Вы находитесь на странице: 1из 40


Publication 559
Cat. No. 15107U Important Change .............................. 2
Important Reminders ......................... 2
of the
Treasury Survivors, Introduction ........................................ 2
Service Executors, and Personal Representative ...................
Duties ..............................................
Fees Received by Personal
Administrators Representatives ....................... 3

Final Return for Decedent ................. 3

Filing Requirements ........................ 4
For use in preparing Income To Include .......................... 4
Exemptions and Deductions ........... 5
2000 Returns Credits, Other Taxes, and
Payments ................................. 6
Name, Address, and Signature ...... 7
When and Where To File ............... 7
Tax Forgiveness for Deaths Due to
Military or Terroristic Actions ... 7
Filing Reminders ............................. 8

Other Tax Information ....................... 8

Tax Benefits for Survivors .............. 8
Income in Respect of the Decedent 8
Deductions in Respect of the
Decedent .................................. 11
Estate Tax Deduction ..................... 11
Gifts, Insurance, and Inheritances .. 11
Other Items of Income .................... 13

Income Tax Return of an

Estate—Form 1041 ...................... 14
Filing Requirements ........................ 14
Income To Include .......................... 15
Exemption and Deductions ............. 16
Credits, Tax, and Payments ........... 18
Name, Address, and Signature ...... 19
When and Where To File ............... 19

Distributions to Beneficiaries From

an Estate ...................................... 19
Income That Must Be Distributed
Currently .................................. 19
Other Amounts Distributed ............. 19
Discharge of a Legal Obligation ..... 20
Character of Distributions ............... 20
How and When To Report .............. 20
Special Rules for Distributions ....... 21
Termination of Estate ..................... 22

Form 706 ............................................. 22

Comprehensive Example .................. 23

Final Return for Decedent .............. 23
Income Tax Return of an
Estate—Form 1041 .................. 24

How To Get Tax Help ......................... 25

Checklist of Forms and Due Dates .. 38

Worksheet To Reconcile Amounts

Reported ....................................... 39

Index .................................................... 40
included on the final income tax return of the  706 United States Estate (and
decedent. Generation-Skipping Transfer)
Important Change Tax Return
Consistent treatment of estate and trust See How To Get Tax Help near the end
Photographs of missing children. The items. Beneficiaries must generally treat es- of this publication for information about get-
Internal Revenue Service is a proud partner tate items the same way on their individual ting publications and forms.
with the National Center for Missing and Ex- returns as they are treated on the estate's
ploited Children. Photographs of missing return.
children selected by the Center may appear
in this publication on pages that would other-
wise be blank. You can help bring these
Individual taxpayer identification number
(ITIN). The IRS will issue an ITIN to a non-
children home by looking at the photographs
and calling 1–800–THE–LOST (1–800–843–
resident or resident alien who does not have
and is not eligible to get a social security
5678) if you recognize a child. number (SSN). To apply for an ITIN, file Form A personal representative of an estate is
W–7, Application for IRS Individual Taxpayer an executor, administrator, or anyone who is
Identification Number, with the IRS. It usually in charge of the decedent's property. Gener-
takes 30 days to get it. ally, an executor (or executrix) is named in
a decedent's will to administer the estate and
Important Reminders An ITIN is for tax use only. It does not
entitle the holder to social security benefits distribute properties as the decedent has di-
or change the holder's employment or immi- rected. An administrator (or administratrix)
Combat zone. Special rules apply if a is usually appointed by the court if no will
gration status under U.S. law.
member of the Armed Forces of the United exists, if no executor was named in the will,
States dies while in active service in a combat or if the named executor cannot or will not
zone or from wounds, disease, or injury in- serve.
curred in a combat zone. A qualified hazard-
ous duty area is treated as a combat zone. Introduction In general, an executor and an adminis-
trator perform the same duties and have the
See Publication 3, Armed Forces' Tax Guide. This publication is designed to help those in same responsibilities.
charge of the property (estate) of an individual For estate tax purposes, if there is no ex-
Education IRA. Generally, the balance in who has died (decedent). It shows them how ecutor or administrator appointed, qualified,
an education individual retirement account to complete and file federal income tax re- and acting within the United States, the term
(education IRA) must be distributed within 30 turns and points out their responsibility to pay “executor” includes anyone in actual or con-
days after the individual for whom the account any taxes due. structive possession of any property of the
was established reaches age 30, or dies, A comprehensive example, using tax decedent. It includes, among others, the de-
whichever is earlier. The treatment of the ed- forms, is included near the end of this publi- cedent's agents and representatives; safe-
ucation IRA at the death of an individual un- cation. Also included at the end of this publi- deposit companies, warehouse companies,
der age 30 depends on who acquires the in- cation are the following items. and other custodians of property in this
terest in the account. If the decedent's country; brokers holding securities of the de-
spouse or other family member is the desig- • A checklist of the forms you may need cedent as collateral; and the debtors of the
nated beneficiary, the education IRA be- and their due dates. decedent who are in this country.
comes that person's education IRA. If another • A worksheet to reconcile amounts re- Because a personal representative for a
person acquires the interest, that person ported in the decedent's name on infor- decedent's estate can be an executor, ad-
generally must include in gross income the mation Forms W–2, 1099–INT, ministrator, or anyone in charge of the dece-
earnings portion of the distribution. If the de- 1099–DIV, etc. The worksheet will help dent's property, the term “personal represen-
cedent's estate acquires the interest, the you correctly determine the income to tative” will be used throughout this
earnings on the account must be included on report on the decedent's final return and publication.
the final income tax return of the decedent. on the returns for either the estate or a
For more information on education IRAs, beneficiary.
see Publication 590, Individual Retirement Duties
Arrangements (IRAs) (Including Roth IRAs The primary duties of a personal represen-
Comments and suggestions. We welcome
and Education IRAs). tative are to collect all the decedent's assets,
your comments about this publication and
your suggestions for future editions. pay the creditors, and distribute the remaining
Roth IRA. If a Roth IRA owner withdrew an You can e-mail us while visiting our web assets to the heirs or other beneficiaries.
amount from a traditional IRA in 1998 and site at www.irs.gov/help/email2.html. The personal representative also must
converted it to the Roth IRA, any amount the You can write to us at the following ad- perform the following duties.
owner had to include in income as a result dress:
of the withdrawal was included ratably over • File any income tax return and the estate
the 4-year period beginning with 1998, unless Internal Revenue Service tax return when due.
the owner elected to report the full amount in Technical Publications Branch • Pay the tax determined up to the date of
1998. If the owner dies during that 4-year W:CAR:MP:FP:P discharge from duties.
period, any amount not previously reported 1111 Constitution Ave. NW
must be included on the decedent's final re- Washington, DC 20224 Other duties of the personal representative in
turn unless the owner's surviving spouse re- federal tax matters are discussed in other
ceives the entire interest in all the owner's We respond to many letters by telephone. sections of this publication. If any beneficiary
Roth IRAs and chooses to continue reporting Therefore, it would be helpful if you would is a nonresident alien, see Publication 515,
it ratably. For more information, see Roth IRA include your daytime phone number, includ- Withholding of Tax on Nonresident Aliens and
under Final Return for Decedent. ing the area code, in your correspondence. Foreign Corporations, for information on the
personal representative's duties as a with-
Medical savings accounts. The treatment Useful Items holding agent.
of a medical savings account (MSA), includ- You may want to see: Penalty. There is a penalty for failure to
ing a Medicare+Choice MSA, at the death of file a tax return when due unless the failure
the account holder depends on who acquires is due to reasonable cause. Relying on an
the interest in the account. If the decedent's agent (attorney, accountant, etc.) is not rea-
spouse is the designated beneficiary of the  950 Introduction to Estate and Gift sonable cause for late filing. It is the personal
account, the account becomes the spouse's Taxes representative's duty to file the returns for the
MSA. If another beneficiary (including a decedent and the estate when due.
spouse that is not the designated beneficiary)
acquires the interest, that person generally Form (and Instructions) Identification number. The first action you
must include in gross income the fair market  1040 U.S. Individual Income Tax Return should take if you are the personal represen-
value of the assets in the account. If the de- tative for the decedent is to apply for an em-
cedent's estate acquires the interest, the fair  1041 U.S. Income Tax Return for Es- ployer identification number (EIN) for the
market value of the assets in the account is tates and Trusts estate. You should apply for this number as
Page 2
soon as possible because you need to enter satisfactory evidence of the termination of the the extent that he or she still has any of the
it on returns, statements, and other docu- estate. Use Form 56 for the termination notice decedent's property.
ments that you file concerning the estate. You by completing the appropriate part on the
must also give the number to payers of inter- form and attaching the required evidence. If Form 5495. Form 5495, Request for
est and dividends and other payers who must another has been appointed to succeed you Discharge from Personal Liability Under
file a return concerning the estate. You must as the personal representative, you should Internal Revenue Code Section 6905, can be
apply for the number using Form SS–4, Ap- give the name and address of your succes- used for making this request. If Form 5495 is
plication for Employer Identification Number. sor. not used, you must clearly indicate that the
Generally, it takes about 4 weeks to get your request is for discharge from personal liability
EIN. However, you can apply by phone and under section 6905 of the Internal Revenue
get it immediately (you still need Form SS–4). Request for prompt assessment (charge) Code.
See the form instructions for how to apply. of tax. The IRS ordinarily has 3 years from
Payers of interest and dividends report the date an income tax return is filed, or its
Insolvent estate. Generally, if a decedent's
amounts on Forms 1099 using the identifica- due date, whichever is later, to charge any
estate is insufficient to pay all the decedent's
tion number of the person to whom the ac- additional tax that is due. However, as a per-
debts, the debts due the United States must
count is payable. After a decedent's death, sonal representative you may request a
be paid first. Both the decedent's federal in-
the Forms 1099 must reflect the identification prompt assessment of tax after the return has
come tax liabilities at the time of death and
number of the estate or beneficiary to whom been filed. This reduces the time for making
the estate's income tax liability are debts due
the amounts are payable. As the personal the assessment to 18 months from the date
the United States. The personal represen-
representative handling the estate you must the written request for prompt assessment
tative of an insolvent estate is personally re-
furnish this identification number to the payer. was received. This request can be made for
sponsible for any tax liability of the decedent
For example, if interest is payable to the es- any income tax return of the decedent and for
or of the estate if he or she had notice of such
tate, the estate's EIN number must be pro- the income tax return of the decedent's es-
tax obligations or had failed to exercise due
vided to the payer and used to report the in- tate. This may permit a quicker settlement of
care in determining if such obligations existed
terest on Form 1099–INT, Interest Income. If the tax liability of the estate and an earlier
before distribution of the estate's assets and
the interest is payable to a surviving joint final distribution of the assets to the benefi-
before being discharged from duties. The ex-
owner, the survivor's identification number ciaries.
tent of such personal responsibility is the
must be provided to the payer and used to Form 4810. Form 4810, Request for
amount of any other payments made before
report the interest. Prompt Assessment Under Internal Revenue
paying the debts due the United States, ex-
The deceased individual's identifying Code Section 6501(d), can be used for mak-
cept where such other debt paid has priority
number must not be used to file an individual ing this request. It must be filed separately
over the debts due the United States. The
tax return after the decedent's final tax return. from any other document. The request should
income tax liabilities need not be formally
It also must not be used to make estimated be filed with the IRS office where the return
assessed for the personal representative to
tax payments for a tax year after the year of was filed. If Form 4810 is not used, you must
be liable if he or she was aware or should
death. clearly indicate that you are making a request
have been aware of their existence.
Penalty. If you do not include the EIN on for prompt assessment under section 6501(d)
any return, statement, or other document, you of the Internal Revenue Code. You must
are liable for a penalty for each failure, unless identify the type of tax and the tax period for
you can show reasonable cause. You are which the prompt assessment is requested.
Fees Received by
also liable for a penalty if you do not give the As the personal representative for the de- Personal Representatives
EIN to another person, or if you do not include cedent's estate, you are responsible for any All personal representatives must include in
the taxpayer identification number of another additional taxes that may be due. You can their gross income fees paid to them from an
person on a return, statement, or other doc- request prompt assessment of any of the de- estate. If paid to a professional executor or
ument. cedent's taxes (other than federal estate administrator, self-employment tax also ap-
taxes) for any years for which the statutory plies to such fees. For a nonprofessional ex-
period for assessment is open. This applies ecutor or administrator (a person serving in
Notice of fiduciary relationship. The term even though the returns were filed before the such capacity in an isolated instance, such
“fiduciary” means any person acting for an- decedent's death. as a friend or relative of the decedent), self-
other person. It applies to persons who have Failure to report income. If you or the employment tax only applies if a trade or
positions of trust on behalf of others. A per- decedent failed to report substantial amounts business is included in the estate's assets,
sonal representative for a decedent's estate of gross income (more than 25% of the gross the executor actively participates in the busi-
is a fiduciary. income reported on the return) or filed a false ness, and the fees are related to operation
If you are appointed to act in any fiduciary or fraudulent return, your request for prompt of the business.
capacity for another, you must file a written assessment will not shorten the period during
notice with the IRS stating this. Form 56, which the IRS may assess the additional tax.
Notice Concerning Fiduciary Relationship, However, such a request may relieve you of
can be used for this purpose. The in- personal liability for the tax if you did not have
structions and other requirements are given knowledge of the unpaid tax. Final Return
on the back of the form.
Filing the notice. File the written notice for Decedent
(or Form 56) with the IRS office where the Request for discharge from personal li- The personal representative (defined earlier)
returns are filed for the person (or estate) for ability for tax. An executor can make a must file the final income tax return of the
whom you are acting. You should file this written request for a discharge from personal decedent for the year of death and any re-
notice as soon as all of the necessary infor- liability for a decedent's income and gift taxes. turns not filed for preceding years. A surviving
mation (including the EIN) is available. It The request must be made after the returns spouse, under certain circumstances, may
notifies the IRS that, as the fiduciary, you are for those taxes are filed. For this purpose an have to file the returns for the decedent. See
assuming the powers, rights, duties, and executor is an executor or administrator that Joint Return, later.
privileges of the decedent, and allows the IRS is appointed, qualified, and acting within the
to mail to you all tax notices concerning the United States. Return for preceding year. If an individual
person (or estate) you represent. The notice Within 9 months after receipt of the re- died after the close of the tax year, but before
remains in effect until you notify the appro- quest, the IRS will notify the executor of the the return for that year was filed, the return
priate IRS office that your relationship to the amount of taxes due. If this amount is paid, for the year just closed will not be the final
estate has terminated. the executor will be discharged from personal return. The return for that year will be a reg-
Termination notice. When you are re- liability for any future deficiencies. If the IRS ular return and the personal representative
lieved of your responsibilities as personal has not notified the executor, he or she will must file it.
representative, you must advise the IRS office be discharged from personal liability at the
where you filed the written notice (or Form end of the 9-month period. Example. Samantha Smith died on
56) either that the estate has been terminated March 21, 2000, before filing her 1999 tax
or that your successor has been appointed. Even if the executor is discharged, the return. Her personal representative must file
If the estate is terminated, you must furnish ! IRS will still be able to assess tax
deficiencies against the executor to
her 1999 return by April 17, 2000. Her final
tax return is due April 16, 2001.
Page 3
death. The filing status of the decedent in this On the decedent's final return, include the
Filing Requirements instance is “married filing separate return.” decedent's distributive share of partnership
The gross income, age, and filing status of a For information about tax benefits a sur- items for the following periods.
decedent generally determine whether a re- viving spouse may be entitled to, see Tax
turn must be filed. Gross income usually is Benefits for Survivors, later under Other Tax 1) The partnership tax year which ended
all income received by an individual in the Information. within or with the decedent's last tax year
form of money, goods, property and services (the year ending on the date of death).
that is not tax-exempt. It includes gross re- Personal representative may revoke joint 2) The period, if any, from the end of that
ceipts from self-employment but if the busi- return election. A court-appointed personal partnership tax year (item (1)) to the de-
ness involves manufacturing, merchandising, representative may revoke an election to file cedent's date of death.
or mining, subtract any cost of goods sold. In a joint return that was previously made by the
general, filing status depends on whether the surviving spouse alone. This is done by filing Example. Mary Smith was a partner in
decedent was considered single or married a separate return for the decedent within one XYZ partnership and reported her income on
at the time of death. See Publication 501, year from the due date of the return (including a tax year ending December 31. The part-
Exemptions, Standard Deduction, and Filing any extensions). The joint return made by the nership uses a tax year ending June 30. Mary
Information. surviving spouse will then be regarded as the died August 31, 2000, and her estate estab-
separate return of that spouse by excluding lished its tax year ending August 31.
Refund the decedent's items and refiguring the tax The distributive share of partnership items
A return should be filed to obtain a refund if liability. based on the decedent's partnership interest
tax was withheld from salaries, wages, pen- is reported as follows.
sions, or annuities, or if estimated tax was
paid, even if a return is not required to be Income To Include • Final Return for the Decedent — January
filed. Also, the decedent may be entitled to The decedent's income includible on the final 1 through August 31, 2000, includes XYZ
other credits that result in a refund. These return is generally determined as if the person partnership items from (a) the partnership
advance payments of tax and credits are were still alive except that the taxable period tax year ending June 30, 2000, and (b)
discussed later under Credits, Other Taxes, is usually shorter because it ends on the date the partnership tax year beginning July
and Payments. of death. The method of accounting regularly 1, 2000, and ending August 31, 2000 (the
used by the decedent before death also de- date of death).
Form 1310. Generally, a person who is filing termines the income includible on the final • Income Tax Return of the Estate —
a return for a decedent and claiming a refund return. This section explains how some types September 1, 2000, through August 31,
must file Form 1310, Statement of Person of income are reported on the final return. 2001, includes XYZ partnership items for
Claiming Refund Due a Deceased Taxpayer, For more information about accounting the period September 1, 2000, through
with the return. However, if the person claim- methods, see Publication 538, Accounting June 30, 2001.
ing the refund is a surviving spouse filing a Periods and Methods.
joint return with the decedent, or a court- S Corporation Income
appointed or certified personal representative Under the Cash Method
filing an original return for the decedent, Form If the decedent was a shareholder in an S
If the decedent accounted for income under corporation, include on the final return the
1310 is not needed. The personal represen- the cash method, only those items actually
tative must attach to the return a copy of the decedent's share of the S corporation's items
or constructively received before death are of income, loss, deduction, and credit for the
court certificate showing that he or she was included in the final return.
appointed the personal representative. following periods.

Example. Assume that Mr. Green died Constructive receipt of income. Interest 1) The corporation's tax year that ended
before filing his tax return. You were ap- from coupons on the decedent's bonds was within or with the decedent's last tax year
pointed the personal representative for Mr. constructively received by the decedent if the (year ending on the date of death).
Green's estate, and you filed his Form 1040 coupons matured in the decedent's final tax 2) The period, if any, from the end of that
showing a refund due. You do not need Form year, but had not been cashed. Include the corporation's tax year (item (1)) to the
1310 to claim the refund if you attach a copy interest in the final return. decedent's date of death.
of the court certificate showing you were ap- Generally, a dividend was constructively
pointed the personal representative. received if it was available for use by the de-
cedent without restriction. If the corporation Self-Employment Income
customarily mailed its dividend checks, the Include self-employment income actually or
Nonresident Alien dividend was includible when received. If the constructively received or accrued, depending
If the decedent was a nonresident alien who individual died between the time the dividend on the decedent's accounting method. For
would have had to file Form 1040NR, U.S. was declared and the time it was received in self-employment tax purposes only, the de-
Nonresident Alien Income Tax Return, you the mail, the decedent did not constructively cedent's self-employment income will include
must file that form for the decedent's final tax receive it before death. Do not include the the decedent's distributive share of a part-
year. See the instructions for Form 1040NR dividend in the final return. nership's income or loss through the end of
for the filing requirements, due date, and the month in which death occurred. For this
where to file. purpose, the partnership's income or loss is
Under an Accrual Method considered to be earned ratably over the
Joint Return Generally, under an accrual method of ac- partnership's tax year.
counting, income is reported when earned.
Generally, the personal representative and If the decedent used an accrual method,
the surviving spouse can file a joint return for only the income items normally accrued be- Community Income
the decedent and the surviving spouse. fore death are to be included in the final re- If the decedent was married and was
However, the surviving spouse alone can file turn. domiciled in a community property state, half
the joint return if no personal representative of the income received and half of the ex-
has been appointed before the due date for penses paid during the decedent's tax year
filing the final joint return for the year of death. Partnership Income by either the decedent or spouse may be
This also applies to the return for the pre- The death of a partner closes the partner- considered to be the income and expenses
ceding year if the decedent died after the ship's tax year for that partner. Generally, it of the other. For more information, see Pub-
close of the preceding tax year and before the does not close the partnership's tax year for lication 555, Community Property.
due date for filing that return. The income of the remaining partners. The decedent's dis-
the decedent that was includible on his or her tributive share of partnership items must be
return for the year up to the date of death (see figured as if the partnership's tax year ended
Interest and Dividend Income
Income To Include, later) and the income of on the date the partner died. To avoid an in- (Forms 1099)
the surviving spouse for the entire year must terim closing of the partnership books, the A Form 1099 should be received for the de-
be included in the final joint return. partners can agree to estimate the decedent's cedent reporting interest and dividends
A final joint return with the decedent can- distributive share by prorating the amounts earned before death and included on the de-
not be filed if the surviving spouse remarried the partner would have included for the entire cedent's final return. A separate Form 1099
before the end of the year of the decedent's partnership tax year. should show the interest and dividends
Page 4
earned after the date of the decedent's death Education IRA For information on Roth IRAs, see Publi-
and paid to the estate or other recipient, cation 590.
Generally, the balance in an education indi-
which must include those amounts on its re-
vidual retirement account (education IRA)
turn. You can request corrected Forms 1099 Accelerated Death Benefits
must be distributed within 30 days after the
if these forms do not properly reflect the right
individual for whom the account was estab- Accelerated death benefits are amounts re-
recipient or amounts.
lished reaches age 30, or dies, whichever is ceived under a life insurance contract before
The amount reported on Form 1099–INT
earlier. The treatment of the education IRA the death of the insured individual. These
or Form 1099–DIV, Dividends and Distribu-
at the death of an individual under age 30 benefits also include amounts received on the
tions, may not necessarily be the correct
depends on who acquires the interest in the sale or assignment of the contract to a viatical
amount that should be properly reported on
account. If the decedent's estate acquires the settlement provider.
each income tax return. For example, a Form
interest, the earnings on the account must be Generally, if the decedent received accel-
1099–INT reporting interest payable to a de-
included on the final income tax return of the erated death benefits either on his or her own
cedent may include income that should be
decedent. The estate tax deduction, dis- life or on the life of another person, those
reported on the final income tax return of the
cussed later, does not apply to this amount. benefits are not included in the decedent's
decedent, as well as income that the estate
If a beneficiary acquires the interest, see the income. This exclusion applies only if the in-
or other recipient should report, either as in-
discussion under Income in Respect of the sured was a terminally or chronically ill indi-
come earned after death or as income in re-
Decedent, later. vidual. For more information, see the dis-
spect of the decedent (discussed later). For
For more information on education IRAs, cussion under Gifts, Insurance, and
income earned after death, you should ask
see Publication 590. Inheritances under Other Tax Information,
the payer for a Form 1099 that properly
identifies the recipient (by name and identifi- later.
cation number) and the proper amount. If that Roth IRA
is not possible, or if the form includes an This discussion only applies if the decedent: Exemptions
amount that represents income in respect of
the decedent, include an explanation, such • Withdrew an amount from a traditional and Deductions
as that shown next, under How to report, de- IRA in 1998, Generally, the rules for exemptions and de-
scribing the amounts that are properly re- ductions allowed to an individual also apply
ported on the decedent's final return. • Converted the amount to a Roth IRA, and to the decedent's final income tax return.
See U.S. savings bonds acquired from • Included the taxable conversion amount Show on the final return deductible items the
decedent under Income in Respect of the in income over a 4-year period beginning decedent paid before death (or accrued, if the
Decedent, later, for information on savings in 1998. decedent reported deductions on an accrual
bond interest that may have to be reported method). This section contains a detailed
on the final return. If the owner dies during that 4-year period, discussion of medical expenses because,
any amount not previously reported must be under certain conditions, the tax treatment
included on the decedent's final return. How- can be different for the medical expenses of
How to report. If you are preparing the de- ever, if the decedent's spouse receives the the decedent. See Medical Expenses, later.
cedent's final return and you have received entire interest in all the decedent's Roth IRAs,
a Form 1099–INT for the decedent that in- that spouse can choose to continue to include Exemptions
cludes amounts belonging to the decedent the amounts in income ratably over the re-
You can claim the personal exemption for the
and to another recipient (the decedent's es- maining years in the 4-year period.
decedent on the final income tax return. If the
tate or another beneficiary), report the total The spouse makes this choice by attach-
decedent was another person's dependent
interest shown on Form 1099–INT on ing a statement to his or her return (and to the
(i.e., a parent's), you cannot claim the per-
Schedule 1 (Form 1040A) or on Schedule B decedent's final return, if a joint return is not
sonal exemption on the decedent's final re-
(Form 1040). Next, enter a subtotal of the in- filed). Include the following items on the
terest shown on Forms 1099, and the interest statement.
reportable from other sources for which you
did not receive Forms 1099. Show any in- • A statement that the surviving spouse Standard Deduction
terest (including any interest you receive as elects to continue to report the taxable If you do not itemize deductions on the final
a nominee) belonging to another recipient portion from the decedent's 1998 Roth return, the full amount of the appropriate
separately and subtract it from the subtotal. IRA conversion over the remaining tax standard deduction is allowed regardless of
Identify the amount of this adjustment as years. the date of death. For information on the ap-
“Nominee Distribution” or other appropriate • The names and social security numbers propriate standard deduction, see Publication
designation. of the surviving spouse and the decedent. 501.
Report dividend income for which you re-
ceived a Form 1099–DIV on the appropriate • The total taxable amount of the dece- Medical Expenses
schedule using the same procedure. dent's 1998 Roth IRA conversion from the
decedent's 1998 Form 8606, Nondeduct- Medical expenses paid before death by the
ible IRAs. decedent are deductible, subject to limits, on
Note. If the decedent received amounts the final income tax return if deductions are
as a nominee, you must give the actual owner • The amount, if any, of previous taxable itemized. This includes expenses for the de-
a Form 1099, unless the owner is the dece- distributions from Roth IRAs. cedent, as well as for the decedent's spouse
dent's spouse. and dependents.
If the spouse makes this choice, the amount
includible under the 4-year rule for the year Qualified medical expenses paid be-
Medical Savings Account of death is included on the decedent's final
return. After the year of death, the surviving
! fore death by the decedent are not
CAUTION deductible if paid with a tax-free dis-

The treatment of a medical savings account spouse reports the same taxable IRA distri- tribution from any medical savings account.
(MSA), including a Medicare+Choice MSA, bution as the decedent would have reported.
at the death of the account holder depends The choice cannot be made or changed Election for decedent's expenses. Medical
on who acquires the interest in the account. after the due date (including extensions) for expenses that were not paid before death are
If the decedent's estate acquires the interest, filing the spouse's tax return for the tax year liabilities of the estate and are shown on the
the fair market value of the assets in the ac- that includes the decedent's date of death. federal estate tax return (Form 706). How-
count on the date of death is included in gross However, if the surviving spouse timely filed ever, if medical expenses for the decedent
income on the decedent's final return. The his or her return for the year without making are paid out of the estate during the 1-year
estate tax deduction, discussed later, does the choice, the surviving spouse can still period beginning with the day after death, you
not apply to this amount. make the choice by filing an amended return can elect to treat all or part of the expenses
If a beneficiary acquires the interest, see within six months of the due date of the return as paid by the decedent at the time they were
the discussion under Income in Respect of (excluding extensions). Attach the statement incurred.
the Decedent, later. For other information on to the amended return and write “Filed pur- If you make the election, you can claim
MSAs, see Publication 969, Medical Savings suant to section 301.9100–2” on the state- all or part of the expenses on the decedent's
Accounts. ment. File the amended return at the same income tax return, if deductions are itemized,
address you filed the original return. rather than on the federal estate tax return
Page 5
(Form 706). You can deduct expenses in- At-risk loss limits. Special at-risk rules ap- For more information, see Publication 596,
curred in the year of death on the final income ply to most activities that are engaged in as Earned Income Credit.
tax return. You should file an amended return a trade or business or for the production of
(Form 1040X) for medical expenses incurred income. Credit for the elderly or the disabled. This
in an earlier year, unless the statutory period These rules limit the amount of deductible credit is allowable on a decedent's final in-
for filing a claim for that year has expired. loss to the amount for which the individual come tax return if the decedent was age 65
The amount you can deduct on the in- was considered at risk in the activity. An in- or older or had retired before the end of the
come tax return is the amount above 7.5% dividual generally will be considered at risk to tax year on permanent and total disability.
of adjusted gross income. The amounts not the extent of the money and the adjusted For more information, see Publication 524,
deductible because of this percentage cannot basis of property that he or she contributed Credit for the Elderly or the Disabled.
be claimed on the federal estate tax return. to the activity and certain amounts the indi-
Making the election. You make the vidual borrowed for use in the activity. An in- Child tax credit. If the decedent had a
election by attaching a statement, in dupli- dividual will be considered at risk for amounts qualifying child, you may be able to claim the
cate, to the decedent's income tax return or borrowed only if he or she was personally li- child tax credit on the decedent's final return
amended return. The statement must state able for the repayment or if the amounts bor- even though the return covers less than 12
that you have not claimed the amount as an rowed were secured by property other than months. If the decedent had three or more
estate tax deduction, and that the estate that used in the activity. The individual is not qualifying children, you may be able to claim
waives the right to claim the amount as a considered at risk for borrowed amounts if the the additional child tax credit and get a refund
deduction. This election applies only to ex- lender has an interest in the activity or if the if the credit is more than the tax liability. For
penses incurred for the decedent, not to ex- lender is related to a person who has an in- more information, see your form instructions.
penses incurred to provide medical care for terest in the activity. For more information,
dependents. see Publication 925, Passive Activity and At-
Risk Rules. General business tax credit. The general
business credit available to a taxpayer is lim-
Example. Richard Brown used the cash ited. Any unused credit arising in a tax year
method of accounting and filed his income tax Passive activity rules. A passive activity is beginning before 1998 generally is carried
return on a calendar year basis. Mr. Brown any trade or business activity in which the back 3 years and then carried forward for up
died on June 1, 2000, after incurring $800 in taxpayer does not materially participate. To to 15 years. Any unused credit arising in a tax
medical expenses. Of that amount, $500 was determine material participation, see Publica- year beginning after 1997 has a 1-year
incurred in 1999 and $300 was incurred in tion 925. Rental activities are also passive carryback and a 20-year carryforward period.
2000. Richard filed his 1999 income tax return activities regardless of the taxpayer's partici- After the carryforward period, a deduction
before April 15, 2000. The personal repre- pation, unless the taxpayer meets certain el- may be allowed for any unused business
sentative of the estate paid the entire $800 igibility requirements. credit. If the taxpayer dies before the end of
liability in August 2000. Individuals, estates, and trusts can offset the carryforward period, the deduction gen-
The personal representative may file an passive activity losses only against passive erally is allowed in the year of death.
amended return (Form 1040X) for 1999 activity income. Passive activity losses or For more information on the general busi-
claiming the $500 medical expense as a de- credits that are not allowed in one tax year ness credit, see Publication 334, Tax Guide
duction, subject to the 7.5% limit. The $300 can be carried forward to the next year. for Small Business.
of expenses incurred in 2000 can be de- If a passive activity interest is transferred
ducted on the final income tax return, subject because a taxpayer dies, the accumulated
to the 7.5% limit. The personal representative unused passive activity losses are allowed
Other Taxes
must file a statement in duplicate with each as a deduction against the decedent's income Taxes other than income tax that may be
return stating that these amounts have not in the year of death. Losses are allowed only owed on the final return of a decedent include
been claimed on the federal estate tax return to the extent they are greater than the excess self-employment tax and alternative minimum
(Form 706), and waiving the right to claim of the transferee's (recipient of the interest tax, which are reported in the Other Taxes
such a deduction on Form 706 in the future. transferred) basis in the property over the section of Form 1040.
decedent's adjusted basis in the property im-
mediately before death. The portion of the Self-employment tax. Self-employment tax
Medical expenses not paid by estate. If losses that is equal to the excess is not al- may be owed on the final return if either of the
you paid medical expenses for your deceased lowed as a deduction for any tax year. following applied to the decedent in the year
spouse or dependent, claim the expenses on Use Form 8582, Passive Activity Loss of death.
your tax return for the year in which you paid Limitations, to summarize losses and income
them, whether they are paid before or after from passive activities and to figure the 1) Net earnings from self-employment (ex-
the decedent's death. If the decedent was a amounts allowed. For more information, see cluding income described in (2)) were
child of divorced or separated parents, the Publication 925. $400 or more.
medical expenses can usually be claimed by
both the custodial and noncustodial parent to 2) Wages from services performed as a
the extent paid by that parent during the year. church employee were $108.28 or more.
Credits, Other Taxes,
Insurance reimbursements. Insurance re-
and Payments Alternative minimum tax (AMT). The tax
laws give special treatment to some kinds of
imbursements of previously deducted medical This section includes brief discussions of income and allow special deductions and
expenses due a decedent at the time of death some of the tax credits, types of taxes that credits for some kinds of expenses. The “al-
and later received by the decedent's estate may be owed, income tax withheld, and esti- ternative minimum tax” (AMT) was enacted
are includible in the income tax return of the mated tax payments that are reported on the so that certain taxpayers who benefit from
estate (Form 1041) for the year the re- final return of a decedent. these laws still pay at least a minimum
imbursements are received. The reimburse- amount of tax. In general, the AMT is the ex-
ments are also includible in the decedent's cess of the tentative minimum tax over the
gross estate. Credits regular tax shown on the return.
You can claim on the final income tax return Form 6251. Use Form 6251, Alternative
any tax credits that applied to the decedent Minimum Tax—Individuals, to determine if
Deduction for Losses before death. Some of these credits are dis- this tax applies to the decedent. See the form
cussed next. instructions for information on when you must
A decedent's net operating loss deduction attach the form to the tax return.
from a prior year and any capital losses
(capital losses include capital loss carryovers) Earned income credit. If the decedent was
can be deducted only on the decedent's final an eligible individual, you can claim the Payments of Tax
income tax return. A net operating loss on the earned income credit on the decedent's final The income tax withheld from the decedent's
decedent's final income tax return can be return even though the return covers less salary, wages, pensions, or annuities, and the
carried back to prior years. You cannot de- than 12 months. If the allowable credit is more amount paid as estimated tax, for example,
duct any unused net operating loss or capital than the tax liability for the year, the excess are credits (advance payments of tax) that
loss on the estate's income tax return. is refunded. you must claim on the final return.
Page 6
zone in active service. For this purpose, a If death occurred in a combat zone or from
Name, Address, qualified hazardous duty area is treated as a wounds, disease, or injury incurred in a com-
and Signature combat zone. bat zone, the period for filing the claim is ex-
The word “DECEASED,” the decedent's If the tax (including interest, additions to tended by:
name, and the date of death should be written the tax, and additional amounts) for these
across the top of the tax return. In the name years has been assessed, the assessment 1) The amount of time served in the combat
and address space you should write the name will be forgiven. If the tax has been collected zone (including any period in which the
and address of the decedent and the surviv- (regardless of the date of collection), that tax individual was in missing status); plus
ing spouse. If a joint return is not being filed, will be credited or refunded. 2) The period of continuous qualified
the decedent's name should be written in the Any of the decedent's income tax for tax hospitalization for injury from service in
name space and the personal represen- years before those mentioned above that re- the combat zone, if any; plus
tative's name and address should be written mains unpaid as of the actual (or
in the remaining space. presumptive) date of death will not be as- 3) The next 180 days.
sessed. If any unpaid tax (including interest,
additions to the tax, and additional amounts) Qualified hospitalization means any
Signature. If a personal representative has hospitalization outside the United States, and
has been assessed, this assessment will be
been appointed, that person must sign the any hospitalization in the United States of not
forgiven. Also, if any tax was collected after
return. If it is a joint return, the surviving more than 5 years.
the date of death, that amount will be credited
spouse must also sign it. If no personal rep-
or refunded.
resentative has been appointed, the surviving Filing a claim. Use the following procedures
The date of death of a member of the
spouse (on a joint return) should sign the re- to file a claim.
Armed Forces reported as missing in action
turn and write in the signature area “Filing as
or as a prisoner of war is the date his or her
surviving spouse.” If no personal represen- 1) If a U.S. individual income tax return
name is removed from missing status for
tative has been appointed and if there is no (Form 1040, 1040A, or 1040EZ) has not
military pay purposes. This is true even if
surviving spouse, the person in charge of the been filed, you should make a claim for
death actually occurred earlier.
decedent's property must file and sign the refund of any withheld income tax or
return as “personal representative.” estimated tax payments by filing Form
If you pay someone to prepare, assist in Military or Terroristic Actions 1040. Form W–2, Wage and Tax State-
preparing, or review the tax return, that per- The decedent's income tax liability is forgiven ment, must accompany all returns.
son must sign the return and fill in the other if, at death, he or she was a military or civilian
blanks in the paid preparer's area of the re- employee of the United States who died be- 2) If a U.S. individual income tax return has
turn. You can check a box in the signature cause of wounds or injury incurred: been filed, you should make a claim for
area that authorizes the IRS to contact that refund by filing Form 1040X. You must
paid preparer for certain information. See the 1) While a U.S. employee, and file a separate Form 1040X for each year
Form 1040 instructions for more information. in question.
2) In a military or terroristic action outside
the United States. You must file these returns and claims
When and Where To File The forgiveness applies to the tax year in
at the following address:
The final income tax return is due at the same which death occurred and for any prior tax
time the decedent's return would have been year in the period beginning with the year Internal Revenue Service Center
due had death not occurred. A final return for before the year in which the wounds or injury P.O. Box 12267
a decedent who was a calendar year taxpayer occurred. Attn: Stop 537
is generally due on April 15 following the year Covington, KY 41012
of death, regardless of when during the year Example. The income tax liability of a
death occurred. However, when the due date civilian employee of the United States who
falls on a Saturday, Sunday, or legal holiday, died in 2000 because of wounds incurred Identify all returns and claims for refund
the due date is delayed until the next busi- while a U.S. employee outside the United by writing “Kosovo Operation — KIA,” “Desert
ness day. States in a terroristic attack that occurred in Storm — KIA,” or “Former Yugoslavia —
The tax return must be prepared on a form 1989 will be forgiven for 2000 and for all prior KIA” in bold letters on the top of page 1 of the
for the year of death regardless of when dur- tax years in the period 1988–1999. Refunds return or claim. On Forms 1040 and 1040X,
ing the year death occurred. are allowed for the tax years for which the the phrase “Kosovo Operation — KIA,” “De-
Generally, you must file the final income period for filing a claim for refund has not sert Storm — KIA,” or “Former Yugoslavia —
tax return of the decedent with the Internal ended, as discussed later. KIA” must be written on the line for “total
Revenue Service center for the place where tax.” If the individual was killed in a terroristic
you live. A tax return for a decedent cannot Military or terroristic action defined. A or military action outside the United States,
be electronically filed. A paper tax return must military or terroristic action means the follow- put “KITA” on the front of the return and on
be filed for the decedent. ing. the line for “total tax.”
An attachment should include a computa-
• Any terroristic activity that most of the tion of the decedent's tax liability and a com-
Tax Forgiveness for evidence indicates was directed against putation of the amount that is to be forgiven.
the United States or any of its allies.
Deaths Due to On joint returns, you must make an allocation
• Any military action involving the U.S. of the tax as described later under Joint re-
Military or Terroristic Armed Forces and resulting from violence turns. If you cannot make a proper allocation,
Actions or aggression against the United States you should attach a statement of all income
or any of its allies, or the threat of such and deductions allocable to each spouse and
If the decedent was a member of the Armed violence or aggression. the IRS will make the proper allocation.
Forces or a civilian employee of the United The following necessary documents
States, the decedent's income tax liability Military action does not include training must accompany all returns and claims for
may be forgiven if his or her death was due exercises. Any multinational force in which refund under these procedures.
to service in a combat zone or to military or the United States is participating is treated
terroristic actions. as an ally of the United States. • Form 1310, Statement of Person Claim-
ing Refund Due a Deceased Taxpayer.
Combat Zone Claim for Credit or Refund • A certification from the Department of
If a member of the Armed Forces of the If any of these tax-forgiveness situations ap- Defense or the Department of State that
United States dies while in active service in plies to a prior year tax, any tax paid for which the death was due to military or terroristic
a combat zone or from wounds, disease, or the period for filing a claim has not ended will action outside the United States. For
injury incurred in a combat zone, the dece- be credited or refunded. If any tax is still due, military employees and civilian employ-
dent's income tax liability is abated (forgiven) it will be canceled. The normal period for filing ees of the Department of Defense, cer-
for the entire year in which death occurred a claim for credit or refund is 3 years after the tification must be made by that depart-
and for any prior tax year ending on or after return was filed or 2 years after the tax was ment on Form DOD 1300, Report of
the first day the person served in a combat paid, whichever is later. Casualty. For civilian employees of all
Page 7
other agencies, certification must be a acceptable evidence of your ap- widow(er) with dependent child.” For later
letter signed by the Director General of pointment as the personal repre- years, he may qualify to file as a head of
the Foreign Service, Department of State, sentative.) If you are filing an household.
or his/her delegate. The certification must amended return, attach Form 1310
include the individual's name and social and a copy of the certificate of ap- Figuring your tax. Include only your own
security number, the date of injury, the pointment (or, if you have already income, exemptions, and deductions in figur-
date of death, and a statement that the sent the certificate of appointment ing your tax, but check the box on line 5
individual died as the result of a military to IRS, write “Certificate Previously (Form 1040 or 1040A) under filing status on
or terroristic action outside the United Filed” at the bottom of Form 1310). your tax return and enter the year of death in
States and was an employee of the the parentheses. Use the Tax Rate Schedule
c) If you are not filing a joint return as or the column in the Tax Table for Married
United States at the date of injury and at
the surviving spouse and a personal filing jointly, which gives you the split-income
the date of death.
representative has not been ap- benefits.
If the certification has been received, but pointed, file the return and attach The last year you can file jointly with, or
you do not have enough tax information to file Form 1310 and proof of death claim an exemption for, your deceased
a timely claim for refund, you can suspend the (generally, a copy of the death cer- spouse is the year of death.
period for filing a claim by filing Form 1040X. tificate).
Attach Form 1310 and a statement that you Joint return filing rules. If you are the sur-
will file an amended claim as soon as you viving spouse and a personal representative
have the required tax information. is handling the estate for the decedent, you
Joint returns. If a joint return was filed, should coordinate filing your return for the
only the decedent's part of the income tax li- Other Tax Information year of death with this personal represen-
ability is eligible for the refund. Determine the This section contains information about the tative. See Joint Return earlier under Final
decedent's tax liability as follows: effect of an individual's death on the income Return for Decedent.
tax liability of the survivors (including widows
1) Figure the income tax for which the de-
and widowers), the beneficiaries, and the es-
cedent would have been liable if a sep-
tate. Income in Respect
arate return had been filed.
of the Decedent
2) Figure the income tax for which the All gross income that the decedent would
spouse would have been liable if a sep- Tax Benefits for Survivors have received had death not occurred, that
arate return had been filed. Survivors can qualify for certain benefits when was not properly includible on the final return,
filing their own income tax returns. discussed earlier, is income in respect of the
3) Multiply the joint tax liability by a fraction.
The numerator of the fraction is the decedent.
Joint return by surviving spouse. A sur-
amount in (1), above. The denominator
viving spouse can file a joint return for the
of the fraction is the total of (1) and (2).
year of death and may qualify for special tax How To Report
The amount in (3) above is the decedent's rates for the following 2 years, as explained Income in respect of a decedent must be in-
tax liability that is eligible for the refund or tax under Qualifying widows and widowers, later. cluded in the gross income of one of the fol-
forgiveness. lowing.
Decedent as your dependent. If the dece-
dent qualified as your dependent for the part • The decedent's estate, if the estate re-
Filing Reminders of the year before death, you can claim the ceives it.
To minimize the time needed to process the exemption for the dependent on your tax re- • The beneficiary, if the right to income is
decedent's final return and issue any refund, turn, regardless of when death occurred dur- passed directly to the beneficiary and the
be sure to follow these procedures. ing the year. beneficiary receives it.
If the decedent was your qualifying child,
1) Write “DECEASED,” the decedent's you may be able to claim the child tax credit. • Any person to whom the estate properly
name, and the date of death across the distributes the right to receive it.
top of the tax return. Qualifying widows and widowers. If your
If you have to include income in re-
spouse died within the 2 tax years preceding
2) If a personal representative has been
the year for which your return is being filed,
TIP spect of the decedent in your gross
appointed, the personal representative income, you may be able to claim a
must sign the return. If it is a joint return, you may be eligible to claim the filing status
deduction for the estate tax paid on that in-
the surviving spouse must also sign it. of qualifying widow(er) with dependent child
come. See Estate Tax Deduction, later.
and qualify to use the Married filing jointly tax
3) If you are the decedent's spouse filing a rates.
joint return with the decedent and no Requirements. Generally, you qualify for Example 1. Frank Johnson owned and
personal representative has been ap- this special benefit if you meet all of the fol- operated an apple orchard. He used the cash
pointed, write “Filing as surviving lowing requirements. method of accounting. He sold and delivered
spouse” in the area where you sign the 1,000 bushels of apples to a canning factory
return. • You were entitled to file a joint return with for $2,000, but did not receive payment be-
your spouse for the year of death — fore his death. The proceeds from the sale
4) If no personal representative has been whether or not you actually filed jointly. are income in respect of the decedent. When
appointed and if there is no surviving the estate was settled, payment had not been
spouse, the person in charge of the de- • You did not remarry before the end of the made and the estate transferred the right to
cedent's property must file and sign the current tax year. the payment to his widow. When Frank's
return as “personal representative.” • You have a child, stepchild, or foster child widow collects the $2,000, she must include
5) To claim a refund for the decedent, do who qualifies as your dependent for the that amount in her return. It is not reported
the following. tax year. on the final return of the decedent nor on the
return of the estate.
a) If you are the decedent's spouse • You provide more than half the cost of
filing a joint return with the dece- maintaining your home, which is the Example 2. Assume Frank Johnson used
dent, file only the tax return to claim principal residence of that child for the the accrual method of accounting in Example
the refund. entire year except for temporary ab- 1. The amount accrued from the sale of the
sences. apples would be included on his final return.
b) If you are the personal represen- Neither the estate nor the widow will realize
tative and the return is not a joint Example. William Burns's wife died in income in respect of the decedent when the
return filed with the decedent's sur- 1998. Mr. Burns has not remarried and cont- money is later paid.
viving spouse, file the return and inued throughout 1999 and 2000 to maintain
attach a copy of the certificate that a home for himself and his dependent child. Example 3. On February 1, George High,
shows your appointment by the For 1998 he was entitled to file a joint return a cash method taxpayer, sold his tractor for
court. (A power of attorney or a for himself and his deceased wife. For 1999 $3,000, payable March 1 of the same year.
copy of the decedent's will is not and 2000, he qualifies to file as a “Qualifying His adjusted basis in the tractor was $2,000.
Page 8
Mr. High died on February 15, before receiv- If you dispose of an installment obligation portion of the rental period from the day after
ing payment. The gain to be reported as in- acquired from a decedent (other than by death to the end of the rental period are in-
come in respect of the decedent is the $1,000 transfer to the obligor), the rules explained in come to the estate. Cash rent or crop shares
difference between the decedent's basis in Publication 537 for figuring gain or loss on the and livestock received as rent and reduced
the property and the sale proceeds. In other disposition apply to you. to cash by the decedent are includible in the
words, the income in respect of the decedent Transfer to obligor. A transfer of a right final return even though the rental period did
is the gain the decedent would have realized to income, discussed earlier, has occurred if not end until after death.
had he lived. the decedent (seller) had sold property using
the installment method and the installment Example. Alonzo Roberts, who used the
Example 4. Cathy O'Neil was entitled to obligation is transferred to the obligor (buyer cash method of accounting, leased part of his
a large salary payment at the date of her or person legally obligated to pay the install- farm for a 1-year period beginning March 1.
death. The amount was to be paid in five an- ments). A transfer also occurs if the obligation The rental was one-third of the crop, payable
nual installments. The estate, after collecting is canceled either at death or by the estate in cash when the crop share is sold at the
two installments, distributed the right to the or person receiving the obligation from the direction of Roberts. Roberts died on June
remaining installments to you, the beneficiary. decedent. An obligation that becomes unen- 30 and was alive during 122 days of the rental
The payments are income in respect of the forceable is treated as having been canceled. period. Seven months later, Roberts' personal
decedent. None of the payments were If such a transfer occurs, the amount in- representative ordered the crop to be sold
includible on Cathy's final return. The estate cluded in the income of the transferor (the and was paid $1,500. Of the $1,500, 122/365,
must include in its gross income the two in- estate or beneficiary) is the greater of the or $501, is income in respect of a decedent.
stallments it received, and you must include amount received or the fair market value of The balance of the $1,500 received by the
in your gross income each of the three in- the installment obligation at the time of estate, $999, is income to the estate.
stallments as you receive them. transfer, reduced by the basis of the obli-
gation. The basis of the obligation is the de- Partnership income. If the partner who died
Example 5. You inherited the right to re- cedent's basis, adjusted for all installment had been receiving payments representing a
ceive renewal commissions on life insurance payments received after the decedent's death distributive share or guaranteed payment in
sold by your father before his death. You in- and before the transfer. liquidation of the partner's interest in a part-
herited the right from your mother, who ac- If the decedent and obligor were related nership, the remaining payments made to the
quired it by bequest from your father. Your persons, the fair market value of the obli- estate or other successor in interest are in-
mother died before she received all the com- gation cannot be less than its face value. come in respect of the decedent. The estate
missions she had the right to receive, so you or the successor receiving the payments must
received the rest. The commissions are in- include them in gross income when received.
come in respect of the decedent. None of Specific Types of Income Similarly, the estate or other successor in in-
these commissions were includible in your in Respect of a Decedent terest receives income in respect of a dece-
father's final return. The commissions re- This section explains and provides examples dent if amounts are paid by a third person in
ceived by your mother were included in her of some specific types of income in respect exchange for the successor's right to the fu-
gross income. The commissions you received of a decedent. ture payments.
are not includible in your mother's gross in- For a discussion of partnership rules, see
come, even on her final return. You must in- Publication 541, Partnerships.
clude them in your income. Wages. The entire amount of wages or other
employee compensation earned by the de-
cedent but unpaid at the time of death is in- U.S. savings bonds acquired from dece-
Character of income. The character of the come in respect of the decedent. The income dent. If series EE or series I U.S. savings
income you receive in respect of a decedent is not reduced by any amounts withheld by bonds that were owned by a cash method
is the same as it would have been to the de- the employer when paid to the estate or other individual who had chosen to report the in-
cedent if he or she were alive. If the income beneficiary. If the income is $600 or more, the terest each year (or by an accrual method
would have been a capital gain to the dece- employer should report it in box 3 of Form individual) are transferred because of death,
dent, it will be a capital gain to you. 1099–MISC and give the recipient a copy of the increase in value of the bonds (interest
the form or a similar statement. earned) in the year of death up to the date
Transfer of right to income. If you transfer Wages paid as income in respect of a of death must be reported on the decedent's
your right to income in respect of a decedent, decedent are not subject to federal income final return. The transferee (estate or benefi-
you must include in your income the greater tax withholding. However, if paid during the ciary) reports on its return only the interest
of: calendar year of death, they are subject to earned after the date of death.
withholding for social security and Medicare The redemption values of U.S. savings
1) The amount you receive for the right, or taxes. These taxes should be included on the bonds generally are available from local
2) The fair market value of the right you decedent's Form W–2 with the taxes withheld banks, savings and loan institutions, or your
transfer. before death. These wages are not included nearest Federal Reserve Bank.
in box 1 of Form W–2. You also can get information by writing to
If you make a gift of such a right, you must Wages paid as income in respect of a the following address.
include in your gross income the fair market decedent after the year of death generally are
value of the right at the time of the gift. not subject to withholding for any federal Bureau of the Public Debt
If the right to income from an installment taxes. P.O. Box 1328
obligation is transferred, the amount you must Parkersburg, WV 26106–1328
include in income is reduced by the basis of Farm income from crops, crop shares, and
the obligation. See Installment obligations, livestock. A farmer's growing crops and
later. livestock at the date of death would not Or, on the Internet, visit the following
Transfer defined. A transfer for this pur- normally give rise to income in respect of a site.
pose includes a sale, exchange, or other dis- decedent or income to be included in the final www.publicdebt.treas.gov
position, the satisfaction of an installment return. However, when a cash method farmer
obligation at other than face value, or the receives rent in the form of crop shares or If the bonds transferred because of death
cancellation of an installment obligation. livestock and owns the crop shares or live- were owned by a cash method individual who
stock at the time of death, the rent is income had not chosen to report the interest each
Installment obligations. If the decedent had in respect of a decedent and is reported in the year and had purchased the bonds entirely
sold property using the installment method year in which the crop shares or livestock are with personal funds, interest earned before
and you collect payments on an installment sold or otherwise disposed of. The same death must be reported in one of the following
obligation you acquired from the decedent, treatment applies to crop shares or livestock ways.
use the same gross profit percentage the the decedent had a right to receive as rent
decedent used to figure the part of each at the time of death for economic activities 1) The person (executor, administrator,
payment that represents profit. Include in your that occurred before death. etc.) who must file the final income tax
income the same profit the decedent would If the individual died during a rental period, return of the decedent can elect to in-
have included had death not occurred. For only the proceeds from the portion of the clude in it all of the interest earned on the
more information, see Publication 537, In- rental period ending with death are income in bonds before the decedent's death. The
stallment Sales. respect of a decedent. The proceeds from the transferee (estate or beneficiary) then
Page 9
includes in its return only the interest earned to the date of distribution is income to traditional IRA or to a Roth IRA, the distribu-
earned after the date of death. (and reportable by) the estate. tion is not currently taxed.
Cashing U.S. savings bonds. When you
2) If the election in (1), above, was not cash a U.S. savings bond that you acquired Example 1. At the time of his death, Greg
made, the interest earned to the date of from a decedent, the bank or other payer that owned a traditional IRA. All of the contribu-
death is income in respect of the dece- redeems it must give you a Form 1099–INT tions by Greg to the IRA had been deductible
dent and is not included in the dece- if the interest part of the payment you receive contributions. Greg's nephew, Mark, was the
dent's final return. In this case, all of the is $10 or more. Your Form 1099–INT should sole beneficiary of the IRA. The entire bal-
interest earned before and after the de- show the difference between the amount re- ance of the IRA, including income accruing
cedent's death is income to the ceived and the cost of the bond. The interest before and after Greg's death, was distributed
transferee (estate or beneficiary). A shown on your Form 1099–INT will not be to Mark in a lump sum. Mark must include the
transferee who uses the cash method reduced by any interest reported by the de- total amount received in his gross income.
of accounting and who has not chosen cedent before death, or, if elected, by the The portion of the lump-sum distribution that
to report the interest annually may defer personal representative on the final income equals the amount of the balance in the IRA
reporting any of it until the bonds are tax return of the decedent, or by the estate at Greg's death, including the income earned
cashed or the date of maturity, which- on the estate's income tax return. Your Form before death, is income in respect of the de-
ever is earlier. In the year the interest is 1099–INT may show more interest than you cedent. Mark may take a deduction for any
reported, the transferee may claim a must include in your income. federal estate taxes that were paid on the
deduction for any federal estate tax paid You must make an adjustment on your tax portion of the IRA that is income in respect
that arose because of the part of interest return to report the correct amount of interest. of the decedent.
(if any) included in the decedent's estate. See Publication 550, Investment Income and
Example 2. Assume the same facts as
Expenses, for information about the correct
Example 1. Your uncle, a cash method in Example 1, except some of Greg's contri-
reporting of this interest.
taxpayer, died and left you a $1,000 series butions to the IRA had been nondeductible
EE bond. He had bought the bond for $500 contributions. To determine the amount to
and had not chosen to report the increase in Interest accrued on U.S. Treasury bonds. include in gross income, Mark must subtract
value each year. At the date of death, interest The interest accrued on U.S. Treasury bonds the total nondeductible contributions made by
of $94 had accrued on the bond, and its value owned by a cash method taxpayer and Greg from the total amount received (includ-
of $594 at date of death was included in your redeemable for the payment of federal estate ing the income that was earned in the IRA
uncle's estate. Your uncle's personal repre- taxes that was not received as of the date of both before and after Greg's death). Income
sentative did not choose to include the $94 the individual's death is income in respect of in respect of the decedent is the total amount
accrued interest in the decedent's final in- the decedent. This interest is not included in included in gross income less the income
come tax return. You are a cash method tax- the decedent's final income tax return. The earned after Greg's death.
payer and do not choose to report the in- estate will treat such interest as taxable in-
crease in value each year as it is earned. come in the tax year received if it chooses to For more information on inherited IRAs,
Assuming you cash it when it reaches matu- redeem the U.S. Treasury bonds to pay fed- see Publication 590.
rity value of $1,000, you would report $500 eral estate taxes. If the person entitled to the
interest income (the difference between ma- bonds by bequest, devise, or inheritance, or Roth IRA. Qualified distributions from a Roth
turity value of $1,000 and the original cost of because of the death of the individual (owner) IRA are not subject to tax. A distribution made
$500) in that year. You also are entitled to receives them, that person will treat the ac- to a beneficiary or to the Roth IRA owner's
claim, in that year, a deduction for any federal crued interest as taxable income in the year estate on or after the date of death is a qual-
estate tax resulting from the inclusion in your the interest is received. Interest that accrues ified distribution if it is made after the
uncle's estate of the $94 increase in value. on the U.S. Treasury bonds after the owner's 5-taxable-year period beginning with the first
death does not represent income in respect tax year in which a contribution was made to
Example 2. If, in Example 1, the personal of the decedent. The interest, however, is any Roth IRA of the owner.
representative had chosen to include the $94 taxable income and must be included in the
gross income of the respective recipients. A distribution cannot be a qualified
interest earned on the bond before death in
the final income tax return of your uncle, you !
distribution unless it is made after
would report $406 ($500 − $94) as interest Interest accrued on savings certificates.
when you cashed the bond at maturity. Since The interest accrued on savings certificates
this $406 represents the interest earned after Generally, the entire interest in the Roth
(redeemable after death without forfeiture of IRA must be distributed by the end of the fifth
your uncle's death and was not included in interest) that is for the period from the date
his estate, no deduction for federal estate tax calendar year after the year of the owner's
of the last interest payment and ending with death unless the interest is payable to a
is allowable for this amount. the date of the decedent's death, but not re- designated beneficiary over his or her life or
ceived as of that date, is income in respect life expectancy. If paid as an annuity, the
Example 3. Your uncle died owning se-
of a decedent. Interest for a period after the distributions must begin before the end of the
ries HH bonds that he acquired in exchange
decedent's death that becomes payable on calendar year following the year of death. If
for series EE bonds. You were the beneficiary
the certificates after death is not income in the sole beneficiary is the decedent's spouse,
on these bonds. Your uncle used the cash
respect of a decedent, but is taxable income the spouse can delay the distributions until
method of accounting and had not chosen to
includible in the gross income of the respec- the decedent would have reached age 701/2
report the increase in redemption price of the
tive recipients. or can treat the Roth IRA as his or her own
series EE bonds each year as it accrued.
Your uncle's personal representative made Roth IRA.
no election to include any interest earned Inherited IRAs. If a beneficiary receives a A portion of a distribution to a beneficiary
before death in the decedent's final return. lump-sum distribution from a traditional IRA that is not a qualified distribution may be
Your income in respect of the decedent is the or a Roth IRA he or she inherited, all or some includible in the beneficiary's gross income.
sum of the unreported increase in value of the of it may be taxable. The distribution is taxa- Generally, the portion includible is the
series EE bonds, which constituted part of the ble in the year received as income in respect earnings in the decedent's Roth IRAs.
amount paid for series HH bonds, and the of a decedent up to the decedent's taxable Earnings attributable to the period ending with
interest, if any, payable on the series HH balance. This is the decedent's balance at the the decedent's date of death are income in
bonds but not received as of the date of the time of death, including unrealized appreci- respect of the decedent. Additional taxable
decedent's death. ation and income accrued to date of death, amounts are the income of the beneficiary.
minus any basis (nondeductible contribu- For more information on Roth IRAs, see
Specific dollar amount legacy satisfied tions). Amounts distributed that are more than Publication 590.
by transfer of bonds. If you receive series the decedent's entire IRA balance (includes
EE or series I bonds from an estate in satis- taxable and nontaxable amounts) at the time Education IRA. Generally, the balance in
faction of a specific dollar amount legacy and of death are the income of the beneficiary. an education individual retirement account
the decedent was a cash method taxpayer See Roth IRA, next, for determining taxability (education IRA) must be distributed within 30
who did not elect to report interest each year, of Roth IRA distributions. days after the individual for whom the account
only the interest earned after you receive the If the beneficiary of a traditional IRA is the was established reaches age 30 or dies,
bonds is your income. The interest earned to decedent's surviving spouse and that spouse whichever is earlier. The treatment of the ed-
the date of death plus any further interest properly rolls over the distribution into another ucation IRA at the death of an individual un-
Page 10
der age 30 depends on who acquires the in- is derived. An heir who (because of the de- He also owed $5,000 for business expenses
terest in the account. If the decedent's estate cedent's death) receives income as a result for which his estate is liable. The income and
acquires the interest, see the discussion un- of the sale of units of mineral by the decedent expenses are reported on Jack's estate tax
der Final Return for Decedent, earlier. (who used the cash method) will be entitled return.
If the decedent's spouse or other family to the depletion allowance for that income. The tax on Jack's estate is $9,460 after
member is the designated beneficiary of the If the decedent had not figured the deduction credits. The net value of the items included
decedent's account, the education IRA be- on the basis of percentage depletion, any as income in respect of the decedent is
comes that person's education IRA. It is sub- depletion deduction to which the decedent $15,000 ($20,000 − $5,000). The estate tax
ject to the rules discussed in Publication 590. was entitled at the time of death would be determined without including the $15,000 in
Any other beneficiary (including a spouse allowable on the decedent's final return, and the taxable estate is $4,840, after credits. The
or family member that is not the designated no depletion deduction in respect of the de- estate tax that qualifies for the deduction is
beneficiary) must include in gross income the cedent would be allowed to anyone else. $4,620 ($9,460 − $4,840).
earnings portion of the distribution. The dis- For more information about depletion, see
tribution must be made within 30 days. Any chapter 10 in Publication 535, Business Ex- Recipient's deductible part. Figure the re-
balance remaining at the close of the 30-day penses. cipient's part of the deductible estate tax by
period is deemed to be distributed at that dividing the estate tax value of the items of
time. The amount included in gross income income in respect of the decedent included in
is reduced by any qualified higher education Estate Tax Deduction the recipient's gross income (the numerator)
expenses of the decedent that are paid by the Income that a decedent had a right to receive by the total value of all items included in the
beneficiary within 1 year after the decedent's is included in the decedent's gross estate and estate that represents income in respect of
date of death. An estate tax deduction, dis- is subject to estate tax. This income in respect the decedent (the denominator). If the amount
cussed later, applies to the amount included of a decedent is also taxed when received by included in the recipient's gross income is
in income by a beneficiary other than the de- the recipient (estate or beneficiary). How- less than the estate tax value of the item, use
cedent's spouse or family member. ever, an income tax deduction is allowed to the lesser amount in the numerator.
the recipient for the estate tax paid on the
Medical savings account (MSA). The income. Example 2. As the beneficiary of Jack's
treatment of an MSA, including a Medicare+ The deduction for estate tax can be estate (Example 1), you collect the $12,000
Choice MSA, at the death of the account claimed only for the same tax year in which accounts receivable from his clients. You will
holder depends on who acquires the interest the income in respect of the decedent must include the $12,000 in your gross income in
in the account. If the decedent's estate ac- be included in the recipient's gross income. the tax year you receive it. If you itemize your
quired the interest, see the discussion under (This also is true for income in respect of a deductions in that tax year, you can claim an
Final Return for Decedent, earlier. prior decedent.) estate tax deduction of $2,772 figured as fol-
If the decedent's spouse is the designated Individuals can claim this deduction only lows:
beneficiary of the MSA, the MSA becomes as an itemized deduction, on line 27 of Value included in your Estate tax
that spouse's MSA. It is subject to the rules Schedule A (Form 1040). This deduction is income qualifying
not subject to the 2% limit on miscellaneous ⫻
discussed in Publication 969. Total value of income for
Any other beneficiary (including a spouse itemized deductions. Estates can claim the in respect of decedent deduction
that is not the designated beneficiary) must deduction on the line provided for the de-
include in gross income the fair market value duction on Form 1041. For the alternative $12,000
of the assets in the account on the decedent's minimum tax computation, the deduction is ⫻ $4,620 = $2,772
date of death. This amount must be reported not included in the itemized deductions that
for the beneficiary's tax year that includes the are an adjustment to taxable income.
If the income in respect of the decedent If the amount you collected for the ac-
decedent's date of death. The amount in-
is capital gain income, you must reduce the counts receivable was more than $12,000,
cluded in gross income is reduced by the
gain, but not below zero, by any deduction for you would still claim $2,772 as an estate tax
qualified medical expenses for the decedent
estate tax paid on such gain. This applies in deduction because only the $12,000 actually
that are paid by the beneficiary within 1 year
figuring the following. reported on the estate tax return can be used
after the decedent's date of death. An estate
in the above computation. However, if you
tax deduction, discussed later, applies to the
• The maximum tax on net capital gain. collected less than the $12,000 reported on
amount included in income by a beneficiary,
the estate tax return, use the smaller amount
other than the decedent's spouse. • The 50% exclusion for gain on small to figure the estate tax deduction.
business stock.
Deductions in Respect • The limitation on capital losses. Estates. The estate tax deduction allowed
an estate is figured in the same manner as
of the Decedent Computation just discussed. However, any income in re-
Items such as business expenses, income- spect of a decedent received by the estate
To figure a recipient's estate tax deduction, during the tax year is reduced by any such
producing expenses, interest, and taxes, for
determine— income that is properly paid, credited, or re-
which the decedent was liable but which are
not properly allowable as deductions on the 1) The estate tax that qualifies for the de- quired to be distributed by the estate to a
decedent's final income tax return, will be al- duction, and beneficiary. The beneficiary would include
lowed as a deduction when paid to one of the such distributed income in respect of a dece-
following. 2) The recipient's part of the deductible tax. dent for figuring the beneficiary's deduction.

• The estate. Deductible estate tax. The estate tax is the Surviving annuitants. For the estate tax
tax on the taxable estate, reduced by any deduction, an annuity received by a surviving
• The person who acquired an interest in credits allowed. The estate tax qualifying for annuitant under a joint and survivor annuity
the decedent's property (subject to such the deduction is the part for the net value of contract is considered income in respect of a
obligations) because of the decedent's all the items in the estate that represent in- decedent. The deceased annuitant must have
death, if the estate was not liable for the come in respect of the decedent. Net value died after the annuity starting date. You must
obligation. is the excess of the items of income in respect make a special computation to figure the es-
of the decedent over the items of expenses tate tax deduction for the surviving annuitant.
Similar treatment is given to the foreign
in respect of the decedent. The deductible See section 1.691(d)–1 of the regulations.
tax credit. A beneficiary who must pay a for-
estate tax is the difference between the actual
eign tax on income in respect of a decedent
estate tax and the estate tax determined
will be entitled to claim the foreign tax credit. Gifts, Insurance,
without including net value.
Depletion. The deduction for percentage Example 1. Jack Sage used the cash and Inheritances
depletion is allowable only to the person (es- method of accounting. At the time of his Property received as a gift, bequest, or in-
tate or beneficiary) who receives income in death, he was entitled to receive $12,000 heritance is not included in your income. But
respect of the decedent to which the de- from clients for his services and he had ac- if property you receive in this manner later
duction relates, whether or not that person crued bond interest of $8,000, for a total in- produces income, such as interest, dividends,
receives the property from which the income come in respect of the decedent of $20,000. or rentals, that income is taxable to you. The
Page 11
income from property donated to a trust that Exclusion limited. If the insured was a Example. As beneficiary, you choose to
is paid, credited, or distributed to you is tax- chronically ill individual, your exclusion of ac- receive the $50,000 proceeds from a life in-
able income to you. If the gift, bequest, or celerated death benefits is limited to the cost surance contract under a “life-income-with-
inheritance is the income from property, that you incurred in providing qualified long-term cash-refund option.” You are guaranteed
income is taxable to you. care services for the insured. In determining $2,700 a year for the rest of your life (which
If you receive property from a decedent's the cost incurred do not include amounts paid is estimated by use of mortality tables to be
estate in satisfaction of your right to the in- or reimbursed by insurance or otherwise. 25 years from the insured's death). The
come of the estate, it is treated as a bequest Subject to certain limits, you can exclude actuarial value of the refund feature is $9,000.
or inheritance of income from property. See payments received on a periodic basis with- The amount held by the insurance company,
Distributions to Beneficiaries From an Estate, out regard to your costs. reduced by the value of the guarantee, is
later. $41,000 ($50,000 − $9,000) and the
excludable part of each installment repre-
Insurance received in installments. If you senting a return of principal is $1,640
Insurance receive life insurance proceeds in install- ($41,000 ÷ 25). The remaining $1,060
The proceeds from a decedent's life insur- ments, you can exclude part of each install- ($2,700 − $1,640) is interest income to you.
ance policy paid by reason of his or her death ment from your income. If you should die before receiving the entire
generally are excluded from income. The ex- To determine the part excluded, divide the $50,000, the refund payable to the refund
clusion applies to any beneficiary, whether a amount held by the insurance company beneficiary is not taxable.
family member or other individual, a corpo- (generally the total lump sum payable at the
ration, or a partnership. death of the insured person) by the number Interest option on insurance. If an insur-
of installments to be paid. Include anything ance company pays you interest only on
over this excluded part in your income as in- proceeds from life insurance left on deposit,
Veterans' insurance proceeds. Veterans' terest. the interest you are paid is taxable.
insurance proceeds and dividends are not Specified number of installments. If
taxable either to the veteran or to the benefi- you will receive a specified number of install-
ciaries. Flexible premium contracts. A life insur-
ments under the insurance contract, figure the ance contract (including any qualified addi-
Interest on dividends left on deposit with part of each installment you can exclude by
the Department of Veterans Affairs is not tional benefits) is a flexible premium life in-
dividing the amount held by the insurance surance contract if it provides for the payment
taxable. company by the number of installments to of one or more premiums that are not fixed
which you are entitled. A secondary benefi- by the insurer as to both timing and amount.
Life insurance proceeds. Life insurance ciary, in case you die before you receive all For contracts issued before January 1, 1985,
proceeds paid to you because of the death of the installments, is entitled to the same the proceeds paid because of the death of the
of the insured (or because the insured is a exclusion. insured under a flexible premium contract will
member of the U.S. uniformed services who be excluded from the recipient's gross income
is missing in action) are not taxable unless the Example. As beneficiary, you choose to only if the contracts meet the requirements
policy was turned over to you for a price. This receive $40,000 of life insurance proceeds in explained under section 101(f) of the Internal
is true even if the proceeds are paid under 10 annual installments of $6,000. Each year, Revenue Code.
an accident or health insurance policy or an you can exclude from your gross income
endowment contract. If the proceeds are re- $4,000 ($40,000 ÷ 10) as a return of principal.
ceived in installments, see the discussion Basis of Inherited Property
The balance of the installment, $2,000, is
under Insurance received in installments, Your basis in property you inherit from a de-
taxable as interest income.
later. cedent is generally one of the following.
Specified amount payable. If each in- • The fair market value (FMV) of the prop-
Accelerated death benefits. You can ex- stallment you receive under the insurance erty at the date of the individual's death.
clude from income accelerated death benefits contract is a specific amount based on a
you receive on the life of an insured individual guaranteed rate of interest, but the number • The FMV on the alternate valuation date
if certain requirements are met. Accelerated of installments you will receive is uncertain, (discussed in the instructions for Form
death benefits are amounts received under a the part of each installment that you can ex- 706), if so elected by the personal repre-
life insurance contract before the death of the clude from income is the amount held by the sentative for the estate.
insured. These benefits also include amounts insurance company divided by the number of • The value under the special-use valuation
received on the sale or assignment of the installments necessary to use up the principal method for real property used in farming
contract to a viatical settlement provider. This and guaranteed interest in the contract. or other closely held business (see
exclusion applies only if the insured was a Special-use valuation, later), if so elected
terminally ill individual or a chronically ill indi- by the personal representative.
Example. The face amount of the policy
vidual. This exclusion does not apply if the
is $200,000, and as beneficiary you choose • The decedent's adjusted basis in land to
insured is a director, officer, employee, or has
to receive annual installments of $12,000. the extent of the value that is excluded
a financial interest in any trade or business
The insurer's settlement option guarantees from the decedent's taxable estate as a
carried on by you.
you this amount for 20 years based on a qualified conservation easement (dis-
Terminally ill individual. A terminally ill
guaranteed rate of interest. It also provides cussed in the instructions for Form 706).
individual is one who has been certified by a
that extra interest may be credited to the
physician as having an illness or physical
principal balance according to the insurer's Exception for appreciated property. If you
condition that can reasonably be expected to
earnings. The excludable part of each guar- or your spouse gave appreciated property
result in death in 24 months or less from the
anteed installment is $10,000 ($200,000 ÷ 20 to an individual during the 1-year period end-
date of certification.
years). The balance of each guaranteed in- ing on the date of that individual's death and
Chronically ill individual. A chronically
stallment, $2,000, is interest income to you. you (or your spouse) later acquired the same
ill individual is one who has been certified as
The full amount of any additional payment for property from the decedent, your basis in the
one of the following.
interest is income to you. property is the same as the decedent's ad-
• An individual who, for at least 90 days, is justed basis immediately before death.
unable to perform at least two activities Installments for life. If, as the benefi- Appreciated property. Appreciated
of daily living without substantial assist- ciary under an insurance contract, you are property is property that had an FMV on the
ance due to a loss of functional capacity. entitled to receive the proceeds in install- day it was transferred to the decedent greater
ments for the rest of your life without a refund than its adjusted basis.
• An individual who requires substantial or period-certain guarantee, you figure the
supervision to be protected from threats excluded part of each installment by dividing Special-use valuation. If you are a qual-
to health and safety due to severe cog- the amount held by the insurance company ified heir and you receive a farm or other
nitive impairment. by your life expectancy. If there is a refund closely held business real property from
or period-certain guarantee, the amount held the estate for which the personal represen-
A certification must have been made by a by the insurance company for this purpose is tative elected special-use valuation, the
licensed health care practitioner within the reduced by the actuarial value of the guaran- property is valued on the basis of its actual
previous 12 months. tee. use rather than its FMV.
Page 12
If you are a qualified heir and you buy Subtract from this sum any deductions for Property distributed in kind. Your basis in
special-use valuation property from the es- wear and tear, such as depreciation or de- property distributed in kind by a decedent's
tate, your basis is the estate's basis (deter- pletion, allowed on that property to the sur- estate is the same as the estate's basis im-
mined under the special-use valuation viving spouse. mediately before the distribution plus any
method) immediately before your purchase gain, or minus any loss, recognized by the
increased by any gain recognized by the es- Example. Dan and Diane Gilbert owned, estate. Property is distributed in kind if it sat-
tate. as tenants by the entirety, rental property they isfies your right to receive another property
You are a qualified heir if you are an purchased for $60,000. Dan paid $15,000 of or amount, such as the income of the estate
ancestor (parent, grandparent, etc.), the the purchase price and Diane paid $45,000. or a specific dollar amount. Property distrib-
spouse, or a lineal descendant (child, grand- Under local law, each had a half interest in uted in kind generally includes any noncash
child, etc.) of the decedent, a lineal descend- the income from the property. When Diane property you receive from the estate other
ant of the decedent's parent or spouse, or the died, the FMV of the property was $100,000. than the following.
spouse of any of these lineal descendants. Depreciation deductions allowed before
For more information on special-use valu- Diane's death were $20,000. Dan's basis in • A specific bequest (unless it must be
ation, see Form 706. the property is $70,000 figured as follows: distributed in more than three install-
Increased basis for special-use valu- ments).
One-half of cost basis (1/2 of
ation property. Under certain conditions, $60,000) ..................................... $30,000
some or all of the estate tax benefits obtained • Real property, the title to which passes
Interest acquired from Diane (1/2
by using the special-use valuation will be of $100,000) ................................ 50,000 $80,000 directly to you under local law.
subject to recapture. Generally, an additional Minus:1/2 of $20,000 depreciation .............. 10,000
estate tax must be paid by the qualified heir Dan's basis ............................................... $70,000 For information on an estate's recognized
if within 10 years of the decedent's death the gain or loss on distributions in kind, see In-
property is disposed of, or is no longer used come To Include under Income Tax Return
More information. See Publication 551, of an Estate–Form 1041, later.
for a qualifying purpose. Basis of Assets, for more information on ba-
If you must pay any additional estate (re- sis. If you and your spouse lived in a com-
capture) tax, you can elect to increase your munity property state, see the discussion in
basis in the special-use valuation property to that publication about figuring the basis of
Other Items of Income
its FMV on the date of the decedent's death your community property after your spouse's Some other items of income that you, as a
(or on the alternate valuation date, if it was death. survivor or beneficiary, may receive are dis-
elected by the personal representative). If you cussed below. Lump-sum payments you re-
elect to increase your basis, you must pay ceive as the surviving spouse or beneficiary
interest on the recapture tax for the period Depreciation. If you can depreciate property
you inherited, you generally must use the of a deceased employee may represent ac-
from the date 9 months after the decedent's crued salary payments; distributions from
death until the date you pay the recapture tax. modified accelerated cost recovery system
(MACRS) to determine depreciation. employee profit-sharing, pension, annuity,
For more information on the recapture tax, and stock bonus plans; or other items that
see Instructions for Form 706–A. For joint interests and qualified joint inter-
ests, you must make the following computa- should be treated separately for tax purposes.
tions to figure depreciation. The treatment of these lump-sum payments
S corporation stock. The basis of inherited depends on what the payments represent.
S corporation stock must be reduced if there
• The first computation is for your original
is income in respect of a decedent attributable Public safety officers. Special rules apply
basis in the property.
to that stock. to certain amounts received because of the
• The second computation is for the inher- death of a public safety officer (police and law
Joint interest. Figure the surviving tenant's ited part of the property.
enforcement officers, fire fighters, ambulance
new basis of property that was jointly owned crews, and rescue squads).
(joint tenancy or tenancy by the entirety) by Continue depreciating your original basis un-
der the same method you had used in previ- Death benefits. The death benefit pay-
adding the surviving tenant's original basis in able to eligible survivors of public safety offi-
the property to the value of the part of the ous years. Depreciate the inherited part using
MACRS. cers who die as a result of traumatic injuries
property (one of the values described earlier) sustained in the line of duty is not included in
included in the decedent's estate. Subtract For more information on MACRS, see
Publication 946, How To Depreciate Property. either the beneficiaries' income or the dece-
from the sum any deductions for wear and dent's gross estate. The benefit is adminis-
tear, such as depreciation or depletion, al- tered through the Bureau of Justice Assist-
lowed to the surviving tenant on that property. ance (BJA).
Substantial valuation misstatement. If the
Example. Fred and Anne Maple (brother The BJA can pay the eligible survivors an
value or adjusted basis of any property
and sister) owned, as joint tenants with right emergency interim benefit up to $3,000 if it
claimed on an income tax return is 200% or
of survivorship, rental property they pur- determines that a public safety officer's death
more of the amount determined to be the
chased for $60,000. Anne paid $15,000 of the is one for which a death benefit will probably
correct amount, there is a substantial valu-
purchase price and Fred paid $45,000. Under be paid. If there is no final payment, the re-
ation misstatement. If this misstatement re-
local law, each had a half interest in the in- cipient of the interim benefit is liable for re-
sults in an underpayment of tax of more than
come from the property. When Fred died, the payment. However, the BJA may waive all or
$5,000, an addition to tax of 20% of the
FMV of the property was $100,000. Depreci- part of the repayment if it will cause a hard-
underpayment can apply. The penalty in-
ation deductions allowed before Fred's death ship. If all or part of the repayment is waived,
creases to 40% if the value or adjusted basis
were $20,000. Anne's basis in the property is that amount is not included in gross income.
is 400% or more of the amount determined
$80,000 figured as follows: Survivor benefits. Generally, a survivor
to be the correct amount. If the value shown
annuity paid to the spouse, former spouse,
on the estate tax return is overstated and you
Anne's original basis ................... $15,000 or child of a public safety officer killed in the
Interest acquired from Fred (3/4 of use that value as your basis in the inherited
line of duty is excluded from the recipient's
$100,000) .................................... 75,000 $90,000 property, you could be liable for the addition
gross income. The annuity must be provided
Minus:1/2 of $20,000 depreciation .............. 10,000 to tax.
under a government plan and is excludable
Anne's basis ............................................. $80,000 The IRS may waive all or part of the ad-
to the extent that it is attributable to the offi-
dition to tax if you have a reasonable basis
cer's service as a public safety officer.
Qualified joint interest. One-half of the for the claimed value. The fact that the ad-
The exclusion does not apply if the recip-
value of property owned by a decedent and justed basis on your income tax return is the
ient's actions were responsible for the officer's
spouse as tenants by the entirety, or as joint same as the value on the estate tax return is
death. It also does not apply in the following
tenants with right of survivorship if the dece- not enough to show that you had a reason-
dent and spouse are the only joint tenants, is able basis to claim the valuation.
included in the decedent's gross estate. This
• The death was caused by the intentional
is true regardless of how much each contrib- Holding period. If you sell or dispose of in-
misconduct of the officer or by the offi-
uted toward the purchase price. herited property that is a capital asset, you
cer's intention to cause such death.
Figure the basis for a surviving spouse by have a long-term gain or loss from property
adding one-half of the property's cost basis held for more than 1 year, regardless of how • The officer was voluntarily intoxicated at
to the value included in the gross estate. long you held the property. the time of death.
Page 13
• The officer was performing his or her Once you choose the tax year, you gen- names to designate specific types of benefi-
duties in a grossly negligent manner at erally cannot change it without IRS approval. ciaries or the recipients of various types of
the time of death. Also, on the first income tax return, you must property, it is sufficient in this publication to
choose the accounting method (cash, ac- call all of them beneficiaries.
This provision applies to officers dying af- crual, or other) you will use to report the es- Liability of the beneficiary. The income
ter 1996. tate's income. Once you have used a method, tax liability of an estate attaches to the assets
you ordinarily cannot change it without IRS of the estate. If the income is distributed or
Salary or wages. Salary or wages paid after approval. For a more complete discussion of must be distributed during the current tax
the employee's death are usually taxable in- accounting periods and methods, see Publi- year, it is reportable by each beneficiary on
come to the beneficiary. See Wages, earlier, cation 538, Accounting Periods and Methods. his or her individual income tax return. If the
under Specific Types of Income in Respect income does not have to be distributed, and
of a Decedent. is not distributed but is retained by the estate,
Filing Requirements the income tax on the income is payable by
Lump-sum distributions. You may be able Every domestic estate with gross income of the estate. If the income is distributed later
to choose optional methods to figure the tax $600 or more during a tax year must file a without the payment of the taxes due, the
on lump-sum distributions from qualified em- Form 1041. If one or more of the beneficiaries beneficiary can be liable for tax due and un-
ployee retirement plans. For more informa- of the domestic estate are nonresident alien paid, to the extent of the value of the estate
tion, see Publication 575, Pension and An- individuals, the personal representative must assets received.
nuity Income. file Form 1041, even if the gross income of Income of the estate is taxed to either the
the estate is less than $600. estate or the beneficiary, but not to both.
Pensions and annuities. For beneficiaries A fiduciary for a nonresident alien estate Nonresident alien beneficiary. As a
of deceased employees who receive pen- with U.S. source income, including any in- resident or domestic fiduciary, in addition to
sions and annuities, see Publication 575. For come that is effectively connected with the filing Form 1041, you must file the return and
beneficiaries of federal Civil Service employ- conduct of a trade or business in the United pay the tax that may be due from a nonresi-
ees, see Publication 721, Tax Guide to U.S. States, must file Form 1040NR, U.S. Non- dent alien beneficiary. Depending upon a
Civil Service Retirement Benefits. resident Alien Income Tax Return, as the in- number of factors, you may or may not have
come tax return of the estate. to file Form 1040NR for that beneficiary. For
A nonresident alien who was a resident information on who must file Form 1040NR,
Inherited IRAs. If a person other than the
of Puerto Rico, Guam, American Samoa, see Publication 519, U.S. Tax Guide for Al-
decedent's spouse inherits the decedent's
or the Commonwealth of the Northern iens.
traditional IRA or Roth IRA, that person can-
Mariana Islands for the entire tax year will, You do not have to file the nonresident
not treat the IRA as one established on his
for this purpose, be treated as a resident alien alien's return and pay the tax if that benefi-
or her behalf. If a distribution from a traditional
of the United States. ciary has appointed an agent in the United
IRA is from contributions that were deducted
States to file a federal income tax return.
or from earnings and gains in the IRA, it is
However, you must attach to the estate's re-
fully taxable income. If there were non- Schedule K–1 (Form 1041) turn (Form 1041) a copy of the document that
deductible contributions, an allocation be-
As personal representative, you must file a appoints the beneficiary's agent. You also
tween taxable and nontaxable income must
separate Schedule K–1 (Form 1041), or an must file Form 1042, Annual Withholding Tax
be made. For information on distributions
acceptable substitute (described below), for Return for U.S. Source Income of Foreign
from a Roth IRA, see the discussion earlier
each beneficiary. File these schedules with Persons, in connection with income tax to be
under Income in Respect of the Decedent.
Form 1041. paid at the source on certain payments to
The IRA cannot be rolled over into, or receive
You must show each beneficiary's tax- nonresident aliens.
a rollover from, another IRA. No deduction is
payer identification number. A $50 penalty is
allowed for amounts paid into that inherited
charged for each failure to provide the identi- Amended Return
IRA. For more information about IRAs, see
fying number of each beneficiary unless rea-
Publication 590. If you have to file an amended Form 1041,
sonable cause is established for not providing
it. When you assume your duties as the per- use a copy of the form for the appropriate
Estate income. Estates may have to pay sonal representative, you must ask each year and check the “Amended return” box.
federal income tax. Beneficiaries may have beneficiary to give you a taxpayer identifica- Complete the entire return, correct the ap-
to pay tax on their share of estate income. tion number (TIN). However, a TIN is not re- propriate lines with the new information, and
However, there is never a double tax. See quired of a nonresident alien beneficiary un- refigure the tax liability. On an attached sheet,
Distributions to Beneficiaries From an Estate, less the beneficiary or the estate is engaged explain the reason for the changes and iden-
later. in a trade or business within the United tify the lines and amounts being changed.
States. For payments after 2000, a nonresi- If the amended return results in a change
dent alien beneficiary that gives you a with- to income, or a change in distribution of any
holding certificate generally must provide you income or other information provided to a
Income Tax Return with a TIN (see Publication 515). A TIN is not beneficiary, you must file an amended
Schedule K–1 (Form 1041) and give a copy
required for an executor or administrator of
of an Estate— the estate unless that person is also a bene- to each beneficiary. Check the “Amended
K–1” box at the top of Schedule K–1.
Form 1041 As personal representative, you must also
An estate is a taxable entity separate from the furnish a Schedule K–1 (Form 1041), or a Information Returns
decedent and comes into being with the death substitute, to the beneficiary by the date on Even though you may not have to file an in-
of the individual. It exists until the final distri- which the Form 1041 is filed. Failure to pro- come tax return for the estate, you may have
bution of its assets to the heirs and other vide this payee statement can result in a to file Form 1099–DIV, Form 1099–INT, or
beneficiaries. The income earned by the as- penalty of $50 for each failure. This penalty Form 1099–MISC if you receive the income
sets during this period must be reported by also applies if you omit information or include as a nominee or middleman for another per-
the estate under the conditions described in incorrect information on the payee statement. son. For more information on filing information
this publication. The tax generally is figured You do not need prior approval for a returns, see the General Instructions for
in the same manner and on the same basis substitute Schedule K–1 (Form 1041) that is Forms 1099, 1098, 5498, and W–2G.
as for individuals, with certain differences in an exact copy of the official schedule or that You will not have to file information returns
the computation of deductions and credits, follows the specifications in Publication 1167, for the estate if the estate is the owner of
as explained later. Substitute Printed, Computer-Prepared, and record and you file an income tax return for
The estate's income, like an individual's Computer-Generated Tax Forms and Sched- the estate on Form 1041 giving the name,
income, must be reported annually on either ules. You must have prior approval for any address, and identifying number of each ac-
a calendar or fiscal year basis. As the per- other substitute Schedule K–1 (Form 1041). tual owner and furnish a completed Schedule
sonal representative, you choose the estate's K–1 (Form 1041) to each actual owner.
accounting period when you file its first Form Beneficiaries. The personal representative
1041. The estate's first tax year can be any has a fiduciary responsibility to the ultimate Penalty. A penalty of up to $50 can be
period that ends on the last day of a month recipients of the income and the property of charged for each failure to file or failure to
and does not exceed 12 months. the estate. While the courts use a number of include correct information on an information
Page 14
return. (Failure to include correct information and other investment income and also gains value at the date of death. See Basis of In-
includes failure to include all the information and losses from the sale of investment prop- herited Property under Other Tax Information,
required and inclusion of incorrect informa- erty, see Publication 550. For a discussion earlier, for other basis in inherited property.
tion.) If it is shown that such failure is due to of gains and losses from the sale of other If the estate purchases property after the
intentional disregard of the filing requirement, property, including business property, see decedent's death, the basis generally will be
the penalty amount increases. Publication 544, Sales and Other Dispositions its cost.
See the General Instructions for Forms of Assets. The basis of certain appreciated property
1099, 1098, 5498, and W–2G for more infor- If, as the personal representative, your the estate receives from the decedent will be
mation. duties include the operation of the decedent's the decedent's adjusted basis in the property
business, see Publication 334. This publica- immediately before death. This applies if the
Two or More tion provides general information about the property was acquired by the decedent as a
tax laws that apply to a sole proprietorship. gift during the 1-year period before death, the
Personal Representatives property's fair market value on the date of the
If property is located outside the state in Income in respect of the decedent. As the gift was greater than the donor's adjusted
which the decedent's home was located, personal representative of the estate, you basis, and the proceeds of the sale of the
more than one personal representative may may receive income that the decedent would property are distributed to the donor (or the
be designated by the will or appointed by the have reported had death not occurred. For donor's spouse).
court. The person designated or appointed an explanation of this income, see Income in Schedule D (Form 1041). To report
to administer the estate in the state of the Respect of the Decedent under Other Tax gains (and losses) from the sale or exchange
decedent's permanent home is called the Information, earlier. An estate may qualify to of capital assets by the estate, file Schedule
domiciliary representative. The person claim a deduction for estate taxes if the estate D (Form 1041), Capital Gains and Losses,
designated or appointed to administer prop- must include in gross income for any tax year with Form 1041. For additional information
erty in a state other than that of the dece- an amount of income in respect of a dece- about the treatment of capital gains and
dent's permanent home is called an ancillary dent. See Estate Tax Deduction, earlier, un- losses, see the instructions for Schedule D
representative. der Other Tax Information. (Form 1041).

Separate Forms 1041. Each representative Gain (or loss) from sale of property. Dur-
must file a separate Form 1041. The Installment obligations. If an installment
ing the administration of the estate, you may obligation owned by the decedent is trans-
domiciliary representative must include the find it necessary or desirable to sell all or part
estate's entire income in the return. The an- ferred by the estate to the obligor (buyer or
of the estate's assets to pay debts and ex- person obligated to pay) or is canceled at
cillary representative files with the appropriate penses of administration, or to make proper
IRS office for the ancillary's location. The an- death, include the income from that event in
distributions of the assets to the beneficiaries. the gross income of the estate. See Install-
cillary representative should provide the fol- While you may have the legal authority to
lowing information on the return. ment obligations under Income in Respect of
dispose of the property, title to it may be the Decedent, earlier. See Publication 537 for
vested (given a legal interest in the property) information about installment sales.
• The name and address of the domiciliary in one or more of the beneficiaries. This is
usually true of real property. To determine
• The amount of gross income received by whether any gain or loss must be reported Gain from sale of special-use valuation
the ancillary representative. by the estate or by the beneficiaries, consult property. If you elected special-use valu-
local law to determine the legal owner. ation for farm or other closely held business
• The deductions claimed against that in- real property and that property is sold to a
come (including any income properly paid Redemption of stock to pay death
taxes. Under certain conditions, a distribution qualified heir, the estate will recognize gain
or credited by the ancillary representative on the sale if the fair market value on the date
to a beneficiary). to a shareholder (including the estate) in re-
demption of stock that was included in the of the sale exceeds the fair market value on
decedent's gross estate may be allowed the date of the decedent's death (or on the
capital gain (or loss) treatment. alternate valuation date if it was elected).
Estate of a nonresident alien. If the
Character of asset. The character of an Qualified heirs. Qualified heirs include
estate of a nonresident alien has a nonresi-
asset in the hands of an estate determines the decedent's ancestors (parents, grand-
dent alien domiciliary representative and an
whether gain or loss on its sale or other dis- parents, etc.) and spouse, the decedent's
ancillary representative who is a citizen or
position is capital or ordinary. The asset's lineal descendants (children, grandchildren,
resident of the United States, the ancillary
character depends on how the estate holds etc.) and their spouses, and lineal descend-
representative, in addition to filing a Form
or uses it. If it was a capital asset to the de- ants (and their spouses) of the decedent's
1040NR to provide the information described
cedent, it generally will be a capital asset to parents or spouse.
in the preceding paragraph, must also file the
the estate. If it was land or depreciable prop- For more information about special-use
return that the domiciliary representative oth-
erty used in the decedent's business and the valuation, see Form 706 and its instructions.
erwise would have to file.
estate continues the business, it generally will
have the same character to the estate that it Gain from transfer of property to a political
Copy of the Will had in the decedent's hands. If it was held organization. Appreciated property that is
You do not have to file a copy of the dece- by the decedent for sale to customers, it transferred to a political organization is
dent's will unless requested by the IRS. If re- generally will be considered to be held for treated as sold by the estate. Appreciated
quested, you must attach a statement to it sale to customers by the estate if the dece- property is property that has a fair market
indicating the provisions that, in your opinion, dent's business continues to operate during value (on the date of the transfer) greater than
determine how much of the estate's income the administration of the estate. the estate's basis. The gain recognized is the
is taxable to the estate or to the beneficiaries. difference between the estate's basis and the
You should also attach a statement signed An estate and a beneficiary of that
fair market value on the date transferred.
by you under penalties of perjury that the will ! estate are generally treated as related
CAUTION persons for purposes of treating the
A political organization is any party, com-
is a true and complete copy. mittee, association, fund, or other organiza-
gain on the sale of depreciable property be-
tion formed and operated to accept contribu-
tween the parties as ordinary income. This
Income To Include tions or make expenditures for influencing the
does not apply to a sale or exchange made
nomination, election, or appointment of an
The estate's taxable income generally is fig- to satisfy a pecuniary bequest.
individual to any federal, state, or local public
ured the same way as an individual's income, office.
except as explained in the following dis- Holding period. An estate (or other re-
cussions. cipient) that acquires a capital asset from a
Gross income of an estate consists of all decedent and sells or otherwise disposes of Gain or loss on distributions in kind. An
items of income received or accrued during it is considered to have held that asset for estate recognizes gain or loss on a distribu-
the tax year. It includes dividends, interest, more than 1 year, regardless of how long the tion of property in kind to a beneficiary only
rents, royalties, gain from the sale of property, asset is held. in the following situations.
and income from business, partnerships, Basis of asset. The basis used to figure
trusts, and any other sources. For a dis- gain or loss for property the estate receives 1) The distribution satisfies the beneficia-
cussion of income from dividends, interest, from the decedent usually is its fair market ry's right to receive either—
Page 15
a) A specific dollar amount (whether that the contributions are to be paid out of the these expenses cannot be claimed for both
payable in cash, in unspecified estate's gross income, the contributions are estate tax and income tax purposes. In most
property, or in both), or fully deductible. However, if the will contains cases, this rule also applies to expenses in-
no specific provisions, the contributions are curred in the sale of property by an estate (not
b) A specific property other than the considered to have been paid and are as a dealer).
property distributed. deductible in the same proportion as the To prevent a double deduction, amounts
2) You choose to recognize the gain or loss gross income bears to the total of all classes otherwise allowable in figuring the decedent's
on the estate's income tax return. (taxable and nontaxable) of income. taxable estate for federal estate tax on Form
You cannot deduct a qualified conserva- 706 will not be allowed as a deduction in fig-
The gain or loss is usually the difference be- tion easement granted after the date of death uring the income tax of the estate or of any
tween the fair market value of the property and before the due date of the estate tax re- other person unless the personal represen-
when distributed and the estate's basis in the turn. A contribution deduction is allowed to tative files a statement, in duplicate, that the
property. But see Gain from sale of special- the estate for estate tax purposes. items of expense, as listed in the statement,
use valuation property, earlier, for a limit on For more information about contributions, have not been claimed as deductions for
the gain recognized on a transfer of such see Publication 526, Charitable Contributions, federal estate tax purposes and that all rights
property to a qualified heir. and Publication 561, Determining the Value to claim such deductions are waived. One
If you choose to recognize gain or loss, of Donated Property. deduction or part of a deduction can be
the choice applies to all noncash distributions claimed for income tax purposes if the ap-
during the tax year except charitable distri- propriate statement is filed, while another
Losses deduction or part is claimed for estate tax
butions and specific bequests. To make the
Generally, an estate can claim a deduction for purposes. Claiming a deduction in figuring
choice, report the gain or loss on a Schedule
a loss that it sustains on the sale of property. the estate income tax is not prevented when
D (Form 1041) attached to the estate's Form
This includes a loss from the sale of property the same deduction is claimed on the estate
1041 and check the box on line 7 in the Other
(other than stock) to a personal represen- tax return, so long as the estate tax deduction
Information section of Form 1041. You must
tative of the estate, unless that person is a is not finally allowed and the preceding
make the choice by the due date (including
beneficiary of the estate. statement is filed. The statement can be filed
extensions) of the estate's income tax return
For a discussion of an estate's recognized with the income tax return or at any time be-
for the year of distribution. However, if you
loss on a distribution of property in kind to a fore the expiration of the statute of limitations
timely filed your return for the year without
beneficiary, see Income To Include, earlier. that applies to the tax year for which the de-
making the choice, you can still make the
choice by filing an amended return within six duction is sought. This waiver procedure also
An estate and a beneficiary of that applies to casualty losses incurred during
months of the due date of the return (exclud-
ing extensions). Attach Schedule D (Form
! estate are generally treated as related
CAUTION persons for purposes of the disallow-
administration of the estate.
1041) to the amended return and write “Filed ance of a loss on the sale of an asset be-
pursuant to section 301.9100–2” on the form. tween related persons. The disallowance Accrued expenses. The rules preventing
File the amended return at the same address does not apply to a sale or exchange made double deductions do not apply to deductions
you filed the original return. You must get the to satisfy a pecuniary bequest. for taxes, interest, business expenses, and
consent of the IRS to revoke the choice. other items accrued at the date of death.
For more information, see Property dis- These expenses are allowable as a deduction
Net operating loss deduction. An estate
tributed in kind under Distributions Deduction, for estate tax purposes as claims against the
can claim a net operating loss deduction, fig-
later. estate and also are allowable as deductions
ured in the same way as an individual's, ex-
cept that it cannot deduct any distributions to in respect of a decedent for income tax pur-
beneficiaries (discussed later) or the de- poses. Deductions for interest, business ex-
Exemption duction for charitable contributions in figuring penses, and other items not accrued at the
date of the decedent's death are allowable
and Deductions the loss or the loss carryover. For a dis-
only as a deduction for administration ex-
In figuring taxable income, an estate is gen- cussion of the carryover of an unused net
operating loss to a beneficiary upon termi- penses for both estate and income tax pur-
erally allowed the same deductions as an in- poses and do not qualify for a double de-
dividual. Special rules, however, apply to nation of the estate, see Termination of Es-
tate, later. duction.
some deductions for an estate. This section
includes discussions of those deductions af- For information on net operating losses,
fected by the special rules. see Publication 536, Net Operating Losses. Expenses allocable to tax-exempt income.
When figuring the estate's taxable income on
Casualty and theft losses. Losses incurred Form 1041, you cannot deduct administration
Exemption Deduction for casualty and theft during the adminis- expenses allocable to any of the estate's
An estate is allowed an exemption deduction tration of the estate can be deducted only if tax-exempt income. However, you can deduct
of $600 in figuring its taxable income. No ex- they have not been claimed on the federal these administration expenses when figuring
emption for dependents is allowed to an es- estate tax return (Form 706). You must file a the taxable estate for federal estate tax pur-
tate. Even though the first return of an estate statement with the estate's income tax return poses on Form 706.
may be for a period of less than 12 months, waiving the deduction for estate tax purposes.
the exemption is $600. If, however, the estate See Administration Expenses, later. Interest on estate tax. Interest paid on in-
was given permission to change its account- The same rules that apply to individuals stallment payments of estate tax is not
ing period, the exemption is $50 for each apply to the estate, except that in figuring the deductible for income or estate tax purposes.
month of the short year. adjusted gross income of the estate used to
figure the deductible loss, you deduct any
administration expenses claimed. Use Form Depreciation and Depletion
Contributions 4684, Casualties and Thefts, and its in- The allowable deductions for depreciation
An estate qualifies for a deduction for structions to figure any loss deduction. and depletion that accrue after the decedent's
amounts of gross income paid or permanently death must be apportioned between the es-
set aside for qualified charitable organiza- Carryover losses. Carryover losses result- tate and the beneficiaries, depending on the
tions. The adjusted gross income limits for ing from net operating losses or capital losses income of the estate that is allocable to each.
individuals do not apply. However, to be sustained by the decedent before death
deductible by an estate, the contribution must cannot be deducted on the estate's income Example. In 2000 the decedent's estate
be specifically provided for in the decedent's tax return. realized $3,000 of business income during the
will. If there is no will, or if the will makes no administration of the estate. The personal
provision for the payment to a charitable or- representative distributed $1,000 of the in-
ganization, then a deduction will not be al- Administration Expenses come to the decedent's son Ned and $2,000
lowed even though all of the beneficiaries Expenses of administering an estate can be to another son, Bill. The allowable depreci-
may agree to the gift. deducted either from the gross estate in fig- ation on the business property is $300. Ned
You cannot deduct any contribution from uring the federal estate tax on Form 706 or can take a deduction of $100 [($1,000 ÷
income that is not included in the estate's from the estate's gross income in figuring the $3,000) × $300], and Bill can take a deduction
gross income. If the will specifically provides estate's income tax on Form 1041. However, of $200 [($2,000 ÷ $3,000) × $300].
Page 16
Distributions Deduction Separate shares rule. The separate shares children, Judy and Ann. Under the will, you
rule must be used if both of the following are must fund Judy's share first with the proceeds
An estate is allowed a deduction for the tax true. of Frank's traditional IRA. The $90,000 bal-
year for any income that must be distributed ance in the IRA was distributed to the estate
currently and for other amounts that are • The estate has more than one benefi- during the year. This amount is included in the
properly paid or credited, or that must be ciary. estate's gross income as income in respect
distributed to beneficiaries. The deduction is of the decedent and is allocated to the corpus
limited to the distributable net income of the • The economic interest of a beneficiary
of the estate. The estate has two separate
estate. does not affect and is not affected by the
shares, one for the benefit of Judy and one
For special rules that apply in figuring the economic interest of another beneficiary.
for the benefit of Ann. If any distributions are
estate's distribution deduction, see Special made to either Judy or Ann during the year,
Rules for Distributions under Distributions to A bequest of a specific sum of money or of
property is not a separate share (see Be- then, for purposes of determining the distrib-
Beneficiaries From an Estate, later. utable net income for each separate share,
quests, later, under Special Rules for Distri-
butions). the $90,000 of income in respect of the de-
Distributable net income. Distributable net cedent must be allocated only to Judy's
income (determined on Schedule B of Form Note. The separate shares rule applies share.
1041) is the estate's income available for to the estates of decedents dying after August
distribution. It is the estate's taxable income, 5, 1997. The IRS will accept any reasonable Example 2. Assume the same facts as
with the following modifications. interpretation of the rule for estates of dece- in Example 1, except that you must fund
Distributions to beneficiaries. Distribu- dents who died before December 28, 1999. Judy's share first with DEF Corporation stock
tions to beneficiaries are not deducted. The rules discussed in this section apply to valued at $300,000, rather than the IRA pro-
Estate tax deduction. The deduction for the estates of decedents dying on or after ceeds. To determine the distributable net in-
estate tax on income in respect of the dece- December 28, 1999. come for each separate share, the $90,000
dent is not allowed. of income in respect of the decedent must be
Personal exemption. No personal ex- If the separate shares rule applies, the allocated between the two shares to the ex-
emption deduction is allowed. separate shares are treated as separate es- tent they could potentially be funded with that
Capital gains. Capital gains ordinarily are tates for the sole purpose of determining the income. The maximum amount of Judy's
not included in distributable net income. distributable net income allocable to a share. share that could be funded with that income
However, you include them in distributable Each share's distributable net income is is $150,000 ($450,000 value of share less
net income if any of the following apply. based on that share's portion of gross income $300,000 funded with stock). The maximum
and any applicable deductions or losses. You amount of Ann's share that could be funded
must use a reasonable and equitable method is $450,000. Based on the relative values,
• The gain is allocated to income in the to make the allocations. Judy's distributable net income includes
accounts of the estate or by notice to the $22,500 ($150,000/$600,000 X $90,000) of
Generally, gross income is allocated
beneficiaries under the terms of the will the income in respect of the decedent and
among the separate shares based on the in-
or by local law. Ann's distributable net income includes
come that each share is entitled to under the
• The gain is allocated to the corpus or will or applicable local law. This includes $67,500 ($450,000/$600,000 X $90,000).
principal of the estate and is actually gross income that is not received in cash,
distributed to the beneficiaries during the such as a distributive share of partnership tax Income that must be distributed currently.
tax year. items. The distributions deduction includes any
If a beneficiary is not entitled to any of the amount of income that, under the terms of the
• The gain is used, under either the terms estate's income, the distributable net income decedent's will or by reason of local law, must
of the will or the practice of the personal for that beneficiary is zero. The estate cannot be distributed currently. This includes an
representative, to determine the amount deduct any distribution made to that benefi- amount that may be paid out of income or
that is distributed or must be distributed. ciary and the beneficiary does not have to corpus (such as an annuity) to the extent it is
• Charitable contributions are made out of include the distribution in its gross income. paid out of income for the tax year. The de-
capital gains. However, see Income in respect of a dece- duction is allowed to the estate even if the
dent, later in this discussion. personal representative does not make the
Generally, when you determine capital distribution until a later year or makes no
Example. Patrick's will directs you, the distribution until the final settlement and ter-
gains to be included in distributable net in- executor, to distribute ABC Corporation stock
come, the 50% exclusion for gain from the mination of the estate.
and all dividends from that stock to his son, Support allowances. The distribution
sale or exchange of qualified small business Edward, and the residue of the estate to his
stock is not taken into account. deduction includes any support allowance
son, Michael. The estate has two separate that, under a court order or decree or local
Capital losses. Capital losses are ex- shares consisting of the dividends on the
cluded in figuring distributable net income law, the estate must pay the decedent's sur-
stock left to Edward and the residue of the viving spouse or other dependent for a limited
unless they enter into the computation of any estate left to Michael. Since the distribution
capital gain that is distributed or must be dis- period during administration of the estate.
of the ABC Corporation stock qualifies as a The allowance is deductible as income that
tributed during the year. bequest, it is not a separate share.
Tax-exempt interest. Tax-exempt inter- must be distributed currently or as any other
If any distributions, other than the ABC amount paid, credited, or required to be dis-
est, including exempt-interest dividends, Corporation stock, are made during the year
though excluded from the estate's gross in- tributed, as discussed next.
to either Edward or Michael, you must deter-
come, is included in the distributable net in- mine the distributable net income for each
come, but is reduced by the following items. separate share. The distributable net income Any other amount paid, credited, or re-
for Edward's separate share includes only the quired to be distributed. Any other amount
• The expenses that were not allowed in dividends attributable to the ABC Corporation paid, credited, or required to be distributed is
computing the estate's taxable income stock. The distributable net income for allowed as a deduction to the estate only in
because they were attributable to tax- Michael's separate share includes all other the year actually paid, credited, or distributed.
exempt interest (see Expenses allocable income. If there is no specific requirement by local law
to tax-exempt income under Adminis- or by the terms of the will that income earned
tration Expenses, earlier). Income in respect of a decedent. This by the estate during administration be dis-
income is allocated among the separate tributed currently, a deduction for distributions
• The part of the tax-exempt interest shares that could potentially be funded with to the beneficiaries will be allowed to the es-
deemed to have been used to make a these amounts, even if the share is not enti- tate, but only for the actual distributions dur-
charitable contribution. See Contribu- tled to receive any income under the will or ing the tax year.
tions, earlier. applicable local law. This allocation is based If the personal representative has dis-
on the relative value of each share that could cretion as to when the income is distributed,
The total tax-exempt interest earned by potentially be funded with these amounts. the deduction is allowed only in the year of
an estate must be shown in the Other Infor- distribution.
mation section of Form 1041. The beneficia- Example 1. Frank's will directs you, the The personal representative can elect to
ry's part of the tax-exempt interest is shown executor, to divide the residue of his estate treat distributions paid or credited within 65
on Schedule K–1, Form 1041. (valued at $900,000) equally between his two days after the close of the estate's tax year
Page 17
as having been paid or credited on the last Example. An estate has distributable net Tax
day of that tax year. The election is made by income of $2,000, consisting of $1,000 of
An estate cannot use the Tax Table that ap-
completing line 6 in the Other Information taxable interest and $1,000 of rental income.
plies to individuals. The tax rate schedule to
section of Form 1041. If a tax return is not Distributions to the beneficiary total $1,500.
use is in the instructions for Form 1041.
required, the election is made on a statement The distribution deduction consists of $750
which is filed with the IRS office where the of taxable interest and $750 of rental income,
Alternative minimum tax (AMT). An estate
return would have been filed. The election is unless the will or local law provides a different
may be liable for the alternative minimum tax.
irrevocable for the tax year and is only effec- allocation.
To figure the alternative minimum tax, use
tive for the year of the election.
Schedule I (Form 1041), Alternative Minimum
Limit on deduction for distributions. You Tax. Certain credits may be limited by any
cannot deduct any amount of distributable net “tentative minimum tax” figured on line 37,
Alimony and separate maintenance. income not included in the estate's gross in-
Alimony and separate maintenance payments Part III of Schedule I (Form 1041), even if
come. there is no alternative minimum tax liability.
that must be included in the spouse's or for-
mer spouse's income may be deducted as Example. An estate has distributable net If the estate takes a deduction for distri-
income that must be distributed currently if income of $2,000, consisting of $1,000 of butions to beneficiaries, complete Part I and
they are paid, credited, or distributed out of dividends and $1,000 of tax-exempt interest. Part II of Schedule I even if the estate does
the income of the estate for the tax year. That Distributions to the beneficiary total $1,500. not owe alternative minimum tax. Allocate the
spouse or former spouse is treated as a Except for this rule, the distribution deduction income distribution deduction figured on a
beneficiary. would be $1,500 ($750 of dividends and $750 minimum tax basis among the beneficiaries
of tax-exempt interest). However, as the re- and report each beneficiary's share on
sult of this rule, the distribution deduction is Schedule K–1 (Form 1041). Also show each
Payment of beneficiary's obligations. Any beneficiary's share of any adjustments or tax
payment made by the estate to satisfy a legal limited to $750, because no deduction is al-
lowed for the tax-exempt interest distributed. preference items for depreciation, depletion,
obligation of any person is deductible as in- and amortization.
come that must be distributed currently or as For more information, see the instructions
any other amount paid, credited, or required Funeral and Medical Expenses to Form 1041.
to be distributed. This includes a payment No deduction can be taken for funeral ex-
made to satisfy the person's obligation under penses or medical and dental expenses on
local law to support another person, such as Payments
the estate's income tax return, Form 1041.
the person's minor child. The person whose The estate's income tax liability must be paid
obligation is satisfied is treated as a benefi- in full when the return is filed. You may have
Funeral expenses. Funeral expenses paid
ciary of the estate. to pay estimated tax, however, as explained
by the estate are not deductible in figuring the
This does not apply to a payment made below.
estate's taxable income on Form 1041. They
to satisfy a person's obligation to pay alimony are deductible only for determining the taxa-
or separate maintenance. Estimated tax. Estates with tax years ending
ble estate for federal estate tax purposes on
2 or more years after the date of the dece-
Form 706.
dent's death must pay estimated tax in the
Interest in real estate. The value of an in- same manner as individuals.
terest in real estate owned by a decedent, title Medical and dental expenses of a dece- If you must make estimated tax payments
to which passes directly to the beneficiaries dent. The medical and dental expenses of for 2001, use Form 1041–ES, Estimated In-
under local law, is not included as any other a decedent paid by the estate are not come Tax for Estates and Trusts, to deter-
amount paid, credited, or required to be dis- deductible in figuring the estate's taxable in- mine the estimated tax to be paid.
tributed. come on Form 1041. You can deduct them in Generally, you must pay estimated tax if
figuring the taxable estate for federal estate the estate is expected to owe, after subtract-
tax purposes on Form 706. If these expenses ing any withholding and credits, at least
Property distributed in kind. If an estate are paid within the 1-year period beginning
distributes property in kind, the estate's de- $1,000 in tax for 2001. You will not, however,
with the day after the decedent's death, you have to pay estimated tax if you expect the
duction ordinarily is the lesser of its basis in can elect to deduct them on the decedent's
the property or the property's fair market withholding and credits to be at least:
income tax return (Form 1040) for the year in
value when distributed. However, the de- which they were incurred. See Medical Ex- 1) 90% of the tax to be shown on the 2001
duction is the property's fair market value if penses under Final Return for Decedent, return, or
the estate recognizes gain on the distribution. earlier.
See Gain or loss on distributions in kind under 2) 100% of the tax shown on the 2000 re-
Income To Include, earlier. turn (assuming the return covered all 12
Property is distributed in kind if it satisfies Credits, Tax, months).
the beneficiary's right to receive another
property or amount, such as the income of the
and Payments The percentage in (2) above is 110% if the
estate or a specific dollar amount. It generally This section includes brief discussions of estate's 2000 adjusted gross income (AGI)
includes any noncash distribution other than some of the tax credits, types of taxes that was more than $150,000. To figure the es-
the following. may be owed, and estimated tax payments tate's AGI, see the instructions for line 15b,
that are reported on the estate's income tax Form 1041.
return, Form 1041. The general rule is that you must make
• A specific bequest (unless it must be your first estimated tax payment by April 16,
distributed in more than three install- 2001. You can either pay all of your estimated
ments). Credits tax at that time or pay it in four equal amounts
Estates generally are allowed some of the that are due by April 16, 2001; June 15, 2001;
• Real property, the title to which passes same tax credits that are allowed to individ-
directly to the beneficiary under local law. September 17, 2001; and January 15, 2002.
uals. The credits generally are allocated be- For exceptions to the general rule, see the
tween the estate and the beneficiaries. How- instructions for Form 1041–ES and Publica-
Character of amounts distributed. If the ever, estates are not allowed the credit for the tion 505, Tax Withholding and Estimated Tax.
decedent's will or local law does not provide elderly or the disabled, the child tax credit, If your return is on a fiscal year basis, your
for the allocation of different classes of in- or the earned income credit discussed earlier due dates are the 15th day of the 4th, 6th,
come, you must treat the amount deductible under Final Return for Decedent. and 9th months of your fiscal year and the
for distributions to beneficiaries as consisting 1st month of the following fiscal year.
of the same proportion of each class of items Foreign tax credit. Foreign tax credit is If any of these dates fall on a Saturday,
entering into the computation of distributable discussed in Publication 514, Foreign Tax Sunday, or legal holiday, the due date is the
net income as the total of each class bears Credit for Individuals. next business day.
to the total distributable net income. For more You may be charged a penalty for not
information about the character of distribu- General business credit. The general paying enough estimated tax or for not mak-
tions, see Character of Distributions under business credit is available to an estate that ing the payment on time in the required
Distributions to Beneficiaries From an Estate, is involved in a business. For more informa- amount (even if you have an overpayment on
later. tion, see Publication 334. your tax return). Use Form 2210, Underpay-
Page 18
ment of Estimated Tax by Individuals, Es- You must send Form 1040NR to the corpus) would qualify as income that must be
tates, and Trusts, to figure any penalty. Internal Revenue Service Center, Philadel- distributed currently to the extent there is in-
For more information, see the instructions phia, PA 19255. come of the estate not paid, credited, or re-
for Form 1041–ES and Publication 505. Electronic filing. Form 1041 can be filed quired to be distributed to other beneficiaries
electronically or on magnetic media. See the for the tax year.
instructions for Form 1041 for more informa-
Name, Address, tion. Example 1. Henry Frank's will provides
and Signature that $500 be paid to the local Community
Chest out of the income each year. It also
In the top space of the name and address provides that $2,000 a year is currently dis-
area of Form 1041, enter the exact name of
the estate from the Form SS–4 used to apply Distributions tributable out of income to his brother, Fred,
and an annuity of $3,000 is to be paid to his
for the estate's employer identification num-
ber. In the remaining spaces, enter the name to Beneficiaries sister, Sharon, out of income or corpus.
Capital gains are allocable to corpus, but all
and address of the personal representative
(fiduciary) of the estate. From an Estate expenses are to be charged against income.
Last year, the estate had income of $6,000
If you are the beneficiary of an estate that and expenses of $3,000. The personal rep-
Signature. The personal representative (or must distribute all its income currently, you resentative paid the $500 to the Community
its authorized officer if the personal repre- must report your share of the distributable net Chest and made the distributions to Fred and
sentative is not an individual) must sign the income whether or not you have actually re- Sharon as required by the will.
return. An individual who prepares the return ceived it. The estate's distributable net income (fig-
for pay must manually sign the return as If you are the beneficiary of an estate that ured before the charitable contribution) is
preparer. Signature stamps or labels are not does not have to distribute all its income cur- $3,000. The currently distributable income
acceptable. For additional information about rently, you must report all income that must totals $2,500 ($2,000 to Fred and $500 to
the requirements for preparers of returns, see be distributed to you (whether or not actually Sharon). The income available for Sharon's
the instructions for Form 1041. distributed) plus all other amounts paid, annuity is only $500 because the will requires
credited, or required to be distributed to you, that the charitable contribution be paid out of
up to your share of distributable net income. current income. Because the $2,500 treated
When and Where To File As explained earlier in Distributions De- as distributed currently is less than the $3,000
When you file Form 1041 (or Form 1040NR duction under Income Tax Return of an distributable net income (before the contribu-
if it applies) depends on whether you choose Estate–Form 1041, for an amount to be cur- tion), Fred must include $2,000 in his gross
a calendar year or a fiscal year as the estate's rently distributable income, there must be a income, and Sharon must include $500 in her
accounting period. Where you file Form 1041 specific requirement for current distribution gross income.
depends on where you, as the personal rep- either under local law or by the terms of the
resentative, live or have your principal office. decedent's will. If there is no such require- Example 2. Assume the same facts as
ment, the income is reportable only when in Example 1 except that the estate has an
When to file. If you choose the calendar year distributed. additional $1,000 of administration expenses,
as the estate's accounting period, the Form If the estate has more than one benefi- commissions, etc., that are chargeable to
1041 for 2000 is due by April 16, 2001 (June ciary, the separate shares rule discussed corpus. The estate's distributable net income
15, 2001, in the case of Form 1040NR for a earlier under Distributions Deduction may (figured before the charitable contribution) is
nonresident alien estate that does not have have to be used to determine the distributable now $2,000 ($3,000 − $1,000 additional ex-
an office in the United States). If you choose net income allocable to each beneficiary. The pense). The amount treated as currently dis-
a fiscal year, the Form 1041 is due by the beneficiaries in the examples shown in this tributable income is still $2,500 ($2,000 to
15th day of the 4th month (6th month in the discussion do not meet the requirements of Fred and $500 to Sharon). Because the
case of Form 1040NR) after the end of the tax the separate shares rule. $2,500, treated as distributed currently, is
year. If the due date is a Saturday, Sunday, more than the $2,000 distributable net in-
or legal holiday, the due date is the next Income That Must Be come, Fred has to include only $1,600
business day. [($2,000 ÷ $2,500) × $2,000] in his gross in-
Extension of time to file. An extension Distributed Currently come and Sharon has to include only $400
of time to file Form 1041 may be granted if Beneficiaries who are entitled to receive cur- [($500 ÷ $2,500) × $2,000] in her gross in-
you have clearly described the reasons that rently distributable income generally must in- come. Because Fred and Sharon are benefi-
will cause your delay in filing the return. Use clude in gross income the entire amount due ciaries of amounts that must be distributed
Form 2758, Application for Extension of Time them. However, if the currently distributable currently, they do not benefit from the re-
To File Certain Excise, Income, Information, income is more than the estate's distributable duction of distributable net income by the
and Other Returns, to request an extension. net income figured without deducting charita- charitable contribution deduction.
The extension is not automatic, so you should ble contributions, each beneficiary must in-
request it early enough for the IRS to act on clude in gross income a ratable part of the
the application before the regular due date distributable net income. Other Amounts
of Form 1041. You should file Form 2758 in
duplicate with the IRS office where you must Example. Under the terms of the will of Distributed
file Form 1041. Gerald Peters, $5,000 a year is to be paid to Any other amount paid, credited, or required
If you have not yet established an ac- his widow and $2,500 a year is to be paid to to be distributed to the beneficiary for the tax
counting period, filing Form 2758 will serve to his daughter out of the estate's income during year also must be included in the beneficiary's
establish the accounting period stated on that the period of administration. There are no gross income. Such an amount is in addition
form. Changing to another accounting period charitable contributions. For the year, the to those amounts that must be distributed
requires prior approval of the IRS. estate's distributable net income is only currently, as discussed earlier. It does not in-
Generally, an extension of time to file a $6,000. Since the distributable net income is clude gifts or bequests of specific sums of
return does not extend the time for pay- less than the currently distributable income, money or specific property if such sums are
ment of tax due. You must pay the total in- the widow must include in her gross income paid in three or fewer installments. However,
come tax estimated to be due on Form 1041 only $4,000 [($5,000 ÷ $7,500) × $6,000], and amounts that can be paid only out of income
in full by the regular due date of the return. the daughter must include in her gross in- are not excluded under this rule. If the sum
For additional information, see the in- come only $2,000 [($2,500 ÷ $7,500) × of the income that must be distributed cur-
structions for Form 2758. $6,000]. rently and other amounts paid, credited, or
required to be distributed exceeds distribut-
Where to file. As the personal representative Annuity payable out of income or corpus. able net income, these other amounts are in-
of an estate, file the estate's income tax return Income that must be distributed currently in- cluded in the beneficiary's gross income only
(Form 1041) with the Internal Revenue Ser- cludes any amount that must be paid out of to the extent distributable net income exceeds
vice center for the state where you live or income or corpus (principal of the estate) to the income that must be distributed currently.
have your principal place of business. A list the extent the amount is satisfied out of in- If there is more than one beneficiary, each
of the states and addresses that apply is in come for the tax year. An annuity that must will include in gross income only a pro rata
the instructions for Form 1041. be paid in all events (either out of income or share of such amounts.
Page 19
The personal representative can elect to est and $400 [($1,000 ÷ $5,000) × $2,000] to
treat distributions paid or credited by the es-
Character of Distributions tax-exempt interest. Betty is considered to
tate within 65 days after the close of the es- An amount distributed to a beneficiary for have received $2,400 ($4,000 − $1,600) of
tate's tax year as having been paid or credited inclusion in gross income retains the same taxable interest and $600 ($1,000 − $400) of
on the last day of that tax year. character for the beneficiary that it had for the tax-exempt interest. She must include the
The following are examples of other estate. $2,400 in her gross income. She must report
amounts distributed. the $600 of tax-exempt interest, but it is not
No charitable contribution made. If no taxable.
• Distributions made at the discretion of the charitable contribution is made during the tax To determine the amount to be included
personal representative. year, you must treat the distributions as con- in Tim's gross income, however, take into
sisting of the same proportion of each class account the entire charitable contribution de-
• Distributions required by the terms of the of items entering into the computation of dis- duction. Since the currently distributable in-
will upon the happening of a specific tributable net income as the total of each come is greater than the estate's income after
event. class bears to the total distributable net in- taking into account the charitable contribution
• Annuities that must be paid in any event, come. Distributable net income was defined deduction, none of the amount paid to Tim
but only out of corpus (principal). earlier in Distributions Deduction under In- must be included in his gross income for the
come Tax Return of an Estate–Form 1041. year.
• Distributions of property in kind as de- However, if the will or local law specifically
fined earlier in Distributions Deduction provides or requires a different allocation, you
under Income Tax Return of an
Estate–Form 1041.
must use that allocation. How and When To Report
• Distributions required for the support of Example 1. An estate has distributable How you report your income from the estate
the decedent's surviving spouse or other net income of $3,000, consisting of $1,800 in depends on the character of the income in the
dependent for a limited period, but only rents and $1,200 in taxable interest. There is hands of the estate. When you report the in-
out of corpus (principal). no provision in the will or local law for the come depends on whether it represents
allocation of income. The personal represen- amounts credited or required to be distributed
If an estate distributes property in kind, the tative distributes $1,500 each to Jim and Ted, to you or other amounts.
amount of the distribution ordinarily is the beneficiaries under their father's will. Each
lesser of the estate's basis in the property or will be treated as having received $900 in How to report estate income. Each item
the property's fair market value when distrib- rents and $600 of taxable interest. of income keeps the same character in your
uted. However, the amount of the distribution hands as it had in the hands of the estate. If
is the property's fair market value if the estate Example 2. Assume in Example 1 that
the items of income distributed or considered
recognizes gain on the distribution. See Gain the will provides for the payment of the taxa-
to be distributed to you include dividends,
or loss on distributions in kind in the dis- ble interest to Jim and the rental income to
tax-exempt interest, or capital gains, they will
cussion Income To Include under Income Tax Ted and that the personal representative dis-
keep the same character in your hands for
Return of an Estate–Form 1041, earlier. tributed the income under those provisions.
purposes of the tax treatment given those
Jim is treated as having received $1,200 in
items. Generally, you report the dividends on
Example. The terms of Michael Scott's taxable interest and Ted is treated as having
line 9 of your Form 1040, and the capital
will require the distribution of $2,500 of in- received $1,800 of rental income.
gains on your Schedule D (Form 1040). The
come annually to his wife, Susan. If any in- tax-exempt interest, while not included in
come remains, it may be accumulated or Charitable contribution made. If a charita- taxable income, must be shown on line 8b of
distributed to his two children, Joe and Alice, ble contribution is made by an estate and the your Form 1040. Report business and other
in amounts at the discretion of the personal terms of the will or local law provide for the nonpassive income in Part III of your Sched-
representative. The personal representative contribution to be paid from specified sources, ule E (Form 1040).
also may invade the corpus (principal) for the that provision governs. If no provision or re- The estate's personal representative
benefit of Scott's wife and children. quirement exists, the charitable contribution should provide you with the classification of
Last year, the estate had income of deduction must be allocated among the the various items that make up your share of
$6,000 after deduction of all expenses. Its classes of income entering into the computa- the estate income and the credits you should
distributable net income is also $6,000. The tion of the income of the estate before allo- take into consideration so that you can prop-
personal representative distributed the re- cation of other deductions among the items erly prepare your individual income tax return.
quired $2,500 of income to Susan. In addition, of distributable net income. In allocating items See Schedule K–1 (Form 1041), later.
the personal representative distributed $1,500 of income and deductions to beneficiaries to
each to Joe and Alice and an additional whom income must be distributed currently,
$2,000 to Susan. the charitable contribution deduction is not When to report estate income. If income
Susan includes in her gross income the taken into account to the extent that it ex- from the estate is credited or must be distrib-
$2,500 of currently distributable income. The ceeds income for the year reduced by cur- uted to you for a tax year, report that income
other amounts distributed totaled $5,000 rently distributable income. (even if not distributed) on your return for that
($1,500 + $1,500 + $2,000) and are includible year. The personal representative can elect
in the income of Susan, Joe, and Alice to the Example. The will of Harry Thomas re- to treat distributions paid or credited within
extent of $3,500 (distributable net income of quires a current distribution out of income of 65 days after the close of the estate's tax year
$6,000 minus currently distributable income $3,000 a year to his wife, Betty, during the as having been paid or credited on the last
to Susan of $2,500). Susan will include an administration of the estate. The will also day of that tax year. If this election is made,
additional $1,400 [($2,000 ÷ $5,000) × provides that the personal representative, you must report that distribution on your re-
$3,500] in her gross income. Joe and Alice using discretion, may distribute the balance turn for that year.
each will include $1,050 [($1,500 ÷ $5,000) of the current earnings either to Harry's son, Report other income from the estate on
× $3,500] in their gross incomes. Tim, or to one or more of certain designated your return for the year in which you receive
charities. Last year, the estate's income con- it. If your tax year is different from the estate's
sisted of $4,000 of taxable interest and tax year, see Different tax years, next.
Discharge of a $1,000 of tax-exempt interest. There were no Different tax years. You must include
deductible expenses. The personal repre- your share of the estate income in your return
Legal Obligation sentative distributed the $3,000 to Betty, for your tax year in which the last day of the
If an estate, under the terms of a will, dis- made a contribution of $2,500 to the local estate's tax year falls. If the tax year of the
charges a legal obligation of a beneficiary, the heart association, and paid $1,500 to Tim. estate is the calendar year and your tax year
discharge is included in that beneficiary's in- The distributable net income for deter- is a fiscal year ending on June 30, you will
come as either currently distributable income mining the character of the distribution to include in gross income for the tax year ended
or other amount paid. This does not apply to Betty is $3,000. The charitable contribution June 30 your share of the estate's distribut-
the discharge of a beneficiary's obligation to deduction to be taken into account for this able net income distributed or considered
pay alimony or separate maintenance. computation is $2,000 (the estate's income distributed during the calendar year ending
The beneficiary's legal obligations include ($5,000) minus the currently distributable in- the previous December 31.
a legal obligation of support, for example, of come ($3,000)). The $2,000 charitable con- Death of individual beneficiary. If an
a minor child. Local law determines a legal tribution deduction must be allocated: $1,600 individual beneficiary dies, the beneficiary's
obligation of support. [($4,000 ÷ $5,000) × $2,000] to taxable inter- share of the estate's distributable net income
Page 20
may be distributed or be considered distrib- Bequest expenses and other specific legacies or be-
uted by the estate for its tax year that does quests, that residuary bequest is not a pay-
not end with or within the last tax year of the A bequest is the act of giving or leaving ment of a specific property or sum of money.
beneficiary. In this case, the estate income property to another through the last will and Gifts made in installments. Even if the
that must be included in the gross income on testament. Generally, any distribution of in- gift or bequest is made in a lump sum or in
the beneficiary's final return is based on the come (or property in kind) to a beneficiary is three or fewer installments, it will not qualify
amounts distributed or considered distributed an allowable deduction to the estate and is as a specific property or sum of money if the
during the tax year of the estate in which his includible in the beneficiary's gross income to will provides that the amount must be paid in
or her last tax year ended. However, for a the extent of the estate's distributable net in- more than three installments.
cash basis beneficiary, the gross income of come. However, a distribution will not be an
the last tax year includes only the amounts allowable deduction to the estate and will not
actually distributed before death. Income that be includible in the beneficiary's gross income Conditional bequests. A bequest of a spe-
must be distributed to the beneficiary but, in if the distribution meets the following require- cific property or sum of money that may oth-
fact, is distributed to the beneficiary's estate ments. erwise be excluded from the beneficiary's
after death is included in the gross income gross income will not lose the exclusion solely
of the beneficiary's estate as income in re- • It is required by the terms of the will. because the payment is subject to a condi-
spect of a decedent. tion.
• It is a gift or bequest of a specific sum
Termination of nonindividual benefi-
of money or property.
ciary. If a beneficiary that is not an individual,
for example a trust or a corporation, ceases • It is paid out in three or fewer installments Installment payments. Certain rules apply
to exist, the amount included in its gross in- under the terms of the will. in determining whether a bequest of specific
come for its last tax year is determined as if property or a sum of money has to be paid
the beneficiary were a deceased individual. or credited to a beneficiary in more than three
However, income that must be distributed Specific sum of money or property. To installments.
before termination, but which is actually dis- meet this test, the amount of money or the Personal items. Do not take into account
tributed to the beneficiary's successor in in- identity of the specific property must be de- bequests of articles for personal use, such
terest, is included in the gross income of the terminable under the decedent's will as of the as personal and household effects and auto-
nonindividual beneficiary for its last tax year. date of death. To qualify as specific property, mobiles.
the property must be identifiable both as to its Real property. Do not take into account
kind and its amount. specifically designated real property, the title
Schedule K–1 (Form 1041). The personal to which passes under local law directly to the
representative for the estate must provide you Example 1. Dave Rogers' will provided beneficiary.
with a copy of Schedule K–1 (Form 1041) or that his son, Ed, receive Dave's interest in the Other property. All other bequests under
a substitute Schedule K–1. You should not file Rogers-Jones partnership. Dave's daughter, the decedent's will for which no time of pay-
the form with your Form 1040, but should Marie, would receive a sum of money equal ment or crediting is specified and that are to
keep it for your personal records. to the value of the partnership interest given be paid or credited in the ordinary course of
Each beneficiary (or nominee of a benefi- to Ed. The bequest to Ed is a gift of a specific administration of the estate are considered
ciary) who receives a distribution from the property ascertainable at the date of Dave as required to be paid or credited in a single
estate for the tax year or to whom any item Rogers' death. The bequest of a specific sum installment. Also, all bequests payable at any
is allocated must receive a Schedule K–1 or of money to Marie is determinable on the one specified time under the terms of the will
substitute. The personal representative han- same date. are treated as a single installment.
dling the estate must furnish the form to each A testamentary trust. In determining the
beneficiary or nominee by the date on which Example 2. Mike Jenkins' will provided number of installments that must be paid or
the Form 1041 is filed. that his widow, Helen, would receive money credited to a beneficiary, the decedent's es-
Nominees. A person who holds an inter- or property to be selected by the personal tate and a testamentary trust created by the
est in an estate as a nominee for a beneficiary representative equal in value to half of his decedent's will are treated as separate enti-
must provide the estate with the name and adjusted gross estate. The identity of the ties. Amounts paid or credited by the estate
address of the beneficiary, and any other re- property and the money in the bequest are and by the trust are counted separately.
quired information. The nominee must pro- dependent on the personal representative's
vide the beneficiary with the information re- discretion and the payment of administration
ceived from the estate. expenses and other charges, which are not
determinable at the date of Mike's death. As Denial of Double Deduction
Penalty. A personal representative (or
nominee) who fails to provide the correct in- a result, the provision is not a bequest of a A deduction cannot be claimed twice. If an
formation may be subject to a $50 penalty for specific sum of money or of specific property, amount is considered to have been distrib-
each failure. and any distribution under that provision is a uted to a beneficiary of an estate in a pre-
Consistent treatment of items. You deduction for the estate and income to the ceding tax year, it cannot again be included
must treat estate items the same way on your beneficiary (to the extent of the estate's dis- in figuring the deduction for the year of the
individual return as they are treated on the tributable net income). The fact that the be- actual distribution.
estate's income tax return. If your treatment quest will be specific sometime before distri-
is different from the estate's treatment, you bution is immaterial. It is not ascertainable by
Example. The will provides that the es-
must file Form 8082, Notice of Inconsistent the terms of the will as of the date of death.
tate must distribute currently all of its income
Treatment or Administrative Adjustment Re- to a beneficiary. For administrative conven-
quest (AAR), with your return to identify the Distributions not treated as bequests. The ience, the personal representative did not
difference. If you do not file Form 8082 and following distributions are not bequests that make a distribution of a part of the income for
the estate has filed a return, the IRS can im- meet all the requirements listed earlier that the tax year until the first month of the next
mediately assess and collect any tax and allow a distribution to be excluded from the tax year. The amount must be deducted by
penalties that result from adjusting the item beneficiary's income and do not allow it as a the estate in the first tax year, and must be
to make it consistent with the estate's treat- deduction to the estate. included in the gross income of the benefi-
ment. Paid only from income. An amount that ciary in that year. This amount cannot be de-
can be paid only from current or prior income ducted again by the estate in the following
of the estate does not qualify even if it is year when it is paid to the beneficiary, nor
specific in amount and there is no provision must the beneficiary again include the amount
Special Rules for installment payments. in gross income in that year.
for Distributions Annuity. An annuity or a payment of
money or of specific property in lieu of, or
Some special rules apply for determining the having the effect of, an annuity is not the
deduction allowable to the estate for distribu- Charitable Contributions
payment of a specific property or sum of
tions to beneficiaries and the amount money. The amount of a charitable contribution used
includible in the beneficiary's gross income. Residuary estate. If the will provides for as a deduction by the estate in determining
the payment of the balance or residue of the taxable income cannot be claimed again as
estate to a beneficiary of the estate after all a deduction for a distribution to a beneficiary.

Page 21
curred in the estate's last tax year (whether • A beneficiary of a fraction of the dece-
Termination of Estate or not a short tax year), regardless of when dent's net estate after payment of debts,
The termination of an estate generally is the estate actually incurred the loss. expenses, and specific bequests.
marked by the end of the period of adminis- If the last tax year of the estate is the last
tration and by the distribution of the assets to tax year to which a net operating loss may • A nonresiduary beneficiary, when the
the beneficiaries under the terms of the will be carried, see No double deductions, later. estate is unable to satisfy the bequest in
or under the laws of succession of the state For a general discussion of net operating full.
if there is no will. These beneficiaries may or losses, see Publication 536. For a discussion • A surviving spouse receiving a fractional
may not be the same persons as the benefi- of capital losses and capital loss carryovers, share of the estate in fee under a statu-
ciaries of the estate's income. see Publication 550. tory right of election when the losses or
deductions are taken into account in de-
Period of Administration termining the share. However, such a
Excess deductions. If the deductions in the
beneficiary does not include a recipient
The period of administration is the time actu- estate's last tax year (other than deductions
of a dower or curtesy, or a beneficiary
ally required by the personal representative for personal exemptions and charitable con-
who receives any income from the estate
to assemble all of the decedent's assets, pay tributions) are more than gross income for
from which the loss or excess deduction
all the expenses and obligations, and distrib- that year, the beneficiaries succeeding to the
is carried over.
ute the assets to the beneficiaries. This may estate's property can claim the excess as a
be longer or shorter than the time provided deduction in figuring taxable income. To es-
by local law for the administration of estates. tablish these deductions, a return must be Allocation among beneficiaries. The total
filed for the estate along with a schedule of the unused loss carryovers or the excess
showing the computation of each kind of de- deductions on termination that may be de-
Ends if all assets distributed. If all assets
duction and the allocation of each to the ducted by the successor beneficiaries is to
are distributed except for a reasonable
beneficiaries. be divided according to the share of each in
amount set aside, in good faith, for the pay-
An individual beneficiary must itemize de- the burden of the loss or deduction.
ment of unascertained or contingent liabilities
and expenses (but not including a claim by a ductions to claim these excess deductions.
Example. Under his father's will, Arthur
beneficiary, as a beneficiary) the estate will The deduction is claimed on Schedule A
is to receive $20,000. The remainder of the
be considered terminated. (Form 1040), subject to the 2% limit on mis-
estate is to be divided equally between his
cellaneous itemized deductions. The benefi-
brothers, Mark and Tom. After all expenses
Ends if period unreasonably long. If ciaries can claim the deduction only for the
are paid, the estate has sufficient funds to pay
settlement is prolonged unreasonably, the tax year in which or with which the estate
Arthur only $15,000, with nothing to Mark and
estate will be treated as terminated for federal terminates, whether the year of termination is
Tom. In the estate's last tax year there are
income tax purposes. From that point on, the a normal year or a short tax year.
excess deductions of $5,000 and $10,000 of
gross income, deductions, and credits of the No double deductions. A net operating
unused loss carryovers. Since the total of the
estate are considered those of the person or loss deduction allowable to a successor ben-
excess deductions and unused loss carry-
persons succeeding to the property of the eficiary cannot be considered in figuring the
overs is $15,000 and Arthur is considered a
estate. excess deductions on termination. However,
successor beneficiary to the extent of $5,000,
if the estate's last tax year is the last year in
he is entitled to one-third of the unused loss
which a deduction for a net operating loss can
Transfer of Unused carryover and one-third of the excess de-
be taken, the deduction, to the extent not
ductions. His brothers may divide the other
Deductions to Beneficiaries absorbed in the last return of the estate, is
two-thirds of the excess deductions and the
If the estate has unused loss carryovers or treated as an excess deduction on termi-
unused loss carryovers between them.
excess deductions for its last tax year, they nation. Any item of income or deduction, or
are allowed to those beneficiaries who suc- any part thereof, that is taken into account in
ceed to the estate's property. See Successor figuring a net operating loss or a capital loss Transfer of Credit for
beneficiary, later. carryover of the estate for its last tax year Estimated Tax Payments
cannot be used again to figure the excess
deduction on termination. When an estate terminates, the personal
Unused loss carryovers. An unused net representative can choose to transfer to the
operating loss carryover or capital loss carry- beneficiaries the credit for all or part of the
over existing upon termination of the estate Successor beneficiary. A beneficiary enti- estate's estimated tax payments for the last
is allowed to the beneficiaries succeeding to tled to an unused loss carryover or an excess tax year. To make this choice, the personal
the property of the estate. That is, these de- deduction is the beneficiary who, upon the representative must complete Form 1041–T,
ductions will be claimed on the beneficiary's estate's termination, bears the burden of any Allocation of Estimated Tax Payments to
tax return. This treatment occurs only if a loss for which a carryover is allowed or of any Beneficiaries, and file it either separately or
carryover would have been allowed to the deductions more than gross income. with the estate's final Form 1041. The Form
estate in a later tax year if the estate had not If decedent had no will. If the decedent 1041–T must be filed by the 65th day after the
been terminated. had no will, the beneficiaries are those heirs close of the estate's tax year.
Both types of carryovers generally keep or next of kin to whom the estate is distrib- The amount of estimated tax allocated to
their same character for the beneficiary as uted. If the estate is insolvent, the beneficia- each beneficiary is treated as paid or credited
they had for the estate. However, if the ben- ries are those to whom the estate would have to the beneficiary on the last day of the es-
eficiary of a capital loss carryover is a corpo- been distributed had it not been insolvent. If tate's final tax year and must be reported on
ration, the corporation will treat the carryover the decedent's spouse is entitled to a speci- line 14a, Schedule K–1 (Form 1041). If the
as a short-term capital loss regardless of its fied dollar amount of property before any estate terminated in 2000 this amount is
status in the estate. The net operating loss distributions to other heirs and the estate is treated as a payment of 2000 estimated tax
carryover and the capital loss carryover are less than that amount, the spouse is the made by the beneficiary on January 16, 2001.
used in figuring the beneficiary's adjusted beneficiary to the extent of the deficiency.
gross income and taxable income. The ben- If decedent had a will. If the decedent
eficiary may have to adjust any net operating had a will, a beneficiary normally means the
loss carryover in figuring the alternative mini- residuary beneficiaries (including residuary
mum tax. trusts). Those beneficiaries who receive a Form 706
The first tax year to which the loss is car- specific property or a specific amount of Generally, you must file Form 706, United
ried is the beneficiary's tax year in which the money ordinarily are not considered residuary States Estate (and Generation-Skipping
estate terminates. If the loss can be carried beneficiaries, except to the extent the specific Transfer) Tax Return, if death occurred in
to more than one tax year, the estate's last amount is not paid in full. 2000 and the gross estate is more than
tax year (whether or not a short tax year) and Also, a beneficiary who is not strictly a $675,000.
the beneficiary's first tax year to which the residuary beneficiary, but whose devise or If you must file Form 706, it has to be done
loss is carried each constitute a tax year for bequest is determined by the value of the within 9 months after the date of the dece-
figuring the number of years to which a loss estate as reduced by the loss or deduction, dent's death unless you receive an extension
may be carried. A capital loss carryover from is entitled to the carryover or the deduction. of time to file. Use Form 4768, Application for
an estate to a corporate beneficiary will be For example, this would include the following Extension of Time To File a Return and/or
treated as though it resulted from a loss in- beneficiaries. Pay U.S. Estate (and Generation-Skipping
Page 22
Transfer) Taxes, to apply for an extension of he named your mother as co-owner. The rental property was leased the entire
time. Your father purchased the bonds during year of 2000 for $1,000 per month. Under lo-
the past several years. The cost of these cal law, your parents (as joint tenants) each
bonds totaled $2,500. After referring to had a half interest in the income from the
the appropriate table of redemption val- property. Your father's will, however, stipu-
Comprehensive ues (see U.S. savings bonds acquired
from decedent, earlier), you determine
lates that the entire rental income is to be paid
directly to your mother. None of the rental
Example that interest of $840 had accrued on the
bonds at the date of your father's death.
income will be reported on the income tax
return for the estate. Instead, your mother will
The following is an example of a typical situ- You must include the redemption value report all the rental income and expenses on
ation. All figures on the filled-in forms have of these bonds at date of death, $3,340, Form 1040. Checking the records and prior
been rounded to the nearest whole dollar. in your father's gross estate. tax returns of your parents, you find that they
On April 9, 2000, your father, John R. previously elected to use the alternative de-
Smith, died at the age of 62. He had not re- 9) On July 1, 1990, your parents purchased preciation system (ADS) with the mid-month
sided in a community property state. His will a house for $90,000. They have held the convention. Under ADS, the rental house is
named you to serve as his executor (personal property for rental purposes continuously depreciated using the straight-line method
representative). Except for specific bequests since its purchase. Your mother paid over a 40-year recovery period. They allo-
to your mother, Mary, of your parents' home one-third of the purchase price, or cated $15,000 of the cost to the land (which
and your father's automobile and a bequest $30,000, and your father paid $60,000. is never depreciable) and $75,000 to the
of $5,000 to his church, your father's will They owned the property, however, as rental house. Salvage value was disregarded
named your mother and his brother as ben- joint tenants with right of survivorship. for the depreciation computation. Before
eficiaries. An appraiser valued the property at 2000, $17,735 had been allowed as depreci-
After the court has approved your ap- $120,000. You include $60,000, one-half ation. For information on ADS, see Publica-
pointment as the executor, you should obtain of the value, in your father's gross estate tion 946.
an employer identification number for the es- because your parents owned the prop-
tate. (See Duties under Personal Represen- erty as joint tenants with right of
tatives, earlier.) Next, you should notify the survivorship and they were the only joint Deductions. During the year, you received
Internal Revenue Service Center where you tenants. a bill from the hospital for $615 and bills from
will file the tax returns of your father's estate your father's doctors totaling $475. You paid
that you have been appointed his executor. these bills as they were presented. In addi-
Your mother also gave you a Form W–2, tion, you find other bills from his doctors to-
You should use Form 56. Wage and Tax Statement, that your father's taling $185 that your father paid in 2000 and
employer had sent. In examining it, you dis- receipts for prescribed drugs he purchased
Assets of the estate. Your father had the cover that your father had been paid $11,000
following assets when he died. totaling $36. The funeral home presented you
in salary between January 1, 2000, and April a bill for $6,890 for the expenses of your fa-
9, 2000, (the date he died). The Form W–2 ther's funeral, which you paid.
1) His checking account balance was
showed $11,000 in box 1 and $23,000 Because the medical expenses you paid
$2,550 and his savings account balance
($11,000 + $12,000) in boxes 3 and 5. The from the estate's funds ($615 and $475) were
was $53,650.
Form W–2 indicated $2,305 as federal in- for your father's care and were paid within 1
2) Your father inherited your parents' home come tax withheld in box 2. The estate re- year after his death, and because they will
from his parents on March 5, 1979. At ceived a Form 1099–MISC from the employer not be used to figure the taxable estate, you
that time it was worth $42,000, but was showing $12,000 in box 3. The estate re- can treat them as having been paid by your
appraised at the time of your father's ceived a Form 1099–INT for your father father when he received the medical services.
death at $150,000. The home was free showing he was paid $1,900 interest on his See Medical Expenses under Final Return for
of existing debts (or mortgages) at the savings account at the First S&L of Juneville Decedent, earlier. However, you cannot de-
time of his death. in 2000 before he died. duct the funeral expenses either on your fa-
3) Your father owned 500 shares of ABC ther's final return or from the estate's income.
Company stock that had cost him $10.20 They are deductible only on the federal estate
a share in 1983. The stock had a mean Final Return tax return (Form 706).
In addition, after going over other receipts
selling price (midpoint between highest
and lowest selling price) of $25 a share
for Decedent and canceled checks for the tax year with
on the day he died. He also owned 500 Checking the papers in your father's files, you your mother, you determine that the following
shares of XYZ Company stock that had determine that the $11,000 paid to him by his items are deductible on your parents' 2000
cost him $20 a share in 1988. The stock employer (as shown on the Form W–2), rental income tax return.
had a mean selling price on the date of income, and interest are the only items of in-
death of $62. come he received between January 1 and the Health insurance .......................................... $3,250
date of his death. You will have to file an in- State income tax paid .................................. 891
4) The appraiser valued your father's auto- come tax return for him for the period during Real estate tax on home ............................. 1,100
mobile at $6,300 and the household ef- Contributions to church ................................ 3,800
which he lived. (You determine that he timely
fects at $18,500. filed his 1999 income tax return before he Rental expenses included real estate
5) Your father owned a coin collection and died.) The final return is not due until April 16, taxes of $700 and mortgage interest of $410.
a stamp collection. The face value of the 2001, the same date it would have been due In addition, insurance premiums of $260 and
coins in the collection was only $600, but had your father lived during all of 2000. painting and repairs for $350 were paid.
the appraiser valued it at $2,800. The Since the check representing unpaid sal- These rental expenses totaled $1,720.
stamp collection was valued at $3,500. ary and earned but unused vacation time was Because your mother and father owned
not paid to your father before he died, the the property as joint tenants with right of
6) Your father's employer sent a check to $12,000 is not reported as income on his final survivorship and they were the only joint ten-
your mother for $11,082 ($12,000 − $918 return. It is reported on the income tax return ants, her basis in this property upon your fa-
for social security and Medicare taxes), for the estate (Form 1041) for 2000. The only ther's death is $95,859. This is found by
representing unpaid salary and payment taxable income to be reported for your father adding the $60,000 value of the half interest
for accrued vacation time. The statement will be the $11,000 salary (as shown on the included in your father's gross estate to your
that came with the check indicated that Form W–2), the $1,900 interest, and his por- mother's $45,000 share of the cost basis and
no amount was withheld for income tax. tion of the rental income that he received in subtracting your mother's $9,141 share of
Since the check was made out to the 2000. depreciation (including 2000 depreciation for
estate, your mother gave you the check. Your father was a cash basis taxpayer and the period before your father's death), as ex-
did not report the interest accrued on the se- plained next.
7) The Easy Life Insurance Company gave
ries EE U.S. savings bonds on prior tax re- For 2000, you must make the following
your mother a check for $275,000 be-
turns that he filed jointly with your mother. computations to figure the depreciation de-
cause she was the beneficiary of his life
As the personal representative of your fa- duction.
insurance policy.
ther's estate, you choose to report the interest
8) Your father was the owner of several earned on these bonds before your father's 1) For the period before your father's death,
series EE U.S. savings bonds on which death ($840) on the final income tax return. depreciate the property using the same
Page 23
method, basis, and life used by your Having determined the tax liability for your Step 2
parents in previous years. Since they father's final return, you now figure the es- Allocation of Distribution
used the mid-month convention, the tate's taxable income. You decide to use the (Report on the Schedule K–1 for James)
amount deductible for three and a half calendar year and the cash method of ac- Line 1 – Interest ($2,000 × 1,864/12,425) ... $300
months is $547. (This brings the total counting to report the estate's income. This Line 2 – Dividends ($2,000 × 621/12,425) .. 100
depreciation to $18,282 ($17,735 + return also is due by April 16, 2001. Line 5a – Other Income
$547) at the time of your father's death. In addition to the amount you received ($2,000 × 9,940/12,425) .............. 1,600
from your father's employer for unpaid salary Total Distribution ....................................... $2,000
2) For the period after your father's death, and for vacation pay ($12,000) entered on Since the estate took an income distribu-
you must make two computations. line 8 (Form 1041), you received a dividend tion deduction, you must prepare Schedule I
check from the XYZ Company on June 16, (Form 1041), Alternative Minimum Tax, re-
a) Your mother's cost basis ($45,000)
2000. The check was for $750 and you enter gardless of whether the estate is liable for the
minus one-half of the amount allo-
it on line 2 (Form 1041). The estate received alternative minimum tax.
cated to the land ($7,500) is her
a Form 1099–INT showing $2,250 interest The other distribution you made out of the
depreciable basis ($37,500) for half
paid by the bank on the savings account in assets of the estate in 2000 was the transfer
of the property. She continues to
2000 after your father died. Show this amount of the automobile to your mother on July 1.
use the same life and depreciation
on line 1 (Form 1041). Because this is included in the bequest of
method as was originally used for
In September, a local coin collector of- property, it is not taken into account in com-
the property. The amount deduct-
fered you $3,000 for your father's coin col- puting the distributions of income to the ben-
ible for the remaining eight and a
lection, and since your mother was not inter- eficiary. The life insurance proceeds of
half months is $664.
ested in keeping the collection, you accepted $275,000 paid directly to your mother by the
b) The other half of the property must the offer and sold him the collection on Sep- insurance company are treated as a specific
be depreciated using a depreciation tember 22, 2000, receiving his certified check sum of money transferred to your mother un-
method that is acceptable for prop- for $3,000. der the terms of the will.
erty placed in service in 2000. You The estate has a gain from the sale of the The taxable income of the estate for 2000
chose to use ADS with the mid- collection. You will have to report the sale on is $10,025, figured as follows:
month convention. The value in- Schedule D (Form 1041) when you file the
cluded in the estate ($60,000) less income tax return of the estate. The estate Gross income:
has a capital gain of $200 from the sale of the Income in respect of a decedent ........... $12,000
the value allocable to the land Dividends ............................................... 750
($10,000) is the depreciable basis coins. The gain is the excess of the sale price, Interest ................................................... 2,250
($50,000) for this half of the prop- $3,000, over the value of the collection at the Capital gain ............................................ 200
erty. The amount deductible for this date of your father's death, $2,800. See Gain $15,200
half of the property is $886 (or loss) from sale of property under Income Minus: Deductions and income distribution
($50,000 × .01771). See chapter 3 Tax Return of an Estate–Form 1041 and its Real estate taxes ...................... $2,250
and Table A-13 in Publication 946. discussion, Income To Include, earlier. Attorney's fee ............................ 325
Exemption ................................. 600
Distribution ................................ 2,000 5,175
Show the total of the amounts in (1) and Taxable income ........................................ $10,025
(2)(a), above, on line 17 of Form 4562, De- Deductions. In November 2000, you re-
ceived a bill for the real estate taxes on the Since the estate had a net capital gain and
preciation and Amortization. Show the
home. The bill was for $2,250, which you taxable income, you use Part V of Schedule
amount in (2)(b) on line 16c. The total de-
paid. Include real estate taxes on line 11 D (Form 1041) to figure the tax, $2,968, for
preciation deduction allowed for the year is
(Form 1041). (Real estate tax on the rental 2000.
property was $700; this amount, however, is
reflected on Schedule E (Form 1040).) 2001 income tax return for estate. On
Filing status. After December 31, 2000, You paid $325 for attorney's fees in con- January 6, 2001, you receive a dividend
when your mother determines the amount of nection with administration of the estate. This check from the XYZ Company for $500. You
her income, you and your mother must decide is an expense of administration and is de- also have interest posted to the savings ac-
whether you will file a joint return or separate ducted on line 14 (Form 1041). You must, count in January totaling $350. On January
returns for your parents for 2000. Since your however, file with the return a statement in 26, 2001, you make a final accounting to the
mother has rental income and $400 of interest duplicate that such expense has not been court and obtain permission to close the es-
income from her savings account at the claimed as a deduction from the gross estate tate. In the accounting you list $1,650 as the
Mayflower Bank of Juneville, it appears to be for figuring the federal estate tax on Form balance of the expense of administering the
to her advantage to file a joint return. 706, and that all rights to claim that deduction estate.
are waived. You advise the court that you plan to pay
Tax computation. The illustrations of Form $5,000 to Hometown Church, under the pro-
1040 and related schedules appear near the vision of the will, and that you will distribute
end of this publication. These illustrations are Distributions. You made a distribution of the balance of the property to your mother,
based on information in this example. The tax $2,000 to your father's brother, James. The Mary Smith, the remaining beneficiary.
refund is $1,101. The computation is as fol- distribution was made under the terms of the Gross income. After making the distri-
lows: will from current income of the estate. butions already described, you can wind up
The income distribution deduction the affairs of the estate. Because the gross
Income: ($2,000) is figured on Schedule B of Form income of the estate for 2001 is more than
Salary (per Form W–2) ............... $11,000 1041 and deducted on line 18 (Form 1041). $600, you must file an income tax return,
Interest income ........................ 3,140 The distribution of $2,000 must be allo- Form 1041, for 2001 (not shown). The es-
Net rental income .................... 8,183 cated and reported on Schedule K–1 (Form tate's gross income for 2001 is $850 (divi-
Adjusted gross income ................ $22,323 1041) as follows: dends $500 and interest $350).
Minus: Itemized deductions .... 8,678
Balance ....................................... $13,645
Deductions. After making the following
Minus: Exemptions (2) ............ 5,600 Step 1 computations, you determine that none of the
Taxable Income ........................... $8,045 Allocation of Income & Deductions distributions made to your mother must be
Income tax from tax table ....... $1,204 included in her taxable income for 2001.
Minus: Tax withheld ................ 2,305 Type of Distributable
Refund of taxes ......................... $1,101 Income Amount Deductions Net Income Gross income for 2001:
Interest Dividends ................................................. $500
(15%) $ 2,250 (386) $ 1,864 Interest ..................................................... 350
Dividends $850
Income Tax Return (5%) 750 (129) 621 Less deductions:
Administration expense ........................... $1,650
of an Estate—Form 1041 Income Loss ........................................................... ($800)
The illustrations of Form 1041 and the related (80%) 12,000 (2,060) 9,940 Note that because the contribution of
schedules appear near the end of this publi- Total $15,000 (2,575) $12,425 $5,000 to Hometown Church was not required
cation. These illustrations are based on the under the terms of the will to be paid out of
information that follows. the gross income of the estate, it is not
Page 24
deductible and was not included in the com- www.irs.gov. While visiting our web site, you hold these recordings no longer than one
putation. can select: week and use them only to measure the
Because the estate had no distributable quality of assistance.
net income in 2001, none of the distributions • Frequently Asked Tax Questions (located
under Taxpayer Help & Ed) to find an- • We value our customers' opinions.
made to your mother have to be included in Throughout this year, we will be survey-
her gross income. Furthermore, because the swers to questions you may have.
ing our customers for their opinions on
estate in the year of termination had de- • Forms & Pubs to download forms and our service.
ductions in excess of its gross income, the publications or search for forms and
excess of $800 will be allowed as a miscel- publications by topic or keyword.
laneous itemized deduction subject to the
2%-of-adjusted-gross-income limit to your • Fill-in Forms (located under Forms &
Pubs) to enter information while the form Walk-in. You can walk in to many
mother on her individual return for the year post offices, libraries, and IRS offices
2001, if she is otherwise eligible to itemize is displayed and then print the completed
form. to pick up certain forms, instructions,
deductions. and publications. Also, some libraries and IRS
• Tax Info For You to view Internal Reve- offices have:
Termination of estate. You have made the nue Bulletins published in the last few
final distribution of the assets of the estate years. • An extensive collection of products avail-
and you are now ready to terminate the es- • Tax Regs in English to search regulations able to print from a CD-ROM or photo-
tate. You must notify the IRS, in writing, that and the Internal Revenue Code (under copy from reproducible proofs.
the estate has been terminated and that all United States Code (USC)).
of the assets have been distributed to the • The Internal Revenue Code, regulations,
beneficiaries. Form 56, mentioned earlier, can • Digital Dispatch and IRS Local News Net Internal Revenue Bulletins, and Cumula-
be used for this purpose. Be sure to report the (both located under Tax Info For Busi- tive Bulletins available for research pur-
termination to the IRS office where you filed ness) to receive our electronic newslet- poses.
Form 56 and to include the employer identifi- ters on hot tax issues and news.
cation number on this notification. • Small Business Corner (located under
Tax Info For Business) to get information
on starting and operating a small busi-
ness. Mail. You can send your order for
How To Get Tax Help You can also reach us with your computer
forms, instructions, and publications
to the Distribution Center nearest to
You can get help with unresolved tax issues, using File Transfer Protocol at ftp.irs.gov. you and receive a response within 10 work-
order free publications and forms, ask tax
days after your request is received. Find the
questions, and get more information from the
address that applies to your part of the
IRS in several ways. By selecting the method
that is best for you, you will have quick and TaxFax Service. Using the phone
easy access to tax help. attached to your fax machine, you can • Western part of U.S.:
receive forms and instructions by Western Area Distribution Center
Contacting your Taxpayer Advocate. If you calling 703–368–9694. Follow the directions Rancho Cordova, CA 95743–0001
have attempted to deal with an IRS problem from the prompts. When you order forms,
unsuccessfully, you should contact your Tax- enter the catalog number for the form you • Central part of U.S.:
payer Advocate. need. The items you request will be faxed to Central Area Distribution Center
The Taxpayer Advocate represents your you. P.O. Box 8903
interests and concerns within the IRS by Bloomington, IL 61702–8903
protecting your rights and resolving problems • Eastern part of U.S. and foreign ad-
that have not been fixed through normal dresses:
channels. While Taxpayer Advocates cannot Phone. Many services are available Eastern Area Distribution Center
change the tax law or make a technical tax by phone. P.O. Box 85074
decision, they can clear up problems that re- Richmond, VA 23261–5074
sulted from previous contacts and ensure that
your case is given a complete and impartial • Ordering forms, instructions, and publi-
review. cations. Call 1–800–829–3676 to order
To contact your Taxpayer Advocate: current and prior year forms, instructions, CD-ROM. You can order IRS Publi-
and publications. cation 1796, Federal Tax Products on
• Call the Taxpayer Advocate at • Asking tax questions. Call the IRS with CD-ROM, and obtain:
1–877–777–4778. your tax questions at 1–800–829–1040.
• Call the IRS at 1–800–829–1040. • Current tax forms, instructions, and pub-
• TTY/TDD equipment. If you have access lications.
• Call, write, or fax the Taxpayer Advocate to TTY/TDD equipment, call 1–800–829–
4059 to ask tax questions or to order • Prior-year tax forms, instructions, and
office in your area.
forms and publications. publications.
• Call 1–800–829–4059 if you are a • Popular tax forms which may be filled in
TTY/TDD user. • TeleTax topics. Call 1–800–829–4477 to
listen to pre-recorded messages covering electronically, printed out for submission,
For more information, see Publication various tax topics. and saved for recordkeeping.
1546, The Taxpayer Advocate Service of the
Evaluating the quality of our telephone
• Internal Revenue Bulletins.
services. To ensure that IRS representatives The CD-ROM can be purchased from
give accurate, courteous, and professional National Technical Information Service (NTIS)
Free tax services. To find out what services answers, we evaluate the quality of our tele-
are available, get Publication 910, Guide to by calling 1–877–233–6767 or on the Internet
phone services in several ways. at www.irs.gov/cdorders. The first release
Free Tax Services. It contains a list of free tax
publications and an index of tax topics. It also is available in mid-December and the final
• A second IRS representative sometimes release is available in late January.
describes other free tax information services, monitors live telephone calls. That person
including tax education and assistance pro- IRS Publication 3207, The Business Re-
only evaluates the IRS assistor and does source Guide, is an interactive CD-ROM that
grams and a list of TeleTax topics. not keep a record of any taxpayer's name contains information important to small busi-
Personal computer. With your per- or tax identification number. nesses. It is available in mid-February. You
sonal computer and modem, you can • We sometimes record telephone calls to can get one free copy by calling
access the IRS on the Internet at evaluate IRS assistors objectively. We 1–800–829–3676.

Page 25
DECEASED John R. Smith -- April 9, 2000

Department of the Treasury—Internal Revenue Service


U.S. Individual Income Tax Return (99) IRS Use Only—Do not write or staple in this space.
For the year Jan. 1–Dec. 31, 2000, or other tax year beginning , 2000, ending , 20 OMB No. 1545-0074
Label Your first name and initial Last name Your social security number
(See L John R. Smith 234 00 7898
instructions B If a joint return, spouse’s first name and initial Last name Spouse’s social security number
on page 19.) E
L Mary L. Smith 567 00 0123
Use the IRS
label. H
Home address (number and street). If you have a P.O. box, see page 19. Apt. no.
Otherwise, E 6406 Mayflower St.
please print R You must enter
E City, town or post office, state, and ZIP code. If you have a foreign address, see page 19.
or type. your SSN(s) above.
Juneville, ME 00000

You Spouse
Election Campaign Note. Checking “Yes” will not change your tax or reduce your refund.
(See page 19.) Do you, or your spouse if filing a joint return, want $3 to go to this fund?   Yes No  Yes No
1 Single
Filing Status 2  Married filing joint return (even if only one had income)
3 Married filing separate return. Enter spouse’s social security no. above and full name here. 

Check only 4 Head of household (with qualifying person). (See page 19.) If the qualifying person is a child but not your dependent,
one box. enter this child’s name here. 
5 Qualifying widow(er) with dependent child (year spouse died  ). (See page 19.)

6a  Yourself. If your parent (or someone else) can claim you as a dependent on his or her tax No. of boxes
Exemptions return, do not check box 6a checked on
b  Spouse
6a and 6b
No. of your
c Dependents: (3) Dependent’s (4) if qualifying children on 6c
(2) Dependent’s
relationship to child for child tax who:
(1) First name Last name social security number
you credit (see page 20)
● lived with you
● did not live with
If more than six you due to divorce
dependents, or separation
see page 20. (see page 20)
Dependents on 6c
not entered above
Add numbers
entered on 2
d Total number of exemptions claimed lines above 

7 Wages, salaries, tips, etc. Attach Form(s) W-2 7 11,000

Income 8a Taxable interest. Attach Schedule B if required 8a 3,140
Attach b Tax-exempt interest. Do not include on line 8a 8b
Forms W-2 and 9 Ordinary dividends. Attach Schedule B if required 9
W-2G here. 10
10 Taxable refunds, credits, or offsets of state and local income taxes (see page 22)
Also attach
Form(s) 1099-R 11 Alimony received 11
if tax was 12 Business income or (loss). Attach Schedule C or C-EZ 12
13 Capital gain or (loss). Attach Schedule D if required. If not required, check here  13
14 Other gains or (losses). Attach Form 4797 14
If you did not 15a Total IRA distributions 15a b Taxable amount (see page 23) 15b
get a W-2, 16a Total pensions and annuities 16a b Taxable amount (see page 23) 16b
see page 21.
17 Rental real estate, royalties, partnerships, S corporations, trusts, etc. Attach Schedule E 17 8,183
Enclose, but do 18 Farm income or (loss). Attach Schedule F 18
not attach, any 19 Unemployment compensation 19
payment. Also, 20a 20b
please use 20a Social security benefits b Taxable amount (see page 25)
Form 1040-V. 21 Other income. List type and amount (see page 25) 21
22 Add the amounts in the far right column for lines 7 through 21. This is your total income  22 22,323
23 IRA deduction (see page 27) 23
Adjusted 24 Student loan interest deduction (see page 27) 24
Gross 25 Medical savings account deduction. Attach Form 8853 25
Income 26 Moving expenses. Attach Form 3903 26
27 One-half of self-employment tax. Attach Schedule SE 27
28 Self-employed health insurance deduction (see page 29) 28
29 Self-employed SEP, SIMPLE, and qualified plans 29
30 Penalty on early withdrawal of savings 30
31a Alimony paid b Recipient’s SSN  31a
32 Add lines 23 through 31a 32
33 Subtract line 32 from line 22. This is your adjusted gross income  33 22,323
For Disclosure, Privacy Act, and Paperwork Reduction Act Notice, see page 56. Cat. No. 11320B Form 1040 (2000)

Page 26
Form 1040 (2000) Page 2
34 Amount from line 33 (adjusted gross income) 34 22,323
Tax and
35a Check if: You were 65 or older, Blind; Spouse was 65 or older, Blind.
Credits Add the number of boxes checked above and enter the total here  35a
b If you are married filing separately and your spouse itemizes deductions, or
you were a dual-status alien, see page 31 and check here  35b
Deduction 36 Enter your itemized deductions from Schedule A, line 28, or standard deduction shown
for Most on the left. But see page 31 to find your standard deduction if you checked any box on
People line 35a or 35b or if someone can claim you as a dependent 36 8,678
Single: 37 Subtract line 36 from line 34 37 13,645
38 If line 34 is $96,700 or less, multiply $2,800 by the total number of exemptions claimed on
Head of 38 5,600
household: line 6d. If line 34 is over $96,700, see the worksheet on page 32 for the amount to enter
$6,450 39 Taxable income. Subtract line 38 from line 37. If line 38 is more than line 37, enter -0- 39 8,045
Married filing 40 Tax (see page 32). Check if any tax is from a Form(s) 8814 b Form 4972 40 1,204
jointly or
Qualifying 41 Alternative minimum tax. Attach Form 6251 41
widow(er): 42 Add lines 40 and 41  42 1,204
43 Foreign tax credit. Attach Form 1116 if required 43
filing 44 Credit for child and dependent care expenses. Attach Form 2441 44
separately: 45
$3,675 45 Credit for the elderly or the disabled. Attach Schedule R
46 Education credits. Attach Form 8863 46
47 Child tax credit (see page 36) 47
48 Adoption credit. Attach Form 8839 48
49 Other. Check if from a Form 3800 b Form 8396
c Form 8801 d Form (specify) 49
50 Add lines 43 through 49. These are your total credits 50
51 Subtract line 50 from line 42. If line 50 is more than line 42, enter -0-  51 1,204
52 Self-employment tax. Attach Schedule SE 52
Other 53
53 Social security and Medicare tax on tip income not reported to employer. Attach Form 4137
Taxes 54
54 Tax on IRAs, other retirement plans, and MSAs. Attach Form 5329 if required
55 Advance earned income credit payments from Form(s) W-2 55
56 Household employment taxes. Attach Schedule H 56
57 Add lines 51 through 56. This is your total tax  57 1,204
Payments 58 Federal income tax withheld from Forms W-2 and 1099 58 2,305
59 2000 estimated tax payments and amount applied from 1999 return 59
If you have a 60a Earned income credit (EIC) 60a
child, attach b Nontaxable earned income: amount 
Schedule EIC. and type 

61 Excess social security and RRTA tax withheld (see page 50) 61
62 Additional child tax credit. Attach Form 8812 62
63 Amount paid with request for extension to file (see page 50) 63
64 Other payments. Check if from a Form 2439 b Form 4136 64
65 Add lines 58, 59, 60a, and 61 through 64. These are your total payments  65 2,305
Refund 66 If line 65 is more than line 57, subtract line 57 from line 65. This is the amount you overpaid 66 1,101
67a Amount of line 66 you want refunded to you  67a 1,101
Have it
deposited!  b Routing number  c Type: Checking Savings
See page 50
 d Account number
and fill in 67b,
67c, and 67d. 68 Amount of line 66 you want applied to your 2001 estimated tax  68

Amount 69 If line 57 is more than line 65, subtract line 65 from line 57. This is the amount you owe.
For details on how to pay, see page 51  69
You Owe 70 Estimated tax penalty. Also include on line 69 70
Under penalties of perjury, I declare that I have examined this return and accompanying schedules and statements, and to the best of my knowledge and
Sign belief, they are true, correct, and complete. Declaration of preparer (other than taxpayer) is based on all information of which preparer has any knowledge.

Your signature Date Your occupation Daytime phone number
Joint return?
See page 19. Charles R. Smith, Executor 3-25-01 ( )
Keep a copy Spouse’s signature. If a joint return, both must sign. Date Spouse’s occupation May the IRS discuss this return with the preparer
for your
records. Mary L. Smith 3-25-01 Homemaker shown below (see page 52)? Yes No

Paid Preparer’s
signature  Date
Check if
Preparer’s SSN or PTIN

Use Only
Firm’s name (or
yours if self-employed),
address, and ZIP code
Phone no. ( )
Form 1040 (2000)

Page 27
SCHEDULES A&B OMB No. 1545-0074
Schedule A—Itemized Deductions
(Form 1040)
Department of the Treasury
(Schedule B is on back) 2000
Internal Revenue Service (99)  Attach to Form 1040.  See Instructions for Schedules A and B (Form 1040). Sequence No. 07
Name(s) shown on Form 1040 Your social security number
John R. (Deceased) & Mary L. Smith 234 00 7890
Medical Caution. Do not include expenses reimbursed or paid by others.
and 1 Medical and dental expenses (see page A-2) 1 4,561
Dental 2 Enter amount from Form 1040, line 34 2 22,323
Expenses 3 Multiply line 2 above by 7.5% (.075) 3 1,674
4 Subtract line 3 from line 1. If line 3 is more than line 1, enter -0- 4 2,887
Taxes You 5 State and local income taxes 5 891
Paid 6 Real estate taxes (see page A-2) 6 1,100
(See 7 Personal property taxes 7
page A-2.) 8 Other taxes. List type and amount 
9 Add lines 5 through 8 9 1,991
Interest 10 Home mortgage interest and points reported to you on Form 1098 10
You Paid 11 Home mortgage interest not reported to you on Form 1098. If paid
(See to the person from whom you bought the home, see page A-3
page A-3.) and show that person’s name, identifying no., and address 

Note. 11
12 Points not reported to you on Form 1098. See page A-3
interest is
for special rules 12
deductible. 13 Investment interest. Attach Form 4952 if required. (See
page A-3.) 13
14 Add lines 10 through 13 14
Gifts to 15 Gifts by cash or check. If you made any gift of $250 or
Charity more, see page A-4 15 3,800
If you made a 16 Other than by cash or check. If any gift of $250 or more,
gift and got a see page A-4. You must attach Form 8283 if over $500 16
benefit for it, 17
17 Carryover from prior year
see page A-4.
18 Add lines 15 through 17 18 3,800
Casualty and
Theft Losses 19 Casualty or theft loss(es). Attach Form 4684. (See page A-5.) 19
Job Expenses 20 Unreimbursed employee expenses—job travel, union
and Most dues, job education, etc. You must attach Form 2106
Other or 2106-EZ if required. (See page A-5.) 
Deductions 20
21 Tax preparation fees 21
(See 22 Other expenses—investment, safe deposit box, etc. List
page A-5 for type and amount 
expenses to 22
deduct here.)
23 Add lines 20 through 22 23
24 Enter amount from Form 1040, line 34 24
25 Multiply line 24 above by 2% (.02) 25
26 Subtract line 25 from line 23. If line 25 is more than line 23, enter -0- 26
Other 27 Other—from list on page A-6. List type and amount 
Deductions 27
Total 28 Is Form 1040, line 34, over $128,950 (over $64,475 if married filing separately)?

Itemized No. Your deduction is not limited. Add the amounts in the far right column
Deductions for lines 4 through 27. Also, enter this amount on Form 1040, line 36.  28 8,678
Yes. Your deduction may be limited. See page A-6 for the amount to enter.

For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11330X Schedule A (Form 1040) 2000

Page 28
Schedules A&B (Form 1040) 2000 OMB No. 1545-0074 Page 2
Name(s) shown on Form 1040. Do not enter name and social security number if shown on other side. Your social security number
John R. (Deceased) & Mary L. Smith 234 00 7890
Schedule B—Interest and Ordinary Dividends Sequence No. 08
Note. If you had over $400 in taxable interest, you must also complete Part III.
Part I 1 List name of payer. If any interest is from a seller-financed mortgage and the
Interest buyer used the property as a personal residence, see page B-1 and list this
(See page B-1 interest first. Also, show that buyer’s social security number and address 
and the
instructions for First S&L of Juneville 1,900
Form 1040,
line 8a.)
Mayflower Bank of Juneville 400

Series EE U.S. Savings Bonds -- Interest 1 840

Note. If you Includible Before Decedent’s Death
received a Form
1099-INT, Form
1099-OID, or
statement from
a brokerage firm,
list the firm’s
name as the
payer and enter
the total interest
shown on that
form. 2 Add the amounts on line 1 2 3,140
3 Excludable interest on series EE and I U.S. savings bonds issued after 1989
from Form 8815, line 14. You must attach Form 8815 3 -0-
4 Subtract line 3 from line 2. Enter the result here and on Form 1040, line 8a  4 3,140
Note. If you had over $400 in ordinary dividends, you must also complete Part III.
Part II 5 List name of payer. Include only ordinary dividends. If you received any capital
Ordinary gain distributions, see the instructions for Form 1040, line 13 
(See page B-1
and the
instructions for
Form 1040,
line 9.)

Note. If you
received a Form
1099-DIV or
statement from
a brokerage firm,
list the firm’s
name as the
payer and enter
the ordinary
dividends shown
on that form.

6 Add the amounts on line 5. Enter the total here and on Form 1040, line 9  6
You must complete this part if you (a) had over $400 of interest or ordinary dividends; (b) had a foreign Yes No
Part III account; or (c) received a distribution from, or were a grantor of, or a transferor to, a foreign trust.
Foreign 7a At any time during 2000, did you have an interest in or a signature or other authority over a financial
Accounts account in a foreign country, such as a bank account, securities account, or other financial
and Trusts account? See page B-2 for exceptions and filing requirements for Form TD F 90-22.1 
b If “Yes,” enter the name of the foreign country 
page B-2.) 8 During 2000, did you receive a distribution from, or were you the grantor of, or transferor to, a
foreign trust? If “Yes,” you may have to file Form 3520. See page B-2 
For Paperwork Reduction Act Notice, see Form 1040 instructions. Schedule B (Form 1040) 2000

Page 29
SCHEDULE E OMB No. 1545-0074
Supplemental Income and Loss
(Form 1040)
Department of the Treasury
(From rental real estate, royalties, partnerships,
S corporations, estates, trusts, REMICs, etc.) 2000
Internal Revenue Service (99)  Attach to Form 1040 or Form 1041.  See Instructions for Schedule E (Form 1040). Sequence No. 13
Name(s) shown on return Your social security number
John R. (Deceased) & Mary L. Smith 234 00 7890
Part I Income or Loss From Rental Real Estate and Royalties Note. Report income and expenses from your business of renting
personal property on Schedule C or C-EZ (see page E-1). Report farm rental income or loss from Form 4835 on page 2, line 39.
1 Show the kind and location of each rental real estate property: 2 For each rental real estate property Yes No
House, 137 Main Street listed on line 1, did you or your family
A use it during the tax year for personal
Juneville, ME 00000 A 
purposes for more than the greater of:
B ● 14 days or
● 10% of the total days rented at B
C fair rental value?
(See page E-1.) C
Properties Totals
Income: (Add columns A, B, and C.)
3 Rents received 3 12,000 3 12,000
4 Royalties received 4 4
5 Advertising 5
6 Auto and travel (see page E-2) 6
7 Cleaning and maintenance 7
8 Commissions 8
9 Insurance 9 260
10 Legal and other professional fees 10
11 Management fees 11
12 Mortgage interest paid to banks,
etc. (see page E-2) 12 410 12 410
13 Other interest 13
14 Repairs 14 350
15 Supplies 15
16 Taxes 16 700
17 Utilities 17
18 Other (list) 


19 Add lines 5 through 18 19 1,720 19 1,720

20 Depreciation expense or depletion
(see page E-3) 20 2,097 20 2,097
21 Total expenses. Add lines 19 and 20 21 3,817
22 Income or (loss) from rental real
estate or royalty properties.
Subtract line 21 from line 3 (rents)
or line 4 (royalties). If the result is
a (loss), see page E-3 to find out
if you must file Form 6198 22 8,183
23 Deductible rental real estate loss.
Caution. Your rental real estate
loss on line 22 may be limited. See
page E-3 to find out if you must
file Form 8582. Real estate
professionals must complete line
42 on page 2 23 ( ) ( ) ( )
24 Income. Add positive amounts shown on line 22. Do not include any losses 24 8,183
25 Losses. Add royalty losses from line 22 and rental real estate losses from line 23. Enter total losses here 25 ( )
26 Total rental real estate and royalty income or (loss). Combine lines 24 and 25. Enter the result here.
If Parts II, III, IV, and line 39 on page 2 do not apply to you, also enter this amount on Form 1040,
line 17. Otherwise, include this amount in the total on line 40 on page 2 26 8,183
For Paperwork Reduction Act Notice, see Form 1040 instructions. Cat. No. 11344L Schedule E (Form 1040) 2000

Page 30
OMB No. 1545-0172
Depreciation and Amortization
Form 4562 (Including Information on Listed Property) 2000
Department of the Treasury Attachment
Internal Revenue Service (99)  See separate instructions.  Attach this form to your return. Sequence No. 67
Name(s) shown on return Business or activity to which this form relates Identifying number
John R. (Deceased) & Mary L. Smith 234-00-7890
Part I Election To Expense Certain Tangible Property (Section 179)
Note: If you have any “listed property,” complete Part V before you complete Part I.
1 Maximum dollar limitation. If an enterprise zone business, see page 2 of the instructions 1 $20,000
2 Total cost of section 179 property placed in service. See page 2 of the instructions 2
3 Threshold cost of section 179 property before reduction in limitation 3 $200,000
4 Reduction in limitation. Subtract line 3 from line 2. If zero or less, enter -0- 4
5 Dollar limitation for tax year. Subtract line 4 from line 1. If zero or less, enter -0-. If married
filing separately, see page 2 of the instructions 5
(a) Description of property (b) Cost (business use only) (c) Elected cost

7 Listed property. Enter amount from line 27 7

8 Total elected cost of section 179 property. Add amounts in column (c), lines 6 and 7 8
9 Tentative deduction. Enter the smaller of line 5 or line 8 9
10 Carryover of disallowed deduction from 1999. See page 3 of the instructions 10
11 Business income limitation. Enter the smaller of business income (not less than zero) or line 5 (see instructions) 11
12 Section 179 expense deduction. Add lines 9 and 10, but do not enter more than line 11 12
13 Carryover of disallowed deduction to 2001. Add lines 9 and 10, less line 12  13
Note: Do not use Part II or Part III below for listed property (automobiles, certain other vehicles, cellular telephones,
certain computers, or property used for entertainment, recreation, or amusement). Instead, use Part V for listed property.
Part II MACRS Depreciation for Assets Placed in Service Only During Your 2000 Tax Year (Do not include
listed property.)
Section A—General Asset Account Election
14 If you are making the election under section 168(i)(4) to group any assets placed in service during the tax year into one
or more general asset accounts, check this box. See page 3 of the instructions 
Section B—General Depreciation System (GDS) (See page 3 of the instructions.)
(b) Month and (c) Basis for depreciation
(d) Recovery
(a) Classification of property year placed in (business/investment use (e) Convention (f) Method (g) Depreciation deduction
service only—see instructions)
15a 3-year property
b 5-year property
c 7-year property
d 10-year property
e 15-year property
f 20-year property
g 25-year property 25 yrs. S/L
h Residential rental 27.5 yrs. MM S/L
property 27.5 yrs. MM S/L
i Nonresidential real 39 yrs. MM S/L
property MM S/L
Section C—Alternative Depreciation System (ADS) (See page 5 of the instructions.)
16a Class life S/L
b 12-year 12 yrs. S/L
c 40-year 4-00 50,000 40 yrs. MM S/L 886
Part III Other Depreciation (Do not include listed property.) (See page 5 of the instructions.)
17 GDS and ADS deductions for assets placed in service in tax years beginning before 2000 17 1,211
18 Property subject to section 168(f)(1) election 18
19 ACRS and other depreciation 19
Part IV Summary (See page 6 of the instructions.)
20 Listed property. Enter amount from line 26 20
21 Total. Add deductions from line 12, lines 15 and 16 in column (g), and lines 17 through 20. Enter
here and on the appropriate lines of your return. Partnerships and S corporations—see instructions 21 2,097
22 For assets shown above and placed in service during the current year,
enter the portion of the basis attributable to section 263A costs 22
For Paperwork Reduction Act Notice, see page 9 of the instructions. Cat. No. 12906N Form 4562 (2000)

Page 31
Department of the Treasury—Internal Revenue Service


U.S. Income Tax Return for Estates and Trusts 2000

For calendar year 2000 or fiscal year beginning , 2000, and ending , 20 OMB No. 1545-0092
A Type of entity: Name of estate or trust (If a grantor type trust, see page 8 of the instructions.) C Employer identification number
 Decedent’s estate
10 0123456
Estate of John R. Smith D Date entity created
Simple trust
Complex trust
Name and title of fiduciary E Nonexempt charitable and split-
Grantor type trust
interest trusts, check applicable
Bankruptcy estate–Ch. 7
Charles R. Smith, Executor boxes (see page 10 of the
Bankruptcy estate–Ch. 11 Number, street, and room or suite no. (If a P.O. box, see page 8 of the instructions.) instructions):

Pooled income fund 6406 Mayflower St. Described in section 4947(a)(1)

B Number of Schedules K-1 City or town, state, and ZIP code
attached (see Not a private foundation
instructions)  1 Juneville, ME 00000 Described in section 4947(a)(2)
F Check  Initial return Final return Amended return G Pooled mortgage account (see page 10 of the instructions):
boxes: Change in fiduciary’s name Change in fiduciary’s address Bought Sold Date:

1 Interest income 1 2,250

2 Ordinary dividends 2 750
3 Business income or (loss) (attach Schedule C or C-EZ (Form 1040)) 3

f 0

4 200

4 Capital gain or (loss) (attach Schedule D (Form 1041))

5 Rents, royalties, partnerships, other estates and trusts, etc. (attach Schedule E (Form 1040))
7 s 0
Farm income or (loss) (attach Schedule F (Form 1040))
Ordinary gain or (loss) (attach Form 4797)
a ,2 )
Other income. List type and amount

Total income. Combine lines 1 through 8
f 1
Salary and vacation pay

8 12,000
Fiduciary fees
Interest. Check if Form 4952 is attached 

Pr er 3 chan
Charitable deduction (from Schedule A, line 7)

b o

14 Attorney, accountant, and return preparer fees 14 325


t o t
Other deductions not subject to the 2% floor (attach schedule)

c t

Oc ubje
b Allowable miscellaneous itemized deductions subject to the 2% floor 15b
16 Total. Add lines 10 through 15b 16 2,575
17 Adjusted total income or (loss). Subtract line 16 from line 9. Enter here and on Schedule B, line 1  17 12,625

18 Income distribution deduction (from Schedule B, line 15) (attach Schedules K-1 (Form 1041)) 18 2,000
19 Estate tax deduction (including certain generation-skipping taxes) (attach computation) 19
20 Exemption 20 600
21 Total deductions. Add lines 18 through 20  21 2,600
22 Taxable income. Subtract line 21 from line 17. If a loss, see page 14 of the instructions 22 10,025
23 Total tax (from Schedule G, line 7) 23 2,968
24 Payments: a 2000 estimated tax payments and amount applied from 1999 return 24a
Tax and Payments

b Estimated tax payments allocated to beneficiaries (from Form 1041-T) 24b

c Subtract line 24b from line 24a 24c
d Tax paid with extension of time to file: Form 2758 Form 8736 Form 8800 24d
e Federal income tax withheld. If any is from Form(s) 1099, check  24e
Other payments: f Form 2439 ; g Form 4136 ; Total  24h
25 Total payments. Add lines 24c through 24e, and 24h  25
26 Estimated tax penalty (see page 15 of the instructions) 26
27 Tax due. If line 25 is smaller than the total of lines 23 and 26, enter amount owed 27 2,968
28 Overpayment. If line 25 is larger than the total of lines 23 and 26, enter amount overpaid 28
29 Amount of line 28 to be: a Credited to 2001 estimated tax  ; b Refunded  29
Under penalties of perjury, I declare that I have examined this return, including accompanying schedules and statements, and to the best of my knowledge
Please and belief, it is true, correct, and complete. Declaration of preparer (other than fiduciary) is based on all information of which preparer has any knowledge.
Here  Charles R. Smith, Executor
Signature of fiduciary or officer representing fiduciary

EIN of fiduciary if a financial institution (see page 5 of the instructions)

signature  Date
Check if self-
Preparer’s SSN or PTIN

Firm’s name (or EIN 
Use Only yours if self-employed),
address, and ZIP code Phone no. ( )

For Paperwork Reduction Act Notice, see the separate instructions. Cat. No. 11370H Form 1041 (2000)

Page 32
Form 1041 (2000) Page 2
Schedule A Charitable Deduction. Do not complete for a simple trust or a pooled income fund.
1 Amounts paid or permanently set aside for charitable purposes from gross income (see page 15) 1
2 Tax-exempt income allocable to charitable contributions (see page 16 of the instructions) 2
3 Subtract line 2 from line 1 3
4 Capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable purposes 4
5 Add lines 3 and 4 5
6 Section 1202 exclusion allocable to capital gains paid or permanently set aside for charitable
purposes (see page 16 of the instructions) 6
7 Charitable deduction. Subtract line 6 from 5. Enter here and on page 1, line 13 7
Schedule B Income Distribution Deduction
1 Adjusted total income (from page 1, line 17) (see page 16 of the instructions) 1 12,625
2 Adjusted tax-exempt interest 2
3 Total net gain from Schedule D (Form 1041), line 16, column (1) (see page 16 of the instructions) 3
4 Enter amount from Schedule A, line 4 (reduced by any allocable section 1202 exclusion) 4
5 Capital gains for the tax year included on Schedule A, line 1 (see page 16 of the instructions) 5
6 Enter any gain from page 1, line 4, as a negative number. If page 1, line 4, is a loss, enter the
loss as a positive number 6 (200)
8 f 0
Distributable net income (DNI). Combine lines 1 through 6. If zero or less, enter -0-

If a complex trust, enter accounting income for the tax year as
7 12,425

9 Income required to be distributed currently

a ,2 ) 0 0
determined under the governing instrument and applicable local law 8

10 Other amounts paid, credited, or otherwise required to be distributed 10 2,000
o o
Total distributions. Add lines 9 and 10. If greater than line 8, see page 17 of the instructions

Enter the amount of tax-exempt income included on line 11
g e

Pr er 3 chan
13 Tentative income distribution deduction. Subtract line 12 from line 11 13 2,000
14 Tentative income distribution deduction. Subtract line 2 from line 7. If zero or less, enter -0- 14 12,425
15 Income distribution deduction. Enter the smaller of line 13 or line 14 here and on page 1, line 18 15 2,000
Schedule G
1 Tax: a Tax rate schedule or

t o b
Tax Computation (see page 17 of the instructions)

t t o
 Schedule D (Form 1041)
b Tax on lump-sum distributions (attach Form 4972)

c e c
c Alternative minimum tax (from Schedule I, line 39)

O u
d Total. Add lines 1a through 1c
Foreign tax credit (attach Form 1116)
Nonconventional source fuel credit
(s Form 8834
 1d 2,968

c General business credit. Enter here and check which forms are attached:
Form 3800 or Forms (specify)  2c
d Credit for prior year minimum tax (attach Form 8801) 2d
3 Total credits. Add lines 2a through 2d  3
4 Subtract line 3 from line 1d 4 2,968
5 Recapture taxes. Check if from: Form 4255 Form 8611 5 -0-
6 Household employment taxes. Attach Schedule H (Form 1040) 6
7 Total tax. Add lines 4 through 6. Enter here and on page 1, line 23 
2,968 7
Other Information Yes No
1 Did the estate or trust receive tax-exempt income? If “Yes,” attach a computation of the allocation of expenses 
Enter the amount of tax-exempt interest income and exempt-interest dividends  $
2 Did the estate or trust receive all or any part of the earnings (salary, wages, and other compensation) of any
individual by reason of a contract assignment or similar arrangement? 
3 At any time during calendar year 2000, did the estate or trust have an interest in or a signature or other authority
over a bank, securities, or other financial account in a foreign country? 
See page 18 of the instructions for exceptions and filing requirements for Form TD F 90-22.1. If “Yes,” enter
the name of the foreign country 
4 During the tax year, did the estate or trust receive a distribution from, or was it the grantor of, or transferor to,
a foreign trust? If “Yes,” the estate or trust may have to file Form 3520. See page 19 of the instructions 
5 Did the estate or trust receive, or pay, any qualified residence interest on seller-provided financing? If “Yes,”
see page 19 for required attachment 
6 If this is an estate or a complex trust making the section 663(b) election, check here (see page 19) 
7 To make a section 643(e)(3) election, attach Schedule D (Form 1041), and check here (see page 19) 
8 If the decedent’s estate has been open for more than 2 years, attach an explanation for the delay in closing the estate, and check here 
9 Are any present or future trust beneficiaries skip persons? See page 19 of the instructions 
Form 1041 (2000)

Page 33
Form 1041 (2000) Page 3
Schedule I Alternative Minimum Tax (see pages 19 through 24 of the instructions)
Part I—Estate’s or Trust’s Share of Alternative Minimum Taxable Income
1 Adjusted total income or (loss) (from page 1, line 17) 1 12,625
2 Net operating loss deduction. Enter as a positive amount 2
3 Add lines 1 and 2 3 12,625
4 Adjustments and tax preference items:
a Interest 4a
b Taxes 4b 2,250
c Miscellaneous itemized deductions (from page 1, line 15b) 4c
d Refund of taxes 4d ( )
e Depreciation of property placed in service after 1986 4e
f Circulation and research and experimental expenditures 4f
g Mining exploration and development costs 4g
h Long-term contracts entered into after February 28, 1986 4h
i Amortization of pollution control facilities 4i
j Installment sales of certain property 4j

f 0
k Adjusted gain or loss (including incentive stock options)

l Certain loss limitations 4l

m Tax shelter farm activities 4m
Passive activities
a ,2 )
Beneficiaries of other trusts or decedent’s estates

Depletion f
Tax-exempt interest from specified private activity bonds

o 1 e
Pr er 3 chan
Accelerated depreciation of real property placed in service before 1987
Accelerated depreciation of leased personal property placed in service before 1987
Intangible drilling costs
u Other adjustments
Combine lines 4a through 4u
Add lines 3 and 5

t o b t t o 5

Oc ubj
7 Alternative tax net operating loss deduction (see page 22 of the instructions for limitations) 7
Adjusted alternative minimum taxable income. Subtract line 7 from line 6. Enter here and on line 13
Note: Complete Part II below before going to line 9.
8 14,875

9 Income distribution deduction from line 27 below 9 2,000
10 Estate tax deduction (from page 1, line 19) 10
11 Add lines 9 and 10 11 2,000
12 Estate’s or trust’s share of alternative minimum taxable income. Subtract line 11 from line 8 12 12,875
If line 12 is:
● $22,500 or less, stop here and enter -0- on Schedule G, line 1c. The estate or trust is not
liable for the alternative minimum tax.
● Over $22,500, but less than $165,000, go to line 28.
● $165,000 or more, enter the amount from line 12 on line 34 and go to line 35.
Part II—Income Distribution Deduction on a Minimum Tax Basis
13 Adjusted alternative minimum taxable income (from line 8) 13 14,875
14 Adjusted tax-exempt interest (other than amounts included on line 4p) 14
15 Total net gain from Schedule D (Form 1041), line 16, column (1). If a loss, enter -0- 15
16 Capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable purposes (from Schedule A, line 4) 16
17 Capital gains paid or permanently set aside for charitable purposes from gross income (see page 23 of the instructions) 17
18 Capital gains computed on a minimum tax basis included on line 8 18 ( 200 )
19 Capital losses computed on a minimum tax basis included on line 8. Enter as a positive amount 19
20 Distributable net alternative minimum taxable income (DNAMTI). Combine lines 13 through 19. If zero or less, enter -0- 20 14,675
21 Income required to be distributed currently (from Schedule B, line 9) 21
22 Other amounts paid, credited, or otherwise required to be distributed (from Schedule B, line 10) 22 2,000
23 Total distributions. Add lines 21 and 22 23 2,000
24 Tax-exempt income included on line 23 (other than amounts included on line 4p) 24
25 Tentative income distribution deduction on a minimum tax basis. Subtract line 24 from line 23 25 2,000
26 Tentative income distribution deduction on a minimum tax basis. Subtract line 14 from line 20. If zero or less, enter -0- 26 14,675
27 Income distribution deduction on a minimum tax basis. Enter the smaller of line 25 or line 26. Enter here and on line 9 27 2,000
Form 1041 (2000)

Page 34
OMB No. 1545-0092
(Form 1041) Capital Gains and Losses
Department of the Treasury
Internal Revenue Service
 Attach to Form 1041 (or Form 5227). See the separate instructions for
Form 1041 (or Form 5227).
Name of estate or trust Employer identification number
Estate of John R. Smith 10 0123456
Note: Form 5227 filers need to complete only Parts I and II.

Part I Short-Term Capital Gains and Losses—Assets Held One Year or Less
(a) Description of property (b) Date (e) Cost or other basis (f) Gain or (Loss)
(Example, 100 shares 7% acquired (c) Date sold (d) Sales price
(mo., day, yr.) (see page 26) (col. (d) less col. (e))
preferred of “Z” Co.) (mo., day, yr.)

f 0
2 Short-term capital gain or (loss) from Forms 4684, 6252, 6781, and 8824
estates or trusts

s o
Net short-term gain or (loss) from partnerships, S corporations, and other


1999 Capital Loss Carryover Worksheet

f 0
Short-term capital loss carryover. Enter the amount, if any, from line 9 of the

a ,2 )
Net short-term gain or (loss). Combine lines 1 through 4 in column (f). Enter
4 ( )

here and on line 14 below

o o 1 g e

Pr er 3 chan
Part II Long-Term Capital Gains and Losses—Assets Held More Than One Year
(a) Description of property (b) Date (c) Date sold (e) Cost or other basis (f) GAIN or (LOSS) (g) 28% RATE GAIN
(Example, 100 shares 7% acquired (mo., day, yr.) (d) Sales price (see page 26) (col. (d) less col. (e)) or (LOSS)
preferred of “Z” Co.) (mo., day, yr.) *(see instr. below)
6 Coin Collection 4-9-00

t o b t t o
9-22-00 3,000 2,800 200 200

Oc ubje (s
Long-term capital gain or (loss) from Forms 2439, 4684, 6252, 6781, and 8824 7
8 Net long-term gain or (loss) from partnerships, S corporations, and other estates or trusts 8
9 Capital gain distributions 9
10 Gain from Form 4797, Part I 10
11 Long-term capital loss carryover. Enter in both columns (f) and (g) the amount,
if any, from line 14, of the 1999 Capital Loss Carryover Worksheet 11 ( )( )
12 Combine lines 6 through 11 in column (g) 12 200
13 Net long-term gain or (loss). Combine lines 6 through 11 in column (f). Enter
here and on line 15 below  13 200
*28% Rate Gain or (Loss) includes all “collectibles gains and losses” (as defined on page 26 of the instructions) and up to 50%
of the eligible gain on qualified small business stock (see page 25 of the instructions).

(1) Beneficiaries’ (2) Estate’s

Part III Summary of Parts I and II (3) Total
(see page 26) or trust’s
14 Net short-term gain or (loss) (from line 5 above) 14
15 Net long-term gain or (loss):
a 28% rate gain or (loss) (from line 12 above) 15a 200 200
b Unrecaptured section 1250 gain (see worksheet on
page 27) 15b
c Total for year (from line 13 above) 15c 200 200
16 Total net gain or (loss). Combine lines 14 and 15c  16 200 200
Note: If line 16, column (3), is a net gain, enter the gain on Form 1041, line 4. If lines 15c and 16, column (2), are net gains, go to Part V, and do
not complete Part IV. If line 16, column (3), is a net loss, complete Part IV and the Capital Loss Carryover Worksheet, as necessary.
For Paperwork Reduction Act Notice, see the Instructions for Form 1041. Cat. No. 11376V Schedule D (Form 1041) 2000

Page 35
Schedule D (Form 1041) 2000 Page 2
Part IV Capital Loss Limitation

17 Enter here and enter as a (loss) on Form 1041, line 4, the smaller of:
a The loss on line 16, column (3) or
b $3,000 17 ( )
If the loss on line 16, column (3), is more than $3,000, or if Form 1041, page 1, line 22, is a loss, complete the Capital Loss
Carryover Worksheet on page 28 of the instructions to determine your capital loss carryover.
Tax Computation Using Maximum Capital Gains Rates (Complete this part only if both lines 15c and
Part V
16 in column (2) are gains, and Form 1041, line 22 is more than zero.)
18 Enter taxable income from Form 1041, line 22 18 10,025
19 Enter the smaller of line 15c or 16 in column (2) 19 200
20 If you are filing Form 4952, enter the amount from Form 4952, line 4e 20 –0–
21 Subtract line 20 from line 19. If zero or less, enter -0- 21 200
22 Combine lines 14 and 15a, column (2). If zero or less, enter -0- 22 200
23 Enter the smaller of line 15a, column (2), or line 22, but not less than zero 23 200
24 Enter the amount from line 15b, column (2) 24 –0–
25 200

f 0
25 Add lines 23 and 24

26 Subtract line 25 from line 21. If zero or less, enter -0- 26

27 Subtract line 26 from line 18. If zero or less, enter -0- 27 10,025
Enter the smaller of line 18 or $1,750
Enter the smaller of line 27 or line 28 s
a ,2 ) 0
31 f
Subtract line 21 from line 18. If zero or less, enter -0-

Enter the larger of line 29 or line 30

1 e

32 o
Pr er 3 chan
Tax on amount on line 31 from the 2000 Tax Rate Schedule
Note: If line 28 is less than line 27, go to line 37.
32 2,912

33 Enter the amount from line 28

Enter the amount from line 27

t o b t t o
Subtract line 34 from line 33. If zero or less, enter -0- 

Oc ubj e
36 Multiply line 35 by 10% (.10) 36
Note: If line 26 is more than zero and equal to line 35, go to line 51.

37 Enter the smaller of line 18 or line 26 37 –0–
38 Enter the amount from line 35 38 –0–
39 Subtract line 38 from line 37  39 –0–

40 Multiply line 39 by 20% (.20) 40 –0–

Note: If line 24 is zero or blank, skip lines 41 through 46 and read the Note above line 47.
41 Enter the smaller of line 21 or line 24 41
42 Add lines 21 and 31 42
43 Enter the amount from line 18 43
44 Subtract line 43 from line 42. If zero or less, enter -0- 44
45 Subtract line 44 from line 41. If zero or less, enter -0-  45

46 Multiply line 45 by 25% (.25) 46

Note: If line 23 is zero or blank, go to line 51.
47 Enter the amount from line 18 47 10,025
48 Add lines 31, 35, 39, and 45 48 9,825
49 Subtract line 48 from line 47 49 200

50 Multiply line 49 by 28% (.28) 50 56

51 Add lines 32, 36, 40, 46, and 50 51 2,968
52 Tax on the amount on line 18 from the 2000 Tax Rate Schedule 52 2,992

53 Tax on all taxable income (including capital gains). Enter the smaller of line 51 or line 52 here
and on line 1a of Schedule G, Form 1041 53 2,968
Schedule D (Form 1041) 2000

Page 36
SCHEDULE K-1 Beneficiary’s Share of Income, Deductions, Credits, etc. OMB No. 1545-0092
(Form 1041) for the calendar year 2000, or fiscal year
Department of the Treasury
Internal Revenue Service
beginning , 2000, ending , 20
 Complete a separate Schedule K-1 for each beneficiary.
Name of trust or decedent’s estate Amended K-1
Estate of John R. Smith Final K-1
Beneficiary’s identifying number  123-00-6789 Estate’s or trust’s EIN  10 0123456
Beneficiary’s name, address, and ZIP code Fiduciary’s name, address, and ZIP code

James Smith Charles R. Smith, Executor

6407 Mayflower Street 6406 Mayflower Street
Juneville, ME 00000 Juneville, ME 00000

(c) Calendar year 2000 Form 1040 filers enter

(a) Allocable share item (b) Amount
the amounts in column (b) on:

1 Interest 1 300 Schedule B, Part I, line 1

2 Ordinary dividends 2 100 Schedule B, Part II, line 5
3 Net short-term capital gain 3 Schedule D, line 5

f 0
4 Net long-term capital gain: a 28% rate gain 4a Schedule D, line 12, column (g)
Unrecaptured section 1250 gain
Total for year

s o 0
Line 11 of the worksheet for Schedule D, line 25
Schedule D, line 12, column (f)

before directly apportioned deductions

b Depreciation
f a , 2其 )
5a Annuities, royalties, and other nonpassive income
0 5a
1,600 Schedule E, Part III, column (f)

c Depletion

o o 1 g e
Include on the applicable line of the
appropriate tax form

Pr er 3 cha其n
d Amortization 5d
6a Trade or business, rental real estate, and other rental income
before directly apportioned deductions (see instructions) 6a Schedule E, Part III

b Depreciation Include on the applicable line of the
c Depletion

o t o 6c
appropriate tax form
d Amortization

t c t 6d

Oc ubje
7 Income for minimum tax purposes 7 2,000
8 Income for regular tax purposes (add lines 1, 2, 3, 4c,
5a, and 6a) 8 2,000

Adjustment for minimum tax purposes (subtract line
8 from line 7)
Estate tax deduction (including certain generation-
9 Form 6251, line 12

skipping transfer taxes) 10 Schedule A, line 27

11 Foreign taxes 11 Form 1116 or Schedule A (Form 1040), line 8
12 Adjustments and tax preference items (itemize):

a Accelerated depreciation 12a
Include on the applicable
b Depletion 12b line of Form 6251
c Amortization 12c
d Exclusion items 12d 2001 Form 8801
13 Deductions in the final year of trust or decedent’s estate:
a Excess deductions on termination (see instructions) 13a Schedule A, line 22
b Short-term capital loss carryover 13b ( ) Schedule D, line 5
c Long-term capital loss carryover 13c ( ) Schedule D, line 12, columns (f) and (g)
d Net operating loss (NOL) carryover for regular tax purposes 13d ( ) Form 1040, line 21
e NOL carryover for minimum tax purposes 13e See the instructions for Form 6251, line 20
13g 其 Include on the applicable line
of the appropriate tax form
14 Other (itemize):
a Payments of estimated taxes credited to you 14a Form 1040, line 59

b Tax-exempt interest 14b Form 1040, line 8b
c 14c
d 14d
e 14e Include on the applicable line
f 14f of the appropriate tax form
g 14g
h 14h
For Paperwork Reduction Act Notice, see the Instructions for Form 1041. Cat. No. 11380D Schedule K-1 (Form 1041) 2000

Page 37
Table A. Checklist of Forms and Due Dates—For Executor, Administrator, or Personal Representative
Form No. Title Due Date

SS-4 Application for Employer Identification Number As soon as possible. The identification number must be
included in returns, statements, and other documents.

56 Notice Concerning Fiduciary Relationship As soon as all necessary information is available.*

706 United States Estate (and Generation-Skipping Transfer) Tax 9 months after date of decedent’s death.

706-A United States Additional Estate Tax Return 6 months after cessation or disposition of special-use
valuation property.

706-CE Certificate of Payment of Foreign Death Tax 9 months after decedent’s death. To be filed with Form 706.

706-GS(D) Generation-Skipping Transfer Tax Return for Distributions See form instructions.

706-GS(D-1) Notification of Distribution From a Generation-Skipping Trust See form instructions.

706-GS(T) Generation-Skipping Transfer Tax Return for Terminations See form instructions.

706-NA United States Estate (and Generation-Skipping Transfer) Tax 9 months after date of decedent’s death.
Return, Estate of nonresident not a citizen of the United

712 Life Insurance Statement Part I to be filed with estate tax return.

1040 U.S. Individual Income Tax Return Generally, April 15th of the year after death.

1040NR U.S. Nonresident Alien Income Tax Return See form instructions.

1041 U.S. Income Tax Return for Estates and Trusts 15th day of 4th month after end of estate’s tax year.

1041-A U.S. Information Return—Trust Accumulation of Charitable April 15th.


1041-T Allocation of Estimated Tax Payments to Beneficiaries 65th day after end of estate’s tax year

1041-ES Estimated Income Tax for Estates and Trusts Generally, April 15, June 15, Sept. 15, and Jan. 15 for
calendar-year filers.

1042 Annual Withholding Tax Return for U.S. Source Income of March 15th.
Foreign Persons

1042-S Foreign Person’s U.S. Source Income Subject to March 15th.


1310 Statement of Person Claiming Refund Due a Deceased To be filed with Form 1040, Form 1040A, Form 1040EZ, or
Taxpayer Form 1040NR if refund is due.

2758 Application for Extension of Time To File Certain Excise, Sufficiently early to permit IRS to consider the application and
Income, Information, and Other Returns reply before the due date of Form 1041.

4768 Application for Extension of Time To File a Return and/or Sufficiently early to permit IRS to consider the
Pay U.S. Estate (and Generation-Skipping Transfer) application and reply before the estate tax form due
Taxes date.

4810 Request for Prompt Assessment Under Internal Revenue As soon as possible after filing Form 1040 or Form 1041.
Code Section 6501(d)

5495 Request for Discharge from Personal Liability Under Internal After filing the returns listed on this form.
Revenue Code Section 6905

8300 Report of Cash Payments Over $10,000 Received in a Trade 15th day after the date of the transaction.
or Business

8822 Change of Address As soon as the address is changed.

* A personal representative must report the termination of the estate, in writing, to the Internal Revenue Service. Form 56 may be used for this purpose.

Page 38
Table B. Worksheet To Reconcile Amounts Reported in Name of Decedent on Information Returns (Forms
W-2, 1099-INT, 1099-DIV, etc.) (Keep for your records.)
Name of Decedent Date of Death Decedent’s Social Security Number

Name of Personal Representative, Executor, or Estate’s Employer Identification Number (If Any)

Amount reportable
Enter part of
on estate’s or Part of column C
Enter total amount amount in column
Source beneficiary’s that is “income in
shown on A reportable on
(list each payer) income tax return respect of a
information return decedent’s final
(column A minus decedent”
column B)
1. Wages

2. Interest income

3. Dividends

4. State income tax refund

5. Capital gains

6. Pension income

7. Rents, royalties

8. Taxes withheld*

9. Other items, such as: social

security, business and farm
income or loss, unemployment
compensation, etc.

* List each withholding agent (employer, etc.)

Page 39

Period of administration ....... 22 Defined ................................... 8 Information returns ............... 14

A Tax deduction ....................... 11 Farm ....................................... 9 Substantial valuation misstate-
Accelerated death benefits .... 5, 12 Termination .......................... 22 How to report ......................... 8 ment ................................ 13
Assistance (See Tax help) Transfer of unused Inherited IRAs ...................... 10 Personal representative:
deductions ....................... 22 Installment obligations ............ 9 Defined ................................... 2
Estimated tax ....................... 18, 22 Interest, savings certificates . 10 Personal representatives:
B Example: Interest, Treasury bonds ...... 10 Duties ..................................... 2
Basis: Comprehensive .................... 23 Partnership ............................. 9 Fees received ......................... 3
Inherited property ................. 12 Decedent's final return ......... 23 Transfer of right ...................... 9 Penalty ............................... 2, 3
Joint interest property .......... 13 Estate's income tax return ... 24 U. S. savings bonds ............... 9 Two or more ......................... 15
Qualified joint interest .......... 13 Exemption: Wages .................................... 9 Prompt assessment, request ...... 3
Beneficiary: Estate's income tax return ... 16 Income tax return of an estate: Public safety officers, death ben-
Basis of property .................. 12 Final return for decedent ........ 5 Credits, tax, and payments .. 18 efits ....................................... 13
Character of distributions ..... 20 Expenses: Exemption and deductions ... 16 Publications (See Tax help)
Excess deductions ............... 22 Accrued ................................ 16 Filing requirements ............... 14
Income received ................... 13 Administration ....................... 16 Income to include ................. 15
Liability, estate's income tax 14 Funeral ................................. 18 Name, address, and
Nonresident alien ................. 14 Income in respect of signature ......................... 19 R
decedent ......................... 11 When and where to file ........ 19 Refund:
Reporting distributions ......... 20 File for decedent .................... 4
Successor ............................. 22 Medical ............................. 5, 18 Income:
Extension, to file Form 1041 ..... 19 Community ............................. 4 Military or terroristic action
Treatment, distributions ........ 19 deaths ............................... 7
Unused loss carryovers ....... 22 Distributable net income ...... 17
Distributed currently ............. 19 Release from personal liability, re-
Bequest: quest ....................................... 3
Defined ................................. 21 F Interest and dividend .............. 4
Partnership, final return .......... 4 Returns:
Property received ................. 11 Fiduciary relationship .................. 3 Decedent's final ...................... 3
Filing requirements: S corporation .......................... 4
Self-employment .................... 4 Estate's income tax .............. 14
Decedent's final return ........... 4 Information ........................... 14
Inherited IRAs ...................... 10, 14
C Estate's income tax return ... 14
Final return for decedent: Inherited property ...................... 11 Roth IRA ................................ 5, 10
Claim, credit or refund ................. 7 Insurance:
Comments ................................... 2 Credits .................................... 6
Exemption and deductions ..... 5 Proceeds of life .................... 12
Child tax credit ....................... 6 Filing requirements ................. 4 Received in installments ...... 12
Veterans' proceeds .............. 12
Earned income ....................... 6 Income to include ................... 4 Separate shares rule ................. 17
Elderly or disabled ................. 6 Joint return ............................. 4 Suggestions ................................. 2
Final return for decedent ........ 6 Name, address, and signature 7 Survivors:
General business ................... 6 Other taxes ............................. 6 J Income .................................. 13
Payments ............................... 6 Joint return: Tax benefits ............................ 8
When and where to file .......... 7 Revoked by personal represen-
Who must file ......................... 3 tative .................................. 4
D Form: Who can file ........................... 4
Death benefits: 56 ........................................... 3 T
Accelerated ...................... 5, 12 706 ....................................... 22 Tax help ..................................... 25
Public safety officers ............ 13 1040NR ............................ 4, 14 Tax:
Decedent: 1041 ..................................... 14 L Alternative minimum, estate . 18
Final return ............................. 3 1042 ..................................... 14 Losses: Alternative minimum,
Income in respect of .............. 8 1310 ....................................... 4 Deduction on final return ........ 6 individuals ......................... 6
Deductions: 4810 ....................................... 3 Estate's income tax return ... 16 Benefits, survivors .................. 8
Estate tax ............................. 11 5495 ....................................... 3 Estimated, estate ........... 18, 22
In respect of decedent ......... 11 6251 ....................................... 6 Payments, final return ............ 6
Medical expenses .................. 5 Refund of income (claim) ....... 4
Standard ................................. 5
SS4 ......................................... 2 M Self-employment .................... 6
Free tax services ....................... 25 Medical savings account ....... 5, 11
Distributable net income ............ 17 Funeral, expenses ..................... 18 Transfer of credit .................. 22
Military or terroristic actions:
Distributions: Taxpayer Advocate ................... 25
Claim for credit or refund ....... 7
Character .............................. 18 TTY/TDD information ................ 25
Defined ................................... 7
Deduction ............................. 17
Limit on deduction ................ 18 G Tax forgiveness, deaths due to 7
Gift, property .............................. 11 More information (See Tax help)
Not treated as bequests ....... 21
Property, in kind ................... 18 V
Special rules ......................... 21 Valuation method:
H N Inherited property ................. 12
Special-use ........................... 12
Help (See Tax help) Notice of fiduciary relationship:
Filing ....................................... 3
E Form 56 .................................. 3
Education IRA ....................... 5, 10
Estate tax deduction .................. 11 I Termination ............................ 3 W
Estate: Identification number, application 2 Widows and widowers, tax
Income tax return ................. 14 Income in respect of benefits ................................... 8
Insolvent ................................. 3 decedent: P 
Nonresident alien ................. 15 Character ................................ 9 Penalty:

Page 40