Procedure on Estate

[mcbreck]

A new client has been brought to me and I'm confused on how best to go about it.

Client died in 2020, everything he owned was immediately moved to a Trust with an EIN, cost basis all adjusted. CPA then had a meltdown and demanded they file an Estate return using the EIN and filing on a fiscal basis. The CPA just stopped communicating with the attorney and beneficiary and there were errors in the tax return. This is likely going on for about 20 years so nobody wants this to continue on a fiscal basis.

I'm filing a 3 month tax return to get it to the fiscal year and then we'll shift to the trust return and continue using the same EIN. Think that would be a major problem? Do I need to inform the IRS? It doesn't change any tax bill because everything was being distributed to a single beneficiary and she reported the income.

 

Or should I just do a correct trust return for 3 months?

[DANRVAN]

1 hour ago, mcbreck said:

Client died in 2020

 

1 hour ago, mcbreck said:

file an Estate return using the EIN and filing on a fiscal basis.

A 645 election.

2 hours ago, mcbreck said:

I'm filing a 3 month tax return to get it to the fiscal year and then we'll shift to the trust return and continue using the same EIN.

 You mean to a calendar year?

2 hours ago, mcbreck said:

 

Or should I just do a correct trust return for 3 months?

You must not be familiar with an election under section 645 which allows the trust to file as an estate, however there is a time limit.

In most situations, the election period ends two years after date of death.  So for 2022 two returns (and related K-1's) are required regardless.

[DANRVAN]

2 hours ago, mcbreck said:

Think that would be a major problem?

If you did not switch to a calendar 2 years after DOD (assuming a 706 was not required) you would be out of compliance to continue with a "fiscal" year.

Also, you should know that a 645 election is irrevocable; you can not terminate it until the election period ends.

[mcbreck]

Thanks- I'll research 645 election! I'm completely unfamiliar with it, thanks.

[DANRVAN]

Section 645 is one of the shortest sections of the code.

Anyone working with estates should be aware of it.