Discussion:Question regarding deductibility of interest and penalties for estate tax and fiduciary income tax purposes
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Discussion Forum Index --> Tax Questions --> Question regarding deductibility of interest and penalties for estate tax and fiduciary income tax purposes
| 12 May 2008 | |
| Hello. I have two questions that relate to the deductibility of interest and penalties.
By way of background, the decedent died on 9/6/07. It has recently come to my attention that the decedent did not report a large taxable gift/file a gift tax return for the 1993 calendar, which we will be filing this week (5/21/08). The decedent's estate owes a considerable amount of interest (and possibly penalties) as a result of this late filing. My two questions are as follows: (1) with respect to the interest calculation for estate tax purposes, it is my understanding that the estate can only deduct interest thru the decedent's date of death (9/6/07). IS THE POST-DEATH INTEREST FROM THE GIFT TAX DEDUCTIBLE FOR INCOME TAX PURPOSES ON THE ESTATE'S FIDUCIARY INCOME TAX RETURN?? (2) IF PENALTIES ARE IMPOSED FOR THE LATE FILING OF THE GIFT TAX RETURN, IS THE PENALTY THAT IS LEVIED THRU DATE OF DEATH (9/6/07) A DEDUCTION FOR ESTATE TAX PURPOSES (A DEDUCTIBLE DEBT OF THE ESTATE)? Clearly, it is an obligation of the decedent's estate. | |
| 13 May 2008 | |
| The interest will not be deductible on Form 1041. See Internal Revenue Code § 163(h).
Penalties accrued through the date of death can be deducted on Sch. K of Form 706. | |
| 13 May 2008 | |
| Concur. Reg. 25.2502-2 After death interest is classified as personal. Penalties would have maxed out long before. The gift tax is deductible too, but I assume you know that. ♫ | |
