Splitting 1099-R between 1040 and 1041

[Bmck345]

Preparing final returns for a deceased relative who died on March 31, 2024. Her bank account received direct deposit of her final Pension payment on April 1, 2024.

The 1099-R received under her SSN includes the April 1 payment, which I believe belongs on the Estate 1041.

Unlike Interest and dividend income, TurboTax does not present the ability to create a Nominee deduction for a 1099-R entry.

How do I enter this on the deceased 1040 return, and then where do I enter it on the Estate 1041?

[RobertB4444]

You will have to manually create a 1099-R in each return that represents the amount that would have been on separate 1099-Rs if received.  The two new 1099s should equal the one that you have.

@Bmck345 

[Edited 04/08/25  02:33 PM PST]

@Bmck345 

[Bmck345]

Thank you. I appreciate your response.

My intent is to find a way to enter the payment accurately without creating IRS confusion or notice that they cannot match it with the 1099-R they received. 

I was hoping for a solution very similar to how 1099-INT and 1099-Div are handled. Entering the full amount of the 1099 on the 1040, and then creating a Nominee Distribution for the portion allocated to the 1041, followed by issuing a 1099-R to the Estate for that portion. I have searched this Community site, IRS instructions for 1040 & 1041, and IRS Publication 559 as well as general searches, but no one addresses the 1099-R issue.

[bcv]

RobertB4444,

I'm not certain what type of "Expert" you are but you need to refrain from giving advice that is contrary to the Internal Revenue Code.  The income needs to be split properly between the decedent and the estate.  You just don't get to enter it where you think it is most convenient.  Turbotax should have a way to make this adjustment. It is not an uncommon occurrence. 

[Bmck345]

RobertB4444,

I see that you have edited your response after a comment by bcv on 4/8/25.

This is not helping me.

What, specifically, do I need to do/ enter in Turbo Tax for the 1040? How do I do to satisfy the IRS that the amount on the original 1099-R has been accounted for? How do I report "manually" prepared 1099-Rs to the IRS? I certainly can't change the 1099-R reported by the Pension fund. If I just enter the lower (correct) amount on the 1040 it will not match what has been reported to the IRS.

Handling a Nominee Distribution for a 1099-Int is pretty straight forward. I need direction on what specific steps to take for the 1099-R. I appreciate ant direction that you can give me.

Thank you for your assistance.

[bcv]

Bmck345,

Unfortunately TurboTax does not make it easy or that straight forward.  Note that simply splitting the income with the creation of separate Form 1099R's in TurboTax as suggested by RobertB4444, one for the Form 1040 and the other for Form 1041 will undoubtedly attract an automatic notice from the IRS's 1099 matching program.  Fortunately, we know what the tax return should ultimately look like.  It is just a matter of getting TurboTax to do what we need.   

Here is what I do.... For the Form 1040 enter the 1099R in Turbotax just as it appears (i.e. full amount of income).  This will eliminate any 1099 matching difference that would automatically kick out an IRS notice.  Now go to Form view mode...Then go to Schedule 1, line 8z.  You will have to override both the description and the amount.  Enter as a negative the amount that is to be reflected on Form 1041.  Use a description like "Income in respect of decedent - Pension distribution reported on Form 1041".   The TurboTax program will give you a message when you override the line.  Don't worry about it, you will have to print and mail your return (which I do anyway).  The most important thing is (1) the return is correct and (2) we have now minimized the potential for the IRS coming with notices and follow up questions.

On Form 1041, in form view mode, go to line 8, Other Income.  Enter the income amount (as a positive number) and description here.  Use a description similar to that on Form 1040 - e.g. "Income in Respect of Decedent - Pension Distribution".

Hope this helps.

[Bmck345]

bcv,

Thank you for your input. I will take a look at this approach. You mention that this is what you do. Have you used this approach in the past and have you had any issue from the IRS? Are you a tax professional?

I apologize for the questions, but I have received advice similar to what RobertB4444 said, including from both a Tax accountant and an IRS phone representative. That advice just did not seem right, but no one has had a suggested solution until now, and searches yielded nothing helpful. 

I also have a second issue that maybe you can shine a light on. I have nominee distributions for both interest and dividends on this return. I know that I need to create 1099s from the deceased's 1040 to the Estate 1041.

Since I am using TurboTax Business for the 1041, I see that you can create and efile 1099s using that software.

I did that, setting up the deceased as the "Payor business" and the Estate as the recipient. I did that and submitted the efile, but it was rejected. The reason on the email was "Your info doesn't match the IRS records".

I have verified with the IRS that the info for both the deceased and the Estate are correct, but it was rejected again. I'm wondering if my assumption that I can use TurboTax Business to do this for an individual is incorrect. Any thoughts?

Again,

Thank you for your assistance.

[Bmck345]

bcv,

I appreciate your guidance on this issue, and I have two follow up questions:

1. Should I also be issuing a 1099-R to the Estate for its income amount, similar to what I am doing for the interest and dividends?

2. There was tax withheld from the last pension payment, and included in the 1099-R issued to the decedent. Can I leave that in the 1040, or does it also need to be split out?

Thank you very much!

[Bmck345]

bcv,

I apologize for the additional questions, but I have one more.

For the Pennsylvania return, the negative entry from the Federal return does not carry over to the state return in Turbotax. As pension income is not taxable in Pa, that does not impact the tax, but shouldn't it be reflected somehow in the return to sync with the Federal return? I will have the reverse issue on the 1040 and the PA41 Estate return.

Again,

thank you for your inputs.

[bcv]

Yes, I am a retired CPA/Tax Professional.  Yes, I have used this approach in the past without issue.  I am currently filing a return like this.  Note, that's not an absolute guarantee that it won't generate a question by the IRS.   This approach minimizes the potential by clearly disclosing what is happening on the return.  Any agent that picks up the return should quickly see and understand what is happening. Technically the issuer of the 1099R is required to issue a corrected form but getting most companies to do that is nearly impossible.  That said, I am 100% certain with this approach each return reflects the correct taxable income.  This is the most important thing.

I don't think I can really be much help on your efile question for the 1099s.  In my experience, Efile can be temperamental especially if there is something out of the ordinary going on in the return.  It's just not very transparent when there is a problem.  Fixing it can chew up a lot of time.  As a result, in old school fashion, I avoid efile and use paper.  I also thought I'd mention to you that many practitioners do not go through the 1099 dance (especially if there would just be a handful of 1099s).  There is an argument that income in respect of decedent is not "nominee" income in the true sense of the word.  The decedent never actually "received" the income since they were not alive to receive it.  The estate actually "received' the payment, from the payor, not the decedent. (Note, by operation of state law, ownership of the right to "receive" payment actually transferred on the date of death to the estate or designated beneficiary. The decedent never had actual possession.)  Practitioner's will often use the 1099 approach in cases where the income is passing directly to the beneficiaries.  This accomplishes notifying the beneficiaries of income they must recognize in their return and eliminates the potential for the imposition of penalties to the estate/decedent for failing to notify the ultimate income recipient.  This is not so much a problem if the income is being split solely between the decedent's final return and the estate.  The executor/administrator makes certain all income is being picked up in a return, and appropriately disclosed as "income in respect of decedent", reducing the potential for a penalty.   This is where the streamlined approach with no nominee Form 1099s works best.

[bcv]

See my prior post regarding the issuing a 1099s.  As for the 1099R, if I recall the 1099 instructions actually "require" the payor to issue a corrected 1099R.  Most likely you won't be able to get the company to do that, especially at this date.   In my current situation I will simply disclose in the decedent's return that it is "income in respect of a decedent" with a reference to the taxpayer and ein that will report the income.  No 1099R filed.  As for the tax withheld, I think it needs to stay in the Form 1040.  I don't know that you can move tax deposits between accounts simply by filing a nominee 1099R.  On the other hand, if the original payor issued corrected 1099s the appropriate tax amount could be moved to the estate there.

[bcv]

I'm not certain I understand what you are asking.  I also am not familiar with PA tax law.  Let me try generally...if pension payments are not taxable in PA, then taxable income on the individual state return should not reflect the gross amount of the pension or the reduction for income in respect of decedent.  I do not know if a pension payment collected by an estate is not taxable in PA.  But if it is, then there should be no entry on the estate return for this item of income in respect of decedent.  It is ok if your state return is different from your federal return.  Different set of laws.

Good luck with all this.

[Bmck345]

bcv,

I sincerely appreciate all of your input on this issue. Thank you very much.

I have the paper1099s ready to mail and will be working on the returns later today. I have been contemplating making a call to the pension admin company tomorrow morning as a last shot to see if there is any chance that they will issue corrected 1099-Rs. If by some miracle they agree, I will request an extension. If not, I will proceed with filing.

Again,

Thank you very much!