Estate reporting requirements for attorneys fees paid and interest income earned by the estate

[Lance31359]

I am the executor of my late Aunt's estate, which was largely two pieces of real estate and some stocks and bank accounts, and being an executor is not my profession (though this did seem like a full time job at times), and no non-interest income was generated during the process of liquidating and distributing the estate assets.

The proceeds from the sale of one of the pieces of real estate was put into an interest bearing account until final distribution to two beneficiaries was approved by the court.  The other property was transferred in title to two other beneficiaries, and the cash from liquidation of the stocks and bank accounts was placed in a separate interest bearing account and distributed to other beneficiaries upon approval from the Probate Court.  Interest earned on the funds from the real estate sale placed into the first account amounted to approx $30,000, and the funds in the second account was around $130.  Attorney's fees of about $14,000 and other expenses of $56,000 were paid over the course of resolving the estate.

My questions are:  1) does a 1099-NEC need to be filed for the payment of fees to the attorney; 2) does an estate tax return need to be filed for the interest income and expenses of administering the estate?  If so, since this was not an ongoing business, but an EIN was issued for the estate, what type of return needs to be filed?

[jtax]

It appears to me that you would need to issue a 1099-NEC to an attorney who handles the estate (and is not just handling a lawsuit settlement). There might well be an exception I don't know about. But it is pretty easy to file a 1099-NEC, so there is really no reason not to.

The estate itself will have to file a 1041 if it had over $600 in gross income of any kind. See https://www.irs.gov/individuals/file-an-estate-tax-income-tax-return

If the estate was opened and closed in 2025, only one return will be needed. Many estates wind up straddling a year. You can often avoid filing for two calendar years by adopting a fiscal year. See https://ttlc.intuit.com/community/taxes/discussion/fiscal-year-for-an-estate-1041/00/3684230

For an estate that is closed in one 1041 reporting year and distributes all of its assets to beneficiaries, all of the estate's income is shown on the 1041. However, the distributions are shown as a deduction against that income (resulting in no taxable income for the estate and no income tax due). The beneficiaries will get a Form K-1 showing the income they received. Not the principal. Just the income (e.g., dividends, interest, capital gains).

Keep in mind that this is not an estate tax return. It is an income tax return for an estate. The estate tax does tax the prinicpal transferred, but does not kick in until about $14 million, so it rarely applies.