Nominee Distributions for Multiple Types of Dividends

[marie2023]

My mother passed away mid-year and I have allocated her interest and dividend income properly between pre and post date of death.  I have entered the amounts received post death in turbo tax as nominee distributions to be reported on her estate income tax.  There are multiple line items, i.e. ordinary, qualified, exempt and non-dividend distributions (i.e. lines 1a&b, lines 12 and 13 and line 3).  Understanding that line 1b is a subset of line 1a and line 13 is a subset of line 12, I have not included adjustments for these lines but have reported totals for lines 1a, 3 and 12 in total for each of the 1099s received from her broker (multiple accounts).  The total of the amounts reflected on Schedule B do not match what I have entered on the 1099 DIVs.  The were no capital gains this year.  As an aside the 1099 nominee distribution amounts reported for interest are appropriately reflected on Schedule B. 

Hopeful that someone can help me understand how TT (Deluxe desktop version CY2025) is allocating the dividend nominee distributions and if anyone has a solution to this issue. 

As an aside the links in the 1099 forms do not provide any details on this, at least in the version I am using.

Will appreciate any insights that the community can provide.

[Mike9241]

TurboTax has a flaw that has existed for decades. If you list multiple categories 100% on a 1099-Div and then use the nominee adjustment line to reduce the gross to taxable amounts,TurboTax prorates that nominee adjustment proportionately among the various categories.

as an example, say that the 1099-Div shows $10,000 in total dividends and $6,500 in qualified dividends. Based on actual calculations, taxable dividends should be $8,000, and qualified dividends should be $4,875.

A taxpayer would likely enter $10,000 as total dividends, $6,500 as qualified dividends, $4,875 as adjusted qualified dividends, and $2,000 as nominee adjustment and think everything should be fine.

What TurboTax actually shows, ordinary dividends line 3b of $8,000 perfect. Qualified dividends $3,900 OOPS. $4875 was entered. Why did Turbotax calculate $3,900! Here's the inaccurate calculation TurboTax does. $8.000 taxable dividends as adjusted divided by $10,000 total before adjustment = 80%. 80% times $4,875  = $3,900. The TurboTax accuracy guarantee wouldn't apply because taxes could be overpaid due to the understatement of qualified dividends. This is just the beginning of the horror story. Add $3,000 of capital gain dividends, of which $0 apply to the taxpayer. The taxpayer enters $3,000 to match the 1099 they received.

What TurboTax calculates based on the above entries, ordinary dividends $8462  =$11,000/$13,000 = 84.62%. Qualified $4,875 * 84.62% = $4,125. Capital gains $2,538 (84.62%). There is a workaround for the capital gain dividends by putting them on a separate 1099 and listing the nominee adjustment as $3,000. More categories can result in even weirder results.  i have no perfect solution for the qualified dividend adjustment because they can not be put on a 1099 of their own. However, you can force it using the first example by calculating what number, when multiplied by 80% result in 4875 or mathematically 4875/.8=6094

good luck. 

[marie2023]

Thank you for your reply, the ordinary dividend amount does not sum correctly but not too far off, likely due to the other line items being relatively small (generally non-taxable for federal).  I really continue to struggle with how to adjust to correct for the inappropriate TT treatment (i.e. under-reporting) of the qualified dividends.  The only way that I have found is to open the 1099 DIV worksheet in forms and in Box 1B on the "adjusted qualified dividends" line input a huge amount (hit of miss) until I get the appropriate amount reflected on 1040 line 3a.  I included a note that this was to correct for the TT calculation issue for the nominee distribution.  The amount I needed to include on the adjustment line exceeded the amount of the qualified distributions, so this seems totally inappropriate to me.

I would really appreciate more input from the community on this issue, need to resolve fairly quickly so the estate income tax return can be completed.  Thanks in advance.

[M-MTax]

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@Mike9241 wrote:

as an example, say that the 1099-Div shows $10,000 in total dividends and $6,500 in qualified dividends. Based on actual calculations, taxable dividends should be $8,000, and qualified dividends should be $4,875.

A taxpayer would likely enter $10,000 as total dividends, $6,500 as qualified dividends, $4,875 as adjusted qualified dividends, and $2,000 as nominee adjustment and think everything should be fine.

What TurboTax actually shows, ordinary dividends line 3b of $8,000 perfect. Qualified dividends $3,900 OOPS. $4875 was entered. 

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Yeah, I don't get it; something is indeed awry. If there is a $2,000 nominee adjustment why is the user entering $4,875? The correct result should be $5,200 for qualified dividends since that's 20% less than $6,500 in the same manner as $8,000 is 20% less than $10,000.

On a test return, I entered $10,000 in ordinary dividends with $6,500 in qualified dividends and a $2,000 nominee adjustment. TurboTax got the math correct as it showed $8,000 in ordinary dividends on the 1040 and $5,200 (which is $6,500 less 20%) as qualified dividends.

I must be missing something but I don't know what that would be and the above calculations appear to be correct (at least given the figures entered into the program).

[marie2023]

Sorry for the delay, I do appreciate your response.  The issue is that TT is calculating the nominee distribution for the qualified distribution versus allowing me to input what that should be from the sum of amounts received after my mother's death.  The qualified nominee distribution/ percentage is different from that of the ordinary dividends.  The ordinary distribution amounts are correct but the qualified distribution amounts are understated.  Please advise, how does one correct for this and still get past TT's edits for a complete tax return?

[M-MTax]

@marie2023 

Can you provide exact figures for this scenario? Your fact set is kind of hard to follow since you're using "distribution" when I think you mean "dividend" and I'm unsure why you have to enter a different figure into the program, which should provide the correct figures in terms of division.

EDIT: In the event the total nominee distribution is wrong due to an error in calculating ALL of the income items, including the ordinary/qualified ratio, then the only solution would be to use forms mode and enter the figures on the forms per your calculations. Unfortunately, that might require an override (or more than one) and you would have to print and mail the return. There is no other solution for that scenario.

[marie2023]

There are several 1099-DIVs which I have split to segregate ordinary and exempt (lines 1a and 1b) from  Exempt Interest Dividends and Specified Bond Int. (lines 12 and 13).  The ordinary dividends sum to $21,322 where $9,793 is nominee distribution, leaving $11,529 for personal taxable dividends, which TT accurately reflects.  The qualified dividends sum to $5,784 with $2,077 as nominee distributions leaving $3,706 for personal taxable distributions, whereas TT is reflecting $3,243. Concerned about this understatement.

Also, I see no rules as to how to apply nominee distribution adjustments where there are amounts that are federally tax free and also PA tax free, in different amounts. I have entered the amounts as reported on the broker 1099 DIVs and included the full nominee distribution amounts but perhaps these need to be split between the personal vs estate amounts prior to entering in TT.  The PA state filing carried over from the federal form has errors on this area that I cannot seem to correct for. 

As an aside, I agree that it appears that over-ride is the only answer.   This does necessitate paper filing but that is required in this particular situation anyway, just trying to get it as accurate as possible before I do so.

Thanks for your thoughts on this, will welcome any additional insights.

[M-MTax]

@marie2023 

I think you're going to have to use forms mode and enter the figures there.

I tried using your numbers on a test return and can see what the program is doing (sort of). However, the problem is I'm getting $11,529 as the personal taxable amount on the 1040 (test return) and $3,127 as the qualified dividend figure. 

$11,529/21,322 equals .54 and $3,127/5784 also equals .54 so that's how the program is handling the numbers (assuming you're using 9,793 as the adjustment figure). I'm just not sure how you're getting $3,243.

[marie2023]

Thank you for your help with this.  It is unfortunate that there is no visibility in the back end of turbo tax as to how they are calculating these values.  Really, there should be an opportunity for one to adjust each individual dividend line item for the nominee distributions amount.  Likely the difference that you are seeing is that TT is somehow considering 1099 div lines 3, 12 and 13 somehow in this calculation. No idea. 

This is not the first time that I have encountered bugs/issues with the software this year and think it may be time to look elsewhere, after many years of being a loyal user have found that they cannot handle the complexities of current tax code.