You’d have us remove those post-death payments from the guy’s final 1040 (2019). Fair enough.
But then you’d have us add them to the 1041 for 2019. At which point, you make the simple statement:
The deadman’s estate/beneficiaries would get a credit/deduction if and when it applies ie.. as the owner of the income.
Unfortunately, it’s not that simple. You’d have to walk us through the subsequent reporting that would take place, for each possible scenario. One scenario is that all the income (including the erroneous income) for 2019 is trapped on the Form 1041 and all tax is paid by the estate. So what happens in the year of repayment? I suppose the estate would take a deduction. What kind of deduction is it? Would it pass through the beneficiaries? If so, would they get any benefit from it? Assume the year of repayment is also the final year of the estate. Now assume we take a credit in the final year of the estate. But then we wonder if we can close the estate, because if the refund is made, it will come to the estate, and it will then have to be distributed to the beneficiaries. Further, you might have a final year 1041 with nothing on it except the credit. I’m not sure I love that position. If the IRS denies the credit, now we have a bunch of back-and-forth with the IRS. Similarly, what if all the income in 2019 (including the erroneous income) passed through on K1’s. What would you suggest there? Seems the estate wouldn’t be able to take a credit, because it paid no tax in 2019. Would you advise each beneficiary to take a direct credit on his or her 1040? Seems like trouble brewing. Or, would we be back to the deduction route, with the hopes that it passes through as something meaningful? Then there’s the scenario of some 2019 income passing through on K1’s and some being taxed to the estate.
These gets even more complicated if you are proposing that the estate pick up erroneous income for years after the decedent died. If extra pension payments were made in those post-death years, the 1099’s would have been issued in the decedent’s SSN. So why one would propose this “just report it on the 1041” route is highly suspect.
Granted, we don’t know all the facts. We don’t know if this estate (really a trust) will continue on or not. We don’t know if there have been any distributions to beneficiaries. And we don’t know if Sec 645 is at play.
But even not knowing that stuff, in addition to it being the wrong reporting route, it is likely an administrative nightmare and an anti-beneficiary position.