Distributing taxable interest to other estate heirs

[jlr00721]

As executor of my mom's estate I had to pursue a refund from a tax return from the year before she died.  There are 4 heirs.  The refund finally arrived and includes $3000 interest.  I will be getting a 1099 for that interest on my SSN.  How do I distribute responsibility for that interest to the other 3 heirs.  All 4 of us will be receiving 1/4 of the refund.  

[Mike9241]

File a new Form 1099-Int  with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. On the 1099, list yourself as the payer and the estate, as the recipient. On Form 1096, list yourself as the nominee filer.

I think to be technically correct the check should be deposited in the estate's bank account and then a check is written to each beneficiary for 1/4 the amount. when filing the 1041 you take a deduction for distributions to the beneficiaries.

if it was a federal tax refund there should be no additional issues

if it was a state income tax refund then there may be an issue as to whether any part is income in respect of a descendant and therefore reported as income on the 1041 and treated as distributed to the beneficiaries. 

[dmertz]

I'll echo Mike9241, concern:  Why isn't this going to be shown on a Form 1099-INT under the estate's EIN?  A would expect this to be income to the estate, reportable on the estate's Form 1041 and shown as Distributable Net Income passed through to estate beneficiaries on Schedules K-1.

[jlr00721]

I'm pretty certain that the 1099 from the IRS will be to me since the "person claiming the refund" on the 1310 was my name and SSN.  Also, the estate's bank account has long been emptied and closed (the existence of the refund was not detected until long after the we though everything was done, and it took the IRS over a year to respond to the 1310 submission).   It will be a hassle and expense to 1) open a new estate account and deposit the check, 2) transfer the 1099 to the estate, 3) generate 4 K1s for the four heirs.  I'm hoping that there is a proper way to simply create 3 1099s to transfer the 1/4 of the interest to my 3 siblings.  Comments? 

[jlr00721]

I'm pretty certain that the 1099 from the IRS will be to me since the "person claiming the refund" on the 1310 was my name and SSN.  Also, the estate's bank account has long been emptied and closed (the existence of the refund was not detected until long after the we thought everything was done, and it took the IRS over a year to respond to the 1310 submission).   It will be a hassle and expense to 1) open a new estate account and deposit the check, 2) transfer the 1099 to the estate, 3) generate 4 K1s for the four heirs.  I'm hoping that there is a proper way to simply create 3 1099s under by own SSN to transfer the 1/4 of the taxable interest to my 3 siblings.  Comments? 

[NCperson]

@jlr00721 why can't this just be simple? if you are certain the 1099-INT is issued to you personally, why not simply distribute the money to the other 3 heirs as a YOUR personal gift and withhold tax at YOUR marginal tax rate.  Then you just report on your tax return and the heirs don't a have to report anything?

might not be technically correct, but the IRS is going to get its tax money. Hopefully heirs don't mind, given the expense it would otherwise cause to to it correctly

Or, as executor, just give each heir 1/4 and eat that tax yourself..... 

make it simple without unnearving the heirs...

[tagteam]

If the refund is from a return filed before your mom passed, then it's technically IRD since she would have received the refund (and interest) had she survived.

As a result, the interest would be income to whoever receives it. Since, apparently, that would be you at this point, @jlr00721, you can simply report it on your 1040 and indicate part of the interest was received as nominee for the other three beneficiaries (and then issue 1099s to them along with their share of the interest).

Alternatively, you could handle this scenario as @NCperson set forth; as a gift to the other three beneficiaries less any tax liability you actually paid after reporting the entire amount of interest on your return. The amount would be well under the annual exclusion so that should not be an issue.

[jlr00721]

I was thinking of along those lines as well.  

I'd probably do it this way:  create my return in turbo tax taking on all the interest myself, and then prototype a duplicate return as if I only claim 1/4th of the interest.  The difference would be my "cost" of doing so, and then use that amount as my expense as executor.  I'm certain that the expense of doing the K1 route would be higher.  

[NCperson]

@jlr00721 you can certainly go through that exercise, but the answer is likely to the  interest times your marginal tax bracket.  plus your state marginal tax bracket, if applicable. 

what do you mean your "cost" as executor 

[jlr00721]

Thank you @tagteam and @NCperson for the simplicity.  This leaves me with  TURBO TAX question.  I've been using Premier, can I generate 1099s from that. Or do in need Home & Business?  AND can I file using "Home and Business" for one year and then go back to Premier seamlessly.  Much Gratitude!

[tagteam]

@jlr00721 The product matrix (desktop) is at the link below.

https://turbotax.intuit.com/personal-taxes/cd-download

You can switch back and forth between products for different tax years but you would need Home & Business to access Quick Employer Forms to generate and file your 1099s (or create them on your computer).

[jlr00721]

SO HOW AND WHEN TO DO THIS:  If I receive the 1099 from IRS having $3200 in interest and then distribute 3/4 of that interest to 3 other heirs in the estate, how in Turbot Tax Home and Business do I produce the 1099s for the other heirs, AND ALSO, file with the IRS something to say that the interest has been passed on to others.  Is that something I can file in Turbo Tax Home and Business before the 1099 deadline?  Or do I just print them out and mail to the heirs and to IRS.   When is that deadline?   (or am I making inaccurate assumptions about the process) 

Thank you

[tagteam]

@jlr00721 

You will enter the 1099-INT in the appropriate section in TurboTax and then you will get the screens shown in the screenshot below.

You should probably let the other beneficiaries know how you are handling this situation and issue the 1099s before January 31st. 

[VolvoGirl]

@jlr00721   You have to wait for Quick Employer Forms to open, I do t know when.  Then.....

You can only prepare 1099Int & 1099Div online in Quick Employer Forms.  Here is the link...  EDIT link

 https://quickemployerforms.intuit.com/home 

If you have the Windows Desktop Home & Business program installed on your computer you get two ways to prepare W2s and 1099s.  But you can only prepare 1099-Int & 1099-Div using the Online Quick Employer Forms

Click the big blue button to Start a New Return or go up to File-New Tax Return.

Then on the next screen it asks What would you like to do?

If you get a screen with 2 choices, Check the second circle that says Prepare W-2s and 1099s for my employees or contractors.  Then that will expand and give you a choice to prepare them online or on your computer.  For 1099INT & DIV you need to pick Online (the first column).

[jlr00721]

Thanks TagTeam:   The problem with that solution is that I have to designate 3 people each of whom received a portion of the nomination from a single 1099.  That turbo tax (and IRS form) only has the ability to enter one adjustment and one person.  Someone said I could add additional lines to the Schedule B manually.  Still wanting to figure out the Turbo Tax solution before January...