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jdfkin
Level 2

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?

Person passed 9/2019. Estate elected calendar year so return for 2020 was due 4/15/2021. There is taxable income for the beneficiaries on the K-1. The 1041 filed 9/2021 was both initial and final return.
7 Replies
tagteam
Level 15

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?


@jdfkin wrote:
Estate elected calendar year so return for 2020 was due 4/15/2021. 

The beneficiaries would report the income from their K-1s on their 2020 income tax returns.

 

The income on a K-1 (1041) is reported by a beneficiary in the same year end as indicated on the K-1 (in this instance that would be the 2020 calendar year ending 12/31/2020).

Mike9241
Level 15

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?

the question is whether IRC Code Section 663(b) applies. that gives an estate only 65 days after the end of its tax year to make a distribution that carries out income.  so the question becomes should the estate have reported all the income and paid the tax and then distributed the remaining cash or could it because its the year of termination ignore 663(b) and make an income distribution late so the estate pays no tax on the income. the beneficiaries get taxed 

 

(1)General rule
If within the first 65 days of any taxable year of an estate or a trust, an amount is properly paid or credited, such amount shall be considered paid or credited on the last day of the preceding taxable year.

(2)Limitation
Paragraph (1) shall apply with respect to any taxable year of an estate or a trust only if the executor of such estate or the fiduciary of such trust (as the case may be) elects, in such manner and at such time as the Secretary prescribes by regulations, to have paragraph (1) apply for such taxable year

 

the election would have been made by checking the box on the tax form other information - question 6

 

there is a $280 penalty imposed for each k-1 filed late. and a late payment penalty if any taxes that were due were paid late.

 

tagteam
Level 15

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?

Section 663(b) is elective and, if elected, the beneficiaries would still report the income from their K-1s on their 2020 individual income tax returns (assuming the 1041 is for the 2020 calendar year).

Mike9241
Level 15

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?

yes it is elective but my understanding is if you don't make the election any distributions for the year have to be made before year-end.   if distributions could be made any time after year-end and be treated as prior-year distributions 663(b) would be meaningless - why choose 65 days if you had until the due date of the return.

jdfkin
Level 2

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?

The 1041 return is a 2020 return that was due 4/15/2021. It has not yet been filed pending a better understanding of how to treat the distributions to the beneficiaries. I have indicated on the 1041 that it is an initial and final return. I assume this is the correct thing to do. I don’t believe the 65 day rule applies since we are already past that date (assuming the year end is December 2020, correct?). Is it OK to show the distributions that occurred in mid 2021 on the 2020 1041 and generate the K-1s showing the distributions as if they were 2020 distributions? If so the beneficiaries would need to amend their 2020 tax returns showing the 2020 K-1s, correct?  

tagteam
Level 15

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?


@Mike9241 wrote:

yes it is elective but my understanding is if you don't make the election any distributions for the year have to be made before year-end.   if distributions could be made any time after year-end and be treated as prior-year distributions 663(b) would be meaningless - why choose 65 days if you had until the due date of the return.


That is correct and the initial post was not exactly straightforward.

 

The OP has now clarified this in a subsequent post.

tagteam
Level 15

1041 for 2020 filed late (9/2021). Money disbursed in 2021 along with K-1. Do beneficiaries amend 2020 tax return for the K-1 received in 2021?


@jdfkin wrote:

 .....I don’t believe the 65 day rule applies since we are already past that date (assuming the year end is December 2020, correct?). Is it OK to show the distributions that occurred in mid 2021 on the 2020 1041 and generate the K-1s showing the distributions as if they were 2020 distributions? 


The 65 day rule (Section 663(b) election) does not apply since you did not make the distributions within the 2020 tax year (calendar year) nor did you make any distributions within the 65 day period after the close of that tax year.

 

It is not proper to show distributions made to the beneficiaries in mid-2021 on the 2020 K-1s.

 

Unfortunately, the estate will have to pay any tax due on the 2020 income at this point. 

 

Was there no return filed for the 2019 tax year (since it appears that the decedent passed in September of 2019)?

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