I am the personal representative for my father's estate.  He died last
year in August and I'm preparing to file his final tax return, however
I'm not clear on how to handle the estate's earnings.  For instance,
the estate earned interest on its checking account while I was paying
bills with the money.  How do I file to pay taxes on that?  Does it go
under my father's final tax return or do I need to file a tax return
for the estate?  The estate at the time of death was valued at less
than $50,000, so as far as I can tell from the IRS website, I don't
need to file an estate return.  Also, my father was 1 of 2
beneficiaries of my grandmother's estate (she died in 2000), and one
of her accounts still hadn't been paid out, so I filed the necessary
paperwork and the payment was made to my father's estate.  So the same
question applies, how do I pay taxes on that?  Please keep in mind
that I'm not a professional that represents estates on a normal basis,
I was simply appointed by the court because my father had no will.

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Clarification of Question by fusconed-ga on 10 Mar 2003 14:44 PST

I received a 1099 for the payment to my father's estate from my
grandmother's estate.  It has the estate's EIN number instead of a
social security number.

Dear Fusconed-ga,

My sympathies for your loss. It's never easy to lose a father.

And now you're stuck with the paperwork. 

Well, it's not quite as bad as you think.

While there are two returns you'll need to prepare, they're
not all that complicated at this level of income - depending
on the sources of his income and expenses. 

I would have a tax professional check over your work before
you file the returns - especially if there are any heirs 
looking over your shoulder. 

1) You'll need to file a regular Form 1040 for your dad covering
the time he was alive - January 1st to August.

Include all the income that came in during that time. 
If you can afford not to itemize, don't. Save as much
of the expenses as possible for the estate return. 

2) Yes, you'll need to file a Form 1041 for the time from the
date of death to 12/31/02.
http://www.irs.gov/pub/irs-pdf/f1041.pdf

See the boxes at the top left? Mark the one that say ‘decedent.'

Instructions are at
http://www.irs.gov/pub/irs-pdf/i1041.pdf

Report all the income that came in. 
Take full advantage of all possible deductions. Read the instructions 
to see what's allowed. And sorry, no, funeral expenses are not a 
deduction to this kind of estate. But court costs are. 

When you get down to the profit, split it among the heirs determined
by the court. Take that split and report each person's share on a
Schedule K-1. If you're the only heir, there will only be one K-1. 
http://www.irs.gov/pub/irs-pdf/f1041sk1.pdf

Each heir will report the income on their own personal tax return. 
Yes, even if you/they didn't get the money until this year. Since it 
arrived in 2002, that's when it belongs on their/your return.   
 
If you need anything clarified, please, don't hesitate to ask. 

Best wishes, 

Your TaxMama-ga

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Clarification of Answer by taxmama-ga on 10 Mar 2003 21:48 PST

Oh yes, the 1099 from your grandmother's estate. 
Keith, below, is right. Depending on what it was for, 
it may not even be taxable income. For instance, if 
it was for the sale of her home - there is probably 
no taxable event. 

So, you might want to have someone look at the 1099 to
help you determine if it's taxable. 

Since it has the estate's tax ID number, and it came
to your father after his death, you may want to include
it in the estate, if the income is taxable. 

Best wishes,

Your TaxMama-ga

You should be consulting with a CPA or a tax accountant who has
experience in handling estates, and they can easily answer your
questions.  Many of them even have software and can plug in the
numbers for the situation you have and come up with an answer in a
very small amount of time.

SINCERELY
4keith-ga

Please mention which federal tax form you are using.  Unless you
received a form 1099 that specifically mentions the interest amount,
you may not necessarily have to pay income taxes on that.  The
instruction booklet for the form you are using may cover this topic. 
Nearly all of the forms have a line that interest can be reported on.

SINCERELY,
4keith-ga