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Author: KLTolly One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121572  
Subject: Tax filing questions - decedant Date: 3/25/2008 10:23 PM
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I am filing my parents taxes for 2007, using Turbotax.

Dad passed away in 8/2007, so he is marked as decedent; Mom filing as surviving spouse.

Dad's RMD from IRA was NOT made in 2007 (scheduled for 12/07); Mom elected to take his IRA as her own, so they overrode the named owner of the account. She took her minimum distribution (9/07) as the amount determined 12/31/06 based on her age and the balance of the account. The Bank has told me that since the account was retitled in advance of the distribution date, that no distribution is necessary.

Mom was hospitalized at the time that I was working on her taxes; I have her power of attorney.I was searching for 3 errant 1099s in order to complete and submit the filing.

I now have all of the information to file, but Mom passed unexpectedly last week. I have updated that fact in TurboTax, and it is now no longer reverting to requiring Dad's RMD for 2007 to be input. (FWIW, I am also Executrix of her estate)

I am executrix of the will. I was planning to efile her returns for simplicity purposes. Can I do so, or must I send in paper based forms with death certificates, surrogates certificates, etc?

TIA for any advice,

KLTolly

As an addendum to my prior post (#99177) on not using my CPA this year, it has been a most gracious arrangement. (Special thank to Peter and Ira for their invaluable guidance)They requested a copy of my return for them to conduct a free review, as well as to keep in their records, and told me I completed the returns with flying colors, no adjustments necessary.They also sent a fruit basket upon word of my Mother's passing. Should anyone need a referral to a terrific CPA firm in the Princeton NJ area, I will gladly relay the information upon request.
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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99759 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/26/2008 12:25 AM
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My condolences on such loss crammed into such a short time. As (bad) luck would have it, I went through the same thing in 2001-02. Right up front I'll suggest that if you feel the need, file for an extension of 2007. I sure did.

You wrote:

I am filing my parents taxes for 2007, using Turbotax.

Dad passed away in 8/2007, so he is marked as decedent; Mom filing as surviving spouse.


Since these are specific terms with consequences, I'll nitpick. For 2007 their filing status is Married, filing jointly. For 2008 your mother's filing status will be Single.

Dad's RMD from IRA was NOT made in 2007 (scheduled for 12/07); Mom elected to take his IRA as her own, so they overrode the named owner of the account. She took her minimum distribution (9/07) as the amount determined 12/31/06 based on her age and the balance of the account. The Bank has told me that since the account was retitled in advance of the distribution date, that no distribution is necessary.

I'm not clear as to exactly what you're saying. Since your mother elected to treat the IRA as her own, for 2007 she can choose between a distribution based on your father's life expectancy at the beginning of the year or her own. A distribution is required, but not a double. It sounds like everything was OK here. See the discussion on page 36 of Publication 590.

Mom was hospitalized at the time that I was working on her taxes; I have her power of attorney.I was searching for 3 errant 1099s in order to complete and submit the filing.

I now have all of the information to file, but Mom passed unexpectedly last week. I have updated that fact in TurboTax, and it is now no longer reverting to requiring Dad's RMD for 2007 to be input. (FWIW, I am also Executrix of her estate)


You must not confuse TurboTax. Despite the ads, it's a really stupid, but accurate and neat, adding machine / typewriter. You're dealing with the 2007 return, and contrary to reality, your mother is still alive. Reverse her date of death input.

I am executrix of the will. I was planning to efile her returns for simplicity purposes. Can I do so, or must I send in paper based forms with death certificates, surrogates certificates, etc?

Maybe one of the pros who deals with the intricacies of e-file will know for sure, but I think you qualify for e-filing. TT will tell you if you don't.

Good luck, and don't hesitate to come back for more help.

Phil

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99761 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/26/2008 1:48 AM
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You're dealing with the 2007 return, and contrary to reality, your mother is still alive. Reverse her date of death input.

I usually report a death that happens after the end of the year but before the return is filed. It explains why there is a different signature on the return and why a form 1310 might be attached.

However I agree that the mother's passing after the end of the year should not affect any RMDs during the year. So something sounds a bit off to me.

--Peter

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99763 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/26/2008 7:17 AM
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I am executrix of the will. I was planning to efile her returns for simplicity purposes. Can I do so, or must I send in paper based forms with death certificates, surrogates certificates, etc?

Maybe one of the pros who deals with the intricacies of e-file will know for sure, but I think you qualify for e-filing. TT will tell you if you don't.


I had a return this year with a 2007 single decedent where the executor (obviously) was not a surviving spouse. We had to paper file the return along with the death certificate and letters testamentary. IIRC, I played around with the various decedent return options in ProSeries and found that I was eligible to efile only if the IRS had already been notified of the death and who the executor was. I assume that part of the efile return verification system must check for the existence of a responsible party for the return and that it can't be established "after the fact" with an 8453 submission.

Ira

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Author: KLTolly One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99782 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/26/2008 8:45 PM
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Phil-

Thank you for the kind words; I'm having a difficult time, but it's somewhat easier to accept that others have had this terrible experience.

Yes, I am using MFJ status for 2007. The 2007 return (in print) appears correct. It had previously insisted that I key an amount for Dad's RMD in 2007. Once I corrected the personal data to reflect that Mom passed after 12/31/2007 but before the filing of this return, that prompt went away. Turbotax still reflects efile as an option, although I wanted to be sure that I have the RMD issue under control to avoid having to process an amendment.

The Bank has tried to be helpful to the best of their abilities; they have told me that Mom elected to treat the IRA as her own. Her RMD for 2007 was based on her age and account balance as of 12/31/2006; the same information appeared for Dad. I had interpreted the following:

Surviving spouse. If you are a surviving spouse who is the sole beneficiary of your deceased spouse's IRA, you may elect to be treated as the owner and not as the beneficiary. If you elect to be treated as the owner, you determine the required minimum distribution (if any) as if you were the owner beginning with the year you elect or are deemed to be the owner. However, if you become the owner in the year your deceased spouse died, you are not required to determine the required minimum distribution for that year using your life; rather, you can take the deceased owner's required minimum distribution for that year (to the extent it was not already distributed to the owner before his or her death).

This seems to imply to me that there should have been a distribution in addition to that calculated 12/31/2006 for my mother. Or am I possibly overanalyzing this?

Thank you again!

Katina

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99783 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/26/2008 8:58 PM
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If I am reading that section correctly, because your Mom chose to treat your Dad's IRA as hers she had a choice in 2007. She could take your Dad's RMD as if he hadn't passed away, or she could take an RMD as if she owned the IRA at 12/31/06. Then for 2008, the IRA is completely hers and she would have taken RMDs based on her age.

--Peter

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99786 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/26/2008 10:49 PM
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This seems to imply to me that there should have been a distribution in addition to that calculated 12/31/2006 for my mother. Or am I possibly overanalyzing this?

Actually, I think you're underanalyzing it. I had the same initial reaction. When you really pull it apart you'll see that it's saying she had a choice for the 2007 required distribution from your father's IRA. She could base it on his 2007 life expectancy or hers. Only one or the other is required.

Phil

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Author: KLTolly One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99799 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/27/2008 2:37 PM
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Phil-

I realize that had I used actual numbers, the reasons for my uncertainty might be clarified, so here goes...


As of 12/31/2006, the bank calculates that Mom's RMD for 2007 is $759.29; Dad's is $432.27. Both are scheduled for automatic distributions in September.

Mom assumed Dad's IRA as her own on 9/7/07; they simply removed Dad's name, and replaced it with Mom's.

According to the Bank, this IRA account number was Mom's for all of 2007, therefore no distribution is required under Dad's name. There is no record of any IRA under Dad's name in 2007 due to the title change on the account. The account was originally opened (as a rollover from another IRA CD) 6/14/06. On Mom's 1/1/07 to 12/31/07 statement, the 12/31/06 balance on Dad's statement is reflected as the opening balance, under the same account number originally opened in his name.

Mom took her distribution amount of $759.29 on 12/1/07. I am having a hard time reconciling that the RMD based on her age and the account balance would essentially be unaffected by her assumption of Dad's account. It seems to be that she should have taken a greater distribution than that calculated 12/31/06.

Thanks again for the assistance!

Katina

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99800 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/27/2008 2:52 PM
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As of 12/31/2006, the bank calculates that Mom's RMD for 2007 is $759.29; Dad's is $432.27. Both are scheduled for automatic distributions in September.

Mom assumed Dad's IRA as her own on 9/7/07; they simply removed Dad's name, and replaced it with Mom's.

According to the Bank, this IRA account number was Mom's for all of 2007, therefore no distribution is required under Dad's name.


While I agree that there doesn't have to be a distribution in his name, the way I read Pub 590 there was a required distribution based on his 12/31/2006 balance. Evidently this didn't happen.

Your father's death didn't affect your mother's required distribution from her IRA. The required distribution from his is on top of what was required from hers, even if they both come from the same account. Her choice was between basing the distribution from his 12/31/2006 balance based on her life expectancy or his. Not included was a choice to take no distribution at all.

The prescribed way of dealing with this is to file Form 5329 with their 2007 return and pay the 50% excess accumulation penalty. Then you write a letter explaining what happened and asking for a refund of the penalty. Make sure you include the banks's advice and your mother's condition at the time. I predict you'll get the refund.

Don't race to do this. This is the way I see it, but let's see what the pros say. Contrary to what my mother would have told you, I don't know everything.

Phil

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Author: irasmilo Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99808 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/27/2008 9:22 PM
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While I agree with Phil with regard to the need for your mother to have taken a distribution based on your father's 12/31/06 balance, I would handle the penalty differently.

Rather than paying the 50% penalty and then asking for a refund, I would ask for a waiver directly on the 5329. See the page 6 of instructions for Form 5329, www.irs.gov/pub/irs-pdf/i5329.pdf.

Ira

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99810 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/27/2008 9:36 PM
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While I agree with Phil with regard to the need for your mother to have taken a distribution based on your father's 12/31/06 balance, I would handle the penalty differently.

Thanks, Ira. That'll teach me not to look and see whether they've changed the procedure. (My copy of the 5329 instructions was the 2004 version.)

Note to OP. Note that the waiver request includes that you are "taking steps" to correct the underdistribution. I don't need to tell you, this is complicated by your mother's death.

So that brings me, at least, to this question. Who are the beneficiaries of your mother's IRA?

Phil

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Author: KLTolly One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99839 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/28/2008 11:40 AM
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Ironically, the Bank insists that this is proper procedure, and still maintains that no distribution on my Dad's IRA was required; TT initially prompted me to the fact that a distribution should have been made, then ceased to do so after I entered the coding that Mom passed before the filing of the return.

There are 3 beneficiaries; myself, and my 2 brothers. Would I be justified in making a distribution to my Mom's estate equal to the RMD that was not taken, and plead incompetence/invalid instruction on the Bank's part?

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Author: TMFPMarti Big funky green star, 20000 posts Home Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 99844 of 121572
Subject: Re: Tax filing questions - decedant Date: 3/28/2008 12:39 PM
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Ironically, the Bank insists that this is proper procedure, and still maintains that no distribution on my Dad's IRA was required;

That's why their fine print says "Don't rely on us for tax advice."

There are 3 beneficiaries; myself, and my 2 brothers. Would I be justified in making a distribution to my Mom's estate equal to the RMD that was not taken, and plead incompetence/invalid instruction on the Bank's part?

That's probably the fastest solution, but before you do, figure out whether this would trigger a 1041 filing requirement that you wouldn't otherwise have. An easier solution would be to wait until the IRA has been split into three inherited IRAs, then each of you take the distribution from there.

Remember what I said initially about extensions.

Phil

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