When does a trust file?

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FBN2014
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When does a trust file?

Post by FBN2014 » Mon Mar 12, 2018 8:28 am

I'm confused by the 1041 instructions which state that:

"The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has: 1. Any taxable income for the tax year, 2. Gross income of $600 or more (regardless of taxable income), or 3. A beneficiary who is a nonresident alien."

So if a trust only has interest income under $600 that was distributed to the beneficiary, does a 1041 need to be filed?
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

Gill
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Re: When does a trust file?

Post by Gill » Mon Mar 12, 2018 9:16 am

Not required to file, but I would file one in order to have the K-1 for the beneficiary.
Gill

ChrisC
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Re: When does a trust file?

Post by ChrisC » Mon Mar 12, 2018 2:55 pm

FBN2014 wrote:
Mon Mar 12, 2018 8:28 am
I'm confused by the 1041 instructions which state that:

"The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has: 1. Any taxable income for the tax year, 2. Gross income of $600 or more (regardless of taxable income), or 3. A beneficiary who is a nonresident alien."

So if a trust only has interest income under $600 that was distributed to the beneficiary, does a 1041 need to be filed?
Seems like "any taxable income for the tax year" covers the fact that your trust had "interest income" and thus you would need to file a 1041 return, which would be accompanied by a K-1 to the beneficiary, who would, in turn, report that as income on his or her 1040 return. I hardly consider myself well versed in this area, as this is my first year dealing with Trust & Estate Income Taxes, Estate Taxes and filing a 1040 for a deceased grantor of an irrevocable trust. But my situation is roughly the opposite of yours: (1) no taxable income but (2) gross income above $600, and (3) a one time, specified distributions of principal to beneficiaries. Nonetheless, we sent out K-1s to the beneficiaries though they have no income to report.

FBN2014
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Re: When does a trust file?

Post by FBN2014 » Mon Mar 12, 2018 4:01 pm

ChrisC wrote:
Mon Mar 12, 2018 2:55 pm
FBN2014 wrote:
Mon Mar 12, 2018 8:28 am
I'm confused by the 1041 instructions which state that:

"The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has: 1. Any taxable income for the tax year, 2. Gross income of $600 or more (regardless of taxable income), or 3. A beneficiary who is a nonresident alien."

So if a trust only has interest income under $600 that was distributed to the beneficiary, does a 1041 need to be filed?
Seems like "any taxable income for the tax year" covers the fact that your trust had "interest income" and thus you would need to file a 1041 return, which would be accompanied by a K-1 to the beneficiary, who would, in turn, report that as income on his or her 1040 return. I hardly consider myself well versed in this area, as this is my first year dealing with Trust & Estate Income Taxes, Estate Taxes and filing a 1040 for a deceased grantor of an irrevocable trust. But my situation is roughly the opposite of yours: (1) no taxable income but (2) gross income above $600, and (3) a one time, specified distributions of principal to beneficiaries. Nonetheless, we sent out K-1s to the beneficiaries though they have no income to report.
Two different opinions although Gill I believe was a trust officer. IRS as usual makes the simple confusing by the way they word things.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

Katietsu
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Re: When does a trust file?

Post by Katietsu » Mon Mar 12, 2018 4:08 pm

Without looking up the reference, I believe “Taxable Income” here refers to to a positive non zero number on the 1041 line 22. This is not the same as just having a couple of hundred dollars of interest.

ChrisC
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Re: When does a trust file?

Post by ChrisC » Mon Mar 12, 2018 4:25 pm

Katietsu wrote:
Mon Mar 12, 2018 4:08 pm
Without looking up the reference, I believe “Taxable Income” here refers to to a positive non zero number on the 1041 line 22. This is not the same as just having a couple of hundred dollars of interest.
Yes, you might be correct; I assumed the OP didn't have deductions from lines 11 - 21, as he was just trying to figure out to file and distributed to a beneficiary. Well did you OP?

FBN2014
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Re: When does a trust file?

Post by FBN2014 » Mon Mar 12, 2018 5:13 pm

ChrisC wrote:
Mon Mar 12, 2018 4:25 pm
Katietsu wrote:
Mon Mar 12, 2018 4:08 pm
Without looking up the reference, I believe “Taxable Income” here refers to to a positive non zero number on the 1041 line 22. This is not the same as just having a couple of hundred dollars of interest.
Yes, you might be correct; I assumed the OP didn't have deductions from lines 11 - 21, as he was just trying to figure out to file and distributed to a beneficiary. Well did you OP?
Your correct, no deductions. So from ChrisC's post, anything over the exemption amount would require a return to be filed since that would make taxable income greater than zero.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

MarkNYC
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Re: When does a trust file?

Post by MarkNYC » Mon Mar 12, 2018 5:42 pm

FBN2014 wrote:
Mon Mar 12, 2018 5:13 pm
ChrisC wrote:
Mon Mar 12, 2018 4:25 pm
Katietsu wrote:
Mon Mar 12, 2018 4:08 pm
Without looking up the reference, I believe “Taxable Income” here refers to to a positive non zero number on the 1041 line 22. This is not the same as just having a couple of hundred dollars of interest.
Yes, you might be correct; I assumed the OP didn't have deductions from lines 11 - 21, as he was just trying to figure out to file and distributed to a beneficiary. Well did you OP?
Your correct, no deductions. So from ChrisC's post, anything over the exemption amount would require a return to be filed since that would make taxable income greater than zero.
Not so. In your example where there is interest income of less than $600 which is fully distributed to the beneficiary, there is a deduction on line 18, called an Income Distribution Deduction, which reduces taxable income to zero before the exemption.

I think this is somewhat of a flaw in the IRS filing requirements, because if the beneficiary receives a distribution of $500 (representing all the trust income) and no trust return is filed, there is no K-1 issued to the beneficiary indicating how much, if any, of the distribution received is taxable, nor the nature of the taxable income - ordinary vs qualified dividends. I suppose the trustee could send the beneficiary a letter or email explaining the $500 distribution in lieu of a K-1. Just seems a bit awkward.

Gill
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Re: When does a trust file?

Post by Gill » Mon Mar 12, 2018 5:48 pm

Mark, what’s your reaction to my idea of filing a return in order to generate a K-1?
Gill

MarkNYC
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Re: When does a trust file?

Post by MarkNYC » Mon Mar 12, 2018 6:45 pm

Gill wrote:
Mon Mar 12, 2018 5:48 pm
Mark, what’s your reaction to my idea of filing a return in order to generate a K-1?
Gill
Gill,
I think your suggestion makes sense, because it would be very helpful to the beneficiary.

Perhaps the "under $600" part of the filing requirements is analogous to the 1099-MISC filing requirement, where the filing is not required when income is under $600. Maybe the IRS is willing to tolerate spotty reporting of minimal income in return for not having to process the additional forms and tax returns.

FBN2014
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Re: When does a trust file?

Post by FBN2014 » Mon Mar 12, 2018 7:56 pm

An EA responded on another forum that it is wise to file any way whether there is a distribution or not of such a small amount. The reasoning being that it starts the 3 year audit window by the IRS for the trust. After the 3 years the IRS has to accept the return. Makes sense.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain

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