@scottinphx The $5 million Estate exemption is for the special tax on the ASSETS of the Estate. For example, let's say a person earned a bunch of money, and after paying regular income taxes, had $6 million in the bank. If that person dies, the amount over $5+ million is subject to a special "Estate" tax. It is an additional tax on the total value of the assets.
A Form 1041 is for INCOME tax on an Estate. In other words, the Estate earned money (which has not ever been taxed) and it needs to pay regular income tax on that money. Common examples is if the deceased received income after their death (IRD), or after the person died, assets were sold at a profit. That "income" needs to be taxed. That has nothing to do with the "Estate" tax on the assets (and therefore the $5+ million exemption).
Your K-1 is passing that "income" on to you, so you pay the income taxes on income that has never been taxed.
Does that make sense?
