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I received an 1099-R from a retirement plan in the Estate's EIN. Is there a way to get the withholding to flow to the K-1 beneficiaries so that they get credit ?

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Taxpayer's Estate received a 1099-R for a retirement plan that included withholding. I have the income flowing to the beneficiaries on the K-1. The beneficiaries would like to avoid having to making a large estimated payment and get credit for the withholding.  Is there a way to get the withholding to flow to the K-1s for the beneficiaries also?  If so, how do I report on the 1041? Do I put $0 on line 24e and the withholding amount on line 13B of the "Amounts to Allocate to Schedules K-1 Wks?" Will this cause a mis-match issue?

If not, do I file the 1041 showing the withholding, wait for the refund, then distribute to the beneficiaries?

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Level 15

The treatment is codified in §643.  Allocation of withholding to beneficiaries is limited in its application to subsection (d) for backup withholding governed by §3406 and, by election, under subsection (g) for estimated tax payments made by the trust.

You are not allowed to allocate regular withholding to beneficiaries.  The only exceptions would be (1) where it is a grantor trust and (2) where a person other than the estate has the right to receive amounts of IRD.

§31(a) stipulates that amounts withheld as tax under chapter 24 of the Code "shall be allowed to the recipient of the income as a credit against the tax imposed by" subtitle A (income tax).  Since the trust is subject to income tax under §1(e) with deduction for DNI, any such credit is allowable only to the trust as §31 and its regulations do not provide for any mechanism for allocation to beneficiaries.  This position is clearly stated in CCA 200644018 and in the filing instructions for F.1041.

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Still an AllStar

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Level 15

The treatment is codified in §643.  Allocation of withholding to beneficiaries is limited in its application to subsection (d) for backup withholding governed by §3406 and, by election, under subsection (g) for estimated tax payments made by the trust.

You are not allowed to allocate regular withholding to beneficiaries.  The only exceptions would be (1) where it is a grantor trust and (2) where a person other than the estate has the right to receive amounts of IRD.

§31(a) stipulates that amounts withheld as tax under chapter 24 of the Code "shall be allowed to the recipient of the income as a credit against the tax imposed by" subtitle A (income tax).  Since the trust is subject to income tax under §1(e) with deduction for DNI, any such credit is allowable only to the trust as §31 and its regulations do not provide for any mechanism for allocation to beneficiaries.  This position is clearly stated in CCA 200644018 and in the filing instructions for F.1041.

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Still an AllStar

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Level 2
Is withholding reported on a 1099-R always considered backup withholding?
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Level 15
No

ex-AllStar
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Level 15
It's the other way round.  Pension distribution is subject to withholding under §3405 and excepted from backup withholding pursuant to §31.3406(g)-2(c).
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Still an AllStar
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Level 1

I have the same situation that you responded to and it is helpful with the withholding issue. As for the income, would I pass through the 1099R distribution to the K-1 or do I have to report the income on form 1041. Thank you.

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Level 15
Level 15

"do I file the 1041 showing the withholding, wait for the refund, then distribute to the beneficiaries?"

Sounds like that's the only option in this situation....I just asked the same question 2 days ago!


♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Level 15

https://accountants-community.intuit.com/questions/182324-1041-1099r-with-federal-tax-withheld

But in order to do that with a 1099R, you are probably going to have to do some overriding which could prevent e-filing.  I know that I did this years ago without any issues ------------------------------- before I was told that it couldn't be done 🙂

ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.
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Level 15
Level 15
That's a 10 year old post you just referred to.

♪♫•*¨*•.¸¸♥Lisa♥¸¸.•*¨*•♫♪
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Level 15
Yes, but it still applies.
ex-AllStar, ex-Lutefisk taste taster, ex-ACME product tester
and ex marks the spot where those rocks and anvils hit me.