incorrect backup withholding

[eshonor]

Hi,

I wanted to sell stock from my mother's estate after she passed( I am the executor).  I was told by shareholder services that I have to tansfer the shares to an account that I own then sell the shares.  They would not sell the shares from a deceased account holder.  I created a new account but when I filled out the w-9 for backup withholding, I checked the wrong box for the type of account I wanted to set up.  I wanted to set up an individual account but I checked the estate/trust box.  Even though I signed the form stating I am not liable for backup withholding, they took out 24% backup withholding because my form was wrong.  They will not refund the money because I closed the account after the shares were sold.  

My question is:  How do I account on the 1040 for this situation?  I called the IRS but could not get through.

Thanks,

Eric 

[Anonymous_]

You were most likely subject to backup withholding since you checked the trust/estate box on the W-9 but then entered your social security number instead of a TIN (EIN) for the estate (i.e., the boxed checked does not match the EIN).

Enter the withheld amount from the tax reporting statement (1099) you received on your individual income tax return.

[Opus 17]

What it sounds like you did was to take ownership of the stock and sell it in your own name.  Because you receive a stepped up basis equal to the share price on the day she died, you probably have only a small capital gain or even a small deductible loss.  When you report the sale on your tax return, you will also report the withholding, and it will come back to you as part of your tax refund, or it will offset other tax you owe.

Your question does not make a lot of sense for two reasons.

1. Sometimes, the estate owns the shares and could have sold them directly.  Estates are legal entities that can do any kind of business that a person can do.  However, if you were a designated beneficiary on the account, then the shares went directly from your mother to you and were never owned by the estate. 

2. If the estate did sell the shares, the estate would owe more capital gains tax than if you inherit the shares and sell them in your own name, so there is rarely a good reason to do it that way. 

So the broker may have protected you from your own mistake regarding the capital gains tax.  However, if you believe it was important that the estate sell the shares instead of transferring them to you first, or if you don't understand why the shares had to go directly to you and you are still concerned about it, then you may be in over your head and need professional assistance managing the estate. 

[eshonor]

Thanks for the quick response.

How do I indicate on my tax return that this backup withholding should not have been withheld? 

[eshonor]

Thanks for the response.

Actually, I only want to get the withheld taxes back from the IRS.  How do I indicate on the 1040 that these particular taxes should be refunded.

Thanks

[Opus 17]

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@eshonor wrote:

Thanks for the quick response.

How do I indicate on my tax return that this backup withholding should not have been withheld? 

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You don't, and it doesn't matter.

It doesn't matter at this point why there was backup withholding and whether it was right or wrong.  You simple include the backup withholding as one of your tax payments (along with your job withholding and any estimated tax payments you might have made).  All your payments are a credit against your tax and you get the difference back as your refund. 

[Opus 17]

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@eshonor wrote:

Thanks for the response.

Actually, I only want to get the withheld taxes back from the IRS.  How do I indicate on the 1040 that these particular taxes should be refunded.

Thanks

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You file one tax return for the entire year, reporting all your income, all your tax payments, calculating your final tax amount, and determining your refund (if your payments exceed your taxes).  You can't get the backup withholding back any earlier than when you file your one official tax return (between January 30 and April 15, 2022). 

Since you know you paid excess tax, you could reduce your withholding at your job by filing a new W-4 to have less tax taken out.  Just remember to file another new W-4 in January to reset your withholding for 2022. 

[Anonymous_]

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@Opus 17 wrote:

2. If the estate did sell the shares, the estate would owe more capital gains tax than if you inherit the shares and sell them in your own name....

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The statement quoted above is not accurate (absolutely wrong, in fact) since estate (being a separate and distinct entity) would receive the shares from the decedent at a basis stepped up to their fair market value as of the date of death of the decedent.

In this sense, the estate actually "acquires" the shares from the decedent (per Section 1014(b)).

[Opus 17]

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@Anonymous_ wrote:

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@Opus 17 wrote:

2. If the estate did sell the shares, the estate would owe more capital gains tax than if you inherit the shares and sell them in your own name....

---

The statement quoted above is not accurate (absolutely wrong, in fact) since estate (being a separate and distinct entity) would receive the shares from the decedent at a basis stepped up to their fair market value as of the date of death of the decedent.

In this sense, the estate actually "acquires" the shares from the decedent (per Section 1014(b)).

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Ok, thanks.