Stock sale after death of filer

[doublebzz11]

Filer died on Jan 10 and beneficiary sold stock on Jan 16 but sale report under decedent's social security number

[Howard1948]

Jan 10 and Jan 16 of what year?  What is your relationship to "Filer"?

[doublebzz11]

Tax Year 2015.  I was beneficiary, nephew and executor of aunt's estate.  How do I handle tax forms on my and aunt's submittal?

[ScruffyCurmudgeon]

You say that you as the beneficiary sold the stock - but you had not changed the broker's registration of ownership so the Form 1099-B is in your deceased aunt's name.  One major question before going forward - as Personnel Representative (Executor) were you obligated to file either a Federal Form 706 Estate Tax Report or an equivalent state-level filing?  Also, were there other assets of the estate that you undertook to sell, even while in the name of the decedent?

[doublebzz11]

Not obligated to file Form 706 and brokerage account was primary asset.  Proceeds of brokerage account was to be split 50/50 between me and other beneficiary in accordance with aunt's will.  Other beneficiary wanted or needed his share immediately so account liquidated before I could change social security number.

[doublebzz11]

Not obligated to file Form 706 and brokerage account was primary asset.  Proceeds of brokerage account was to be split 50/50 between me and other beneficiary in accordance with aunt's will.  Other beneficiary wanted or needed his share immediately so account liquidated before I could change social security number.

[ScruffyCurmudgeon]

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:  

1. A Form 1040 Final for the Decedent if the Decedent had sufficient income [not assets] to warrant a filing.
2. 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.
3. Your own Form 1040 reporting only the net proceeds per the instructions on the back of the Schedule K-1.

[ScruffyCurmudgeon]

Technically, that presents a problem because now a Form 1041 must be filed to report the receipt of the proceeds of the sale while still owned by the Estate.  Practically, if this is a small amount [the gross proceeds], there is a lower likelihood of an IRS inquiry and you and the other beneficiary might be able to simply file the sale and the gain yourselves.  However, the technical fact still remains.

The Form 1041 for the Estate, if filed, would report two events. assuming no other assets:

1. Sale of Investment Asset - with Cost Basis the value on date of death and date of Acquisition = "Inherited"
2. On Schedules K-1, distribution of the gain, or loss, to the beneficiaries in proportionate amounts.

@doublebzz11 If you need assistance relative to Form 1041, come back.

[doublebzz11]

The gross proceeds were 6 figures.  My intent was to file a 1040 with accompanying Form 8949 showing disposition of the shares on day of death with a note referencing my Schedule D displaying the transaction from day of death to sale of assets.  I assume you are advising to use Form 1041 instead.