WE discussed previously the requirement for consistent basis reporting between the person receiving the property and the decedent’s estate.
Applicability of filing requirements for US Citizens for transfer certificate.
1. Citizen of the US including with dual citizenship upon death and died after December 31, 1976.
2. Part A. Decedent’s worldwide estate exceeds the unified credit exemption. File 1) Estate tax return Form 706 due within 9 months from death; and 2) Report of death of an American citizen Form DS-2060 or Death certificate and other proof of US citizenship. Address where to file: Department of the Treasury, Internal Revenue Service Center, Cincinnati, OH 45999.
3. Part B. Decedent’s worldwide estate does not exceed the unified credit exemption. File 1) either Report of death of an American citizen Form DS-2060 or Death certificate and other proof of US citizenship; 2) notarized written affidavit with a) listing of worldwide assets valued at date of death and b) taxable gifts made by decedent; 3) in English, one copy of each inventory filed with domestic or foreign probate authorities; 4) in English, once copy of each death or inheritance tax return or last income tax return filed to other authorities country of residence other than US; and 5) in English, copy of decedent’s last will and testament. Include a statement with explanation if any is not available. Address where to file: Internal Revenue Service, Cincinnati, OH 45999, STOP 824G
4. Do not use Form 706 for Part B, otherwise the issuance of Transfer of Certificate will be delayed. TIP: if not required do not provide.
What to Consider in the Final income tax return of the decedent.
1. Depending on the gross income, age, and filing status, the decedent may or may not file a return.
2. Decedent’s final income tax return with refund: Generally, Form 1310 Statement of Personal Claiming Refund Due a Deceased Taxpayer must be filed if a decedent’s return is claiming a refund. Form 1310 is not required if the surviving spouse of the decedent claims the refund and is filing a joint return with the decedent. Form 1310 is not required if the certified representative is filing an original return of the decedent and have attached the certificate to the tax return.
3. The estate administrator should file final income tax return and other returns not filed for preceding years of the decedent.
4. If the decedent died on February 14, 2017 before filing the 2016 income tax returns, the representative of the decedent must file the 2016 income tax returns on April 15, 2017 and the final income tax returns from January 1, 2017 through February 14, 2017 by April 15, 2018.
5. The representative has to take into account if joint filing is most beneficial for the overall estate. And may revoke the return within one year of the filing deadline or extended due date of the return.
6. A joint return cannot be filed if the surviving spouse remarries during the decedent’s year of death under Reg.1.6013-1(d) (5). But married filing separate return.
7. Do not attach the death certificate of the decedent when filing a final return. You may keep in your records, and provide if requested later.
8. Income in the final return includes up to the date of death. Consider cash and accrual method reporting in the determination of what and what not to include.
9. If the decedent is a nonresident alien who would have filed Form 1040NR, then the same form will be filed for the final year.
10. Relief From Joint Liability. If the decedent while alive is qualified from relief of joint liability for tax, interest, and penalties of the other spouse erroneously reported on a joint return, the representative can file a request for relief from joint liability. TIP: file your personal income tax return yearly and not years later.
11. General rules for exemption and deductions applies to the final return.
12. Medical expenses paid before death is claimed on the decedent’s final return part of the itemized deductions. Medical expenses not part of the final return are claimed on the estate tax return Form 706 and are liabilities of the estate. The decedent’s final return can also make an election by filing a statement that the expenses were not claimed on the estate tax return to claim the medical expenses within one year after death to be treated as if paid by the decedent and be claimed on the decedent’s final return.
13. NOL. Net operating loss from a net business loss on the final return may be carried back to earlier years and carryovers are lost if not used on the final return.
14. Charitable contributions not used on the final return of the decedent are lost under Reg. § 1.170A-10(d)(4)(iii)). any excess cannot be claimed on the estate tax return. But the beneficiary who inherits the property generally claims the deduction on the beneficiary personal tax return.
15. COD. Cancellation of debt income prior to death is income on decedent’s return. If COD is after date of death then reportable income under the estate.
16. The word deceased, decedent’s name and the date of death must be written on top of page one of final income tax return Form 1040.
17. Decedent’s signature on the final return. The personal representative should generally signs the return. The surviving spouse signs the return and note in the signature area of the decent if married filing joint, filing as a surviving spouse. If there is no representative and the decedent is not married, person in charge of the decedent’s property should sign as, personal representatives.
Disclaimer: Any accounting, business or tax advice contained in this communication is not intended as a thorough, in-depth analysis of specific issues, or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties.
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Al-os & Associates Accountancy Corporation provides accounting and tax services to individuals, corporations, LLCs and business entities. The Firm has a niche in defending taxpayers audited by the IRS and other governmental agencies.