Distribution to estate - any tax consequences?

Taxes General Forum - Tax professionals meeting place and answers to queries. (Moderated) 

Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape

Subject Author Date Distribution to estate - any tax consequences? Drew27410 08-26-2009  Re: Distribution to estate - any tax consequences? removeps-groups@yahoo.com 08-26-2009  Re: Distribution to estate - any tax consequences? Stuart A. Bronstein 08-26-2009  Re: Distribution to estate - any tax consequences? D. Stussy 08-28-2009  Re: Distribution to estate - any tax consequences? Mark Bole 08-28-2009  Re: Distribution to estate - any tax consequences? D. Stussy 08-28-2009  Re: Distribution to estate - any tax consequences? Mark Bole 08-26-2009
Posted by Drew27410 on August 26, 2009, 2:37 am Please log in for more thread options Greeting again to you all. I have a trust that was liquidated a couple of years ago and all the proceeds distributed to the beneficiaries. Just received a check in the name of the trust for a class action lawsuit. The six beneficiaries get to split $30.65. Now - from a materiality standpoint, I assume we can totally ignore the distribution for tax purposes. But what is the correct, legal method of declaring this income? Should the estate be filing a tax return? Do the beneficiaries just list their portion as other income? Is the payment from a class action suit non-taxable? Thanks. Drew -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by removeps-groups@yahoo.com on August 26, 2009, 12:39 pm Please log in for more thread options > Now - from a materiality standpoint, I assume we can totally ignore > the distribution for tax purposes. But what is the correct, legal > method of declaring this income? Should the estate be filing a tax > return? Do the beneficiaries just list their portion as other > income? Is the payment from a class action suit non-taxable? In my opinion: Estate probably needs to file a return. Yes, Other Income line 21. Payment from a lawsuit is almost always taxable. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Stuart A. Bronstein on August 26, 2009, 1:58 pm Please log in for more thread options > >> Now - from a materiality standpoint, I assume we can totally >> ignore the distribution for tax purposes. But what is the >> correct, legal method of declaring this income? Should the >> estate be filing a tax return? Do the beneficiaries just list >> their portion as other income? Is the payment from a class >> action suit non-taxable? > > In my opinion: Estate probably needs to file a return. Yes, > Other Income line 21. Payment from a lawsuit is almost always > taxable. It's taxable to the extent it compensates for lost income. But to the extent it is to compensate for something that is lost, including lost health or personal injury, it is not taxed. OP's question really can't be answered without knowing what the lawsuit was about, what the surrounding facts were, and exactly what the settlement document or judgment says. -- Stu http://downtoearthlawyer.com -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by D. Stussy on August 28, 2009, 9:22 am Please log in for more thread options > > > >> Now - from a materiality standpoint, I assume we can totally > >> ignore the distribution for tax purposes. But what is the > >> correct, legal method of declaring this income? Should the > >> estate be filing a tax return? Do the beneficiaries just list > >> their portion as other income? Is the payment from a class > >> action suit non-taxable? > > > > In my opinion: Estate probably needs to file a return. Yes, > > Other Income line 21. Payment from a lawsuit is almost always > > taxable. > > It's taxable to the extent it compensates for lost income. But to > the extent it is to compensate for something that is lost, including > lost health or personal injury, it is not taxed. > > OP's question really can't be answered without knowing what the > lawsuit was about, what the surrounding facts were, and exactly what > the settlement document or judgment says. I agree. I disagree with the answers that suggested that the estate needs to file a return. It looks as if the estate has already been administered and distributed. Each beneficiary would report the amount as income (if required) on their individual returns. If there were estate tax and the lawsuit were listed among assets (as a receivable), then there may also be an estate tax deduction for the itemizing beneficiaries. -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Posted by Mark Bole on August 28, 2009, 1:09 pm Please log in for more thread options D. Stussy wrote: > I disagree with the answers that suggested that the estate needs to file a > return. It looks as if the estate has already been administered and > distributed. Each beneficiary would report the amount as income (if > required) on their individual returns. If there were estate tax and the > lawsuit were listed among assets (as a receivable), then there may also be > an estate tax deduction for the itemizing beneficiaries. > The payment was issued to the trust, not the estate. If the amount had been large enough to require a 1099-MISC, then the trust EIN would be reported on that form. I suggested that having the trust issue K-1's, or else creating nominee 1099's if possible, would be necessary to keep things straight. Are you saying, wait and see if the IRS sends a letter and then explain it? -Mark Bole -- << ------------------------------------------------------- >> << The foregoing was not intended or written to be used, >> << nor can it used, for the purpose of avoiding penalties >> << that may be imposed upon the taxpayer. >> << >> << The Charter and the Guidelines for submitting posts >> << to this newsgroup as well as our anti-spamming policy >> << are at www.asktax.org. >> << Copyright (2007) - All rights reserved. >> << ------------------------------------------------------- >> Similar Threads Posted Distribution to defunct tax id: consequences, alternatives? April 6, 2008, 3:42 pm Can I purchase an equity interest in family real estate w/o tax consequences February 27, 2008, 4:37 pm hypothetical distribution of an estate July 12, 2007, 1:48 am Tax Consequences of Foreclosure April 2, 2008, 1:12 am IRA to Roth IRA tax consequences October 20, 2008, 9:53 pm Tax consequences of family loan? September 20, 2007, 10:46 pm Stock merger tax consequences November 28, 2007, 12:37 pm Citizenship via Grandparents - Tax Consequences March 19, 2008, 1:18 pm Re: Citizenship via Grandparents - Tax Consequences March 19, 2008, 4:56 pm Gift Tax Consequences for 529 Accounts November 20, 2008, 2:56 pm