Dear Tax Talk,
My father was a beneficiary of the Black Farmers Settlement, and the $50,000 was paid to his estate. The IRS kept $12,500 for federal taxes. My father did not pay taxes, as he was a farmer with little income, received a small amount of Social Security and because he was blind, received exemptions on taxes. Bottom line, he paid no federal income taxes.
Can we request a refund from the IRS of $12,500? I am aware that each of us who receives the money from the estate must pay federal and state income taxes, but should we request the refund the IRS kept? If yes, how do we go about requesting the refund?
Your father’s estate will report the Black Farmers Settlement proceeds received on line 8 of Form 1041, U.S. Income Tax Return for Estates and Trusts, as other income, and the taxes withheld on Line 24e. Additionally, if all income is distributed to the beneficiaries, there will also be an entry on line 18 of Form 1040 that should result in a refund to the estate.
The Black Farmers Settlement is the result of two class-action lawsuits filed on behalf of African-American farmers against the U.S. Department of Agriculture. The settlement proceeds received by your father’s estate are taxable and considered to be “income in respect of a decedent” and are required to be reported on the estate’s tax return.
Form 1041 can seem complicated if you are not familiar with the forms required, so you and your family may wish to consider having a tax professional assist you with the preparation of the return to make sure everything is done correctly. Alternatively, you can also go to your local IRS office and request assistance.
Thanks for the great question and all the best to you and your family.
Ask the adviser
To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.