Jump to content
ATX Community

Who is on first (709 or 1041)


ILLMAS

Recommended Posts

Scenario

TP son (was not a minor at that time) was awarded money from a judgment, TP opened a separate brokerage account under their name and put the son's money in that account, for the past 15+ years the TP has been reporting any gains or losses on both accounts.  Fast forward to 2020, son wanted to buy a car and asked for control of their money, TP's banker transferred the investment account to a new account under the sons name, my question would be, how do you account for this situation or there is no need to do so?  And is it really considered a gift and needs to be filed on Form 709 or 1041?  

Thanks

Link to comment
Share on other sites

The son who received the original funds was NOT a minor at that time? Did he give the funds to his parents? Did he file a gift tax return? Or, did the parents hold them in some kind of custodial account for him? I think you have to establish the legal ownership of that account before you can determine how to report that account AND how to report its transfer.

  • Like 4
Link to comment
Share on other sites

The son who received the original funds was NOT a minor at that time? Correct, young adult 19-20 of age.  Did he give the funds to his parents?  From what I understand, the money was not given to the parent as a gift, they were just holding on to the money for the son.  Did he file a gift tax return? I don't believe so. Or, did the parents hold them in some kind of custodial account for him?  From looking at the statements, I am going to say no custodial account was open, just a separate account was opened under the parent name.  I think you have to establish the legal ownership of that account before you can determine how to report that account AND how to report its transfer.  Based on the parent, the judgement amount was held under the sons personal bank account for a couple of months, then it was moved to the brokerage account but the account was established under the parents name, the funds were never touched until 2020.   And as I mentioned before any gain/losses have been reported for the last 15yrs on the parent tax return.   Thanks for the help.

Link to comment
Share on other sites

Sounds like the son gave the funds to his parents who have owned those investments and their income for the last 15 years, and paid taxes on that income.

If the parents continued along that route, they would file a 2020 Form 709 to gift the account to their son.

I don't think the past was handled correctly. But all you can do is report what they did in 2020. Well, and tell the family what should've happened for the last 15 years.

Are these potential new clients for you? Do you suspect they've misreported other things, also? If so, you might want to decline the engagement.

Tell them to contact you BEFORE making any financial moves from now on!

  • Like 4
Link to comment
Share on other sites

Sounds like the son gave the funds to his parents who have owned those investments and their income for the last 15 years, and paid taxes on that income.  Yes and parent benefited from capital gains and losses over the years.

If the parents continued along that route, they would file a 2020 Form 709 to gift the account to their son.  Agree.

I don't think the past was handled correctly. But all you can do is report what they did in 2020. Well, and tell the family what should've happened for the last 15 years.  Agree, what they did was not necessary.

Are these potential new clients for you? Do you suspect they've misreported other things, also? If so, you might want to decline the engagement.  New client, I don't think anything was being misreported in prior years, just the handling of the brokerage account.

Tell them to contact you BEFORE making any financial moves from now on!  👍

Thanks

  • Like 3
Link to comment
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Restore formatting

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...