Client died in 2018 rec'd 2020 tax forms

Technical topics regarding tax preparation.
#1
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A client passed away in 2018. For 2019 we did a form 1041 for the income received by the trust.

For 2020 we received a 1099C for credit card debt cancelled. A 1099 for a small bank account and a 1099 from a brokerage account. All 3 came in the social security number of the client who passed away. Total income of about 6K

I'm trying to figure out the best and easiest way to handle this for the daughter.

Instead of her trying to have the tax id number changed on all 3 forms and I'm not even sure about the 1099C if that can be changed. Would it be possible to put every thing on a 1040 for the person who died? There would be no tax liability since the income is only about 6K

Thanks for your help
 

#2
sjrcpa  
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You can't file a 2020 1040 for someone who died in 2018.
This is estate income reported on an estate 1041.
 

#3
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That's what I was thinking but I was trying to avoid the deceased taxpayer receiving a CP2000 a year from now for not filing.


I'm going to advise the daughter to have the 1099s reissued under the trust tax id number if possible

Would the 1099C be reported on the 1041 as income? This will then result in a tax liability on the 1041
 

#4
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I generally agree with reporting income associated with the tax ID then backing it out to avoid a matching issue. However, do you think a death certificate would deal with the IRS letter just as quickly?
 

#5
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davidlat wrote:That's what I was thinking but I was trying to avoid the deceased taxpayer receiving a CP2000 a year from now for not filing.


I'm going to advise the daughter to have the 1099s reissued under the trust tax id number if possible

Would the 1099C be reported on the 1041 as income? This will then result in a tax liability on the 1041


Sounds like the estate has never been closed with bank and broker account still in decedent's name.

COD income goes to estate; subject to insolvency exception.

Any income distribution deduction possible here; actual or deemed?
 

#6
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Curious how a cp 2000 for decedent would look. $6,000 of income offset by standard deduction?
 

#7
sjrcpa  
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IRS knows the person is dead.
Payor is not going to change it to the trust ID number. If they had a record of it being titled to the trust they would have issued the 1099 to the trust.
Personal Rep did not do their job and get accounts transferred in a timely manner.
Did anyone get the brokerage account and bank account income? Or is it still in the accounts?
 

#8
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Broker accounts and bank interest is a minor amount. Money has been distributed.

My main concern is the 1099C for the debt cancellation. Seems unfair for the trust to have to pay taxes on the cancellation but maybe that's jus the way it goes?
 

#9
sjrcpa  
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You keep saying trust. Was this debt in the trust?
We are thinking the COD income is for the estate.
It's taxable to the estate unless the estate was insolvent.
 

#10
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davidlat wrote:Broker accounts and bank interest is a minor amount. Money has been distributed.

My main concern is the 1099C for the debt cancellation. Seems unfair for the trust to have to pay taxes on the cancellation but maybe that's jus the way it goes?


There is another side to this.

The estate is responsible for the liabilities of the decedent.

Heirs are basically entitled to assets in excess liabilities.
 

#11
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sjrcpa wrote:You keep saying trust. Was this debt in the trust?
We are thinking the COD income is for the estate.
It's taxable to the estate unless the estate was insolvent.


I am wondering if all assets had been distributed before a unknown debt was cancelled per 1099-C; would the estate therefore be insolvent immediately before cancellation since all assets had been distributed?

Would the COD then be excluded?

Could the IRS come after heirs and or PR under section 6901?
 

#12
sjrcpa  
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You don't get out of a liability for debt by distributing all of the assets before paying off the debt. The PR and the distributees could be held liable for it.
However, if the debt was unknown does that change anything? I don't know.
Did the creditor file a claim during probate?
 

#13
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Hard to imagine that credit card co. was not sending out statements that should have reached the PR.
 

#14
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Things it might be nice to know.

How was the income from these accounts reported in 2018?....2019?

Is there a pour over will? Was probate opened?

Have the assets been collected?

Has the executor verified that the debt existed?
 

#15
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Small estate value of assets 32K

Income was reported on 1041 for 2018 and 2019 for the brokerage account and small savings account. All assets distributed to the daughter.

Credit card bills were being sent to the deceased mothers house. Daughter says she was unaware of the debt. Debt cancellation was 5k
 

#16
Dennis2  
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You seem to be saying that
1. a final 1041 should be filed for 2020.

2. daughter was enriched by cancellation of debt.
 

#17
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Yes I will file a final 1041 for 2020.

My question is do I put the 1099C on the 1041? This will cause the 1041 to have a tax due.

I did not prepare the 1st year 1041. The previous accountant elected to have the trust pay the taxes on the 1041 instead of passing the income through to the beneficiary
 

#18
sjrcpa  
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Income and deductions pass out to beneficiaries on a final return.
 

#19
Dennis2  
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Income and deductions pass out to beneficiaries on a final return.


No.

If income less deductions is negative, the excess will pass to beneficiaries.

There is a deduction for any amount of distributable net income actually distributed. No distribution no deduction.

In this case deductions can reduce the amount of COD income recognized but the estate is a taxpayer.
 

#20
sjrcpa  
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I stand corrected.
 


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