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Ask a CPA: Deceased relative's final tax return and IRA account
Mar 12, 2013
My father died in late December 2012. My siblings and I are beneficiaries of his IRA. We are having the IRA split into individual beneficiary accounts.
I don't know how to deal with two things tax-wise. First, when I file my father's final tax return this year, he will receive a refund. Second, the IRA distributed money into my father's checking account (on which I am also listed) in January and February 2013.
So there will be an IRS refund and a 10999-R from the IRA custodian. Do we treat these as income in respect of a decedent for our tax returns for TY 2013?
With regard to the refund, the personal administrator of the estate will need to file Form 1310 – Statement of Person Claiming Refund Due A Deceased Taxpayer, with the decedent’s final Form 1040.
The tax refund is not considered IRD, and does not need to be picked up as income to the ultimate beneficiaries.
Any IRA distributions to the new owners of the IRA are considered IRD, and will be taxable to the recipient to the extent that the decedent did not have basis in the IRA. In other words, there is no step-up in cost basis for the IRA account to the value at the decedent’s date of death, and the decedent’s basis will transfer to the new owners of the account. If federal estate taxes were paid on the value of the IRA, then the recipients of the IRA are entitled to a deduction for the estate taxes paid on that income. The concept of IRD and the related deductions can be quite complicated, and I would urge the taxpayer to consult with their tax advisor for any further clarification.
Answer by: Jessica Tepus, CPA
This question was reviewed 3/11/13.
Disclaimer: The responses are based on the limited information provided by the questioner and are intended to provide general information, not specific accounting or tax advice. The ideas are not intended or written to be used and cannot be used for the purpose of avoiding or evading taxes or penalties under the IRS code or regulations. Views expressed do not imply an opinion of the OSCPA, its officers, directors, employees, or members.