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JohnH

Deceased Spouse - Applying Refund to Estimate

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Husband died in late 2018. We extended 2018 return to Oct 15, 2019.  The 2018 MFJ return shows the husband as the primary taxpayer and the wife second, as has been the case for the last 30+ years.  Wife is self-employed and routinely pays quarterly estimated tax in the $K - $6K range per quarter.  The 2018 MFJ return shows a $6K refund which she wants to apply to her 2019 estimated tax in lieu of the Jan 2020 payment.  

However, since the 2019 return will be filed as Single under her SS# only, I'm thinking this may cause a problem.  Solution would be to either claim a refund on the 2018 return (risking a partial estimated tax penalty for 2019), or to switch the names around to show the wife as the primary taxpayer on the 2018 return and still apply the refund to 2019 estimated tax. 

FIrst time I've run into this particular scenario.  Has anyone encountered a similar situation or have any suggestions on best practice here?

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Switch the names around, warn client that next year the service will probably pitch because they did NOT apply the estimates to her account.  Fix it when that happens with a phone call (get a POA on file now, or have it ready to go when you call).  If the service had any (recent) history of reading/responding to letters, I'd recommend sending a letter requesting the estimates be moved from his account to hers.  But they don't; they just react to (many times completely avoidable) situations.  They need to hire - and train - a LOT of people.

You may also need to try a couple of times to get the e-file to go through, with the names switched.  

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Sorry, I wasn't clear on the first post.  We did submit current-year estimates (Apr, Jun, & Sep)  in her name & under her SS# only.  So she is covered there.

The only issue is making sure the $6K refund on the 2018 return is credited to her SS#.  Thanks for validating the idea to switch the names  & SS#s on the 2018 return.  That's what we are going to do, although there will still be some lingering uncertainty since it will be a paper-filed return.  

 

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John, I had a similar situation from the 2015 to 2016 returns and the credit carryover requested was handled correctly, and I didn't switch the names, but Catherine's suggestion is a good one. My client's fact pattern was this:

  • Joint 2015 return with husband's name first. Showed an overpayment requested to be applied to 2016. 
  • Wife filed 2016 estimate vouchers showing only her name.  I think Drake did this automatically because husband's DOD was in Dec 2015 so the system removed his name on the 2016 forms.  
  • Wife DID receive the proper credit carryover.  

 

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I would switch the names for 2018 if apply.  I have had this happen in 2016 and still fighting the service to switch it to the wifes single return.

Sent many letters and copies of all checks.  Called too,  they just can't seem to get it switched over.

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Thanks for the additional responses Judy & grandmabee.  I'm still pondering how to handle this, given the amount involved.

It's now clearly a matter of switching names IF we request that the overpayment be applied to 2018.   But if I switch names and they STILL don't apply the $6,000 correctly, the client is going to be asking me every other day if I've corrected it yet.  (Good client, but I know how they react when things don't go according to plan.)

On the other hand, if we file as usual and claim a refund, it's just a matter of IRS processing the return normally, sending a refund, the client cashing the check, and then making the Jan 15, 2020 payment on time.  This more-or-less takes it out of my hands and puts the responsibility back on the client (and IRS). If there's a delay, It isn't due to anything I did or did not do.

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JohnH, I like your last suggestion.  It takes the uncertainty out of the other ways of handling this, which could lead to delays and complications.  

Even if the Jan 15 payment is late the penalty, since it is the last qtr, is only going to be 1.2% ($72).  

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Thanks Max. Another valid point.  If it came to that, I'd seriously rather pay the $72 out of my own pocket than to burn off a lot of  time trying to chase down a misapplied $6,000 refund.  

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My personal, strong, preference is always to take the refund, even if the client then takes the funds and sends them right back in an estimated payment.  I like to keep the years separate.  That way, any unforeseen circumstance (the IRS sends a cp2000 letter about a form you never got, for instance) does not instantaneously mess up TWO years' worth of returns.  The first by the mis-match or other problem, the second by the funds you had counted on carrying forward NOT so doing - so now the rest of the year's estimated payments are mucked up.

My business partner is learning this the hard way, with an elderly client who failed to give us some papers for 2017.  The IRS took the carry-forward amount to apply to the prior year, and now this elderly lady is all confused about what *he* did wrong, that the rest of her estimated payments had to go up so much. 

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