1041 Issue

[peggysioux5]

How would other tax preparers handle:

I am handling taxpayer's returns that received a K-1 for the estate of parent. Parent had a trust and everything was to be disbursed to beneficiaries at death. Another tax preparer handled the 1041 return (there was not enough assets to file the 706 estate tax return) but had some income. The taxpayer gave me a copy of the 1041 along with the K-1. In reviewing the 1041, the taxpayer had deductions for burial expenses and for care of the parent totaling over $15,000. Those expenses carried over to the K-1's as there was not enough income to deduct on 1041. I advised taxpayer that she should double check with the tax preparer who handled the 1041 being burial and medical expenses (care for parent) were not deductible as part of the 1041 return. The tax preparer assured taxpayer that the return was correct because the estate did not exceed the 5.43 million......what should my next step be?? Do I file taxpayer's tax return based on a K-1 that is incorrect?

[peggysioux5]

One more note regarding the 1041 - it was marked "Simple Trust" and Box G was NOT checked.

[Roberts]

I would notify the client of the error and inform the client of any potential for penalties and interest which may occur. Most likely the client wouldn't actually get penalties since it isn't their error but they could get interest assessed for underpayment. Document you notified them thusly.

What line of the 1041 did they claim these deductions? 12? 15?

 

 

If this all bothers the client, figure out their additional income which SHOULD have been applied to the return and make an adjustment to the 1040 return and note it as an undocumented 1099.

[Lion EA]

There's a form # for when you don't agree with how something was handled from a PE to your K-1.  Let your client make the call, but as has been said, get their signature on your written advice.

[peggysioux5]

The deductions were claimed on 15a.  The client is confused as she has two tax preparers giving her conflicting information and she did question the other tax preparer who adamantly assured her that the tax return was correct.  Also, is there any penalties that I could receive for completing a tax return with information that I know is incorrect?

[peggysioux5]

14 minutes ago, Lion EA said:

There's a form # for when you don't agree with how something was handled from a PE to your K-1.  Let your client make the call, but as has been said, get their signature on your written advice.

Thanks - I found the form - #8082.  Still makes me uneasy if client wants to file as is and I know it is incorrect - just want to make sure I would not be penalized.

[Lion EA]

That's why I would use that form &/or the disclosure form to report that you know what was reported to your client may have errors but you are matching the documents provided or you are making adjustments to report what you believe is correct instead of matching the documents.  You have to prepare the return the way you feel is right, and have the client agree with whatever type of disclosure you suggest.  Or, don't prepare.

[peggysioux5]

I received a response from the other tax preparer who handled the filing of the 1041 and was advised that the care giver expenses were expenses paid for assisting the family with going through personal effects which he states is part of Trust Corpus and thus deductible. Would other tax preparers see that expense as a deductible expense?

Secondly, the tax preparer states that the final disposition costs were not funeral costs, but were a collection of expenses surrounding the memorial event called for in the Trust and Will. The expenses included supplies, consultation services and the like......would you also see these as deductible on the 1041 with the new information?

I still would not think deductible, but am no estate expert, so would appreciate other tax preparers input. He also advised me rather than filing the form 8082 if I still fill uncomfortable with the deductions to just exclude those expenses from the Schedule A 2% expenses on the individual returns.

Appreciate your input.
 

[peggysioux5]

Bumping up hoping to receive some feedback.  Would the IRS deem the expenses surrounding the memorial event as "non" funeral expenses and thus deductible being event was "called for" in the Trust and Will?  It seems to me he is splitting hairs - a memorial is part of the funeral expenses and therefore still be non-deductible.  He stated his stance was defensible as Trust expenses due to facts and circumstances.  I know that I have received direction in previous posts to file form 8202 with individual income tax returns, but just wanted to see if that would still be the recommendation based on the additional info. 

[windmill]

Let the 1041 preparer prepare the 1040.  Back off. Too many red flags and concerns.