Q: I received unclaimed property from the State of California related to my fathers estate.
The amount was approx 45K which I split with my sister 50/50. I never received a 1099 from CA regarding this payout. I am trying to determine how to handle for tax purposes. It was in a traditional IRA and my guess is that the estate should have claimed it but that was 8 years ago. Should the estate issue a 1099 to me and to my sister? Do we just ignore it since we never got a 1099 from CA? I was the executor of the estate and also trustee of the trust.
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A:
As the executor of your father's estate and the trustee of the trust, it is your responsibility to ensure that the unclaimed property from the IRA is properly reported and taxed. Here's what you should consider:
1. Inherited IRA distributions are taxable: Generally, funds received from an inherited IRA are taxable income to the beneficiary in the year they are distributed.
2. Estate tax return: If your father's estate was required to file an estate tax return (Form 706), the IRA should have been included in the estate's value. If the estate was settled 8 years ago, this step may have already been completed.
3. Income tax reporting: As the beneficiary, you and your sister are responsible for reporting the IRA distribution on your individual income tax returns. Each of you should report your respective share (50%) of the distribution as income.
4. 1099 form: Typically, the IRA custodian issues a 1099-R form reporting the distribution. However, if the IRA was unclaimed property and held by the state, the state may not issue a 1099. In this case, you should still report the income based on the information you have about the distribution.
5. Late reporting and penalties: If the distribution was not reported on your tax return for the year it was received, you may need to file an amended return (Form 1040X) and pay any additional taxes owed. Penalties and interest may apply for late payment of taxes.
Given the complexity of your situation and the potential for late reporting and penalties, it is highly recommended that you consult with a tax professional, such as a CPA or tax attorney, to ensure proper reporting and compliance with tax laws. They can help you determine the best course of action based on your specific circumstances.
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