IRD or Inheritance

[Terry D EA]

Taxpayer passed away in 2020. Spouse receive a 1099 MISC for royalties from an oil well for tax year 2021. Also, some crop insurance payment received in 2021. Not my client and am asking for a colleague. Don't know if there was an estate setup or not. Don't know for sure if the payments received were earned prior to the taxpayer's death. It appears the earnings were for a time period in 2021. The 1099 MISC is in the deceased's name and SS# same for the crop insurance payment. Spouse is the fiduciary. I told my colleague there are too many unanswered questions. My friend thinks the spouse cashed the checks as an inheritance. At the very least, my friend needs to extend this and put it off until they have all the answers. Just wondering what other's opinions are. My thoughts are the funds should go to his estate and if an estate tax return was filed, then maybe an amendment is in order. 

[Catherine]

Too many questions. First, extension because trying to tackle this now "will only end in tears" to quote Bartok the Bat from the movie Anastasia. Second, need to find out what the will/trust said (or state law if intestate). Then will need payors to get info on when $ were earned. Check stubs (if available) or bank stmts for deposits (if no stubs) to give a basis for guesstimate if the payors won't disclose anything. The timeline will then determine what (if anything) needs to be changed. Glad it's for a colleague and not for you! 

[Terry D EA]

Thanks Catherine, my sentiments exactly. 

[DANRVAN]

On 4/12/2022 at 7:01 PM, Terry D EA said:

Also, some crop insurance payment received in 2021.

That raises the possibility of a step of basis of growing crops on date of death if deceased spouse was a farmer, or material participating landlord, per RR 58-436. If that were the case,  crop insurance received after DOD would be income to estate, not IRD.

 

On 4/12/2022 at 7:01 PM, Terry D EA said:

. My thoughts are the funds should go to his estate and if an estate tax return was filed, then maybe an amendment is in order. 

That depends.  If all assets passed to wife and there was not any legal cost to deduct by estate; the 1041 would be a wash by reporting income to estate and deducting as distribution to wife.  Also depends on who 1099's were made out to.