Income in Respect of a Decedent

[mark1263]

Hi,

Our father passed in December 2020 and I filed a FInal 1040 on his behalf and Form 51. 

How do we handle Interest/Dividend income received in 2021 under our father's social security number (about $3,400) and an ETIN number (about $1,200), which we were required to establish by some financial institutions as successor trustees to the folks' living revocable trust?

My brother and I were named beneficiaries and/or successor trustees on all accounts.   We eventually distributed all the assets in my father's accounts to our respective individual accounts and received 1099s for income/dividends under our own social security numbers covering the time period after the accounts were closed.  But, while the accounts were still open, we received 1099s under my father's SSN and the ETIN we were required to establish to distribute assets.

I understand this situation to be called "Income in Respect of a Decedent" and is addressed in IRS Publication 559, but I don't know how to handle it on our taxes and the IRS does not provide technical assistance in this area (I called them and they said we're on our own).

Thanks much,

mark

[JulieS]

Yes, technically this is income in respect of a decedent, but you can only file one final tax return in the year of death. 

For income in respect of a decedent, received in a later year, it should be reported on the return of the person or entity that received the income.

Here is an excerpt from Publication 559:

"Income in respect of a decedent must be included in the income of one of the following.

• The decedent's estate, if the estate receives it.

• The beneficiary, if the right to income is passed directly to the beneficiary and the beneficiary receives it.

• Any person to whom the estate properly distributes the right to receive it." -IRS

So unless the estate received the income, the beneficiaries will need to report their share of this income on their own tax returns.

You can report the income as if it were in your own name on your tax return. 

[mark1263]

Thanks.

Yes, it makes sense for the beneficiaries to declare the income.  However, bcause the 1099s are sent to the IRS and they won't match up with those under my name, do we need to attach a note or do anything special to alert the IRS that the beneficiaries are declaring the income?

thanks again

mark1263

[AmyC]

Yes.  Two options for 1099s sent to the estate:

• You have an estate ID. You can do an estate return, report the forms, and issue the k-1 to the beneficiaries to put on their returns. Use the Business Software for Estates
• You can file the necessary /same 1099 forms from the estate to the nominees. Topic No. 403 Interest Received states:

There are times when you may receive a Form 1099 for interest in your name that actually belongs to someone else. In this case, the IRS considers you a nominee recipient. If you received a Form 1099-INT or Form 1099-OID that includes an amount you received as a nominee for the real owner:

• See "Nominees" in the Instructions for Schedule B (Form 1040) for how to report the interest on your income tax return.
• You must then prepare a Form 1099-INT or Form 1099-OID for the interest (or OID) that's not yours unless that interest (or OID) belongs to your spouse. Send Copy A of the 1099-INT or Form 1099-OID and a completed Form 1096, Annual Summary and Transmittal of U.S. Information Returns to the Internal Revenue Service and give Copy B to the actual owner. For more information on these requirements, refer to the Instructions for Form 1099-INT and 1099-OID 

Once your have filed either the 1041 estate or the 1099 forms, there will not be anything else needed to send to the IRS.

[mark1263]

Thanks for the replys.  However, there is No estate to speak of-- all assets/income were distributed to the two beneficiaries in 2021, with a Final, Form 1040 filed in 2020 -- so I don't understand the need to file a Form 1041 or to issue new 1099s (nominee recipients) to the beneficiaries.   The two beneficiaries will declare all the income received under our fathers SSN and the ETIN for the successor trustees.

thanks again

[ThomasM125]

Since there was more then $600 in interest income reported with the estate's federal ID number, an estate return would be required to report that income, even if it was liquidated during the year. So, the proper thing to do would be to prepare an estate tax return and K-1 schedules reporting the income distributed to the beneficiaries.