Do I need to file form 1041 the first year as only 5 weeks and no estate income?

[deeMatrix]

Father-in-law passed on Thanksgiving 2021.  There was approximately $700 of attorney, etc. estate expenses through the end of the calendar year but no income.  The SS-4 form that provides the estate EIN indicates that Form 1041 has a due date of 4/15/2022. 

In reading the IRS 1041 instructions it indicates if estate income is less than $600 there is no need to file Form 1041 for that year but do we still have to file the first 1041 for 2021 since the SS-4 form indicates a due date of 4/15/2022?

Also, there will be capital gains and dividend income in 2022 from shares of stock that we plan to sell out of the estate and distribute the proceeds to the beneficiaries and close the estate in 2022.  So trying to understand in general whether we can simply proceed without doing a 1041 for 2021 (not worry about the $700 estate expenses in 2021) and only do one "First and Final" 1041 in for the 2022 tax year with the distributions of earnings to beneficiaries via K-1 forms ? 

Thanks in advance. 

[Anonymous_]

You could actually file an initial and final return (Form 1041) for the estate by choosing a fiscal year.

See https://www.irs.gov/instructions/i1041#en_US_2021_publink1000285987

For example, your fiscal year could begin on the date your father-in-law passed (November 25, 2021) and end on October 31, 2022. You would select this fiscal year on the first return the estate files.

[deeMatrix]

Thanks for your response.  In reading the IRS publication it indicates filing the 1041 with a different last day of any month other than December, then you are adopting a fiscal tax year but then it also indicates to change the accounting period of an estate, use Form 1128, Application To Adopt, Change, or Retain a Tax Year" so confused whether also need to do this form?

"For a decedent's estate, the moment of death determines the end of the decedent's tax year and the beginning of the estate's tax year. As executor or administrator, you choose the estate's tax period when you file its first income tax return. The estate's first tax year may be any period of 12 months or less that ends on the last day of a month. If you select the last day of any month other than December, you are adopting a fiscal tax year.

To change the accounting period of an estate, use Form 1128, Application To Adopt, Change, or Retain a Tax Year".

[Anonymous_]

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@deeMatrix wrote:

.....to change the accounting period of an estate, use Form 1128, Application To Adopt, Change, or Retain a Tax Year" so confused whether also need to do this form?

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You do not need that form for the initial return, which is the return you select the tax year for the estate.

[Anonymous_]

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@deeMatrix wrote:

To change the accounting period of an estate, use Form 1128, Application To Adopt, Change, or Retain a Tax Year".

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Form 1128 is sort of a generic form that is used for entities other than estates, such as partnerships, S corporations, and trusts (the latter which usually default to a calendar year).

[deeMatrix]

Thank you for your response.  So if we had $0 income in 2021 (minor $700 estate expenses which we're not concerned with) and then had dividends and capital gains in 2022 tax year with the distribution to beneficiaries with close out of estate in 2022 wouldn't a calendar year be better as we would have until April 15, 2023 to file the 1041 return and have all access to the 1099 brokerage forms outlining the earnings received that can be used for pro rata distribution to beneficiaries? 

So basically don't do a 1041 for 2021 tax year since no income and just do "first and final" for 2022?  Thanks in advance.

[Anonymous_]

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@deeMatrix wrote:

So basically don't do a 1041 for 2021 tax year since no income and just do "first and final" for 2022?  

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Yes. In the scenario you described, that approach would most likely be best since you would not have to file a return until April of 2023.

[Anonymous_]

You could also make a Section 663(b) election so you could treat distributions made within the 65-day period after the close of the tax year (in this case 12/31/2022) as having been made in 2022.

See https://www.irs.gov/instructions/i1041#en_US_2021_publink1000286250

[deeMatrix]

Thanks yet again tagteam.  As for making a Section 663(b) election this wouldn't apply if we made the beneficiary distributions say in May or June of 2022 so only if we waited to distribute the proceeds to the beneficiaries in early 2023?  Also, by distributing the entire estate in 2022 then all gets passed through to the beneficiaries as part of the K-1 forms since the 1041 would be "first and final"?  

[Anonymous_]

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@deeMatrix wrote:

As for making a Section 663(b) election this wouldn't apply if we made the beneficiary distributions say in May or June of 2022....

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No, Section 663(b) would not apply if you distributed everything in the 2022 tax year.

It is only useful if you made a distribution after the end of the tax year but wanted to have it treated as if the distribution was made in the previous tax year.