....that way you'll avoid the CP2000 cross matching issues.

If they arrived with the EIN on everything, then same idea, just opposite. 

[claudetcb]

No, Lisa, I would not do that. What I would do is this: Report the full amount of the 1099INT, OR DIV, on the 1040, then create another line item as: Reported to Fiduciary or Trust, or Estate of and include the EIN number as a negative amount; then place that amount on the 1041 as a positive amount. The less you describe, the better. Here is an example:

1040

Smith Barney 1234 1099DIV    $ 5,000

(Less) Reported by Estate EIN xx-xxxxxxx ($ 1,750)

1041

Smith Barney 1234 $ 1,750

Hope this helps.

[poolcleaner]

I agree with you but the problem arises when the negative qualified divided line shows it as a greater number than the ordinary dividends.  We understand it but ProSeries has always been perturbed by this! Overriding the checking seems to work in some cases and not in others.

[david3]

Thanks everyone for your help. I thought there was a way PS handled these type of situations and couldn't find where to get that done on the input forms.

[claudetcb]

Im sorry, Lisa, that does not make sense. What I would do first is this: Create a worksheet using Excel. List all of your passive income - description, in one column, and total amount, in the second column. On the third column, report the income from January 1st, to date of death; and the fourth column from the next day to the end of the calendar year. Columns 3 and 4 must add up to Column 2.  If you know for sure that you have all the 1099's that have been filed with the IRS in any given year, the IRS will not stop you from reporting the total amounts instead of the individual amounts. However, it is always best to report each 1099 separately so the IRS can match their records to yours. If your worksheet foots, and crossfoots, I see no issue in reporting the 1099's accurately, even if they have to be split in reporting.

[Just-Lisa-Now- · Accepted solution]

No, theres not a way to have PS do it automatically on the input worksheets.

[david3]

Thanks, Lisa.

[claudetcb]

I dont use that tax software.

[Just-Lisa-Now-]

---

@claudetcb wrote:

No, Lisa, I would not do that. What I would do is this: Report the full amount of the 1099INT, OR DIV, on the 1040, then create another line item as: Reported to Fiduciary or Trust, or Estate of and include the EIN number as a negative amount; then place that amount on the 1041 as a positive amount. The less you describe, the better. Here is an example:

1040

Smith Barney 1234 1099DIV    $ 5,000

(Less) Reported by Estate EIN xx-xxxxxxx ($ 1,750)

1041

Smith Barney 1234 $ 1,750

Hope this helps.

---

This is basically what I said, report the whole thing then make an adjustment for what was reported on the 1041.

[david3]

Ok, PS gives an error message when I add a line item to show dividends reported to the estate and enter negative numbers. It gave the error message when I entered negative qualified dividends. The error message says that qualified dividends should be less than or equal to ordinary dividends.

Any ideas as to how to enter this in PS so the qualified dividend tax treatment for this is adjusted?

Sch D is no problem. I was able to enter a line item with a statement that the stock sale was reported to the estate and I was able to enter negative sale and cost of sale numbers. This looks weird on Schedule D so I hope it doesn't raise red flags.

However, the review says the return is not eligible for e-filing since Form 8949 show negative cost.

If I adjust everything on the Other Income line of F 1040 then the LTCG tax rate and qualified dividends rate won't be applied to the adjustments. 

How have any of you been able to successfully adjust this in PS and not have these issues?

Thanks.

[Just-Lisa-Now-]

Can you use the Nominee adjustment for the Dividends (double click on the dividends line to open the screen for Nominee)

For the 8949, seems like you could make some kind of entry on Sch D to make the end result correct, as long as the gross proceeds equal or exceed whats shown on the 1099B, you wont get a CP2000 letter....it may look weird.  Like an entry with 0 gross proceeds but input the basis as whats going over to the 1041 so that reduces the gross proceeds on the 1040.

[david3]

I tried the nominee input for the dividends but when I enter the amount of dividends to be reported on the 1041 the amount is reduced when it carries over to schedule B. I can't follow the reason why this is happening. It appears to be allocating between ordinary and qualified dividends but the numbers still don't tie back to the amount needed to be reported on F 1041.

Maybe I'm not following you correctly on your Sch D comment. Did you mean to say enter zero as the proceeds and the cost as the amount of gain needed to be reported on the 1041 so that reduces the gain on the 1040 - instead of saying that reduces the gross proceeds on the 1040?

Doing that would you just enter the stock information as usual or also enter on that line that this is being reported to the 1041? That might look weird but at least the IRS will have some idea of what is going on.

Thanks for your help.

[rbynaker]

For 8949/Sch D, I would take Lisa's approach and adjust the gain rather than paper filing.  I would also attach a detailed statement to the return something like "The following items were incorrectly reported under the SSN of Taxpayer but were received after the date of death.  They have been properly reported on the tax return of XXX:"  So either a cost with no sales price or a sales price with no cost.  Also remember that stocks sold after date of death should have a step in basis (up or down to FMV) so the basis amounts reported on the 1099-B may not be correct.

For DIVs, I do the nominee thing but the trick with ProSeries is that there's just one nominee box so you have to split out the non-qual divs, qual divs, CGD, muni-interest, FTC, etc. onto different lines for the nominee math to work correctly.

Keep in mind that with divs, the IRS is just getting a Schedule B from the taxpayer.  The detailed entries for everything else are provided by the software to make data entry easier on us.  Sch B only reports total divs, there are no details reported regarding qualified, CGD, etc.  All of that stuff is totaled and reported on the appropriate lines of the 1040 (or Sch D, 1116, etc.)  So if you're backing out the estate portion of divs you just need one line for that so that it prints on Sch B.  I would just manually reduce the amount of qual divs to the correct number for the taxpayer such that the correct total shows up on the 1040 and on the Sch D worksheet for calculating capital gains tax.

So two approaches to get to the same end result.  Either way, I attach the detailed statement to try to head off IRS inquiries.

I've been told by someone in the AUR unit at IRS that every CP-2000 notice is reviewed by a human before it goes out.  I have in at least one instance copied the statement attached to the filed return and pasted it into a CP-2000 response letter that starts out "As described in the statement attached to the return <paste>."  Then a human gets it, reads it, marks the return as no change and we all move on with our lives.

Rick

[david3]

Thanks so much for your help.

The Schedule D suggestion worked.

Regarding the nominee dividends, are you referring to the Interest and Dividends Summary schedule when you say split out ordinary dividends and qualified dividends? The numbers aren't correct on that summary sheet and there are no links to change those numbers. They appear to be calculated but I can't see how they were calculated. If I override those numbers then I'm sure I will get an e-file error - I usually do when I try to override numbers.

Where are you able to split out the ordinary and qualified dividends without overriding?

Also, the worksheet is allocating Capital Gains and Nontaxable somehow but those numbers aren't correct either.

Thanks for helping with this.

[rbynaker]

For the divs, I'm talking about the ProSeries Schedule B Wks where you enter the bank/broker name, total divs, qual divs, cgd, etc.  It's "convenient" that you can enter everything on one line for each broker.  But not so much in this case.  So I'd enter something like:

Bob's Brokerage - Nonqualified dividends <tab> 1000

And then if you double click you can get to the nominee box and enter the 200 of those dividends were actually paid to the estate.  (All numbers are just made up by me on the spot here.)

Bob's Brokerage - Qualified dividends <tab> 3000 <tab> 3000

And double click again to nominee 500 of those dividends to the estate

Repeat for whatever else you have on that 1099-DIV.

Your Schedule B should then show:

Bob's Brokerage - Nonqualified dividends . . . $1,000
Bob's Brokerage - Qualified dividends . . . $3,000
...
Nominee distribution ($700)
...
Total . . . $3,300 (flows to the 1040)

And then your 1040 will also show $2,500 of qualified dividends (fingers crossed, I don't have the software in front of me.)

If you're lucky and we ask nicely, @Just-Lisa-Now- will come along and give you a screen shot. 🙂  Or she'll send me a private email asking me to stop pestering her for screen shots...

Rick

[david3]

Ok, I see. I have to enter every piece of information separately.

Thanks so much for your help, Rick.

[david3]

Rick,

Whoops! I spoke too soon. PS will not allow me to enter the qualified dividends on a separate line. The error message says qualified dividends should be less than or equal to total ordinary dividends.

Sorry to drag this out but PS should make it easier to enter nominee information.

How have you been able to get that to work without getting error messages?

Thanks.

[david3]

Rick,

I liked your approach to enter every dividend item separately on each line. However, it appears PS doesn't like that approach.

Unless anyone has a better idea I guess I will enter the nominee adjustment so it shows correctly on Sch B and then enter a reduced amount for the qualified dividends, cgd, etc.

Thanks for your help.

[rbynaker]

The dividends need to follow the qualified divs.  So using my made up numbers above, your 1099-DIV shows $4,000 Divs, $3,000 Qual Divs.  You'd enter $1,000 NQ Div on one line and then $3,000 Qual Divs on the next line.

Rick

[david3]

Got it!

Thanks for all your help and for bearing with me.

[Twaxpool56]

One question:  what if surviving spouse did not apply for estate tax number ?  How do I report the deceased income that shows only his social security number? He died in 2020.  Can the social security number be used on form 1041?