CP2000 Question

[JimO65]

I just got off the phone with IRS after an hour wait.  I want to confirm information they gave me because it still conflicts with what I have read online.  I got a CP2000 form from the IRS for my 2021 tax return.  My mom had passed and her TRS and an insurance claim both showed up and they stated I did not report them as income.  I am the executor of my mother's estate and I also had a joint account with her prior to her death.  When I mentioned to the IRS assistor about Texas not having an inheritance tax, she said that was state level, not federal.  Her recommendation after more discussion was to disagree with the changes and report that I did a family distribution from that joint account(which I had done in 2021).  But, they do want both of my siblings names and social security numbers.  I hung up and then got to thinking.  Does this mean they will now probably send a CP2000 to my siblings asking them for money ?  So, long winded but two questions.              1)  Should the IRS be trying to get more money on this inheritance(in relation to my reading on TEXAS laws) ?

2)  Should I give my siblings information to the IRS or just pay the amount difference(if answer one does not apply) ?

I don't mind doing things correctly, but I never remembered getting any kind of forms I could have added to my 2021 personal tax forms.  Which might bring up a third question since I use TurboTax

3) I don't recall any guidance on inheritance money as I do my taxes.  Is there a section related to that on a personal tax return ?

[Cindy4]

Hi JimO65!

My condolences on your mother's passing.

Your questions lead to some additional questions.  Texas not having an inheritance tax is unrelated to the federal taxes on personal and estate income.  There is not a federal inheritance tax, but there is a federal estate tax. The federal estate tax generally applies to assets over $12.06 million in 2022. Did you file a form 1041 for your mother's estate, or did you just do a final 1040?

It's possible that the IRS is looking for the income to be reported somewhere, even if it ends up be non-taxable.  Without seeing the CP2000 it's difficult to know exactly where they're coming from.  

Generally, life insurance proceeds after the insured's death aren't reported as income to the beneficiaries. However, any interest on the proceeds (such as when the proceeds are delayed) are reportable. The beneficiaries should receive a Form 1099-INT with the amount of the interest paid.  If you received one of these forms it would need reported.  If any other income indicated on the notice from the IRS is showing as reported by others, it's possible you received some type of form that required reporting either on the final 1040 or on a form 1041.

I would be clear on what exactly the IRS needs before giving any personal information on my siblings.

It may be easier to call us at (800) 446-8848 and one of our tax experts can go over the notice with you.

[rschule1]

At Turbo Tax-We are your tax advocates and certainly want things work out well for you. But in this case the IRS appears correct in mentioning state inheritance law does not supersede federal law.

(IRS) has two sets of laws:

1) Estate tax on your mother's estate. (Condolences) In 2021 only estates greater than $11,700, 000 were subject to estate tax. So depending on the value of you mother's estate tax, then Federal estate tax might not apply 

2) Disposition of inherited property by beneficiary's which if applicable become taxable to the personal tax return of the beneficiary.

It appears such a disposition took place, which is why the IRS got involved. If so the next step is to determine the type of property involved, including value of property as of date of death and sales price of property and then determine if the IRS proposed adjustment is correct.

If the property in Question was a retirement account, then special rules apply and typically the full amount distributed is subject to tax on the beneficiary's individual tax return. In this case you should have received form 1099R and claimed the distribution on your tax return.