A Form 1041 Question
Tom Young
to prepare a Form 1041, too.
The deceased taxpayer and her estate were subject to a
court-supervised conservatorship. The deceased taxpayer also had
assets in the name of a living trust.
The question: are legal fees associated with the conservatorship
deductible for purposes of the Form 1041? The Form 1041 instructions
don't even discuss the line of the form (line 14) "Attorney,
accountant, and return preparer fees" where such fees *might* go.
TIA.
Tom Young
Frank Keiser
would be allowable as a deduction on the Estate's income tax return (Form
1041), see the discussion below:
Section 2053(a) of the Internal Revenue Code (the "Code") provides:
"(a) General rule
For purposes of the tax imposed by section 2001, the value of the taxable
estate shall be determined by deducting from the value of the gross estate
such amounts -
. . .
(2) for administration expenses,
. . .
(b) Other administration expenses
Subject to the limitations in paragraph (1) of subsection (c), there shall
be deducted in determining the taxable estate amounts representing expenses
incurred in administering property not subject to claims which is included
in the gross estate to the same extent such amounts would be allowable as a
deduction under subsection (a) if such property were subject to claims, and
such amounts are paid before the expiration of the period of limitation for
assessment provided in section 6501."
Such amounts would also be deductible for income tax purposes under Section
212 of the Code, i.e.
"In the case of an individual, there shall be allowed as a deduction all the
ordinary and necessary expenses paid or incurred during the taxable year -
(1) for the production or collection of income;
(2) for the management, conservation, or maintenance of property held for
the production of income; or
(3) in connection with the determination, collection, or refund of any tax."
Therefore to prevent a double deduction for both estate tax and income tax
purposes, Section 642(g) of the Code provides
"Disallowance of double deductions
Amounts allowable under section 2053 or 2054 as a deduction in computing the
taxable estate of a decedent shall not be allowed as a deduction (or as an
offset against the sales price of property in determining gain or loss) in
computing the taxable income of the estate or of any other person, unless
there is filed, within the time and in the manner and form prescribed by the
Secretary, a statement that the amounts have not been allowed as deductions
under section 2053 or 2054 and a waiver of the right to have such amounts
allowed at any time as deductions under section 2053 or 2054. Rules similar
to the rules of the preceding sentence shall apply to amounts which may be
taken into account under section 2621(a)(2) or 2622(b). This subsection
shall not apply with respect to deductions allowed under part II (relating
to income in respect of decedents)."
Therefore, you should claim the conservatorship expenses related to the to
so much of that expense as relates to those amounts incurred for
"(1) for the production or collection of decedent's income;
(2) for the management, conservation, or maintenance of property held for
the production of income; or
(3) in connection with the determination, collection, or refund of any tax"
and attach a statement similar to the following to the form 1041
"In accordance with § 642(g) of the Internal Revenue Code the taxpayer's
estate elects to deduct amounts otherwise allowable under § 2053(a)(2)
(relating to administrative expenses or under § 2054 (relating to losses
during administration) on the estate's income tax return (Form 1041). The
estate further states that such amounts have not been allowed as a deduction
under §§ 2053(a)(2) or 2054 in computing the taxable estate of the decedent
and waives any right to have such amounts allowed at any time as a deduction
under §§ 2053(a)(2) or 2054. This statement and waiver is being filed in
duplicate with the taxpayer's income tax return for the decedent's estate
(Form 1041). Reg. § 1.642(g)-1."
By-the-way, the waiver cost you nothing, since you are merely stating that
you're not going to claim these expenses on the taxpayer's Form 706, Estate
Tax Return, which you weren't liable for anyway.
Dan Evans
<fmke...@earthlink.net> wrote:
>To the extent the conservatorship relates to the decedent's property, it
>would be allowable as a deduction on the Estate's income tax return (Form
>1041), see the discussion below:
>
>Section 2053(a) of the Internal Revenue Code (the "Code") provides:
Section 2053 is an ESTATE TAX provision, and has nothing whatsoever to
do with Form 1041.
**Dan Evans
**I post information, not advice.
Dan Evans
>The question: are legal fees associated with the conservatorship
>deductible for purposes of the Form 1041?
I'm not sure why a conservatorship is paying legal fees after the
convervatee(?) has died.
Which raises an interesting question: Are fees that are deductible
during the decedent' lifetime unders section 212 (management or
conservation of income-producing property) deductible on the estate's
income tax return after the death of the decedent?
I believe that a "deduction in respect of a decedent" is still
deductible after the death of the decedent, just as "income in respect
of a decedent" is still taxable income.
So my answer is "yes."
>The Form 1041 instructions
>don't even discuss the line of the form (line 14) "Attorney,
>accountant, and return preparer fees" where such fees *might* go.
Perhaps the IRS thinks that the label is "self-explanatory"?
The regulations provide that:
"Reasonable amounts paid or incurred for the services of a guardian or
committee for a ward or minor, and other expenses of guardians and
committees which are ordinary and necessary, in connection with the
production or collection of income inuring to the ward or minor, or in
connection with the management, conservation, or maintenance of
property, held for the production of income, belonging to the ward or
minor, are deductible." Treas. Reg. Sec. 1.212-1(j).
I believe that "ward" includes an incompetent, and that "guardian"
would include a conservator, so that the legal fees of a conservator
relating to the management and conservation of property are
deductible.
Frank Keiser
its proper usage. I was a bit early in killing off the convervatee.
CONSERVATOR. A guardian; protector; preserver.
"When any person having property shall be found to be incapable of managing
his affairs, by the court of probate in the district in which he resides * *
* it shall appoint some person to be his conservator, who, upon giving a
probate bond, shall have charge of the person and estate of such incapable
person." Gen. St. Conn. 1975, p 346, § 1 Gen. St. 1930, § 4815); Hutchins v.
Johnson, 12 Conn. 376, 30 Am. Dec. 622.
. . .
Black's Law Dictionary, revised 4th Edition
But your earlier post that:
"Section 2053 is an ESTATE TAX provision, and has nothing whatsoever to do
with Form 1041." is in error. Or perhaps, if you are right, you might want
to write Congress that § 642(g) is irrelevant; not to mention writing the
Treasury that certain of its income tax regulations are also irrelevant.
Reg. § 1.212-1(i)
Nontrade or nonbusiness expenses
(i) Reasonable amounts paid or incurred by the fiduciary of an estate or
trust on account of administration
expenses, including fiduciaries' fees and expenses of litigation, which are
ordinary and necessary in connection
with the performance of the duties of administration are deductible under
section 212 notwithstanding that the
estate or trust is not engaged in a trade or business, except to the extent
that such expenses are allocable to the
production or collection of tax-exempt income. But see section 642(g) and
the regulations thereunder for
disallowance of such deductions to an estate where such items are allowed as
a deduction under section 2053 or
2054 in computing the net estate subject to the estate tax.
Reg. §1.642(g)-1. Disallowance of double deduction; in general
Amounts allowable under section 2053(a)(2) (relating to administration
expenses) or under section 2054
(relating to losses during administration) as deductions in computing the
taxable estate of a decedent are not
allowed as deductions in computing the taxable income of the estate unless
there is filed a statement, in
duplicate, to the effect that the items have not been allowed as deductions
from the gross estate of the decedent
under section 2053 or 2054 and that all rights to have such items allowed at
any time as deductions under
section 2053 or 2054 are waived. The statement should be filed with the
return for the year for which the items
are claimed as deductions or with the district director of internal revenue
for the internal revenue district in
which the return was filed, for association with the return. The statement
may be filed at any time before the
expiration of the statutory period of limitation applicable to the taxable
year for which the deduction is sought.
Allowance of a deduction in computing an estate's taxable income is not
precluded by claiming a deduction in
the estate tax return, so long as the estate tax deduction is not finally
allowed and the statement is filed.
However, after a statement is filed under section 642(g) with respect to a
particular item or portion of an item, the
item cannot thereafter be allowed as a deduction for estate tax purposes
since the waiver operates as a
relinquishment of the right to have the deduction allowed at any time under
section 2053 or 2054.
Tom Young
> On 29 Jan 2003 11:24:15 -0800, tgy...@yahoo.com (Tom Young) wrote:
>
> >The question: are legal fees associated with the conservatorship
> >deductible for purposes of the Form 1041?
>
> I'm not sure why a conservatorship is paying legal fees after the
> convervatee(?) has died.
The termination of the conservatoship of the person and estate upon
the death of the conservatee requires the preparation of a pleading to
the court and a court apperance, all of which generates legal fees.