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  1. #1
    Join Date
    Oct 2020
    Posts
    7

    Unhappy Inherited IRA ,incorrect Distributions

    Mistake 1?
    I am the executor of my dads estate . Dad passed away 10/26/2018, leaving an IRA approx( $11000.00) with named beneficiaries as us three siblings. Unbeknownst to me until now, eight days after his death the bank took an annual distribution of $6900.00 per usual, putting it in his joint checking account , myself as the joint account holder . This annual distribution was set up to automatically trigger at a certain date every year , which just happened to be 8 days after his death. I am thinking any distributions should have gone to us three named beneficiaries. This transaction generated a 1099 in my dads name and the $6900 flowed to his final 2018 1040 return . That return didn't have enough income to pay taxes so am thinking no big deal . However am thinking this should have been distributed to us 3 kids and gone on our 2018 1040's???

    Mistake 2?
    A few months later in 2019 as the executor I went to close out that IRA as well as his other accounts at that bank. Dads regular accounts were put into the estate checking that was set up prior at that same bank. They also wrote a check out to me personally for the joint checking balance . The IRA is not that big , only about $4400 left in it at this point so we just want to close it and take distributions. Before distributions the bank takes a RMD of $441 and puts it in the estate checking account ???? which generated a 1099 in the estates name which flowed to income on the 1041 estate income tax , also the state estate income tax return . Not a real big deal , not worried about a bit of an over payment . However this probably should have gone on us three siblings 2019 1040's

    Mistake 3 ?
    So now there is like approx. $3600 left in this IRA and and they make a check out to each of us siblings for $1200 each as distributions. For some reason this never generated a 1099 and consequently we forgot to reported the income on our 2019 1040's. Actually I left a note about it in the materials i give to my cpa every year to do my taxes but it was ignored for some reason probably because no 1099.

    What on earth should i do at this point ? File a bunch of amended returns ? Am I correct that mistakes have been made ? I have called my cpa twice about this leaving messages on his answering machine but he is not getting back to me . I would like to get this matter settled and close the estate .

  2. #2
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: Inherited IRA ,incorrect Distributions

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    I am the executor of my dads estate . Dad passed away 10/26/2018, leaving an IRA approx( $11000.00) with named beneficiaries as us three siblings....

    What on earth should i do at this point ? File a bunch of amended returns ? Am I correct that mistakes have been made ? I have called my cpa twice about this leaving messages on his answering machine but he is not getting back to me . I would like to get this matter settled and close the estate .
    Since the IRA had named beneficiaries it passed to those beneficiaries the moment he died. Thus distributions from the IRA after his death should have gone to the beneficiaries rather than to your father's estate. But instead the bank made the 2018 and that first payment in 2019 to his estate. If the beneficiaries of the estate are the same as the beneficiaries of the IRA then it does not make much practical difference that the estate got the money rather than paying the beneficiaries getting paid directly since in the end they wind up with the cash either way.

    In that circumstance I would see no problem with the estate reporting the income from the distributions it received from the IRA. The 2018 return of your father and the 2018 return for the estate would need to be amended, though, for the 2018 payment that ended up on his final return to go on the estate return instead.

    The $3,600 paid to the 3 beneficiaries during 2019 needs to be reported on the returns of the beneficiaries. If they did not do that then they need to amend their returns to report that income.

    If the beneficiaries of the estate and the IRA are not the same then it will matter how that got sorted out.

  3. #3
    Join Date
    Oct 2020
    Posts
    7

    Default Re: Inherited IRA ,incorrect Distributions

    Thanks for weighing in on this cluster and confirming that errors were made. The three named beneficiaries are the same as the beneficiaries (heirs) of the estate. The bank put the first distribution $6900.00 into dad and my joint checking account as they would always do when he was alive. I'm the surviving joint owner. They gave me power of attorney when they were alive and wanted me to have access to that account in case of emergency. That joint checking account went to me on his death (survivorship rights), its not part of his estate and doesn't go through probate. However i will be dividing it up among us because I'm a nice guy. The bank erroneously created a 1099 in dads name as they always did and it went on his final 1040 . Even with the additional $6900.00 income he was still in a zero tax bracket so no tax was due and so don't really think we need to amend dads final 1040 return in 2018. I'm inclined to write checks out to the other heirs as this should never have gone into the joint checking .


    The second distribution $441 RMD went to the estate account >1099 for estate>on to the 1041 and taxed but am not worried about the little bit of tax we paid on that small amount . Yea will come out in the wash when estate is divided up but I'm inclined to write separate checks out to each heir as it should have been done. Doesn't belong in the estate. No need to redo 1041.


    The third distribution went correctly to the named beneficiaries, however no 1099 was created at all.

    Am thinking each of us three beneficiaries need to amend our 2018 and 2019 returns .

    Talked to girlfriends CPA friend about it , she said... let sleeping dogs lie. Wondering what my CPA will say. I'd like to pay the tax correctly and be done with it . We'll end up paying about 1k apiece.

  4. #4
    Join Date
    Oct 2014
    Posts
    8,238

    Default Re: Inherited IRA ,incorrect Distributions

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    Talked to girlfriends CPA friend about it , she said... let sleeping dogs lie. Wondering what my CPA will say. I'd like to pay the tax correctly and be done with it . We'll end up paying about 1k apiece.
    The distributions that were never reported on tax returns are required to be reported by the beneficiaries. So the three of you should amend your returns to correct that oversight. That's what the tax law requires, and a CPA who says to just "let sleeping dogs lie" is not a good one. She should be telling you what the law requires. It's then up to you to decide what to do about it. Sure, since no Form 1099 was issued maybe the IRS will never discover it and and you'll get away with paying a bit less tax than you should have. But if by chance the IRS does discover it you'll pay the tax and interest, and may get hit with a penalty too.

  5. #5
    Join Date
    Oct 2020
    Posts
    7

    Default Re: Inherited IRA ,incorrect Distributions

    The first two distributions the $6900 and $441 were reported on tax returns , just not the RIGHT tax returns . The $3600 never got reported anywhere . I agree with your analysis , beneficiary's need to amend 2018 and 2019 tax returns. Thanks a lot. Actually none of this is part of the probate process so it shouldn't cause me a delay in settling the estate . But i need to ask about that. Right now the IRS is backed up on estates because of corvid . I called them to see why they never cashed my check I sent in four months ago to pay the 1041 taxes due.

    The IRS gets pretty belligerent about stuff like this if they discover it ahead me.

    thanks again

  6. #6
    Join Date
    Oct 2006
    Posts
    16,441

    Default Re: Inherited IRA ,incorrect Distributions

    Quote Quoting Decades
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    The first two distributions the $6900 and $441 were reported on tax returns , just not the RIGHT tax returns . The $3600 never got reported anywhere . I agree with your analysis , beneficiary's need to amend 2018 and 2019 tax returns. Thanks a lot. Actually none of this is part of the probate process so it shouldn't cause me a delay in settling the estate . But i need to ask about that. Right now the IRS is backed up on estates because of corvid . I called them to see why they never cashed my check I sent in four months ago to pay the 1041 taxes due.

    The IRS gets pretty belligerent about stuff like this if they discover it ahead me.

    thanks again
    There is not enough money involved for the IRS to get belligerent about it. If they catch it before you get it corrected then they will simply require it to be corrected, and may add some interest and penalty but they won't get belligerent about it.

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