technically because it's her 1099 she's supposed to issue her sister 1099s for her share of the items. the nominee adjustment in Turbotax does not always work as you think.
take a 1099-div of $100,000 as gross dividends $10,000 as qualified dividends and $20,000 as capital gain dividends and enter a nominee adjustment of $45,000
that $45,000 is allocated between qualified dividends and capital gain dividends so you end up with taxable dividends of $100000 - 45,000/ (100,000 + 20,000) X 100, 000 = $62,5000 (not $55,000) and Capital gain dividends on schedule D of $20,000 - 45000/ (100,000+20,000 x 20,000 = $12,500 (not $11,000). qualified dividends and other items are similarly affected so it is almost impossible to enter a nominee amount that properly adjusts each item except by using multiple 1099's. see below for proper reporting of any capital gain dividends. an199A dividends probably have a similar reporting requirement.
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For tax purposes, if you receive, in your name, income that actually belongs to someone else, you are also a nominee. Being a nominee means you must file with the IRS a 1099 form appropriate to the type of income you received and give a copy of the 1099 to the actual owner of the income.
The most common nominee situation is where a taxpayer and one or more other individuals have a joint financial account. your wife is the payer and her sister is the recipient. On her sister's return, she reports her share with your wife's name as the payer.
If capital gain distributions from a mutual fund or broker are nominee income, you report only your ownership share on your return and attach an explanation statement to your return; the capital gain distributions would not be included on a 1099-DIV that you issue as the payer. remember the IRS will be looking for that 1099 cap gain distribution amount - no way to attach such a statement so now you have to file by mail. if, as a nominee, you receive gross proceeds from selling stocks or bonds, you will need to issue a Form 1099-B to the IRS and the actual owner of the income. As with the interest and dividend income received by a nominee, rules are in place for completing your return so that only your portion of the net gain or loss from the sales is included in your income. Turbotax will not accept negative numbers to reduce 100% to 55%
Forms 1099-INT and 1099-DIV that you issue as a nominee must be given to the recipients by January 31, while the deadline for giving Forms 1099-B to the other owner(s) is February 15. In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by February 28. The 1099s must be submitted on magnetic media or on optically scannable forms (OCR forms). Probably a lot of taxpayers don't bother with this type of filings but the IRS can penalize such failures.
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one way to adjust the 1099-B is to use adjustment code N for each trade and then enter a negative amount of 45% of the gain or a positive amount for 45% of the loss. others may suggest other ways to do report.
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