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ebaines · Apr 5, 2014, 06:08 PM

My father-in-law passed away in 2012. We didn't get all his investment accounts moved into my mother-in-law's name until mid-2013. Because the estate was relatively small, with all going to his wife, we didn't bother with probate, so never filed for a TIN for the estate. For 2013 my MIL is filing her taxes as single, but we have two 1099's that are problematic - one in his name and one for a joint account for dividends paid prior to getting the account retitled in her name. These are not for huge amounts - one is for $38 and the other $123. I'd like to just include both on my MIL's income tax return, but does she need to file 1099's showing the dividends received by her spouse as nominee for her? Or given the rather small amounts and the fact that this is husband and wife can she skip that? If we do go the 1099 route, I know the deadline for issuing 1099's was February - is there a risk of an IRS penalty for late filing of the 1099, even though it would be my MIL effectively issuing the form to herself? That would seem a bit silly, but we're talking the IRS here. Advice on how to proceed would be appreciated, thx.

AtlantaTaxExpert · Apr 5, 2014, 06:32 PM

ebaines,

Really? You normally GIVE advice on issues like this.

ATE

ebaines · Apr 6, 2014, 08:31 AM

I know, I know. I'm actually looking for more practical advice than legal ... Any other ideas other than the one I suggest of issuing a mominee 1099 on behalf of my deceased FIL so that the income is reported on my MIL's tax return?

MLSNC · Apr 6, 2014, 12:58 PM

As a practical matter, I would just put the income on the return. In these cases I normally will keep a copy of Schedule B even if it is not required to be completed. Should the IRS send a letter regarding the amounts, you can tell them what happened and show them where it was reported. If the IRS tries to match up the 1099's to your father-in-law's return, the amounts will not exceed the filing requirement so I doubt you will get a letter.

I have filed 1099's late for clients (no matter what you do some people will not do anything until October). I have not seen one penalized (yet), but I always tell them they could be.

AtlantaTaxExpert · Apr 6, 2014, 06:42 PM

MLSNC's advice is sound and probably the best CoA, but an argument could be made that at least one of the 1099s (the one exclusively in his name) and possibly BOTH 1099s belongs to his estate and the estate should include the income on a fiduciary return (Form 1041).

Since these 1099s are the ONLY income for the estate, I suspect the fiduciary return would NOT be required, and hence the 1099s could safely be ignored and not reported on anyone's tax return.

MLSNC · Apr 6, 2014, 09:01 PM

I think you would have to report it. Since the income is in the MIL's account it has been distributed. Assuming the estate has no other deductions, the income would pass-through to the beneficiary on the K-1 because it was distributed (income distribution deduction) and would wind up on her return anyway. The income would appear to be less then the estate exemption on the 1041 and would not be taxable as you noted, except for the distribution factor.

AtlantaTaxExpert · Apr 6, 2014, 11:39 PM

I agree that the logical thing to do is to pass through the interest and dividend payments to the heirs, but in passing through the estate and being liable for the fiduciary return, it legally becomes NON-taxable income.

Again, I would recommend to ebaines to just have his MiL claim the income, but I believe my point above is valid AND legal.

ebaines · Apr 7, 2014, 05:39 PM

Thanks all. I'll go the 1099 route - seems like the safe thing to do, and given that we haven't gotten an EIN for the estate it's easier than having the estate file a 1041 and issue a K-1 to the spouse. Plus we've already filed the estate tax return form 706 - did that back in 2012 to preserve the rollover of the spousal estate tax exemption.