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1041 tax withholding

An estate was the recipient of IRA and personal rep chose FITW .  

Lacerte treats the input in screen  19 as back up withholding and distributes it to the beneficiary . Instructions to form 1041 state that tax withholding stays with the estate and has to be refunded even though this is final year and all income will follow to the beneficiaries. Worst of two worlds.  Lacerte has no schedule G in the  1041 program and no answer for how to resolve this in their software.  

Anyone have a work around ? 

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3 Replies 3
Level 11

How did all of the income flow to the beneficiaries if there was money left with IRS?  Can 2019 be considered the final year when a tax return has to be filed and refund collected in 2020?  

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A final return is due when all income has stopped. In  2020 there will not be any income . A tax refund is not income.   Final distributions less a hold back for the three year statute of limitations will be in a non interest bearing account.  Depending on what state law applies, in my state,   the estate can be final for tax reasons and not completely liquidated.   

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Level 11

Decedent's Estate


An estate of a deceased person is a taxable entity separate from the decedent. It generally continues to exist until the final distribution of the assets of the estate is made to the heirs and other beneficiaries. The income earned from the property of the estate during the period of administration or settlement must be accounted for and reported by the estate.    [From Form 1041 Instructions]

Under state probate laws, an estate can be closed in some circumstances even if not all funds are distributed.  In other words, it can be final for court reasons, but not for tax reasons.  What it sounds like you are doing, is telling the beneficiaries to pay tax in 2019 on distributions they may not receive until 2022.  If funds are being held back for three years, there must be some concern that they will be used to pay taxes and creditors, rather than beneficiaries.  If the beneficiaries are happy with paying tax on money they may never receive, I suppose that's their decision.  It wouldn't be mine.  


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