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
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Scott Sanders CPA
GETTRY MARCUS CPA, PC
Woodbury NY
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Original Message:
Sent: 08-22-2020 10:54 AM
From: Michael Jaffe
Subject: 706 vs 1041
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
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Michael Jaffe
CPA
MICHAEL B. JAFFE, CPA PC
Commack NY
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