Q: John named his estate as the beneficiary of his IRA. He died after his required beginning date in 2012. After his death, the trustee of the IRA distributed the balance of his IRA to his estate. If the entire amount of the IRA was distributed from the estate to the estate beneficiaries, who pays the tax on distribution, the beneficiaries of the estate? Pittsburgh, PA
A: The beneficiaries of the estate will be liable for the tax on the amount of each received. The beneficiaries will be entitled to reduce the distribution amount by their allocated share of basis in the IRA if there was any. The distribution is reported as other income to the estate on Form 1041. The amount is deemed to be distributable net income and is reported as an income distribution deduction by the estate, limited by DNI (§661). The allocated amount will flow from Form 1041 to Schedule K-1 and reported on the beneficiaries’ personal Form 1040.