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TOPIC: And I thought all was behind me!

And I thought all was behind me! 1 year 2 months ago #1

I was given alot of information from Michael when I was trying to prepare my Dad's estate taxes, and my Sister's K-1's. My title was unreal50--I had to reregister, so now it's unreal again. I thought everything was behind us but now I have to see if there is ANYTHING I can do to prevent my Sisters from taking a huge tax loss. The only issue left was the sale of my Father's mobile home he had owned. I went to a CPA to have his 1041 done and our K-1's. The sale of the home is listed under interest income for the selling price of 16,193. I didn't pay tax on his estate taxes and we were left with 3,669 to claim in interest income listed in box 1. Now the huge problem for my sisters is--they both have always been able to claim the earned income credit do to taking care of their handicapped Grandkids/Kids and meeting all the other requirements it takes. Now this 3,669 under
interest income makes them 469.00 over the investment rule. I've did taxes before and never saw this--so don't know if this is new--or the ones I did just didn't have any (but I would have thought I would have saw the rule before) I called the CPA to see if the estate tax or the K-1's could be amended and haven't heard from her. But now since I've read just a little I've found I have some questions..It seems even if I would have paid the tax on the estate, I would have still had to give them the K-1's. Is this right? They wouldn't have to pay taxes on it, but it would still have to be reported and still make them fail on the investment rule. Then if I could amend the K-1's to make them under the 3200.00 limit and I add the rest to mine--is that even possible? Since they are taking 5000.00 to 7000.00 hits each I'm sure they would rather give me or ? 400.00 to qualify. But then I would have to read how this would effect me in the long run even if it could be done. BUT the last question--how is the sale of his mobile home interest income for us? Or even on his 1041? It's not really investment income, but when I do the worksheet for the rule for EIC it makes it that because where you have to claim it. I don't think the other codes matter on the K-1, but I will put them. Box 12--Code A---0. Box 14 Code A---4. Next line under the 14 (A) Code E
3,669.... I just feel awful about this--is there anything I could of did different? The CPA? Do you know anything I can do now. I don't know if the CPA will get back to me---I contacted her a few months after she did them and asked if a termination of the IRS FORM 56 was filed ( there is not a copy of it with the taxes) and she never contacted me with a reply. Should I send one in myself after all is said and done? I know this is very long--it is hard to get info with my work schedule right now ( I've had 1 day off in 32 days) and the hours are hard to talk to "live" people. Love the new site..Very Nice..Thank you for your time, Laura
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And I thought all was behind me! 1 year 2 months ago #2

  • Michael P. Pancheri
  • Michael P. Pancheri's Avatar
Hi unreal again,

The real issue here, it seems to me, is the reporting of the sale of your father's mobile home. From what you say, I assume that your father died owning a mobile home that he lived in prior to his death, and that his estate sold the mobile home and distributed the proceeds to you and your sisters.

The mobile home, in that case, is a capital asset, which would be entitled to a step-up in basis upon his death. In that case, there would be little or no gain on the sale. If there was a gain, it would be a capital gain, reportable on line 4 of Form 1041 (via Schedule D), not as interest income on line 1 of Form 1041. If there was a loss on the sale (which most often there is in these cases), then the loss would not be deductible on Form 1041.

In any event, my guess is that the sale should not have been reported as interest; but, instead, should have been reported as a capital transaction that resulted in little or no capital gain to the estate. In that case, there would be no interest reportable by you or your sisters via the Form K-1.

But, unreal again, I don't have the specific facts before me, so you have to take what I say as a point of reference in talking with another qualified C.P.A. or accountant to get their opinion once they have all the necessary facts in front of them. It seems like the reporting of the sale of the mobile home was not done correctly and you should certainly follow up with someone to see that it is done correctly.

Let me know how you make out.
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And I thought all was behind me! 1 year 2 months ago #3

Thank you SO much--I will check this out and let you know. Again, you are helping so much, and I can't believe you do this. Thanks, Laura
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And I thought all was behind me! 1 year 2 months ago #4

I can not believe my mind was just stuck on the mobile home, because that is what my sisters brought up. Oh, too much work and no sleep is a dangerous thing. The 16,193 is interest from his bonds--and it just now hit me!!! And she did take a loss on line 4 of -236. So now new questions--you may have to look under my old posts--unreal50--I wrote about being able to elect to put that interest on my Dad's last tax return, as stated in Pub 559. As you see I didn't, I put it on the estate's. The tax was going to be alot more if I put it on his. But seeing the problems my sisters are having--maybe not. So, Question---can I even amend any of these? Since he is deceased can I amend his--AND--the estate return? That really is the only way I can see to help them--unless I can claim more on my K-1, and less to them- and to me that doesn't seem it would be up to tax laws or something???? So I don't keep coming back and asking you a million questions--if I can change this--should I fix the line 4 loss of -236?...And if I can't amend anything--should I still amend for the -236 loss? Now, have to go get 2 hrs sleep before work--this is so *****.....Thanks, Laura--Update: I just reread this and saw a few misspelled words I put in my haste to hurry, so I went in to edit. Now I have more questions--the form 56 was never filed to end the Fiduciary Relationship, so would that help at all if it comes down to amend his final tax return AND the estates final return? And I do remember reading somewhere that the beneficiarys can ( for a lack of proper words right now ) file a complaint?? if they feel they were done wrong. It's not that they were wrong--just my election to put the bond interest on the estate return instead of his final return will turn out to be a very unwise decision for them with what I know now. I'm not concerned with this increasing my tax--only to the extent I'm not over the limits of our state and probate and worry it would come back to me in the future..
Last Edit: 1 year 2 months ago by unreal again. Reason: more info
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And I thought all was behind me! 1 year 2 months ago #5

  • Michael P. Pancheri
  • Michael P. Pancheri's Avatar
Hi unreal again,
So, Question---can I even amend any of these? Since he is deceased can I amend his--AND--the estate return?
The quick answer is "yes," you can amend your father's final income tax return (form 1040) and the estate's income tax return (form 1041) because, as you indicated, your father died in November of 2011. The three-year statute of limitations has not yet run on those returns.

As stated in IRS Publication 559, page 10, you can elect to report the interest from the bonds on your father's final income tax return. There is no indication, that I could find, that defines how the election is made. Presumably, the filing of one of those returns with the interest income indicated thereon would constitute an election. If so, then presumably you have elected to have the interest income taxed to the estate as income in respect of a decedent (IRD) rather than as ordinary interest on your father's final income tax return. The real question, though, is whether that election is deemed to be irrevocable or not. Again, I couldn't find anything to indicate that the election is irrevocable so, presumably, it can be revoked as long as you are within the statute of limitations.

That said, it appears that you can now amend your father's final income tax return to include the interest income. In so doing, you would also have to amend the estate's income tax return to remove the interest income and, accordingly, correct the K-1s that may have been sent to the beneficiaries of your father's estate.

unreal again, I have no real authority for my position because I have not found anything on point in the IRS regulations and/or publications. So, I would suggest that you discuss this with your C.P.A. and/or estate attorney to get their opinion and advice. But, it certainly appears to be a viable option that is worth pursuing.
Last Edit: 1 year 2 months ago by Michael P. Pancheri.
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