Does executor need to file K-1's if they distributed partial inheritance to beneficiaries in 2015?

[brendaboo]

As executor, I paid out partial distributions of inheritance to heirs in 2015. The deceased died in July 2015. I have not filed the final 1041, as the estate is still open. Do I need to provide the heirs with a K1 for 2015 so they can claim it on their 2015 tax return? Or, should I just include their 2015 partial distributions along with the rest of their inheritance that will be distributed in 2016 after I close the estate and file the final 1041 later this year?

[tagteam · Accepted solution]

I urge you to consult with an income tax professional who specializes in estate/trust taxation concerning this matter.

Since the date of death was in July of 2015, you have the option to select a fiscal year when filing the initial income tax return for the estate (e.g., beginning July 1, 2015 and ending June 30, 2016). In that event, each beneficiary would include his/her share of the estate income in his/her return for the tax year in which the last day of the estate's tax year falls (i.e., TYE 2016).

See https://www.irs.gov/publications/p559/ar02.html#en_US_2015_publink100099775 and Treas. Reg. §1.662(c)-1.

Again, I highly recommend an in-person consultation with a qualified tax professional as it may inure to your benefit, and that of the beneficiaries, to select a fiscal year for the estate on its initial income tax return.

[brendaboo]

Thanks Tagteam. So even though I made $15,000 distributions to each of 3 beneficiaries in 2015, which is about half of their total inheritance, I only give them a k1 AFTER I close the estate in June 2016.  I would include both the 2015 and 16 distributions in their 2016 K1.   Do I have that correct? Thank you for advice!

[tagteam]

You are most welcome and, yes, that is correct. The beneficiaries would report the income shown on their (fiscal year ended 6/30/2016) K-1s on their 2016 individual income tax returns.

[brendaboo]

Excellent, thank you so much for the clear and fast reply and advice!

[Fern]

You are required to issue a K-1 to report a beneficiary's share of the estate’s or trust’s income, credits, deductions, etc..  

The distribution made in 2015 should be reported to the beneficiaries in 2015.  Income items from 2015 must be distributed in 2015.

See  https://www.irs.gov/pub/irs-pdf/i1041sk1.pdf for guidance on what is included in the K-1.  Turbo Tax will prepare K-1 forms as part of the Trust’s tax return.

See http://taxmap.ntis.gov/taxmap/pubs/p559-004.htm for guidance on the treatment for the distribution of non-income items