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Tax Law (Questions About Taxes)/shareholder distribution to deceased?


QUESTION: I have a parent who passed away in late 2010. I am the estate administrator. Estate taxes and debts have been settled. Most assets were transferred to the surviving parent, and no other beneficiary distributions have been made. However, the estate is not completely settled because a few assets remain. I filed for an extension of the estate's income tax return (Form 1041) for 2012. The remaining assets are:

(1) A number of savings accounts, mostly CDs, marked "in trust for" one or more of the children
(2) Shares from a small company (S-Corp) that continues to pay an annual shareholder distribution, originally to the parent, now to the estate of the deceased parent

I presume the estate is responsible for paying income tax on any accumulated interest on the CDs, as long as the ITF beneficiaries have not claimed the funds/closed the accounts. I also presume that the estate is responsible for paying taxes on the shareholder distribution.  The company sent us a copy of Schedule K-1(Form 1120S).

I know how to enter info into the 1041 for (1). My question is how to enter it for (2). The only thing I've found relevant to my situation so far is in the 1041 instructions:

"If the estate or trust received a Schedule K-1 from a partnership, S corporation, or other flow-through entity, use the corresponding lines on Form 1041 to report the interest, dividends, capital gains, etc., from the flow-through entity."

Not all the lines "correspond" - e.g. "Items affecting shareholder basis". I don't see that on the 1041. So how do I report this and other items from K-1(1120S) onto the 1041?

(I understand that your profile says estate tax knowledge is limited, but I was hoping this question counted as an income tax question, not an estate tax question). Thanks in advance for your time!

ANSWER: Guest,  

Thanks for your question. I would need more detail before I could give you an answer.

There are corresponding lines for the 1041, but they are sometime hard to recognize or find.  Without specifics, I can't tell where the items would g.

John Stancil, CPA

---------- FOLLOW-UP ----------

QUESTION: Sure, what specifics do you need? Here's what I think I've figured out so far (I've only listed the K-1 boxes that are NOT blank):

On the K-1, Box 2: Net rental real estate income
Corresponding line on 1041: Line 5, rents & royalties... (plus I have to fill out Schedule E)

On the K-1, Box 4: Interest income
Corresponding line on 1041: Line 1, interest income

On the K-1, Box 5a: Ordinary dividends
Corresponding line on 1041: Line 2a, total ordinary dividends

On the K-1, Box 16: Items affecting shareholder basis. Marked with code "D" for "Distribution"
Corresponding line on 1041: ????

On the K-1, Box 17A: Other information. Marked with code "A" for "investment income"
Corresponding line on 1041: Line 10??? Enclosed shareholder instructions tell me to report this on Form 4952, line 4a

Let me know if you need anything else.


You are correct on the first three items.

The box 16 item does not go on the return, it is informational for a reduction in basis in the S Corp due to distributions received.

The box in line 17 goes on Form 4952 line 5.  This is a 1040 Form, but used for 1041. It is used to determine if the interest expense of the estate can be deducted.  Your investment income must be greater than interest expense.  This entry impact 1041, line 10.  4952 will show you if the interest expense can be included on line 10 of the 1041.

Hope this helps.

John Stancil, CPA

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John Stancil, CPA


I can answer questions on personal income taxes, partnerships, and some corporate income taxes. I can deal with some state tax questions. Limited gift and estate tax questions. I am also familiar with ministerial and church tax reporting issues. I am Professor Emeritus at Florida Southern College. Sales taxes and property taxes are state and local issues so I am not likely be be able to give you an in depth answer on those types of taxes. I have maintained a CPA practice, specializing in tax, for over 35 years. I am a member of the National Association of Tax Professionals, The Florida Insititute of CPA's, The NCPE Fellowship. In addition I am a Certified Mentor for SCORE. Visit my website at I also offer seminars and consultations to churches and clergy on their tax issues at Also visit my blog, I am listed on Tax Connections at Prepare and file your own taxes at


I hold a doctorate in Accounting, and am a CPA. My certifications of CIA, CFM, and CMA are inactive. I passed all certification examinations on the first attempt, and received honorable mention for my scores on the CIA exam. I have operated a CPA firm for over 37 years and have taught accounting and tax at the college level for over 35 years.

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The CPA Journal, Florida CPA Today, Green Consumer, Green Business, Global Sustainability as a Business Imperative, Palmetto Review, NATP TaxPro Quarterly, Mustang Journal of Finance and Accounting.

DBA University of Memphis MBA University of Georgia BS in Accounting Mars Hill University

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