NASSAUSUFFOLK

 View Only
  • 1.  706 vs 1041

    Platinum Most Valuable Member
    Posted 08-22-2020 10:54 AM
    Attorney prepared my client's 706/ET 706 and included on Sch J under Admin expenses, the closing costs
    on the sale of her residence. Taxpayer died 4/9/19, house was sold 8/5/19 and wasnt in contract at time of death.

    There was no 706 filed with IRS. Looks like closing costs were needed to reduce NY estate tax to zero.

    I just received the 706 for the first time, there was no communication here between the attorney, the executor and myself. 

    I am preparing the 1041 and believe those closing costs should used to offset selling price.

    Any thoughts from my esteemed colleagues?

    Mike Jaffe

    ------------------------------
    Michael Jaffe
    CPA
    MICHAEL B. JAFFE, CPA PC
    Commack NY
    ------------------------------


  • 2.  RE: 706 vs 1041

    Posted 08-23-2020 09:42 AM
    For authority about whether the expense was properly deductible on the 706, look to Regs. 20.2053-3(d)(2).

    For authority about prohibiting the double deduction, look to Section 642(g).

    While there's a question as to whether the expenses are properly deductible on a 706, there's no question the attorney failed to observe best practices by advising the client not to file an ET-706.

    ------------------------------
    Matthew E. Rappaport, Esq., LL.M.
    Vice Managing Partner
    Chair, Taxation Group
    Falcon, Rappaport & Berkman PLLC
    (516) 558-3377
    mer@frblaw.com
    ------------------------------



  • 3.  RE: 706 vs 1041

    Platinum Most Valuable Member
    Posted 08-23-2020 01:58 PM

    Matthew,  do all NYS estate tax returns get audited? Mike Jaffe

     






  • 4.  RE: 706 vs 1041

    Posted 08-24-2020 08:41 AM
    No, they don't.  They are audited selectively, as are the other types of returns.  Mr. Martin's point is correct as well; within six months of death, sale price controls the Section 1014 basis adjustment, so you wouldn't need to report on the 1041 to offset income.

    If the estate is well short of the federal tax threshold, there's no need to file the 706, but again, it's a best practice to file it -- not only will it ensure the running of the statute of limitations, but it'll also establish income tax basis.

    ------------------------------
    Matthew E. Rappaport, Esq., LL.M.
    Vice Managing Partner
    Chair, Taxation Group
    Falcon, Rappaport & Berkman PLLC
    (516) 558-3377
    mer@frblaw.com
    ------------------------------



  • 5.  RE: 706 vs 1041

    Posted 08-23-2020 10:35 AM

    Mike - If a house is sold within six months of death, there is no gain.  So the basis will equal the SP.

    Are there other facts? . Dan
    .

    ------------------------------
    M Daniel Martin
    M. DANIEL MARTIN, CPA EA
    Babylon NY
    M Daniel
    ------------------------------



  • 6.  RE: 706 vs 1041

    Platinum Most Valuable Member
    Posted 08-23-2020 01:51 PM

    Can't the expenses of sale on closing statement be used here to generate a loss?

     






  • 7.  RE: 706 vs 1041

    Bronze Most Valuable Member
    Posted 08-24-2020 08:32 AM
    Michael

    Take a look at this and then you can figure out what the attorney did--there should have been communication about which yielded a greater tax deduction

    IRC Section 642(g)
    Election to Claim Administration Expenses of
    Estate As Income Tax Deduction
    Overview
    IRC Sections 2053 and 2054 allow estates the right to deduct administration
    expenses and losses during administration in computing a taxable estate for
    federal estate tax purposes. These deductions may also be used in determining
    the estate's taxable income for federal income tax purposes. However, the
    estate cannot claim both an estate tax deduction and an income tax deduction.
    The §§2053 and 2054 deductions are taken on the estate tax return unless an
    election is made under §642(g) which permits the estate to use the deductions
    for federal income tax purposes.
    It is not required that the total deductions, or the total amount of any deduction,
    be treated in the same way. One deduction or portion of a deduction may be
    allowed for income tax purposes, while another deduction or portion is allowed
    for estate tax purposes.
    The filing of the election operates as a relinquishment of the right to have the
    deductions allowed at any time for estate tax purposes. However, an income tax
    deduction may be claimed even if the deductions were also claimed on an estate
    tax return as long as the §642(g) election is timely filed and the estate tax
    deduction is not "finally allowed." A deduction is "finally allowed" when the
    statute of limitations has expired or been closed by agreement.
    It should be noted that §642(g) does not apply to deductions for taxes, interest,
    business expenses, and other items accrued at the date of a decedent's death
    so that they are allowable as a deduction under §2053(a)(3) for estate tax
    purposes as claims against the estate, and are also allowable under §691(b) as
    deductions in respect of a decedent for income tax purposes.
    When to File
    The election is made by filing a statement, in duplicate, and attaching it to the
    estate's income tax return for the year in which items are claimed as a
    deduction. If the election statement is not filed with the income tax return, it can
    be filed with the district director for the district in which the return has been filed.
    The election statement may be filed at any time before the expiration of the
    statutory period of limitation applicable to the taxable year.
    Where to File
    The election statement may be attached to the estate's income tax return, which
    is mailed to the designated Internal Revenue Service Center, or filed with the
    district director for the district in which the return was filed.
    Index
    1. Code Section: 642, 2053, 2054
    2. Topic: Trusts, Estates and Gifts
    3. Return Type: 1041
    Authorities
    IRC §642(g); Reg. §1.642(g)-1; Reg. §1.642(g)-2​

    ------------------------------
    Scott Sanders CPA
    GETTRY MARCUS CPA, PC
    Woodbury NY
    ------------------------------



  • 8.  RE: 706 vs 1041

    Bronze Most Valuable Member
    Posted 08-24-2020 08:46 AM
    In addition--there should be a step up on the basis of the property which should yield no gain on the sale of the residence if sold within a reasonable amount of time post-death--some say no more than 6-12 months after death​

    ------------------------------
    Scott Sanders CPA
    GETTRY MARCUS CPA, PC
    Woodbury NY
    ------------------------------



  • 9.  RE: 706 vs 1041

    Platinum Most Valuable Member
    Posted 08-24-2020 10:57 AM
    Scott

    Closing costs on the sale of residence could create a loss on sale for 1041 purposes, correct? 

    There were other capital gains I would like to offset using such a loss, Mike

    ------------------------------
    Michael Jaffe
    CPA
    MICHAEL B. JAFFE, CPA PC
    Commack NY
    ------------------------------



Discussion Disclaimer

The opinions expressed are the views of the author alone and should not be attributed to any other individual or entity and shall not constitute an accounting opinion.