So… This story is, like, five hours old.
sucks in air Ok. Wow.
So… Estate return. That’s an 1041 for those in the know. This guy, I’ll call him Adam, died in 2022. Adam had a trust from 2012. Adam had a company, a partnership, with his close blood relative and partner who we’ll call bob. Adam sold his house, and his company to bob in an installment agreement in 2020 and puts that installment agreement in the trust.
The installment agreement contains provisions for Bob to buy machinery, equipment, and the house for certain amounts of money, and for bob to also pay some of Adam’s medical debt as part of the price.
They had intended the installment agreement to have no profit and no loss and not to go on their taxes, but by including the medical debt the installment agreement has taxes. What’s worse, all installment agreements have interest, and if yours doesn’t, it has ‘imputed’ interest, which is nasty. If there is imputed interest, Bob needs to have been paying taxes on it.
Now it gets more complicated. Adam dies, and his remaining medical debt is canceled. Instead of Bob just… paying the remaining money from the debt to Adam’s estate, the executor decides to cancel that portion of Bob’s debt to Adam. Now we need to issue a 1099-C cancelation of debt income, and maybe take a bad debt deduction… but under these circumstances I don’t think we can actually take a bad debt deduction, because I don’t think this technically counts as a bad debt, which means that somehow both Bob and Adam’s beneficiaries are going to have to pay taxes on the money… it’s going to get double taxed.
And one of Adam’s beneficiaries is a church, who receives an equal share with everyone else according to the will.
If you’re getting lost, don’t worry, I am too. So, the problem is that I’m the ‘best’ in the office… the top of the trash heap, if it were.
I call around to a few other offices, and a few other people who are more skilled than me, and none of them want to touch it with a 10 foot pole.
but, from the terms in the trust documents, and the terms in the installment sale it’s looking like we’re going need to redo Adam and Bob’s 2021 and 2020 taxes.
Annnd I’m just screaming into the fucking void.