In 2018 our father passed away. He wrote text books and received royalties from them. These royalties going forward will be directed to the siblings for a number of years after he passed. Because we live in the not-so-great state of Illinois, we had to pay significant Illinois Estate taxes. Because the royalties were inherited, we had to have a firm do a present value calculation to come up with a number to be reported with the Illinois estate taxes. (He did NOT have to file for Federal Estate taxes although you still need to prepare the federal form to get the numbers required for the IL form.) The siblings are now receiving these royalties. Each will soon be receiving 1099's from the publisher.
The accountant we had hired to do his final taxes told us that the amount included in the estate is not taxable because it was inherited and taxes paid (at least IL estate taxes). The amount excluded (he said), would be up to the amount of the determined present value included in the estate taxes.
Bottom line he is saying this:
Assume the present value of the book royalties included in the estate was $100k
Assume I receive $20k per year in inherited royalties.
The accountant says that the $20k/year is NOT taxable because it was already accounted for.
Bottom line:
1. I am going to receive a 1099. I can't just not report it on my tax return!
2. If this accountant is correct, is there an IRS form and/or document that might discuss this?
3. Is this really true what he says.
Basically, he said to report the 1099 but put a zero for the amount. Then, create my own schedule with a note explaining what I did. IE: The tax return would be manually reviewed and then someone would look at it and say "oh.... that's why they didn't report it". Seems like an automatic audit to me!
Thanks for anyone who may have a comment.
