Is there a way to notify IRS of a Trustee filing a Schedule D for Capital Gains? Should I be concerned at all?

[PJhiker]

I have mentioned this here before. My brother is the Successor Trustee and he and I don't have a good relationship so I'm skeptical about he did the taxes and if can come back to bite me in anyway.  

In any event, I was of the belief he had to file a 1041 for a completed Trust/Estate sale we split the proceeds on which was $540,000 total and I got roughly $270,000 I thought it would be filed on a 1041 and I would get a K-1 and pay my half pf the taxes. 

However, he did an 8949 and 1040 Schedule D form and a CA Form 540 C-1 ( I think that is a the equivalent of a 1040 or 1041 for the State of CA.) He's doing it to play a martyr in way and to be able to say he paid all the taxes. Long story the point is I'm not trusting how he did it and if I can be held accountable on these taxes or if me not claiming anything on this amount and the capital gains can negatively impact me in the future.

The capital gains (I believe long term right?) was $8,240 total and he said he paid $2,437 which I see as a 29.5% right?. He said he paid $223 on $613 I believe for the state which is a 37% tax rate correct? He makes pretty good money at around $160k a year. Would this tax rates make sense?

Also, is there a way when I file through Turbo Tax on specific form to comment on or anywhere else beyond calling the IRS and CA. state to inform them of this and the amount I received and the capital gains along with the EIN numbers etc on the 1099-S so I am not making any mistakes or getting not doing something right? Should I even worry about that if it was done this way? It feels odd that I would not have to report anything but two tax professionals already told me not to worry about it. Should I ask him to send me some kind of confirmation of his taxes being accepted. I just don't trust him and this seems like it's going to come back to me.

[Mike9241]

for one thing, if he extended the trust return he has until 9/15/2023 to put in the mail any k-1 issued by the trust. we can't see the return so don't know what he did. the taxes seem high but again we can't see the returns.  as Trustee he had 2 choices.  One. pay the taxes on the income at the trust level and distribute the remaining proceeds to the beneficiaries tax free - there would be no tax reporting for the beneficiaries. Two. distribute the income to the beneficiaries via a K-1 and let them pay the tax. It is possible he allocated all the income to himself so you would receive no k-1 but the propriety of that is an open question. It could be an issue for you. Calling the IRS/CA or an attachment would probably be a waste of time and would not protect you. if you want to rest easy spend the money on a lawyer.

[PJhiker]

I feel like I pretty much explained what he did. What other information would you like? He paid me my half of the money after he sold the house minus the closing costs in 2022. He filled out what he needed to do on a 1099-S and I have a copy of that. he then waited until 2023 tax season and instead of filing a 1041 and getting me a K-1 for the house he said he paid all the taxes himself and have me those numbers and said if I wanted to I could pay half. He sent me he how he did it and it is through a 1040 Schedule D which is a Capital Gains/Loss vs. a 1041 which ia form for a Trust/Estate Sale and giving me a K-1. He also said if I don't pay him half he does not care. 

My question is did he do something wrong on this in regards to me. Am I going to be in trouble and dod I need to claim anything because others tell me different things? I have not filed my taxes as of yet and wan to do it right.

[tagteam]

I am not certain what you want from this forum, but there is no possible way anyone here can provide you with a definitive answer without seeing any documentation. 

If you are seriously in doubt, you need to consult with local legal counsel who can review the case. As a beneficiary of the trust, you are entitled to an accounting.

On a cursory glance, the amount of tax your brother paid on the amount of gain (long-term) stated sounds rather high. Had he filed a 1041, the tax on that capital gain (assuming no other income) would have been much lower. 

Again, and no offense intended, if you want a definitive answer, you will have to contact a local tax or legal professional who can review the relevant documents and, frankly, you will not be able to get any kind of definitive and authoritative answer by repeatedly posting on this board.

[PJhiker]

I understand and I will do that. Thank you for your response. I did forget to mention that I do have an SS-4 letter from the IRS that assigned and EIN number for the Trust and in the letter it actually states he is to file a 1041 form. Also, the 1099-S form has the name of the Trust and not him as an individual. 

I think that confirms he filed this incorrectly by filing it as a Schedule D Form 1040 on his individual tax return. right, all the amounts aside? As I understand it the IRS is expecting a 1041 since they assigned an EIN and the 1099-S form is in the name of the Trust and doing it the way he did will cause a lot of confusion and mess in the future?

[tagteam]

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@PJhiker wrote:

I think that confirms he filed this incorrectly by filing it as a Schedule D Form 1040 on his individual tax return. right, all the amounts aside? 

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Yes, a return (1041) for the trust should almost certainly have been filed. Your brother obviously took a circuitous route in paying the capital gains tax due.

However, it is your brother, as the fiduciary, who has the responsibility for filing the return for the trust. 

[PJhiker]

Correct, but he has to amend it now right? It won't workout the way he did it and the IRS will come back to him and the Trust as a result because of the confusion it will create right?

[tagteam]

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@PJhiker wrote:

Correct, but he has to amend it now right?

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Amend what? His individual income tax return (1040)? 

From what you have posted, there is no 1041 to amend since the initial 1041 was never filed. 

If the 1099-S was filed by the issuer with the name of the trust and its EIN, then a letter may be generated by the IRS inquiring as the status of the filing of the 1041.

[PJhiker]

Well I mean amend by no basically deleting the 1040 Schedule D filing he made on his individual return and filing a correct 1041 form.

I have a photo of the 1099-S form with the Trust's name on it. Does that mean it was filed?

I have a SS-4 with the EIN assigned and it states he was suppose to file a 1041 by April 15, 2022 which seems weird because the house only sold at the very end of March 2022. Did he miss the deadline to file he 1041?

I'm not sure if he got any letter because of possibly missing that filing date like you stated asking about it.

[PJhiker]

In summary and do be more clear.

My father passed away in August of 2021 and we did not sell the house until March of 2022. There was Capital Gains of around $6000 on the sale of the house that occurred in around March of 2022. That IRS SS-4 letter again says he needed to file by April 15 of 2022, but that seems too soon for a deadline of Capital Gains that happened in March of 2022 and so close to that April 15, 2022 mentioned in the SS-4. Do you believe that was mistaken or not the correct "actual" deadline and filing in 2023 is ok for that $6000 capital gains?

[tagteam]

The due date for the 1041 would be April of 2023 had the house been sold in the 2022 tax year.

The letter stated a due date of April, 2022 most likely because the EIN was applied for in 2021.

[PJhiker]

Oh ok, it's just odd they state in the letter the 1041 is due April 15, 2022. But yeah the house was sold only a few weeks prior to that due so it does make sense it would be due that quickly.

[tagteam]

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@PJhiker wrote:

Oh ok, it's just odd they state in the letter the 1041 is due April 15, 2022. 

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Standard form letter from the IRS since the EIN application for the trust was filed in 2021.

[PJhiker]

But, either way they are expecting a 1041 to be filed right? They won't distinguish or recognize the 1040 form Schedule D form he filed as the Trust sale and make that connection? The 8949 form does show the address of the Estate in the trust sold, and in one field it says "Inheritance" and shows the gross amount of the sale of the house. Will they distinguish that?

[tagteam]

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@PJhiker wrote:

Will they distinguish that?

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Probably not because the 1099-S was issued to the trust with the trust's EIN.

This scenario could be explained, however, if a letter is received from the IRS. Regardless, the optimum would be to file a 1041 for the trust.

Who initially filed the SS-4?