1099C for deceased. Final return filed. No money in estate. What do I do?

[savingtaxdollars]

Turbotax,

I just received a 2021 1099c for my late father, who passed away in 2019. I filed his final return in 2020 and no other estate business happened in 2021. The estate is insolvent and no longer has a bank account or assets. Am I required to file another tax return or form? Thank you!

[DianeW777]

The guidance for this can be found in IRS Publication 559.  The IRS would require this income to be included on the return of the beneficiary.  Depending on the amount and how it affects the tax return, review the information below for a request to remove the income and additional tax, if any, from your tax return.  You do not file another return for your father.

Request for discharge from personal liability for tax.

An executor can make a request for discharge from personal liability for a decedent's income, gift, and estate taxes. The request must be made after the returns for those taxes are filed. To make the request, file Form 5495. For this purpose, an executor is an executor or administrator that is appointed, qualified, and acting within the United States.

Within 9 months after receipt of the request, the IRS will notify the executor of the amount of taxes due. If this amount is paid, the executor will be discharged from personal liability for any future deficiencies. If the IRS hasn't notified the executor, he or she will be discharged from personal liability at the end of the 9-month period.

NOTE: Even if the executor is discharged from personal liability, the IRS will still be able to assess tax deficiencies against the executor to the extent he or she still has any of the decedent's property.

[savingtaxdollars]

This is very helpful. Thank you!

[savingtaxdollars]

Hi DianeW777,

I have more information that may better explain my situation, as I am still confused as to if and how I report this to the IRS.

1. No estate funds were disbursed to the named beneficiaries, as none was available.
2. All funds present in the estate were used to cover funeral expenses and most of the lawyer fees. I had to pay the remaining lawyer fees out of pocket.
3. The 1099-C from is dated 12/2021.

If this still requires payment to the IRS, which return would it be filed on as his final return was filed in 2020?

Thank you!

[DMarkM1]

Since you had zero assets in the estate, the estate was insolvent when this occurred.  You will file form 982 with the Estate of your father's name in the name box and the EIN for the estate in the identifying number box.  Here are the instructions for the form.  I don't know what the indebtedness was for but I would draw your attention to the table and item "Nonbusiness Debt" for specific instructions.   

Attach this completed form to a copy of the last estate form 1041 you filed, along with the 1099-C. Be sure to write COPY on the top of the estate form.

[savingtaxdollars]

DMarkM1,

Thank you for your insight, I will review the form. The 1099-C was for a credit card. I only filed his final return (2019 tax year) and no other 1041 for the estate as it was insolvent. Would this now be filed as a 1041 for 2021? If so, would I then need TurboTax Business?

[DMarkM1]

No, not for 2021 but for the year of the event (box 1 on the 1099-C).  The tax year for the 1041 will start on the date of death and run 1 year.  Yes, TurboTax business will have the Form 1041.  The non-business debt instructions for the 982 will work for the credit card debt.

[savingtaxdollars]

This is very helpful. Thank you!

Box 1 is dated 12/28/2021, although my father passed in April, 2019. Since it is non-business debt, would it still be filed on a 1041? I apologize for the barrage of questions and really appreciate your help.

[DMarkM1]

Yes the 1041 is the correct form.  You father cannot have any income after death.  It will be the estate in this case.  Since the date is 2021, a 1041 for tax year 2021 will work. Be sure to mark the 1041 as final as well before filing. 

[savingtaxdollars]

Perfect. Thank you. I believe I have completed my 982.

Regarding my 1041: Is the discharged total from the 982 be included as a deduction on the 1041? I couldn't find any reference to this in either the 1041 or 982 instructions.

[DianeW777]

There should be no income reported on the Form 1041, enter zero and then include the Form 982 when you mail the return to the IRS. I would include a copy of the Form 1099-C as well.  If the IRS has any further questions they will send you a letter and at that time you can respond or jump back here for more insight.

@savingtaxdollars

[savingtaxdollars]

Ok, thank you. To confirm, would that mean that I do not enter the 1099-C on Income section line 8, but instead enter $0.00 on lines 24, 26, & 28 of the Tax and Payments section and lines 9 & 19 of Schedule G? Also, would I need to include an "insolvency worksheet" or would an explanatory cover letter suffice?

[RobertB4444]

I would include an insolvency worksheet and a cover letter.  The more information that you give as to why there is no good reason to come after your father's estate for money that it doesn't have the better.

[savingtaxdollars]

That's good to know. Thank you for your suggestion.