I applied for and got an EIN for someone who passed away. They didn’t have a will, and we needed the EIN to move their checking account to an estate account.
The EIN letter says we must file form 1041. I thought 1041 is only needed if the estate made $600 or more gross income. Is that right?
Also, when they say ‘gross income,’ are they referring to whether the total value of the decedent’s assets (like checking accounts, retirement accounts, cars, etc.) exceeds $600?
Or is it about whether new income was generated after the passing that exceeds $600? I’m not sure what this would look like, though.
@Tatum
There is a 401k, but it has an individual beneficiary (not the estate). Otherwise, no sales, interest, or dividends. Just wondering why the EIN letter says to file 1041 if it doesn’t apply here. Is it just generic wording since getting an EIN means an estate exists and could have income?
The checking accounts are over $600, but there was no increase after death. So, no need to file 1041, even though we moved money from the decedent’s checking account to the estate account? I wouldn’t think just moving the money counts as ‘income generated’ for the estate…
Just wondering why the EIN letter says to file 1041 if it doesn’t apply here. Is it just generic wording since getting an EIN means an estate exists and could have income?
Yes, it’s just a reminder. You’re likely the executor if you applied for the EIN, which means you’re responsible for the estate’s tax debts. That’s why they remind you about the 1041 filing, though you probably won’t need it in your case.
The checking accounts alone are over $600, but there was no increase after death. So, no need for 1041?
Correct, if the only asset is a checking account with no interest, then nothing to file (unless the beneficiaries are non-resident aliens, check the Form 1041 instructions to be sure).
A 401(k) or another account with a named beneficiary goes straight to them, and any distributions (other than rollovers) are income to the beneficiary, not the estate.
Correct, if the only asset is a checking account with no interest, then nothing to file (unless the beneficiaries are non-resident aliens, check the Form 1041 instructions to be sure).
Besides the checking accounts and 401k, there are cars, but none are being sold (ownership was transferred to an heir). So, does that mean we still don’t need to file 1041? Thanks!
@Reese
Even if a car or other property was sold, that wouldn’t count as income for the estate. It’s an asset, but not income. The sale might be subject to state inheritance tax though.
This is correct. If you get any more letters from the IRS, the legal way to say, ‘I don’t need to file’ is to actually file a return. So you’re fine now, but if you get another letter, don’t try to argue with them – just file the return.
It might also be a good idea to file a final return to cover yourself, in case there’s any future tax bill. Since you applied for the EIN, you’re responsible for any taxes owed. Check out this IRS publication especially this part if there’s any land or property involved.
Normally, the IRS has 3 years to come back after you file, but once you file a final return, you can shorten that to 18 months with Form 4810.
Blakeley said:
Gross income is interest, dividends, proceeds from selling assets, rent, wages, etc.
I don’t think we have anything like that (no sales, wages, or rents, and the checking accounts didn’t generate interest).
So, it doesn’t matter if the checking accounts were over $600 at the time of death, as long as the assets didn’t increase by more than $600 after death? We can ignore the EIN letter saying to file 1041? Thanks!
@Reese
Correct. They don’t know how much income you’ll have, so they just say to file the form. But the instructions for the form give much clearer rules on who has to file.
Blakeley said: @Reese
Correct. They don’t know how much income you’ll have, so they just say to file the form. But the instructions for the form give much clearer rules on who has to file.
That’s what I thought. Thanks for clearing that up! One last thing: since we moved the whole checking account balance to the estate checking account, that doesn’t count as ‘income generated’ for the estate, right?
Blakeley said:
Gross income is interest, dividends, proceeds from selling assets, rent, wages, etc.
Do you think it’s proceeds or net gain that counts toward the $600 threshold? For example, if the estate sells an inherited house at a loss, would a 1041 still be needed?
I’m a CPA and my interpretation is yes, but if you don’t file and later get a letter, it might be solved without needing to file a 1041. I haven’t found a clear source on this and don’t want to tell clients they need to pay for me to file if they really don’t need to.
@Blake
It depends on what’s reported to the IRS. If a 1099S is filed, I’d file the 1041 because the IRS will see the proceeds but not the basis. If a 1099B with the basis reported is filed, then I wouldn’t file if the net is below the threshold.
@Blakeley
That’s what I tell my clients too. I’ve only seen a notice letter for a 1041 when it’s related to missing payments. A client (before she was mine) filed a 1041 with a big question mark on the first page. The IRS didn’t like that and sent a notice asking for a complete return.
The problem is clients don’t realize a 1099S is issued because they don’t go through the settlement package.