More Trust mishandling

[Max W]

Trust assets were completely distributed in March 2017.  This when the trust should have been closed.  However, the executor failed to close the trust bank account until this year.  The property management company continued to send payments to the trust bank account and issued a 1099 for the rental income.  

So, now if the 1041 were to indicate Mar 17, 2017 as the closing date of the trust, there is sure to be a CP2000.  Would the IRS accept an explanation, if it can be shown that the balance of the income  after March was  reported on page 1 of the beneficiaries Sch E?

TIA

 

[DANRVAN]

From what I understand you are saying, I would file 1041 which reports the 1099 amount on Schedule E and then back to out as other expense with an appropriate title.

[Max W]

I have changed my thinking on this. That would be to make 2017 the Final Return, then next year, if the management company send a 1099 for the the months prior to changing the bank account, it will be easier to deal with.  

[SaraEA]

Just don't mark the 2017 return as final if payments continued into 2018.  The date the trust technically closes and the date it closes for tax purposes don't have to be the same.  I recently filed a final estate return that has a big refund coming.  I told the executor to keep the bank account open because the check will surely be made payable to the "estate of..." and there will be no way to cash it if the estate account is closed.  So the estate is closed for tax purposes but still technically open.

In your case, if the income was being deposited into the trust account, was it being distributed to the beneficiaries?  Then it should be taken as an "income distribution deduction" and flow through to them on the K-1s anyway so the trust will owe no tax.

[DANRVAN]

23 hours ago, SaraEA said:

Just don't mark the 2017 return as final if payments continued into 2018.  

Even if you did make it final, and it turns out not to be final, the IRS will still except a 2018 return.