@merlin00 let's go back to the beginning....as I am not confident what I did the first time. I ran your scenario through a copy of Intuit's ProSeries software... and I got the same result the your tax preparer did.
1) on the Estate Tax return, I placed $200,000 on Line 8 - Other income
2) then I generated a K-1, distributing all $200,000 to a beneficiary. The software placed $200,000 on K-1 Line 5 - other portfolio and non-business income, It also placed -$200,000 on Line 14 with a code H.
So while I do not have the expertise to explain the outcome, the software provided the same result as your tax preparer. I would just let it go.
