Fiscal year

[neilbrink]

On an estate return, with the date of the decedent's death being 6-3-2015, does the fiscal year run from 6-1-2015 to 5-31-2016?

Edited September 22, 2016 by jklcpa
corrected spelling in title

[neilbrink]

I should clarify that this is an Estate Income Tax Return fiscal year.

 

[SaraEA]

The estate does not begin until a person dies, so the FY runs June 3 (date of death) until May 31.  You don't have to mark it as a short year because it's not considered one.  The second fiscal year, if there is one, runs June 1 to May 31.

[neilbrink]

I prepared this 1041 for year 2015 (fiscal year June 3, 2015 to May 31, 2016).  K-1s are being prepared for 2015.  Will the recipients of the K-1s need to amend their 2015 returns?

[Bonanza 23B]

The K-1s are prepared on the 2015 form.  Below the 2015 form date is fiscal year beginning and ending dates.  The recipients should report the K-1 information on their 2016 income tax returns.

[neilbrink]

Shouldn't the K-1s be generated on 2016 forms?

[jklcpa]

3 minutes ago, neilbrink said:

Shouldn't the K-1s be generated on 2016 forms?

No, at the entity level the tax year is determined by when the tax year begins.  Individuals receiving K-1s will report the activity in which the year ends.

[neilbrink]

Thank you, Judy.  My question is, since the tax year begins in 2015, and ends in 2016, I understand that the Form 1041 will show that it is for 2015, but shouldn't the K-1s that are generated show 2016, since the information from the K-1s will go on the individuals' 2016 1040 tax form?

[jklcpa]

11 hours ago, neilbrink said:

Thank you, Judy.  My question is, since the tax year begins in 2015, and ends in 2016, I understand that the Form 1041 will show that it is for 2015, but shouldn't the K-1s that are generated show 2016, since the information from the K-1s will go on the individuals' 2016 1040 tax form?

No, the estate is filing a 2015 return and the Schedule K-1s are part of that filing, and they are correctly prepared on the 2015 Schedule K-1s that are part of that filing. Everything in that entire filing should be prepared on 2015 forms.

As I said in my first post, when the beneficiaries receive those 2015 K-1s with fiscal year dates entered, the ending date of the fiscal year determines the year the individual reports it on his or her return. The actual 1041 K-1s instructions to the recipient do not say this, but that is how it works. That is found in IRC 662(c):

• (c) Different taxable years - If the taxable year of a beneficiary is different from that of the estate or trust, the amount to be included in the gross income of the beneficiary shall be based on the distributable net income of the estate or trust and the amounts properly paid, credited, or required to be distributed to the beneficiary during any taxable year or years of the estate or trust ending within or with his taxable year.

 

[Gail in Virginia]

This does not, however, necessarily mean the IRS will get it right.  I have had letters go to clients who properly filed 2014 K-1's on their 2015 returns due to the fiscal year, who then received letters from IRS adding that income to their 2014 return.  So far when that has happened, a simple letter and copy of the K-1 has resolved the issue.  It is annoying, and apparently not handled completely by computer.  I had a 1041 with 2 beneficiaries who received K-1s - one got a letter and the other didn't.  Go figure.