A "twist" on receiving a 1099 INT for a deceased person

[marktm200]

The situation in a nut-shell:

-  During the probate of my Father-in-law's Estate it was discovered that an ibond of significant value was possibly lost, or could have been cashed out - we could not find records.

-  We applied to Treasury Direct to determine the status of the ibond

-  Months later, we were told it had not been cashed out and they sent the full amount with interest.  However this was in the year after the decedent's "final" taxes were submitted (for 2022)

- We received a 1099 INT from the Treasury Dept. for tax year 2023 under the decedent's SS number, but also with his Daughters name listed as the executrix of the decedent's Estate.

- This would be the only income that could be attributed to the Estate as no other "assets" had any income.  The "Estate" has two equal beneficiaries.  

Question is how to handle this 1099 INT in the 2023 tax year in the most economical, and simplest manner?

Thanks

Mark

[DaveF1006]

Since you filed your final return in 2022, I would suggest you amend your 2022 Estate Tax Return to include the 1099 INT interest form, even though it was received in 2023. As you prepare your amendment, you will be asked why you are amending and you can state that this was income received after the final estate was prepared.  This should be sufficient for reporting this income.

[marktm200]

David;

I have not yet filed an Estate (1041) return as there was no income to report.  The only tax report made has been my Father-in-laws final return and this 1099 INT came well after his was filed.  So i wonder if this 1099 INT that has is SS number would require either his amended return or a new 1041 Estate filing.  I have home and business, so it appears I'd have to purchase the TT business to do the filing  and use the Estates EIN even though his SS number is what appears on the 1099 INT?

Thanks for your rapid response

Mark

[marktm200]

This IRS explanation is the closest I can find in the supplied link:

"U.S. savings bonds acquired from decedent.

 If series EE or series I U.S. savings bonds, owned by a cash method taxpayer who reported the interest each year, or by an accrual method taxpayer, are transferred because of death, the increase in value of the bonds (interest earned) in the year of death up to the date of death must be reported on the decedent's final return. The transferee (estate or beneficiary) reports on its return only the interest earned after the date of death."

As the decedent's final return was submitted before the ibonds were "found", this seems to insinuate that his final return would need to be amended and the two beneficiaries would need to pay for the tax consequence.  Note that the total interest amount when cashed out reported on the 1099 INT has no indication of interest before and after death.

Is this and acceptable method by the IRS?  

[marktm200]

An update - the 1099 INT has the last four digits of the Estate's EIN - so it appears I need to file a 1041.

It's very simple as there is only this 1099 INT and the cost of the probate attorney and a few "qualified" deductions that I've identified.  As I have TT home and business and would need to update to TT business for an Estate filing I'm wondering if I should simply mail in the 1041 form or is there an advantage to upgrade.  I bought the Desktop version at Sam's Club, so if needed how can I upgrade?

[RobertB4444]

Open your return and there should be an upgrade button in the bottom right hand corner.  If not then click on 'Help' and the upgrade option is there as well.

Efiling processes the return faster but otherwise there is no real advantage to efiling over mailing the return.  You will need to complete the 1041 before you or your sister are able to complete your personal returns.

@marktm200 

[marktm200]

Another "twist" in this journey;

Home and Business and Business are on different platforms, so I was told I could not "upgrade".  The "help" gal tried unsuccessfully (as I had tried) to find an "upgrade" path from H&B and eventually found that they are not compatible.

I purchased the Business to complete the 1041 Estate filing and found it very intuitive and helpful as it both files the 1041 AND provides the K-1 forms and the letter to beneficiaries to make it all a neat package.

From an Estate filing perspective, well worth the extra $$'s, but now having two separate tax filing platforms can be a bit confusing - short cut icon is the same!  This being the only year with these issues - it's OK!

One additional question.  When asked about distributions to the beneficiaries, I chose to include any disbursements that was related directly to the iBond amounts (used the total iBond, less expenses and divided equally to the two beneficiaries).  There was no "help" pop ups, and the 1041 tax ($0) and the  K-1 tax consequence did not seem to matter  anyway as long the beneficiary disbursements were larger than the interest income.  

Appears I'm done!

[ron6612]

I received a check that included 1099 interest income in 2025 for my mom who passed away in 2020 and in which a final 1040 and 1041 trust income return was filed. The payer, NJ Unclaimed Property says that the 2025 1040 will go to the social security umber of my mom and that can’t be changed. The IRS said that the 1099 should go to the estate ein number and another final 1041 should be filed for 2025. But, NJ won’t change it for 2025 tax reporting. The interest income is $5,000 and legal expenses are $3,500 (which would be deductible on 1041).  What do you think?

[DavidD66]

You should file an amended 2020 Form 1041 and include the interest and the legal fees.  You do not file a personal tax return (Form 1040) to report income received after death.  Another option would be to report the interest income on your personal tax return (if there are other heirs, you would split it).  You wouldn't be able to deduct the legal fees.  The former is the correct way (amended 1041), the later a CYA way to ensure the income is reported.  

[ron6612]

Thank you. Yes, the irs said to just file another 1041 showing only the new income and expense. However, the 1099 would be to the ss number of my mother not the estate ein number?.

[DavidD66]

You don't need to worry about the EIN on the 1099.  It is for a deceased person and the amount is not significant.  It will go unnoticed by the IRS.  And if it were, you would be able to show that it was reported on the amended Form 1041.  And if your mother were alive, the amount, $5,000 would be below the filing threshold, so they would expect a return to be filed just for that.  Just report the interest on the 1041 as if you didn't receive a 1099.   

[ron6612]

Thank you, so I would just do a simple 1041 next year and only show those two items?  IRS said it would not be a problem to mark the simple filing box and mark it once again as Final?

[PatriciaV]

Yes, you can file Form 1041 next year to report the additional income and mark it as final. If you receive a letter from the IRS, you can respond with the reason for the additional return.