If the equity shares or bonds in the account, or the account itself, had been transferred into the beneficiaries' accounts per terms of the Will, there would have been no problem and you would indeed have filed on your own Form 1040's as you indicate in your recent comment. Exactly.
However, with a significant amount reported as gross proceeds sale allocated to the SSN of the Decedent, you do technically have a problem. The strange probabilities of IRS audits are that if the Form 1099-B had an Estate EIN and no Form 1041 was ever filed, the IRS is terrible in following up Estate filings. However, in this case the unreported income would be in the name of the Decedent, and audit chances, while not large, are still of proportion that you might find yourself with inquiries. Without knowing the financial situations of the Decedent and the two Beneficiaries, it is impossible to know if the taxes that would be assessed for failing to file under the Decedent's SSN are larger or smaller than your simply filing as the two of you owned the shares before the sale.
So, if you follow the regulations, yes, you need to File:
- A Form 1040 Final for the Decedent if the Decedent had sufficient income [not assets] to warrant a filing.
- A simple Form 1041 with the 1099-B transaction reported, but with the entire net proceeds distributed to Schedules K-1 for the Beneficiaries and no tax obligation.
- Your own Form 1040 reporting only the net proceeds per the instructions on the back of the Schedule K-1.
If this posted response is useful to you, please click on the upraised hand in the lower left of this post. Thank you. Scruffy Curmudgeon--PFFM/ IAFF, retired FireFighter/Paramedic - Locals 718/30, Veteran USAR O3 AIS/ASA '65-'67
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