Why is the 1099-DIV nominee adjustment applied to both ordinary dividends and capital gains as nominee distributions?

[garys_lucyl]

I am trying to allocate a nominee distribution for a 1099-DIV on a decedents tax return.  I have applied an adjustment on the dividends based on ordinary dividends received after date of death.  However, when reviewing the Schedule B, the amount for the Nominee Distribution on line 5 is not what I entered.   A portion of the amount has been applied to line 2a - capital gains distributions on Schedule D.  Schedule D, line 13 shows a lower amount than I entered for the 1099-DIV and there is a related  explanation statement showing the nominee distribution for capital gains for that line.   The Schedule B and Schedule D nominee distributions do add up the amount I entered.

In this particular case, the capital gains distributions were received in the account prior to date of death and there is no nominee distribution.   I tried to override it but got an error that line 13 should not be overridden.

I cannot find any reasoning to this allocation in the IRS instructions?  Why is the adjustment that was entered allocated against both items (ordinary dividends and capital gains distributions)?  How is the allocation calculated?

[Anonymous_]

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@garys_lucyl wrote:

How is the allocation calculated?

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This is in the On Demand Tax Guidance:

TurboTax assumes you want to adjust the total income from dividends and capital gain distributions reported on your 1099-DIV by the dividend adjustment amount you enter. If that is NOT how you want to handle this adjustment, select Back, adjust the amount of each separate income item, and uncheck the adjustment choice. Be sure to attach a statement to your return explaining each adjusted amount.

[garys_lucyl]

Thank you for the response.  As the adjustment question only has one input field, this part of the software is somewhat confusing.  The 1099-DIV in question has sources for many lines aside from dividends (1a,b) and gains (2a).  I have values on Line 5, 11 and 12.   I have calculated the correct values for values prior to date of death and post-death.  Since there is no way to attach a statement and file electronically, must I file on paper, or just use the manually adjusted values and if IRS has questions they will send a letter?

Maybe a better question is if the IRS requires that all values on 1099-DIV form be allocated to decedents return and estate EIN return?  Or is this primarily for dividends (1a), and the rest of the values (1b) don't need to be adjusted?

[Anonymous_ · Accepted solution]

Personally, I would print and mail the return with the statement attached. However, your alternative solution is probably not unreasonable, particularly if the dollar amount is not a huge figure.

With respect to dividends and qualified dividends, those should be allocated correctly, if at all possible.

[gregglee]

I know the quesiton was not new,  but  I just ran into the same issue.and found with search.   Here's an alternative method to get around the problem.     

In turbotax manually enter the 1099 DIV in two parts.  One contains only the CG entry (for tax return this means only LT CG).  The other contains only the Dividend entries (which for tax return includes Div and ST CG).   Make the correct adjustment in each part.     I append the 1099  "reveived from" name with CG and DIV to avoid duplicate names.              

I  have been using this approach for years for similar circumstances.  e.g. separating adjustments to tax exempt and taxable interest. 

Step by step can be opaque to on details so I  check result using forms view.               

[yesimk]

Hi,

I have been looking for a solution for a while now.  Did you try this, does it work to enter two separate 1099-DIVs  as Dividends and Capital Gains for the same 1099-DIV? 

How to treat box 11 and box 12?  Thanks a lot.

[DianeW777]

You can simply enter one 1099-DIV with the amounts that belong to you, the taxpayer, without using the nominee action. Simply issue the nominee distributions on a new Form 1099-DIV using the following steps.  This will eliminate any question at the IRS.

Use the following nominee procedures to assign the portion of the income being reported by the person whose SSN is not on the tax document.

Nominee Returns.

Generally, if you receive a Form 1099 for amounts that actually belong to another person or entity, you are considered a nominee recipient. You must file a Form 1099 with the IRS (the same type of Form 1099 you received).  You must also furnish a Form 1099 to each of the other owners. 

File the new Form 1099 with Form 1096 (this is a transmittal for the 1099) by mailing to the Internal Revenue Service Center for your area. (Provided on the Form 1096)

• On each new Form 1099, list yourself as the payer and the other owner as the recipient. On Form 1096, list yourself as the nominee filer, not the original payer.  The nominee is responsible for filing the subsequent Forms 1099 to show the amount allocable to each owner.

The forms filed with the IRS should be the red copy so if you don't have a color printer, go to the IRS website and order the forms here: 

• Form 1096-Transmittal 
• Form 1099-DIV 2020

If you choose here is the TurboTax program for creating 1099s.

@yesimk

[gregglee]

In the estate tax return lines 11 and  12 are zero so I didn't have to work on that.  When  I mentioned previous use for tax exempt interest I was talking about my personal returns.    

[gregglee]

I thought of doing this split and it does deal with all lines the samer way.   The advantage of spliiting the way I described reports the exact amount reported by the 1099 DIV issuer.  I know from experience that the IRS might run an audit (by computer I assume) of what's on the tax return versus what the 1099 issuer sends.   

I couiuld be wrong, but I felt that non-matching  values would more likely lead to questions askng for response.   In which case the answers could be long.                 

Since no 1099 issuer has been willing to issue separate 1099s for before and after death, it has been tedious to get daily info to make the correct split.  In one case the institutiion didn't provide monthly, let alone daily in the 1099 suplemental info, so I had to turn to daily on-line acocunt history, which does not include all the lines on the 1099s, or doesn't exactly match 1099s, when adjustments are made only for tax reporting.  Several long pnone call to get help to figure out how to do it correclty.   (The reps I spoke to knew no alternate approach. )        

[gregglee]

I forgot the first part of the question.   Yes the Div verus CG split of 1099s did work, by which I mean Turbo tax accepted the separate 1099s and  adjustments and kept everything where I intended on the tax forms.