The estate return to which Carl is referring is an estate income tax return, Form 1041.
The estate can (and usually does) pass income through to estate beneficiaries, taking a deduction for this Distributable Net Income (DNI) so that the estate does not pay tax on this income. The income passed through to the estate beneficiaries is reported on Schedule K-1 (Form 1041). The beneficiaries then report the income on their individual income tax returns and it becomes taxable to the beneficiaries, usually at a lower tax rate than the estate would pay if the income was not passed through.
In fact, if *any* distributions are made by the estate to the estate beneficiaries during the estate's tax year, as appears to be the case here, the distributions *must* come first from DNI, passing the income through to the beneficiaries.
