Tags
Beneficiary, Distribution, Estate Income Tax, Executor, Form 1099, Information Returns, Nominee, Nominee Distribution
An executor becomes a nominee when the estate receives a 1099 showing income for the entire year and a part of that income belongs to other parties. In the article How to Report 1099 Income on the Final Return, the “Nominee Distribution” represents the earned income after death. Therefore, excluding the nominee distribution from the final return becomes necessary because that income goes to the estate or to the beneficiaries. As a result, the executor becomes the nominee and must distribute the income labelled nominee distribution to the rightful owners. Otherwise, the executor will face fines for non compliance.
Distributing the Nominee Distribution
In essence, without beneficiaries listed on the asset earning the 1099 income, the executor claims the distribution for the estate. If required, the executor must report the income on the estate income tax return Form 1041 (refer to article Tax Returns and the Date of Death for the requirements needed to file a Form 1041). If the asset has beneficiaries listed, then the executor will distribute the income to the beneficiaries using the following procedure:
- File a new Form 1099 with the IRS for each beneficiary showing the amounts allocable to each. The Federal copy will go to the IRS and the Taxpayer copy will go to the beneficiary.
- File each new Form 1099 with Form 1096 with the IRS Service Center in your area.
- On each new Form 1099, list the nominee as the “Payer” and the beneficiary as the “Recipient”.
- On Form 1096, list the nominee as the “Filer”.
- The nominee(executor), not the original payer, is responsible for filing the subsequent Forms 1099 to show the amount allocable to each beneficiary.
Conclusion
Basically, this procedure corrects the original 1099’s and issues new 1099’s. The new 1099’s allow the estate or each beneficiary the ability to report income received on the proper tax returns without confusion. Also, the procedure pertains to Information Returns designed to inform the IRS of changes to the original information sent to the taxpayers. In the end, this procedure is not difficult, but it could become tedious if the estate involves many beneficiaries.
References:
IRS Publication 559 Survivors, Executors, and Administrators 2015, Pg. 16 Information Returns.
IRS Publication General Instructions for Certain Information Returns.
Was this article helpful? Do you know of other ways to handle this situation? Share your comments in the comment area below.
What if the 1099 for assets nomineed was not provided to the TOD beneficiaries until the subsequent tax year because of delays in tax filing of the decedent’s final return?
Do the beneficiaries report the income on their subsequent tax return or do they have to go back and amend their prior year return to include the nomineed income from the year it actually occurred?
Real life example:
John died in November 2023. His final 1040 return was extended to October 2024 and then delayed because of the untimely death of his personal representative and missing information. It was finally filed in March 2025 and there were dividends, interest and capital gains and losses that occurred in the TOD accounts between date of death and 2023 year-end that were reported to his SSN and thus listed on the final 1040 tax return, but NOMINEED off the return.
When filing form 1099 to report this income to the heirs, you’d expect to use a 1099 form for 2023 (right?), but the heirs won’t get it until March 2025. Do they add this income to their 2024 tax returns or do they have to amend their 2023 returns to include the nomineed income?
Hi Adam,
If the TOD beneficiaries filed their 2003 returns, they would have to amend the returns to include the income received after the filing. I believe the only way they could add the income is if the extension is still valid.
As a disclaimer, I am not a tax professional and never had a circumstance like this concerning taxes. In general, you amend your return when you get reportable information after filing the original return .
I hope this helps.
Robert
What if the 1099 for assets nomineed was not provided to the TOD beneficiaries until the subsequent tax year because of delays in tax filing of the decedent’s final return?
Do the beneficiaries report the income on their subsequent tax return or do they have to go back and amend their prior year return to include the nomineed income from the year it actually occurred?
Real life example:
John died in November 2023. His final 1040 return was extended to October 2024 and then delayed because of the untimely death of his personal representative and missing information. It was finally filed in March 2025 and there were dividends, interest and capital gains and losses that occurred in the TOD accounts between date of death and 2023 year-end that were reported to his SSN and thus listed on the final 1040 tax return, but NOMINEED off the return.
When filing form 1099 to report this income to the heirs, you’d expect to use a 1099 form for 2023 (right?), but the heirs won’t get it until March 2025. Do they add this income to their 2024 tax returns or do they have to amend their 2023 returns to include the nomineed income?
Thank you, Robert!
Thank you, Robert!