Why is it necessary to file Form 1041 if there is no tax liability from the sale of a decedent’s estate?

by William L. Stunkel, CPA | Jun 29, 2018

If the only income to a decedent's estate is from the sale of the home (such as $150,000), then what is the purpose of filing IRS Form 1041, as there will be no expenses and no obligations, no tax liability, and no distributions to any other persons, entities, etc., beyond a single beneficiary (son). There is just the deposit of monies received from the sale of decedent's property. It seems all too confusing for the purpose of generating an EIN just so the estate can receive home sale funds.

The purpose of filing a Form 1041 when the gross income (i.e., the $150,000 of sales proceeds from the sale of the real estate mentioned) is above the required filing threshold is to positively confirm to the IRS that there is no tax due. When real estate is sold, a Form 1099-S is typically required to be issued to the entity selling the property. This tells the IRS that there was a sale for a specific price.
However, the IRS does not know the basis of that real estate (which for an estate very well may be equal to the sale price). The IRS needs the personal representative of the estate to affirm that despite the $150,000 of sales proceeds received, there is in fact no taxable income, and therefore no tax due. Failing to file a return could result in the IRS making an inquiry into the sale of the real estate as the IRS (as mentioned previously) would be informed of the sale via the Form 1099-S. In such cases, when nothing is filed, the IRS's default position is to assume 100 percent of the sale proceeds are taxable income until a return is filed affirming otherwise.

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Answered by: William L. Stunkel, CPA, is director of small business services with Holsinger PC in Wexford, Pa.

The responses are based on the limited information provided by the questioner and apply the laws and regulations at the time of posting. Other options could arise as rules and regulations may change over time, including but not limited to the passage of the Tax Cuts and Jobs Act of 2017. They are intended to provide general information, not specific accounting or tax advice; they 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 PICPA, its officers, directors, employees, or members.
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