USA Form 1040 filed by beneficiary on behalf of deceased family who gifted

[Quest1]

My sibling gifted me a sum of money (About 500k) last year in 2022.

In 2021 they had a will made with me as executor and beneficiary. Sibling is divorced as of several years ago.

Unfortunately sibling passed away in early 2023.

This year, I submitted a gift form 1040 on their behalf.

Now I have received a letter (actually in their name) from IRS Dept of Treasury saying in response to 'inquiry' (Form 1040) IRS is working on the account. An additional 60 days are needed to send a complete response on what action IRS is going to take on the account.

What possible action could there be? Isn't there a git tax allowed amount of $11M+. I had read up and submitted sibling's tax return and along with it form 1040 in March 2023.
Did I do something out of step or wrong? Anxious. Sorry if this is a dumb question…Input appreciated.

 

[BIG E]

You have confused a number of issues.
Reporting the gift of $ 500,000 should have been reported on Form 709 - NOT FORM 1040.
Who is "they" if sibling is divorced as of several years ago?
Form 709 is used to report a gift in any one year to any one individual IN EXCESS OF THE ANNUAL EXCLUSION.
In 2022 the annual exclusion was $ 16,000 and the Form 709 automatically subtracts out the $ 16,000 from the calculation
of the excess to reduce the lifetime exclusion of the $ 11M.
So you need to inform the IRS in response to their notice that an incorrect form was filed to report the gift, and amend the Form 1040
to report only what should have been reported.
You also may have estate tax filings due depending upon your sibling's assets. I suggest you speak to an estate attorney.

 

[Quest1]

Oops sorry for the confusion - just been devastated. Did file form 709. Also filed form 1040 listing salary, interest income for couple of accounts and refund due - to me of $2k approx.
Just wondering if an expert had any thoughts why I received the letter and not the refund. I think I will find and consult an accountant/estate attorney and show them both forms. Just a couple of accounts and I have a will listing me as beneficiary.

I thought it would be easier for me to DIY it as I am homebound as full time caregiver to special needs child/parent in law with Alzheimers. Thank you.

 

[BIG E]

The reason you received a letter is because when a deceased taxpayer is receiving a refund and the recipient is NOT a surviving spouse,
a Form 1310 has to be attached to the return along with a copy of the document showing proof who is to receive the refund. As well, a Form 56 should be attached to document the fact that you are the designated party to whom IRS should communicate with concerning a deceased party.

 

[Quest1]

Thank you so much. What is the best course of action now? To make it right. A tax accountant or estate lawyer? Or both?
what document I wonder to show proof.

separate note - One of the retirement accounts has beneficiary info missing so will need to do some probate process. Do have a will. Appreciate your help.

 

[BIG E]

You are going to need both, but primarily an estate attorney.
A tax accountant can (with proof you are an authorized party to represent the deceased) respond to the IRS notice and amend the
tax return if necessary. As well perhaps prepare your sibling's 2023 tax return. This will require you to provide the person with a
Form 2848 (Power of Attorney) to authorize IRS to discuss tax issues with him/her.
An estate attorney can handle the transferring of your sibling's assets to named beneficiary(ies) - but you'll need to obtain Fair Market Values of assets held on the date of death for transfer valuation purposes.
Please - don't rely on your own judgment any more and leave it in hands of professionals who know how to handle matters like the
ones you've presented.

 

[Quest1]

Sorry to bother again - I spoke to my spouse (out of town) and he said turbo tax did direct us to do 1040 and 1310. But not 56. I looked up form 56 and I couldn't answer any questions - doesn't seem to apply at all but I guess that's why I need an accountant...

I received a followup letter from IRS on Friday -
"Form 1040 : We received the information you provided and determined no action is necessary on your account. We received your form 1310. However, the return is not fully processed yet. There is no refund on the account yet. If you have questions you can call."

Had to admit pa in law to hospital to struggling on multiple fronts. Should I wait or still consult an accountant? I will hire an accountant to do 2023 taxes just to be sure.

I am thinking if/when I receive a refund - will create a bank account in the name of - Estate of Deceased to deposit the check. Already received a check from the state in the name of - Estate of.

I paid off bills and closed cards. Was divorced with no property etc. All retirement/other accounts (except 1 but less than $25k so won't need probate process) have beneficiary so I am following the process to rollover to an Inherited IRA. But will look into attorney as I go along.

 

[BIG E]

You need to apply for an Employer Identification Number for the Estate by applying online at www.irs.gov
Complete the SS-4 form. NO financial institution would open up a financial account WITHOUT an EI #. I would not wait if I were you. I would also make contact with an accountant and attorney ASAP and NOT WAIT.
In your earlier post you stated that there's a refund coming - now IRS notice says no - unless due to the non-processing, that's holding it up.

 

[Quest1]

It doesn’t look like they are saying no yet. There is a refund due per turbo tax.
“However, the return is not fully processed yet. There is no refund on the account yet. If you have questions you can call”.

if the state could accept turbo tax documents and send a refund check in the name of the Estate, maybe Federal refund will also arrive. Will complete SS-4 and go through the process of opening bank account.
Ok thank you very much - Will also set up something with estate attorney.