Guidance needed - Beneficiaries K-1, Line # 5

[pikester1967]

Client presents me with a K-1 from an Estate which he/she is 1 of 12 beneficiaries.

 

Line 5 Other portfolio income presents a significant amount of income!

 

I'm keeping in mind that most inherited amounts are non-taxable to the extent of the initial basis in the asset. My instincts are just telling me I'm not looking or digging deep enough into this amount.

 

Advise, guidance, Hit over the head with the tax book, anything to get me thinking would be appreciated.

 

Thank You

 

Pikester

[Lion EA]

The estate could've made significant portfolio income which it passes along to the benes.  If your client inherited a stock on DOD, there would be no income.  But, if that stock has been paying dividends since DOD or bonds paid interest or..., then the estate had income to pass through.  Maybe something like that is your case.

[jklcpa]

Interest and dividends have their own lines for reporting. It sounds like it's coming from something else held in the portfolio of investments, possibly an annuity, or some other nonbusiness holding. Whatever it is on that line, it's supposed to not be subject to the passive activity rules. 

[rfassett]

You, or your client, should contact the executor (trix) and question the amount.  If you think it is out of line, it could be an error.  Either way, the person in charge of the estate should be able to get an answer for you.  The beneficiary would have nothing from or via the estate to offset that income that is not on the K-1.  When my firm prepare these things for estates and trusts we always attach an explanation to the K-1.  Apparently the preparer of your K-1 likes being bothered with questions of explanation.  I don't.

[Abby Normal]

It's ususally a retirement plan.

[pikester1967]

Thanks for helping me confirm my angle on this so far. I'll be meeting with my client later on this week after making more inquires.