Ark. Code R. 26-51-102 - 3 (1997) - Estate Taxability

Estate Tax Extension -- AY321E

Estate Tax Return -- AY321

Fiduciary Return -- AR1002

Estate income is normally taxed to the estateitself if retained by the estate, or to the distributee, if distributed. Thus, if the fiduciary (that is, executor or administrator) passes on income to the distributee, the estate deducts the distributed income which then becomes taxable to the distributee. What would be gross income in the hands of an individual is gross income when received by an estate -- dividends, interest, rents, royalties, capital gains, ordinary gains, etc. IRC Reg. 1.641(a)-2. Gross income includes income accumulated or held for future distribution under the terms of a will or trust, income that is currently distributable, income received by a deceased's estate during administration or settlement, and income that, in the fiduciary's discretion, may be either accumulated or distributed. IRC Sec. 641(a). Deductions and credits allowed to estates are basically those allowed to individuals. An estate's status as a separate taxpayer exists only during the period of administration and settlement of the estate. IRC Sec. 641(a)(3). This period starts with the deceased's death and generally extends for the entire time actually required to perform the ordinary duties of administration, such as collecting assets and paying legacies and debts. If estate administration is unduly prolonged, the IRS considers the estate terminated for tax purposes after expiration of a reasonable period (considering the estate's assets) for performance by the executor of all the duties of administration. IRC Reg. 1.641(b)-3(a).