How To Report Inheritance

I was just asked a question and, since I don't do returns, I don't have an adequate response.

Mother and daughter inherited stock on the death of the father. Mother is non-citizen, non-resident. When the stock was cashed, the broker sent a 1099-B in the name of the mother and daughter.

Daughter sent mother's half of the proceeds to her. Does the daughter need to report this any way when she does her taxes?

Thanks for your insights.

Stu

Reply to
Stuart A. Bronstein
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Whoever's soc sec # is on the 1099B should report 100% of the proceeds

Then back out the 50% held as nominee

___________________________________

-----> real address on hobokeni or hobokenx

Reply to
Benjamin Yazersky CPA

Thanks. Based on your clue I went to take a look at the instructions for Schedule D. It says that someone who receives money as a nominee for someone else should only include her own portion on her own Schedule D, and include a separate statement showing who the other recipient is and how much belongs to her.

Stu

Reply to
Stuart Bronstein

The last time I checked this (one minute ago), it only applied to capital gains *distributions*, as reported on a 1099-DIV. I could not find any IRS pub, including instructions for form 1040 Schedule D that explained how to "nominee" ownership and sale (1099-B) of a capital asset such as stock.

Was the stock ownership transferred via a trust or court-supervised probate? Otherwise, how did someone sell the stock of a decedent?

The case you present is complicated by the non-citizen, non-resident status of the second beneficiary (Mother). Is she subject to U.S. tax laws?

-Mark Bole

Reply to
Mark Bole

State law permits transfer without probate if the value of the estate is under a certain amount. Upon affidavit of the heirs to that effect, the stock is transferred into the names of the heirs without court order. Their heirs preferred the cash to the stock.

That's part of the question. My guess is that the taxable income will be small, if there's any at all, due to stepped up basis. But the decedent was a US citizen and resident, and his assets were all located in the US. So my guess is that, as far as his wife is concerned it would be considered US source income.

Stu

Reply to
Stuart Bronstein

Technically, a nominee 1099-B should also be prepared. The mother will need an ITIN if she doesn't have an SSN.

The broker probably assigned 100% of it to the daughter because it realized it screwed up and didn't withhold the 30% it should have for income to a foreign person.

Reply to
D. Stussy

Capital gains of non-citizen non-residents are generally sourced based on the residence of the seller. Code § 865(a). If the mother is a nonresident alien and she sold stock of a U.S. company, it would not be U.S. source income. Because it is not U.S. source income, no 30% tax would be required to be withheld. If tax were required to be withheld, then the daughter would likely be a withholding agent and she should have withheld.

I believe that there are exceptions to sending 1099s to nonresident aliens.

Reply to
jmail7

But that answer assumes that the stock was sold by the two individuals as individuals after it was distributed from the estate. However, upon re-reading, the initial question sounds as if the estate sold the stock and distributed the proceeds.

What we need to find out is what did the broker have on the account title. Just because the 1099-B was in the names of the two individuals doesn't mean that the account wasn't in the name of the deceased or his estate when actually sold.

Reply to
D. Stussy

Thanks, that's interesting information.

In essence that's correct. It was all done in the process of dealing with the estate, though no formal probate was required.

The stock was in the name of the father only, and put into the names of the mother and daughter based on the daughter's sending them a death certificate and declaration as to who the legal heirs were. After changing the names, the stock was sold and the proceeds sent.

Stu

Reply to
Stuart Bronstein

Do you mean a 10-99-B is prepared by the nominee to show how the funds were actually distributed? That sounds like a better approach than just attaching a note to the Schedule D.

They may not have known. The mother had a green card (and SS#) but hasn't been to the US in years, so probably lost whatever rights (and obligations) she had under it. She gave daughter her power of attorney to deal with her share of the estate.

Stu

Reply to
Stuart Bronstein

[...]

I have been searching for some time, well before this thread, on how a

1099-B could be "nomineed", and have never found anything. Now that you are indicating it should be done, could you please point me to a pub, reg, or code section where the process of issuing a nominee 1099-B is described? The instructions for Form 1099-B don't describe use of 1099-B in a situation such as that described above, at least not that I can find.

It seems to me like the stock ownership should have been handled with one-half of the shares being transferred to each person, then each would do whatever they wanted with their inheritance. Given that mistakes happen and trust terms are not always followed, does the IRS want what "should have happened" reported and appropriate explanatory statements attached to returns?

-Mark Bole

Reply to
Mark Bole

That's what a nominee 1099 is - one prepared by the intermediary.

Reply to
D. Stussy
[...]

Nominee 1099-INT and 1099-DIV, yes, this is explicitly described in IRS pubs.

Where is nominee 1099-B described?

-Mark Bole

Reply to
Mark Bole

The nominee instructions apply to ALL TYPES of 1099, not just the INT and DIV types whch were used in the example(s).

Reply to
D. Stussy

The instructions for some 1099's specifically refer to nominees, others don't. Do you mean to say that all the instructions should have mentioned nominees because they should all (as appropriate) be filed by nominees?

Stu

Reply to
Stuart Bronstein

YES, except where another reporting document is used (e.g. 1041 Schedule K-1).

Reply to
D. Stussy

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