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Is receipt of Unclaimed Property subject to tax on Decedent's 1041?

Level 1

The decedent died in 2016.  In 2020, it was discovered that the Commonwealth of Pennsylvania was holding unclaimed property.  It lists over 40 items of unclaimed property and combines them into one check.  The most significant, by far, are shares of PepsiCo.  We got the check today.  Of course, we don't get PepsiCo shares, just a check.  It is impossible to tell when these items were submitted to the state (i.e., before or after death). A few hundred dollars represents PepsiCo dividends held by the state. I don't know how many shares of PepsiCo, just that they resulted in $8,227 of the amount on the check. 

The question, of course, is whether this gets taxed on the 1041.  If so, how does it get reported?  The state ignores it from a 1099 perspective. Had this never went to unclaimed property, the PepsiCo would have been stepped up to the date of death value and sold without any significant gain. 

Has anyone run into this? Any suggestions?  My guess is that I need to figure out how many shares there were, report them at date of death value for cost basis, and then report the sale proceeds as the amount received from the state by the estate.  It took unclaimed property over a year to write us this check, and I don't have any confidence I'll get an answer to my detailed questions within the next few months. 

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1 Comment 1
Level 15

The dividends were omitted income on the 1040's that were filed for the years they were paid.  Taxpayer might not have received the 1099's but IRS got them and must have figured it wasn't worth asking about.  The sale of stock by the state should also have been reported on a 1040 (or maybe a 1041 if the taxpayer had already died) in the year it happened.  The one thing you know for sure is that it doesn't go on a 2021 return.  

Sometimes the state will provide more information if you ask for it.   Can you find the last tax return where he did report the dividends?  

If you believe in an after-life, he's looking down now and thinking, "I didn't trust any brokers, they were going to have to pry those stock certificates from my cold, dead hands."  Well, it happened.