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How would a trust report a 1099-R distribution on a 1041 tax return?

Ocala, FL |

Tax client is the living trust of a decedent. Documents include a 1099-R form with an amount in box 2a, 2b is checked full distribution and box 7 is coded death. Trustee explains that a check for death benefit was received and funds were sent to the trust beneficiary's financial institution for deposit into an inherited IRA account. How would you handle this situation?

I am aware that the trustee mishandled the IRAs, which were intended to be inherited or stretch IRAs for non-spouse beneficiaries. I am interested in learning how you would address the 1099-R on tax form 1041.

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Attorney answers 4

Posted

This is not a Trust question per se but rather a TAX question. Please sit down with your CPA and get this resolved in minutes. Good luck.

Posted

This is a complex area of tax law and cannot be fully addressed without knowing all of the facts. The income reported on the 1099-R must be included income of the trust in the year of receipt, but the trust can take deduction for income paid out to the beneficiary in the same year. I recommend providing a copy of the trust and the beneficiary designation, along with the 1099-R, to an attorney experienced in fiduciary income taxation. He or she will then be able to tell you how things should have been handled, and whether there is a possibility for recourse against the trustee or IRA custodian.

Asker

Posted

I am interested in the response of a tax attorney. IRS rules are clear with respect to direct rollovers being disallowed for non-spousal beneficiaries; the only way in which an inherited IRA can be established is through a trustee-to-trustee transfer. Ethically, is there any way this could or should not be reported as distributed income on the trust return?

Posted

I agree that you need to retain a tax attorney or CPA to guide you through the process of properly reporting this matter.

The answer given does not imply that an attorney-client relationship has been established and your best course of action is to have legal representation in this matter.

Asker

Posted

The CPA engaged by the attorney who is named as trustee is not filing Form 1041, claiming that there is no income in spite of sales of ETFs resulting in capital gains. He is preparing 1099-Rs for trust beneficiaries for "informational purposes"; they are being coded 4G (death, rollover). How do you like them apples?

Posted

see IRS form 4972, otherwise report as ordinary income on form 1041