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WALK! The time and aggravation of dealing with this, the lack of uncertainty without the trust document, a possible legal matter with the check and having to deal with the IRS sometime down the road, makes this rife for having a lot of sleepless nights. Life is too short!

I wouldn't touch this one without a good long chat with my E&O people, for sure.

"Thousands of Internal Revenue Service employees volunteered to go back into their offices Monday after the agency offered incentive pay to those who handle "mission-critical" work. That includes answering calls from taxpayers and opening mail -- which has been piling up in trailers since the government work-from-home orders took effect last month. The workers are spread across 10 different locations around the country. All workers who report in person will see at least a 10% increase in base salary for at least the next four weeks. Those who are reporting to mailrooms -- which have been deemed higher risk -- will get a 25% boost . . . . . . . . . . .An email sent to staff last week said that workers must keep their faces covered while in the buildings, but would have to bring their own mask . . . . . ."

K1s don't show basis, they show capital, unless the K1 has supplemental schedules showing the basis calculations. The amount he was paid is a long-term capital gain, to the extent it exceeds basis. The losses allocated to him are his. The capital gain does increase his at-risk amount, but it does not increase his basis, so the losses are probably not deductible. https://www.thetaxadviser.com/issues/2012/mar/clinic-story-04.html If there was any income in the final year, that would increase his basis and you could deduct losses to that extent, assuming there were no other items affecting basis. ATX has a basis worksheet form in the 1040.

My point is, the tax preparer has a duty to file a complete and accurate tax return, regardless of legal battle between trustees, officers, partners, spouses ..etc. Okay so we go ahead and file for 2019, the estate is closed; legal and accounting fees are paid; and all the money is distributed. Then a letter from the IRS turns up with a demand to file for 2016 that nobody happened to mention before. Now who are the fingers pointed at? It is not going to be me unless I have found a case law exception for constructive receipt due to failure of fiduciary duty and have been compensated for it. As joanmcq mentioned, the sibling have been fighting since 2008, so don't expect anything to change in that department. Some could be in it for the battle and could care less about the money.

He's spending 50,000 because he enjoys what he's buying. Just like the guy with the swimming pool would still install it, and ask his tax pro after he filled it up. If only elements of personal pleasure was addressed by the nine factors...

Plus, non-qualified use will impact their 121 exclusion when they sell.