1041 Estate Return - US Treasury interest paid to estate, decedent last 1040 took 454a election, options for estate 1041 us treasury 1099-int.

[EstateAdmin]

1041 Estate Return - US Treasury interest paid to estate, decedent last 1040 took 454a  election, options for estate 1041 us treasury 1099-int.

Background using example numbers - 

1) The decedent had 1000 paper US Treasury bonds with supermajority matured but not redeemed.

2) 454a election was taken on the decedent’s last 1040 and tax on estimated accrued interest up to DOD was paid on decedent’s last 1040 return 

2) US Treasury bonds did not have a POD/beneficiary 

3) US Treasury disbursed proceeds from matured bonds at date the US treasury processed the paper bonds to the decedent’s estate under the estate EIN.  The interest income is slightly larger than interest reported on decedent’s last returned as a result between DOD and US treasury processing date.

4) US treasury reissued treasury bonds that have not matured to beneficiaries as directed by the administrator of the estate.

Question and issue.

1) is there an option to report interest income on the estate 1041 without passing to beneficiaries through a K1?

2) if so, how is the tax on interest paid on the decedent’s last return recorded/reported on the 1041? (Process used for 1040 does not appear to be available)

If there is the option for reporting interest on estate return or pass to beneficiaries on K1, I would like to compare tax implications as there are deductions available to the estate.

Thanks

[sjrcpa]

The estate 1041 reports the 1099 interest less what was reported on the 1040.

In general, to the extent estate assets were distributed to beneficiaries, the assets carry the income with them. The income would flow out on K-1s.

But, what else is in the estate? Other income? Deductions?

[BobKamman]

Trick question.  What do you mean by "supermajority matured but not redeemed"?  They were hold past their final maturity date, when they stopped earning interest?  Then the interest income is taxed that year, anyway.  

We really don't talk about those people with bonds that reached final maturity in 2011 but did nothing with them and then died in 2021.  Let your conscience be your guide.   For those who believe we have a tax on pieces of paper, not on income, the 1099-INT is easy to accept as proof.  

[EstateAdmin]

Thanks, 

Yes I agree, but how do you note/report on the 1041 that the tax on the delta from the 1099 v. Reported on 1041 was paid on the decedent last 1040 via 454a election.  Without such notification how is the IRS able to make the determination that is what is being claimed on the 1041 and not an under reported interest income?

Other deductions are Fiduciary / Administrator fees and Probate Attorney fees and real property taxes.

thanks

[EstateAdmin]

Sorry only Partly answered your questions.  Here’s more:

made election to treat estate and trust as one on fiscal year.  During probate, decedent personal residence was moved from the estate and titled into the trust.  Residence was then sold.

Also there was mineral estates that where retitled to beneficiaries but before that occurred estate paid real property tax.

oh, and there is a qualified account that holds an estate inherited IRA with the estate EIN..

lots of fun in this one 

[EstateAdmin]

Not trick, but you bring up a good point.

when you find a trunk with us savings bonds from the 60-70-80s,   Technically you are most likely correct, however the IRS is aware of the billions of unclaimed matured bonds.   Creates a dilemma for both the irs and those that find the bonds  

[BobKamman]

I'm not sure IRS is aware of the ownership of unredeemed bonds.  Treasury could be issuing 1099's in the year of final maturity -- or, do they even have SSN's from those issued three or four decades ago?  Once IRS received the 1099, it would have the last known address for many of the owners.  
I would leave it up to the heirs to decide whether they wanted to pay tax on income that should have been reported long ago.  I don't think it's any different from dividends paid long ago and turned over to the state unclaimed-property administrator.  Not all of those were reported as income, either.  

[EstateAdmin]

the IRS is most likely not aware, however the the US Treasury is fully aware.  I’ve seen US War Bonds that only have a name on the bond (no ssn).  E bonds from 60s and 70s have name, address and SSN of primary bond holder.   US treasury has all this information in their “dungeon” as can be verified when a lost bond claim is submitted.    When US treasury bonds are redeemed, US treasury lumps all interest on the 1099 for year deemed.   Unless the US treasury communicates extra information, which is unlikely, IRS only sees 1099-INT reported for year redeemed.    

[EstateAdmin]

Bob,

“Let your conscience be your guide.   For those who believe we have a tax on pieces of paper, not on income, the 1099-INT is easy to accept as proof.”

yea, ”conscience”. That’s a good way to put it.   It seems there are those that believe irs, you snooze you lose.