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

[PJhiker]

Can it be explained by me on a form when I file or can it also be explained by a phone call?

[PJhiker]

My brother I assume filed for the SS-4 as the Successor Trustee. I can't imagine anyone else would have.

[tagteam]

If your brother filed the SS-4 as trustee, I am not sure why anyone else (including you) would receive a letter from the IRS.

In other words, it would be your brother who would have to explain how the transaction was handled in terms of federal income tax reporting (or why a return was not filed and/or if tax was assessed).

[PJhiker]

Oh yeah. I did not receive an IRS letter. My brother just send mea photo of the one he got. I forgot to mention this which is probably important. My brother never got a Trust Account and instead put the bank account money from my dad's accounts (nothing really in interest on those) and the money from the sale of the house into his own personal account, which I believe was commingling right? But, could it account for why he is not and did not file the 1041 and get the K-1 forms and instead did a Schedule D 1040 form?

[tagteam]

What does the letter your brother received from the IRS say, exactly?

Technically, he commingled funds that belonged to the trust with his personal funds, but it does not appear as if he misappropriated the funds (i.e., you apparently received your share).

[PJhiker]

It's just and approval letter of the EIN number he got assigned for the Trust. And, it states "Based on the information we received from you or your representative, you must file the following forms by the date shown. Form 1041 4/15/2022."

But I think it is because he applied for the EIN in 2021, but because no capital gains or income was received in 2021 and instead in 2022 after the EIN was generated it would be due in 2023.

In regards to the commingling though, he wrote me checks from his personal accounts for my portion. Is that why he maybe instead filed with a Schedule D 1040 form?

Either way what do you think I should do? Try to get him to amend or try to contact the IRS and explain to them what is going on? I just want to ensure I am paying what I need to pay or he actually did pay everything on the capital gains and the IRS knows he did and they know my portion is within that payment he made on with his filing and how he did it.

[tagteam]

I suppose (but quite obviously have no idea) that he thought it would simply be easier to report the transaction on his own return (1040) than bother with a 1041. The is the case, of course, but it was not exactly the proper way to handle this scenario.

There is most likely not much you can do at this point since (a) you cannot force your brother to amend his own income tax return and, (b) you are not the proper party to file the 1041 (which would entail paying additional tax on top of the capital gains tax that your brother already paid).

The approval letter for the EIN is not what I had in mind when you indicated a letter was received. I initially thought it was a letter inquiring as whether a 1041 had been filed and if not, why not (although it may be a bit early in the 2023 tax year for that letter to be generated). 

[PJhiker]

Oh gotcha. And, also we live in a weather affected county in California and the tax deadline actually got pushed back until Oct. 15 for us.

With that said, if everything is just left as is, and I don't seek for him to amend anything or get a lawyer to try to make him do it properly what should I do in regards to taxes?

I actually took 2022 off work so have no reportable work income and basically did some stock stuff where I broke even for the most part even. My portion of the capital gains on this would have been lets say around $3k. I was told by a tax person the local H&R Block I should not worry about reporting anything because in my situation he paid all the Capital Gains.

I mean I will report my stock stuff, but will the IRS wonder where I got the money to do that and then do I think would have to go back and fish through him not doing the 1041 etc. and explain why I did not get a K-1 etc? I just want to get it over with and do everything lawfully in regards to the federal and state taxes.

[tagteam]

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@PJhiker wrote:

I was told by a tax person the local H&R Block I should not worry about reporting anything because in my situation he paid all the Capital Gains.

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What you were told is true, of course (your brother did pay the capital gains tax, or at least he reported all of the gain on his 1040), but a 1041 was never filed, which is the primary issue here since the IRS may be looking for one based on matching the 1099-S to a tax ID number.

You can probably safely forget about this situation, at least unless and until your brother receives a letter from the IRS (which, again, may never arrive). If your brother does receive such a letter, then it is in all likelihood his problem.

[PJhiker]

Do you think perhaps it would be wise of me to call the IRS and state and explain to them the situation and give relevant EIN numbers etc. and explain he paid my capital gains on it to be safe? One of my main goals is to be free and clear of him as soon as I can and not have to deal with him if say the IRS asks questions months from now or even later. 

It's a toxic relationship and not healthy for me.

[tagteam]

If you feel that strongly, then it would be wise of you to consult local legal counsel. 

Again, you are entitled to an accounting as a beneficiary and the trustee should have to bear all legal expenses in the event he fails to provide you with one.

[PJhiker]

Ok, thanks. I'm going to call the IRS on Monday and the state and just be totally transparent and ask them their advice and if I am ok. I'll give them the EIN and 1099-S info. and my brothers information with the 1040 Schedule D form and 540 C-1 Form from the state. That way they know I'm being open about the mixup or whatever it is.

[tagteam]

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@PJhiker wrote:

Ok, thanks. I'm going to call the IRS on Monday and the state and just be totally transparent...

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I can't predict precisely what the agent is going to tell you, but chances are it will be something along the lines of, "your brother needs to file a 1041".

[PJhiker]

Ok, and then I will ask if they have received his filings and when and if they would notify him of that.

[VolvoGirl]

Gee I wouldn't give the IRS any info they didn't ask for.  If your brother is the Trustee he is the one to deal with the IRS.  You might want to stay out of it.  Don't go looking for trouble.  My husband was the Trustee for his parents trust.  But he died just when he was closing the trust.  One of the beneficiaries is trying to sue him for more.   The accountant said since I am not listed I don't have anything to do with it.