Department of the Treasury

2010

Internal Revenue Service

Instructions for Form 1041

and Schedules A, B, G, J,

and K-1

U.S. Income Tax Return for Estates and Trusts

Section references are to the Internal Contents Page payment is made by check or money

Revenue Code unless otherwise noted. Income .................. ... .17 order.

Contents Page Deductions ............... ... .18 • If an amended return is filed for an

What’s New NOL carryback, write “NOL Carryback” ............... .... .1 Tax and Payments ......... ... .23 at the top of the page. See Amended Reminder ................ .... .1 Schedule A—Charitable Return on page 16 for complete Photographs of Missing Deduction .............. ... .24 information. Children ................ .... .1 Schedule B—Income

Unresolved Tax Issues

How To Get Forms and

...... .... .1 Distribution Deduction ..... ... .25 Reminder Schedule G—Tax Publications ............. .... .2 • Review a copy of the trust instrument Computation ............ ... .27 General Instructions (including any amendments) or the will, ....... .... .2 Other Information .......... ... .29 Purpose of Form if any, before preparing an estate’s or ........... .... .2 Schedule J (Form 1041)— trust’s return. Income Taxation of Trusts and Accumulation Distribution for Decedents’ Estates ....... .... .2

Abusive Trust Arrangements . . .... .2 Certain Complex Trusts .... ... .29 Photographs of Missing

Definitions ................ .... .3 Schedule K-1 (Form 1041)—

Beneficiary’s Share of Children Who Must File ............. .... .3 Income, Deductions, Credits, The Internal Revenue Service is a Electronic Filing ............ .... .6

When To File etc. ................... ... .31 proud partner with the National Center ............. .... .7 for Missing and Exploited Children. Period Covered Index ................... ... .36 ............ .... .7 Photographs of missing children Where To File ............. .... .7 selected by the Center may appear in Who Must Sign ............ .... .7 What’s New instructions on pages that would Accounting Methods ........ .... .8 • For tax years beginning in 2010, the otherwise be blank. You can help bring Accounting Periods ......... .... .8 requirement to file a return for a these children home by looking at the Rounding Off to Whole Dollars .... .8 bankruptcy estate applies only if gross photographs and calling Estimated Tax ............. .... .8 income is at least $9,350. 1-800-THE-LOST (1-800-843-5678) if

Interest and Penalties ....... .... .9 • For 2010, qualified disability trusts you recognize a child.

Other Forms That May Be can claim an exemption of up to

Required ............... .... .9 $3,650. The exemption is no longer Unresolved Tax Issues

Additional Information ....... ... .11 phased out. If you have attempted to deal with an Assembly and Attachments ... ... .11 • The election to deduct state and local IRS problem unsuccessfully, you Special Reporting sales taxes instead of state and local should contact the Taxpayer Advocate. Instructions ............ ... .11 income taxes has been extended The Taxpayer Advocate independently Grantor Type Trusts ....... ... .11 through tax year 2011 by Public Law represents the estate’s or trust’s Pooled Income Funds (P.L.) 111-312, Act section 722. ..... ... .12 interests and concerns within the IRS

Electing Small Business • P.L. 111-312, Act section 301 by protecting its rights and resolving

Trusts ................ ... .12 repealed the modified carryover basis problems that have not been fixed

Bankruptcy Estates. ....... ... .13 rules for property acquired from a through normal channels. decedent who died in 2010 unless the Specific Instructions ....... ... .15 While Taxpayer Advocates cannot executor of such decedent’s estate Name of Estate or Trust ...... ... .15 makes the special election under Act change the tax law or make a technical Name and Title of Fiduciary ... ... .15 tax decision, they can clear up section 301(c). If the Act section 301(c) Address ................. ... .15 problems that resulted from previous election is not made, the basis rules of A. Type of Entity ........... ... .15 contacts and ensure that the estate’s or section 1014 apply (generally, FMV at B. Number of Schedules K-1 trust’s case is given a complete and the date of death). See Pub. 4895, Tax Attached ............... ... .16 impartial review. Treatment of Property Acquired From a C. Employer Identification Decedent Dying in 2010, for more The estate’s or trust’s assigned Number ................ ... .16 information. personal advocate will listen to its point D. Date Entity Created ....... ... .16 • New for 2010 is Form 1041-V, of view and will work with the estate or

E. Nonexempt Charitable and Payment Voucher. The form is used to trust to address its concerns. The

Split-Interest Trusts ....... ... .16 include information about your estate or trust can expect the advocate

F. Initial Return, Amended remittance of the balance due on Form to provide:

Return, etc. ............. ... .16 1041. Use of Form 1041-V is optional • An impartial and independent look at

G. Section 645 Election ...... ... .17 but we encourage you to use it if your your problem,

Cat. No. 11372D
• Timely acknowledgment, • Tax Topics from the IRS telephone is allowed an income distribution

• The name and phone number of the response system. deduction for distributions to

individual assigned to its case, • Internal Revenue Code - Title 26 of beneficiaries. To figure this deduction,

• Updates on progress, the U.S. Code. the fiduciary must complete Schedule

• Timeframes for action, • Fill-in, print, and save features for B. The income distribution deduction

• Speedy resolution, and most tax forms. determines the amount of any

• Courteous service. • Internal Revenue Bulletins. distributions taxed to the beneficiaries.

• Toll-free and email technical support. When contacting the Taxpayer For this reason, a trust or decedent’s

Advocate, you should provide the The DVD is released twice during estate sometimes is referred to as a

the year. The first release will ship the “passthrough” entity. The beneficiary, following information: beginning of January 2011. The final and not the trust or decedent’s estate, • The estate’s or trust’s name, release will ship the beginning of March pays income tax on his or her address, and employer identification 2011. distributive share of income. Schedule number (EIN). K-1 (Form 1041) is used to notify the • The name and telephone number of Purchase the DVD from National beneficiaries of the amounts to be an authorized contact person and the Technical Information Service at included on their income tax returns. hours he or she can be reached. www.irs.gov/cdorders for $30 (no • The type of tax return and year(s) handling fee) or call 1-877-233-6767 toll Before preparing Form 1041, the

involved. free to buy the DVD for $30 (plus a $6 fiduciary must figure the accounting • A detailed description of the problem. handling fee). income of the estate or trust under the • Previous attempts to solve the will or trust instrument and applicable By phone and in person. You can problem and the office that had been local law to determine the amount, if order forms and publications by calling contacted. any, of income that is required to be 1-800-TAX-FORM (1-800-829-3676). • A description of the hardship the distributed, because the income You can also get most forms and estate or trust is facing and supporting distribution deduction is based, in part, publications at your local IRS office. documentation (if applicable). on that amount.

You can contact a Taxpayer Abusive Trust Advocate as follows: General Instructions • Call the Taxpayer Advocate’s toll-free Arrangements number: 1-877-777-4778. Purpose of Form Certain trust arrangements purport to • Call, write, or fax the Taxpayer reduce or eliminate federal taxes in Advocate office in its area (see Pub. The fiduciary of a domestic decedent’s ways that are not permitted under the 1546, Taxpayer Advocate Service, Your estate, trust, or bankruptcy estate uses law. Abusive trust arrangements Voice At The IRS, for addresses and Form 1041 to report: typically are promoted by the promise phone numbers). • The income, deductions, gains, of tax benefits with no meaningful • TTY/TDD help is available by calling losses, etc. of the estate or trust; change in the taxpayer’s control over or 1-800-829-4059. • The income that is either benefit from the taxpayer’s income or • Visit the website at www.irs.gov/ accumulated or held for future assets. The promised benefits may advocate. distribution or distributed currently to include reduction or elimination of the beneficiaries; income subject to tax; deductions for How To Get Forms and • Any income tax liability of the estate personal expenses paid by the trust; or trust; and depreciation deductions of an owner’s Publications • Employment taxes on wages paid to personal residence and furnishings; a household employees. Internet. You can access the IRS stepped-up basis for property

website 24 hours a day, 7 days a week transferred to the trust; the reduction or Income Taxation of at IRS.gov to: elimination of self-employment taxes;

• Download forms, instructions, and Trusts and Decedents’ and the reduction or elimination of gift

publications; and estate taxes. These promised

• Order IRS products online; Estates benefits are inconsistent with the tax

• Research your tax questions online; A trust or a decedent’s estate is a rules applicable to trust arrangements.

• Search publications online by topic or separate legal entity for federal tax Abusive trust arrangements often keyword; purposes. A decedent’s estate comes use trusts to hide the true ownership of • Use the online Internal Revenue into existence at the time of death of an assets and income or to disguise the Code, Regulations, or other official individual. A trust may be created substance of transactions. These

guidance; during an individual’s life (inter vivos) arrangements frequently involve more • View Internal Revenue Bulletins or at the time of his or her death under than one trust, each holding different (IRBs) published in the last few years; a will (testamentary). If the trust assets of the taxpayer (for example, the and instrument contains certain provisions, taxpayer’s business, business • Sign up to receive local and national then the person creating the trust (the equipment, home, automobile, etc.). tax news by email. grantor) is treated as the owner of the Some trusts may hold interests in other

DVD for tax products. trust’s assets. Such a trust is a grantor trusts, purport to involve charities, or You can order

Pub. 1796, IRS Tax Products DVD, and type trust. See page 11 for special rules are foreign trusts. Funds may flow from

for grantor trusts. one trust to another trust by way of obtain: rental agreements, fees for services, • Current-year forms, instructions, and A trust or decedent’s estate figures purchase agreements, and publications. its gross income in much the same distributions. • Prior-year forms, instructions, and manner as an individual. Most

publications. deductions and credits allowed to Some of the abusive trust

• Tax Map: an electronic research tool individuals are also allowed to estates arrangements that have been identified

and finding aid. and trusts. However, there is one major include unincorporated business trusts

• Tax Law frequently asked questions. distinction. A trust or decedent’s estate (or organizations), equipment or service

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trusts, family residence trusts, Income, deductions, and credits in Income required to be distributed

charitable trusts, and final trusts. In respect of a decedent. currently. Income required to be

each of these trusts, the original owner distributed currently is income that is Income. When completing Form of the assets nominally subject to the required under the terms of the 1041, you must take into account any trust effectively retains the authority to governing instrument and applicable items that are income in respect of a cause financial benefits of the trust to local law to be distributed in the year it decedent (IRD). be directly or indirectly returned or is received. The fiduciary must be

made available to the owner. For In general, IRD is income that a under a duty to distribute the income

example, the trustee may be the decedent was entitled to receive but currently, even if the actual distribution

promoter, a relative, or a friend of the that was not properly includible in the is not made until after the close of the

owner who simply carries out the decedent’s final income tax return trust’s tax year. See Regulations

directions of the owner whether or not under the decedent’s method of section 1.651(a)-2.

permitted by the terms of the trust. accounting. Fiduciary. A fiduciary is a trustee of a

When trusts are used for legitimate trust, or an executor, executrix, IRD includes: administrator, administratrix, personal business, family, or estate planning • All accrued income of a decedent representative, or person in possession purposes, either the trust, the who reported his or her income on the of property of a decedent’s estate. beneficiary, or the transferor to the trust cash method of accounting, will pay the tax on income generated by Note. Any reference in these • Income accrued solely because of the trust property. Trusts cannot be instructions to “you” means the fiduciary the decedent’s death in the case of a used to transform a taxpayer’s of the estate or trust. decedent who reported his or her personal, living, or educational income on the accrual method of Trust. A trust is an arrangement expenses into deductible items, and accounting, and created either by a will or by an inter

cannot seek to avoid tax liability by • Income to which the decedent had a vivos declaration by which trustees take ignoring either the true ownership of contingent claim at the time of his or title to property for the purpose of income and assets or the true her death. protecting or conserving it for the substance of transactions. Therefore, beneficiaries under the ordinary rules the tax results promised by the Some examples of IRD for a applied in chancery or probate courts. promoters of abusive trust decedent who kept his or her books on Revocable living trust. A revocable arrangements are not allowable under the cash method are: living trust is an arrangement created the law, and the participants in and • Deferred salary payments that are by a written agreement or declaration promoters of these arrangements may payable to the decedent’s estate, during the life of an individual and can be subject to civil or criminal penalties • Uncollected interest on U.S. savings be changed or ended at any time in appropriate cases. bonds, during the individual’s life. A revocable • Proceeds from the completed sale of For more details, including the legal living trust is generally created to farm produce, and principles that control the proper tax manage and distribute property. Many • The portion of a lump-sum treatment of these abusive trust people use this type of trust instead of distribution to the beneficiary of a arrangements, see Notice 97-24, (or in addition to) a will. decedent’s IRA that equals the balance 1997-1 C.B. 409. in the IRA at the time of the owner’s Because this type of trust is

For additional information about death. This includes unrealized revocable, it is treated as a grantor type

abusive tax arrangements, visit the IRS appreciation and income accrued to trust for tax purposes. See Grantor

website at IRS.gov and type in the that date, less the aggregate amount of Type Trusts later for special filing

keyword “Scams” in the search box. the owner’s nondeductible contributions instructions that apply to grantor type

trusts. to the IRA. Such amounts are included

Definitions in the beneficiary’s gross income in the Be sure to read Optional Filing tax year that the distribution is received. Methods for Certain Grantor Beneficiary. A beneficiary includes an Type Trusts. Generally, most

TIP

The IRD has the same character it heir, a legatee, or a devisee. would have had if the decedent had people that have revocable living trusts

Decedent’s estate. The decedent’s will be able to use Optional Method 1. lived and received such amount.

estate is an entity that is formed at the This method is the easiest and least

time of an individual’s death and Deductions and credits. The burdensome way to meet your

generally is charged with gathering the following deductions and credits, when obligations.

decedent’s assets, paying the paid by the decedent’s estate, are

decedent’s debts and expenses, and allowed on Form 1041 even though Who Must File

distributing the remaining assets. they were not allowable on the

Generally, the estate consists of all the decedent’s final income tax return. Decedent’s Estate

property, real or personal, tangible or • Business expenses deductible under The fiduciary (or one of the joint section 162. intangible, wherever situated, that the fiduciaries) must file Form 1041 for a decedent owned an interest in at death. • Interest deductible under section domestic estate that has: 163. Distributable net income (DNI). The • Taxes deductible under section 164. 1. Gross income for the tax year of income distribution deduction allowable • Investment expenses described in $600 or more, or to estates and trusts for amounts paid, section 212 (in excess of 2% of 2. A beneficiary who is a credited, or required to be distributed to adjusted gross income (AGI)). nonresident alien.

beneficiaries is limited to DNI. This • Percentage depletion allowed under amount, which is figured on Schedule An estate is a domestic estate if it is section 611. B, line 7, is also used to determine how not a foreign estate. A foreign estate is • Foreign tax credit. much of an amount paid, credited, or one the income of which is from

required to be distributed to a For more information, see section sources outside the United States that

beneficiary will be includible in his or 691 or IRD in Pub. 559, Survivors, is not effectively connected with the

her gross income. Executors, and Administrators. conduct of a U.S. trade or business and

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is not includible in gross income. If you Instructions. See Grantor Type Trust on Taxpayer identification number (TIN).

are the fiduciary of a foreign estate, file page 15 for more details on what All QRTs must obtain a new TIN

Form 1040NR, U.S. Nonresident Alien makes a trust a grantor type trust. following the death of the decedent

Income Tax Return, instead of Form Qualified subchapter S trusts whether or not a section 645 election is

1041. made. (Use Form W-9, Request for (QSSTs). QSSTs must follow the Taxpayer Identification Number and special reporting requirements for these Trust Certification, to notify payers of the new trusts discussed on page 11. The fiduciary (or one of the joint TIN.)

fiduciaries) must file Form 1041 for a Special Rule for Certain An electing trust that continues after domestic trust taxable under section Revocable Trusts the termination of the election period 641 that has: Section 645 provides that if both the does not need to obtain a new TIN

1. Any taxable income for the tax executor (if any) of an estate (the following the termination unless:

year, related estate) and the trustee of a • An executor was appointed and

2. Gross income of $600 or more qualified revocable trust (QRT) elect the agreed to the election after the electing

(regardless of taxable income), or trust made a valid section 645 election, treatment in section 645, the trust must

3. A beneficiary who is a be treated and taxed as part of the and the electing trust had filed a return

nonresident alien. as an estate under the trust’s TIN, or related estate during the election

period. This election may be made by a • No executor was appointed and the Two or more trusts are treated as QRT even if no executor is appointed QRT was the filing trust (as explained one trust if such trusts have later). for the related estate. substantially the same grantor(s) and A related estate that continues after substantially the same primary In general, Form 8855, Election To the termination of the election period beneficiary(ies) and a principal purpose Treat a Qualified Revocable Trust as does not need to obtain a new TIN. of such trusts is avoidance of tax. This Part of an Estate, must be filed by the

due date for Form 1041 for the first tax For more information about TINs, provision applies only to that portion of year of the related estate. This applies including trusts with multiple owners, the trust that is attributable to

even if the combined related estate and see Regulations sections 1.645-1 and contributions to corpus made after

March 1, 1984. electing trust do not have sufficient 301.6109-1(a).

income to be required to file Form General procedures for completing A trust is a domestic trust if: 1041. However, if the estate is granted Form 1041 during the election • A U.S. court is able to exercise an extension of time to file Form 1041 period. primary supervision over the for its first tax year, the due date for administration of the trust (court test), If there is an executor. The

Form 8855 is the extended due date. and following rules apply to filing Form 1041

• One or more U.S. persons have the Once made, the election is while the election is in effect.

authority to control all substantial irrevocable. • The executor of the related estate is

decisions of the trust (control test). responsible for filing Form 1041 for the Qualified revocable trusts. In estate and all electing trusts. The return See Regulations section 301.7701-7 general, a QRT is any trust (or part of a is filed under the name and TIN of the for more information on the court and trust) that, on the day the decedent related estate. Be sure to check the control tests. died, was treated as owned by the Decedent’s estate box at the top of Also treated as a domestic trust is a decedent because the decedent held Form 1041. The executor continues to trust (other than a trust treated as the power to revoke the trust as file Form 1041 during the election wholly owned by the grantor) that: described in section 676. An electing period even if the estate distributes all • Was in existence on August 20, trust is a QRT for which a section 645 of its assets before the end of the

1996, election has been made. election period. • Was treated as a domestic trust on Election period. The election period • The Form 1041 includes all items of

August 19, 1996, and is the period of time during which an income, deduction, and credit for the • Elected to continue to be treated as a electing trust is treated as part of its estate and all electing trusts. domestic trust. related estate. • The executor must attach a

A trust that is not a domestic trust is The election period begins on the statement to Form 1041 providing the

treated as a foreign trust. If you are the date of the decedent’s death and following information for each electing

trustee of a foreign trust, file Form trust: (a) the name of the electing trust, terminates on the earlier of:

1040NR instead of Form 1041. Also, a • The day on which the electing trust (b) the TIN of the electing trust, and (c)

foreign trust with a U.S. owner and related estate, if any, distribute all the name and address of the trustee of

generally must file Form 3520-A, of their assets, or the electing trust.

Annual Information Return of Foreign • The day before the applicable date. • The related estate and the electing

Trust With a U.S. Owner. To determine the applicable date, first trust are treated as separate shares for

If a domestic trust becomes a foreign determine whether a Form 706, United purposes of computing DNI and

applying distribution provisions. Also, trust, it is treated under section 684 as States Estate (and Generation-Skipping

having transferred all of its assets to a Transfer) Tax Return, is required to be each of those shares can contain two

foreign trust, except to the extent a filed as a result of the decedent’s or more separate shares. For more

grantor or another person is treated as death. If no Form 706 is required to be information, see Separate share rule on

the owner of the trust when the trust filed, the applicable date is 2 years after page 25 and Regulations section

becomes a foreign trust. 1.645-1(e)(2)(iii). the date of the decedent’s death. If

Form 706 is required, the applicable • The executor is responsible for

Grantor Type Trusts date is the later of 2 years after the insuring that the estate’s share of the

combined tax obligation is paid. If all or any portion of a trust is a date of the decedent’s death or 6

grantor type trust, then that trust or months after the final determination of For additional information, including

portion of a trust must follow the special liability for estate tax. For additional treatment of transfers between shares

reporting requirements discussed on information, see Regulations section and charitable contribution deductions,

page 11, under Special Reporting 1.645-1(f). see Regulations section 1.645-1(e).

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 If there is no executor. If no (b) the income, deductions, and credits final return. Do not report any items of

executor has been appointed for the for the electing trust for the period that income, deduction, or credit.

related estate, the trustee of the ends with the last day of the election • If the trust will continue after the

electing trust files Form 1041 as if it period. If the estate will not continue close of the election period, the trustee

was an estate. File using the TIN that after the close of the tax year, indicate must file a Form 1041 for the trust for

the QRT obtained after the death of the that this Form 1041 is a final return. the tax year beginning the day after the

decedent. The trustee can choose a close of the election period and, in At the end of the last day of the fiscal year as the trust’s tax year during general, ending December 31 of that election period, the combined entity is the election period. Be sure to check year. Use the TIN obtained after the deemed to distribute the share the Decedent’s estate box at the top of decedent’s death. Follow the general comprising the electing trust to a new page 1 during the election period. The rules for completing the return. trust. All items of income, including net electing trust is entitled to a single $600 capital gains, that are attributable to the Special filing instructions. personal exemption on returns filed for share comprising the electing trust are When the election is not made by the election period. included in the calculation of DNI of the the due date of the QRT’s Form 1041.

If there is more than one electing electing trust and treated as distributed. If the section 645 election has not been

trust, the trusts must appoint one The distribution rules of sections 661 made by the time the QRT’s first trustee as the filing trustee. Form 1041 and 662 apply to this deemed income tax return would be due for the

is filed under the name and TIN of the distribution. The combined entity is tax year beginning with the decedent’s filing trustee’s trust. A statement entitled to an income distribution death, but the trustee and executor (if providing the same information deduction for this deemed distribution, any) have decided to make a section regarding the electing trusts (except the and the ‘‘new’’ trust must include its 645 election, then the QRT is not

filing trust) that is listed under If there is share of the distribution in its income. required to file a Form 1041 for the

an executor above must be attached to See Regulations sections short tax year beginning with the these Forms 1041. All electing trusts 1.645-1(e)(2)(iii) and 1.645-1(h) for decedent’s death and ending on must choose the same tax year. more information. December 31 of that year. However, if

If there is more than one electing a valid election is not subsequently If the electing trust continues in

trust, the filing trustee is responsible for existence after the termination of the made, the QRT may be subject to

ensuring that the filing trust’s share of election period, the trustee must file penalties and interest for failure to file

and failure to pay. the combined tax liability is paid. Form 1041 under the name and TIN of

For additional information on filing the trust, using the calendar year as its If the QRT files a Form 1041 for this

accounting period, if it is otherwise short period, and a valid section 645 requirements when there is no required to file. election is subsequently made, then the executor, including application of the

separate share rule, see Regulations If there is no executor. If there is trustee must file an amended Form

no executor, the following rules apply to 1041 for the electing trust, excluding all section 1.645-1(e). For information on items of income, deduction, and credit the requirements when an executor is filing Form 1041 for the tax year in

which the election period ends. of the electing trust. These amounts are appointed after an election is made and

• The tax year of the electing trust then included on the first Form 1041 the executor does not agree to the

closes on the last day of the election filed by the executor for the related election, see below.

period, and the Form 1041 filed for that estate (or the filing trustee for the Responsibilities of the trustee electing trust filing as an estate). when there is an executor (or there tax year includes all items of income,

deduction, and credit for the electing Later appointed executor. If an is no executor and the trustee is not trust for the period beginning with the executor for the related estate is not the filing trustee). When there is an first day of the tax year and ending with appointed until after the trustee has executor (or there is no executor and the last day of the election period. made a valid section 645 election, the the trustee is not the filing trustee), the • The deemed distribution rules executor must agree to the trustee’s trustee of an electing trust is discussed above apply. election and they must file a revised responsible for the following during the • Check the box to indicate that this Form 8855 within 90 days of the election period. Form 1041 is a final return. appointment of the executor. If the • To timely provide the executor with • If the filing trust continues after the executor does not agree to the election, all the trust information necessary to termination of the election period, the the election terminates as of the date of allow the executor to file a complete, trustee must obtain a new TIN. If the appointment of the executor. accurate, and timely Form 1041. trust meets the filing requirements, the • To ensure that the electing trust’s If the executor agrees to the trustee must file a Form 1041 under the share of the combined tax liability is election, the trustee must amend any new TIN for the period beginning with paid. Form 1041 filed under the name and the day after the close of the election TIN of the electing trust for the period The trustee does not file a Form period and, in general, ending beginning with the decedent’s death. 1041 during the election period (except December 31 of that year. The amended returns are still filed for a final return if the trust terminates Responsibilities of the trustee under the name and TIN of the electing during the election period as explained when there is an executor (or there trust, and they must include the items later). is no executor and the trustee is not of income, deduction, and credit for the Procedures for completing Form the filing trustee). In addition to the related estate for the periods covered 1041 for the year in which the requirements listed above under this by the returns. Also, attach a statement election terminates. same heading, the trustee is to the amended Forms 1041 identifying

If there is an executor. If there is responsible for the following. the name and TIN of the related estate,

an executor, the Form 1041 filed under • If the trust will not continue after the and the name and address of the

the name and TIN of the related estate close of the election period, the trustee executor. Check the Final return box on

for the tax year in which the election must file a Form 1041 under the name the amended return for the tax year that

terminates includes (a) the items of and TIN of the trust. Complete the ends with the appointment of the

income, deduction, and credit for the entity information and items A, C, D, executor. Except for this amended

related estate for its entire tax year, and and F. Indicate in item F that this is a return, all returns filed for the combined

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entity after the appointment of the Chapters 41 and 42 of the Internal satisfied by timely filed original returns

executor must be filed under the name Revenue Code. or amended returns filed before the

and TIN of the related estate. applicable period of limitations expires. Common Trust Funds For information about QSFs established If the election terminates as the Do not file Form 1041 for a common by the U.S. Government by February 3, result of a later appointed executor, the trust fund maintained by a bank. 2006, see Regulations section executor of the related estate must file Instead, the fund may use Form 1065, 1.468B-5(c)(3). Forms 1041 under the name and TIN of U.S. Return of Partnership Income, for Election statement. The election the related estate for all tax years of the its return. For more details, see section statement may be made separately or, related estate beginning with the 584 and Regulations section 1.6032-1. if filed with Form 1041, on the decedent’s death. The electing trust’s attachment described under Grantor election period and tax year terminate Electing Small Business Type Trusts. At the top of the election the day before the appointment of the Trusts statement, write “Section 1.468B-1(k) executor. The trustee is not required to Electing small business trusts file Form Election” and include the transferor’s: amend any of the returns filed by the 1041. However, see page 12 for a • Name, electing trust for the period prior to the discussion of the special reporting • Address, appointment of the executor. The trust

must file a final Form 1041 following the requirements for these trusts. • TIN, and

• A statement that he or she will treat instructions above for completing Form Pooled Income Funds the qualified settlement fund as a 1041 in the year in which the election Pooled income funds file Form 1041. grantor type trust. terminates and there is no executor.

See page 12 for the special reporting Termination of the trust during the requirements for these trusts. Widely Held Fixed

election period. If an electing trust Additionally, pooled income funds must Investment Trust (WHFITs) terminates during the election period, file Form 5227, Split-Interest Trust Trustees and middlemen of WHFITs do the trustee of that trust must file a final Information Return. not file Form 1041. Instead, they report Form 1041 by completing the entity all items of gross income and proceeds information (using the trust’s EIN), Qualified Funeral Trusts on the appropriate Form 1099. For the checking the Final return box, and Trustees of pre-need funeral trusts who definition of a WHFIT, see Regulations signing and dating the form. Do not elect treatment under section 685 file section 1.671-5(b)(22). A tax report items of income, deduction, and Form 1041-QFT, U.S. Income Tax information statement that includes the credit. These items are reported on the Return for Qualified Funeral Trusts. All information given to the IRS on Forms related estate’s return. other pre-need funeral trusts, see 1099, as well as additional information

Grantor Type Trusts on page 11 for identified in Regulations section Alaska Native Settlement Form 1041 reporting requirements. 1.671-5(e) must be given to trust Trusts interest holders. See the General Qualified Settlement Funds The trustee of an Alaska Native Instructions for Certain Information

Settlement Trust may elect the special The trustee of a designated or qualified Returns (Forms 1098, 1099, 3921,

tax treatment for the trust and its settlement fund (QSF) generally must 3922, 5498, and W-2G) for more

beneficiaries provided for in section file Form 1120-SF, U.S. Income Tax information.

646. The election must be made by the Return for Settlement Funds, instead of

due date (including extensions) for filing Form 1041. Electronic Filing the trust’s tax return for its first tax year Special election. If a QSF has only Qualified fiduciaries or transmitters may ending after June 7, 2001. Do not use one transferor, the transferor may elect be able to file Form 1041 and related Form 1041. Use Form 1041-N, U.S. to treat the QSF as a grantor type trust. schedules electronically. If you wish to Income Tax Return for Electing Alaska To make the grantor trust election, do this, you must file Form 8633, Native Settlement Trusts, to make the the transferor must attach an election Application to Participate in the IRS election. Additionally, Form 1041-N is statement to a timely filed Form 1041, e-file Program. If you file Form 1041 the trust’s income tax return and including extensions, that the electronically, you may now sign the satisfies the section 6039H information administrator files for the QSF for the return electronically by using a personal reporting requirement for the trust. tax year in which the settlement fund is identification number (PIN). See Form

established. If Form 1041 is not filed 8879-F, IRS e-file Signature Bankruptcy Estate because Optional Method 1 or 2 was Authorization for Form 1041, for details.

The bankruptcy trustee or debtor-in- chosen, attach the election statement If you do not sign the electronically filed

possession must file Form 1041 for the to a timely filed income tax return, return by using a PIN, you must file

estate of an individual involved in including extensions, of the transferor Form 8453-F, U.S. Estate or Trust

bankruptcy proceedings under chapter for the tax year in which the settlement Income Tax Declaration and Signature

7 or 11 of title 11 of the United States fund is established. for Electronic Filing.

Code if the estate has gross income for Transition rule. A transferor can For more details, see Pub. 1437, the tax year of $9,350 or more. See make a grantor trust election for a QSF Procedures for the Form 1041 e-file Bankruptcy Estates on page 13 for that was established by February 3, Program, U.S. Income Tax Returns For details. 2006, if the applicable period for filing Estates and Trusts For Tax Year 2010

an amended return has not expired for and Pub. 1438, File Specifications, Charitable Remainder Trusts both the QSF’s first tax year and all Validation Criteria and Record Layouts

A section 664 charitable remainder trust later tax years and the same tax years for the Electronic Filing Program for

(CRT) does not file Form 1041. Instead, of the transferor. A grantor trust Form 1041, U.S. Income Tax Return for

a CRT files Form 5227, Split-Interest election under this paragraph requires Estates and Trusts for Tax Year 2010.

Trust Information Return. If the CRT that the returns of the QSF and the If Form 1041 is e-filed and there is a

has any unrelated business taxable transferor for all affected tax years are balance due, the fiduciary may

income, it also must file Form 4720, consistent with the grantor trust authorize an electronic funds

Return of Certain Excise Taxes Under election. This requirement may be withdrawal with the return.

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When To File • United Parcel Service (UPS): UPS 2. The 2011 Form 1041 is not

Next Day Air, UPS Next Day Air Saver, available by the time the estate or trust For calendar year estates and trusts, UPS 2nd Day Air, UPS 2nd Day Air is required to file its tax return. file Form 1041 and Schedule(s) K-1 on A.M., UPS Worldwide Express Plus, However, the estate or trust must show or before April 18, 2011. For fiscal year and UPS Worldwide Express. its 2011 tax year on the 2010 Form estates and trusts, file Form 1041 by 1041 and incorporate any tax law The private delivery service can tell the 15th day of the 4th month following changes that are effective for tax years you how to get written proof of the the close of the tax year. If the due date beginning after December 31, 2010. mailing date. falls on a Saturday, Sunday, or legal

holiday, file on the next business day.

For example, an estate that has a tax Extension of Time To File Who Must Sign

year that ends on June 30, 2011, must If more time is needed to file the estate

file Form 1041 by October 17, 2011. or trust return, use Form 7004 to apply Fiduciary

for an automatic 5-month extension of The fiduciary, or an authorized time to file. Private Delivery Services representative, must sign Form 1041. If

there are joint fiduciaries, only one is You can use certain private delivery Period Covered required to sign the return. services designated by the IRS to meet File the 2010 return for calendar year A financial institution that submitted the “timely mailing as timely filing/ 2010 and fiscal years beginning in 2010 estimated tax payments for trusts for paying” rule for tax returns and and ending in 2011. If the return is for a which it is the trustee must enter its EIN payments. These private delivery fiscal year or a short tax year (less than in the space provided for the EIN of the services include only the following. 12 months), fill in the tax year space at fiduciary. Do not enter the EIN of the • DHL Express (DHL): DHL Same Day the top of the form. trust. For this purpose, a financial Service. institution is one that maintains a • Federal Express (FedEx): FedEx The 2010 Form 1041 may also be Treasury Tax and Loan (TT&L) Priority Overnight, FedEx Standard used for a tax year beginning in 2011 if: account. If you are an attorney or other Overnight, FedEx 2Day, FedEx 1. The estate or trust has a tax year individual functioning in a fiduciary International Priority, and FedEx of less than 12 months that begins and capacity, leave this space blank. Do not

International First. ends in 2011, and enter your individual social security

number (SSN).

If you, as fiduciary, fill in Form 1041,

leave the Paid Preparer space blank. If Where To File someone prepares this return and does

For all estates and trusts, including charitable and split-interest trusts (other than Charitable not charge you, that person should not

Remainder Trusts). sign the return.

THEN use this address if you: Paid Preparer

IF you are located in Are not enclosing a check or Are enclosing a check or money Generally, anyone who is paid to

... money order ... order ... prepare a tax return must sign the

return and fill in the other blanks in the

Connecticut, Delaware, Paid Preparer Use Only area of the District of Columbia, return. Georgia, Illinois,

Indiana, Kentucky, The person required to sign the

Maine, Maryland, return must:

Massachusetts, • Complete the required preparer Michigan, New Department of the Treasury Department of the Treasury information, Hampshire, New Internal Revenue Service Center Internal Revenue Service Center • Sign it in the space provided for the Jersey, New York, Cincinnati, Ohio 45999-0048 Cincinnati, Ohio 45999-0148 preparer’s signature (a facsimile North Carolina, Ohio, signature is acceptable), and Pennsylvania, Rhode • Give you a copy of the return for your Island, South Carolina,

Tennessee, Vermont, records.

Virginia, West Virginia, Anyone who is paid to prepare Wisconsin the estate’s or trust’s return

Alabama, Alaska, must enter their PTIN in the

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Arizona, Arkansas, Paid Preparer Use Only section. The California, Colorado, PTIN entered must have been issued

Florida, Hawaii, Idaho, after August 2010. For information, see Iowa, Kansas, Form W-12, IRS Paid Preparer Tax Louisiana, Minnesota, Department of the Treasury Department of the Treasury Information Number (PTIN) Application. Mississippi, Missouri, Internal Revenue Service Center Internal Revenue Service Center Montana, Nebraska, Ogden, Utah 84201-0048 Ogden, Utah 84201-0148 Paid Preparer Authorization Nevada, New Mexico,

North Dakota, If the fiduciary wants to allow the IRS to

Oklahoma, Oregon, discuss the estate’s or trust’s 2010 tax

South Dakota, Texas, return with the paid preparer who Utah, Washington, signed it, check the “Yes” box in the Wyoming signature area of the return. This

A foreign country or Internal Revenue Service Center Internal Revenue Service Center authorization applies only to the

United States P.O. Box 409101 P.O. Box 409101 individual whose signature appears in

possession Ogden, Utah 84409 Ogden, Utah 84409 the Paid Preparer Use Only area of the

estate’s or trust’s return. It does not

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apply to the firm, if any, shown in that To change the accounting period of 1. An estate of a domestic decedent

section. an estate, use Form 1128, Application or a domestic trust that had no tax

To Adopt, Change, or Retain a Tax liability for the full 12-month 2010 tax If the “Yes” box is checked, the Year. year; fiduciary is authorizing the IRS to call

Generally, a trust must adopt a 2. A decedent’s estate for any tax the paid preparer to answer any year ending before the date that is 2 questions that may arise during the calendar year. The following trusts are years after the decedent’s death; or processing of the estate’s or trust’s exempt from this requirement: 3. A trust that was treated as owned return. The fiduciary is also authorizing • A trust that is exempt from tax under by the decedent if the trust will receive the paid preparer to: section 501(a); the residue of the decedent’s estate • Give the IRS any information that is • A charitable trust described in section under the will (or if no will is admitted to missing from the estate’s or trust’s 4947(a)(1); and probate, the trust primarily responsible return, • A trust that is treated as wholly for paying debts, taxes, and expenses • Call the IRS for information about the owned by a grantor under the rules of of administration) for any tax year processing of the estate’s or trust’s sections 671 through 679. ending before the date that is 2 years return or the status of its refund or after the decedent’s death. payment(s), and Rounding Off to Whole • Respond to certain IRS notices that Dollars For more information, see Form the fiduciary has shared with the 1041-ES, Estimated Income Tax for preparer about math errors, offsets, and You may round off cents to whole Estates and Trusts. return preparation. The notices will not dollars on the estate’s or trust’s return

be sent to the preparer. and schedules. If you do round to Electronic Deposits whole dollars, you must round all The fiduciary is not authorizing the The IRS has issued T.D. 9507. amounts. To round, drop amounts paid preparer to receive any refund Beginning in 2011, you must deposit all under 50 cents and increase amounts check, bind the estate or trust to depository taxes (such as estimated from 50 to 99 cents to the next dollar. anything (including any additional tax taxes of certain trusts, excise tax, etc.) For example, $1.39 becomes $1 and liability), or otherwise represent the electronically using the Electronic $2.50 becomes $3. estate or trust before the IRS. Federal Tax Payment System (EFTPS). If you have to add two or more The authorization will automatically A financial institution that maintains amounts to figure the amount to enter end no later than the due date (without a TT&L account, and acts as a fiduciary on a line, include cents when adding regard to extensions) for filing the for at least 200 taxable trusts that are the amounts and round off only the estate’s or trust’s 2011 tax return. If the required to pay estimated tax, is total. fiduciary wants to expand the paid required to deposit the estimated tax

preparer’s authorization or revoke the payments electronically using EFTPS.

authorization before it ends, see Pub. Estimated Tax A fiduciary that is not required to 947, Practice Before the IRS and Generally, an estate or trust must pay make electronic deposits of estimated Power of Attorney. estimated income tax for 2011 if it tax on behalf of a trust, or the fiduciary expects to owe, after subtracting any of an estate, may voluntarily participate Accounting Methods withholding and credits, at least $1,000 in EFTPS. To enroll in or get more in tax, and it expects the withholding Figure taxable income using the information about EFTPS, visit the and credits to be less than the smaller method of accounting regularly used in EFTPS website at www.eftps.gov or of: keeping the estate’s or trust’s books call 1-800-555-4477. Also, see Pub.

and records. Generally, permissible 1. 90% of the tax shown on the 966, The Secure Way To Pay Your

methods include the cash method, the 2011 tax return, or Federal Taxes.

2. 100% of the tax shown on the accrual method, or any other method Depositing on time. For deposits 2010 tax return (110% of that amount if authorized by the Internal Revenue made using EFTPS to be on time, you Code. In all cases, the method used the estate’s or trust’s adjusted gross must initiate the deposit by 8:00 p.m. must clearly reflect income. income on that return is more than Eastern time the day before the date $150,000, and less than 2

/3 of gross Generally, the estate or trust may the deposit is due. If you use a third income for 2010 or 2011 is from change its accounting method (for party to make deposits on behalf of the farming or fishing). income as a whole or for any material trust (or estate), the third party may

have a different cut-off time. item) only by getting consent on Form However, if a return was not filed for

3115, Application for Change in 2010 or that return did not cover a full Section 643(g) Election Accounting Method. For more 12 months, item 2 does not apply. information, see Pub. 538, Accounting Fiduciaries of trusts that pay estimated For this purpose, include household Periods and Methods. tax may elect under section 643(g) to employment taxes in the tax shown on have any portion of their estimated tax the tax return, but only if either of the Accounting Periods payments allocated to any of the following is true: beneficiaries. For a decedent’s estate, the moment of • The estate or trust will have federal

The fiduciary of a decedent’s estate death determines the end of the income tax withheld for 2011 (see the may make a section 643(g) election decedent’s tax year and the beginning instructions on page 24 for line 24e), or only for the final year of the estate. of the estate’s tax year. As executor or • The estate or trust would be required

administrator, you choose the estate’s to make estimated tax payments for You make the election by filing

tax period when you file its first income 2011 even if it did not include Form 1041-T, Allocation of Estimated

tax return. The estate’s first tax year household employment taxes when Tax Payments to Beneficiaries, by the

may be any period of 12 months or less figuring estimated tax. 65th day after the close of the estate’s

that ends on the last day of a month. If or trust’s tax year. Then, you include

you select the last day of any month Exceptions that amount on the Schedule K-1 (Form

other than December, you are adopting Estimated tax payments are not 1041) for the beneficiary(ies) for whom

a fiscal tax year. required from: you elected it.

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Failure to make a timely election will For each failure to provide Schedule Form 56 to provide this notice to the

result in the estimated tax payments K-1 to a beneficiary when due and each IRS.

not being transferred to the failure to include on Schedule K-1 all Form 706, United States Estate (and beneficiary(ies) even if you entered the the information required to be shown Generation-Skipping Transfer) Tax amount you wanted transferred on (or the inclusion of incorrect Return, or Form 706-NA, United States Schedule K-1. information), a $50 penalty may be Estate (and Generation-Skipping imposed with regard to each Schedule See the instructions for line 24b on Transfer) Tax Return, Estate of K-1 for which a failure occurs. The page 24 for more details. nonresident not a citizen of the United maximum penalty is $100,000 for all States. such failures during a calendar year. If Interest and Penalties Form 706-GS(D-1), Notification of the requirement to report information is

intentionally disregarded, each $50 Distribution From a

Interest penalty is increased to $100 or, if Generation-Skipping Trust.

greater, 10% of the aggregate amount Interest is charged on taxes not paid by Form 709, United States Gift (and

the due date, even if an extension of of items required to be reported, and Generation-Skipping Transfer) Tax the $100,000 maximum does not apply. time to file is granted. Return.

Interest is also charged on penalties The penalty will not be imposed if Form 720, Quarterly Federal Excise

imposed for failure to file, negligence, the fiduciary can show that not Tax Return. Use Form 720 to report

fraud, substantial valuation providing information timely was due to environmental excise taxes,

misstatements, substantial reasonable cause and not due to willful communications and air transportation neglect. understatements of tax, and reportable taxes, fuel taxes, luxury tax on

transaction understatements. Interest is passenger vehicles, manufacturers’

charged on the penalty from the due Underpaid Estimated Tax taxes, ship passenger tax, and certain

date of the return (including other excise taxes. If the fiduciary underpaid estimated tax, extensions). The interest charge is use Form 2210, Underpayment of Caution. See Trust Fund Recovery figured at a rate determined under Estimated Tax by Individuals, Estates, Penalty earlier. section 6621. and Trusts, to figure any penalty. Enter Form 926, Return by a U.S. the amount of any penalty on Form Late Filing of Return 1041, line 26. Transferor of Property to a Foreign

Corporation. Use this form to report The law provides a penalty of 5% of the certain information required under tax due for each month, or part of a Trust Fund Recovery Penalty

month, for which a return is not filed up section 6038B. This penalty may apply if certain excise, to a maximum of 25% of the tax due Form 940, Employer’s Annual income, social security, and Medicare (15% for each month, or part of a taxes that must be collected or withheld Federal Unemployment (FUTA) Tax month, up to a maximum of 75% if the are not collected or withheld, or these Return. The estate or trust may be failure to file is fraudulent). If the return taxes are not paid. These taxes are liable for FUTA tax and may have to file is more than 60 days late, the minimum generally reported on Forms 720, 941, Form 940 if it paid wages of $1,500 or penalty is the smaller of $135 or the tax 943, 944, or 945. The trust fund more in any calendar quarter during the due. The penalty will not be imposed if recovery penalty may be imposed on all calendar year (or the preceding you can show that the failure to file on persons who are determined by the IRS calendar year) or one or more time was due to reasonable cause. If to have been responsible for collecting, employees worked for the estate or the failure is due to reasonable cause, accounting for, or paying over these trust for some part of a day in any 20 attach an explanation to the return. taxes, and who acted willfully in not different weeks during the calendar

doing so. The penalty is equal to the year (or the preceding calendar year). Late Payment of Tax unpaid trust fund tax. See the Form 941, Employer’s QUARTERLY Generally, the penalty for not paying instructions for Form 720, Pub. 15 Federal Tax Return. Employers must tax when due is 1

/2 of 1% of the unpaid (Circular E), Employer’s Tax Guide, or file this form quarterly to report income amount for each month or part of a Pub. 51 (Circular A), Agricultural tax withheld on wages and employer month it remains unpaid. The maximum Employer’s Tax Guide, for more details, and employee social security and penalty is 25% of the unpaid amount. including the definition of responsible Medicare taxes. Certain small The penalty applies to any unpaid tax persons. employers must file Form 944, on the return. Any penalty is in addition Employer’s ANNUAL Federal Tax to interest charges on late payments. Other Penalties Return, instead of Form 941. For more

Other penalties can be imposed for information, see the instructions for If you include interest on either negligence, substantial understatement Form 944. Agricultural employers must of these penalties with your of tax, and fraud. See Pub. 17, Your file Form 943, Employer’s Annual payment, identify and enter

TIP

Federal Income Tax, for details on Federal Tax Return for Agricultural these amounts in the bottom margin of these penalties. Employees, instead of Form 941, to Form 1041, page 1. Do not include the report income tax withheld and interest or penalty amount in the employer and employee social security balance of tax due on line 27. Other Forms That May and Medicare taxes on farmworkers.

Failure To Provide Be Required Caution. See Trust Fund Recovery

Form W-2, Wage and Tax Statement, Penalty earlier. Information Timely and Form W-3, Transmittal of Wage You must provide Schedule K-1 (Form Form 945, Annual Return of and Tax Statements. 1041), on or before the day you are Withheld Federal Income Tax. Use this

required to file Form 1041, to each Form 56, Notice Concerning form to report income tax withheld from

beneficiary who receives a distribution Fiduciary Relationship. You must notify nonpayroll payments, including

of property or an allocation of an item of the IRS of the creation or termination of pensions, annuities, IRAs, gambling

the estate. a fiduciary relationship. You may use winnings, and backup withholding.

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Caution. See Trust Fund Recovery been taken that is contrary to Treasury Also, the estate or trust may have to

Penalty earlier. regulations. file Form 8865 to report certain

dispositions by a foreign partnership of Form 1040, U.S. Individual Income Form 8288, U.S. Withholding Tax property it previously contributed to that Tax Return. Return for Dispositions by Foreign foreign partnership if it was a partner at Form 1040NR, U.S. Nonresident Persons of U.S. Real Property the time of the disposition.

Alien Income Tax Return. Interests, and Form 8288-A, Statement

of Withholding on Dispositions by For more details, including penalties Form 1041-A, U.S. Information Foreign Persons of U.S. Real Property for failing to file Form 8865, see Form Return Trust Accumulation of Interests. Use these forms to report and 8865 and its separate instructions. Charitable Amounts. transmit withheld tax on the sale of U.S.

Form 1042, Annual Withholding Tax real property by a foreign person. Also, Form 8886, Reportable Transaction

Return for U.S. Source Income of use these forms to report and transmit Disclosure Statement. Use Form 8886

Foreign Persons, and Form 1042-S, tax withheld from amounts distributed to to disclose information for each

Foreign Person’s U.S. Source Income a foreign beneficiary from a “U.S. real reportable transaction in which the trust

Subject to Withholding. Use these property interest account” that a participated, directly or indirectly. Form

forms to report and transmit withheld domestic estate or trust is required to 8886 must be filed for each tax year

tax on payments or distributions made establish under Regulations section that the federal income tax liability of

to nonresident alien individuals, foreign 1.1445-5(c)(1)(iii). the estate or trust is affected by its

partnerships, or foreign corporations to participation in the transaction. The Form 8300, Report of Cash the extent such payments or estate or trust may have to pay a Payments Over $10,000 Received in a distributions constitute gross income penalty if it has a requirement to file Trade or Business. Generally, this form from sources within the United States Form 8886 but you fail to file it. The is used to report the receipt of more that is not effectively connected with a following are reportable transactions. than $10,000 in cash or foreign U.S. trade or business. For more • Any transaction that is the same as currency in one transaction (or a series information, see sections 1441 and or substantially similar to tax avoidance of related transactions). 1442, and Pub. 515, Withholding of Tax transactions identified by the IRS as on Nonresident Aliens and Foreign Form 8855, Election To Treat a listed transactions. Entities. Qualified Revocable Trust as Part of an • Any transaction offered under

Forms 1099-A, B, INT, LTC, MISC, Estate. This election allows a qualified conditions of confidentiality and for

OID, Q, R, S, and SA. You may have to revocable trust to be treated and taxed which the estate or trust paid a

file these information returns to report (for income tax purposes) as part of its minimum fee (confidential transaction).

acquisitions or abandonments of related estate during the election • Any transaction for which the estate secured property; proceeds from broker period. or trust or a related party has and barter exchange transactions; Form 8865, Return of U.S. Persons contractual protection against interest payments; payments of With Respect to Certain Foreign disallowance of the tax benefits

long-term care and accelerated death Partnerships. The estate or trust may (transaction with contractual benefits; miscellaneous income have to file Form 8865 if it: protection). payments; original issue discount; 1. Controlled a foreign partnership • Any transaction resulting in a loss of distributions from Coverdell ESAs; at least $2 million in any single year or (that is, owned more than a 50% direct distributions from pensions, annuities, or indirect interest in a foreign $4 million in any combination of years retirement or profit-sharing plans, IRAs partnership); ($50,000 in any single year if the loss is (including SEPs, SIMPLEs, Roth IRAs, generated by a section 988 transaction) Roth Conversions, and IRA 2. Owned at least a 10% direct or (loss transactions). recharacterizations), insurance indirect interest in a foreign partnership

while U.S. persons controlled that • Any transaction substantially similar contracts, etc.; proceeds from real partnership; to one of the types of transactions estate transactions; and distributions 3. Had an acquisition, disposition, or identified by the IRS as a transaction of from an HSA, Archer MSA, or Medicare change in proportional interest in a interest. Advantage MSA. foreign partnership that: Also, use certain of these returns to See the Instructions for Form 8886 a. Increased its direct interest to at report amounts received as a nominee for more details and exceptions. least 10%; on behalf of another person, except b. Reduced its direct interest of at amounts reported to beneficiaries on Form 8918, Material Advisor least 10% to less than 10%; or Schedule K-1 (Form 1041). Disclosure Statement. Material advisors

c. Changed its direct interest by at who provide material aid, assistance, or Form 8275, Disclosure Statement. least a 10% interest. advice on organizing, managing, File Form 8275 to disclose items or 4. Contributed property to a foreign promoting, selling, implementing, positions, except those contrary to a partnership in exchange for a insuring, or carrying out any reportable regulation, that are not otherwise partnership interest if: transaction, and who directly or adequately disclosed on a tax return. a. Immediately after the indirectly receive or expect to receive a The disclosure is made to avoid parts contribution, the estate or trust owned, minimum fee, must use Form 8918 to of the accuracy-related penalty directly or indirectly, at least a 10% disclose any reportable transaction imposed for disregard of rules or interest in the foreign partnership or under Regulations section 301.6111-3. substantial understatement of tax. Form b. The fair market value (FMV) of For more information, see Form 8918 8275 is also used for disclosures the property the estate or trust and its instructions. relating to preparer penalties for contributed to the foreign partnership, understatements due to unrealistic for a partnership interest, when added Form 8939, Allocation of Increase in positions or disregard of rules. to other contributions of property made Basis for Property Received From a

Form 8275-R, Regulation Disclosure to the foreign partnership during the Decedent. File this form to allocate

Statement, is used to disclose any item preceding 12-month period, exceeds additional basis for property acquired

on a tax return for which a position has $100,000. from a decedent who died in 2010.

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Additional Information portion of a trust. See Grantor Type separately and in the same detail as

Trust on page 15 for details on what John Doe (grantor and owner) will need The following publications may assist makes a trust a grantor trust. to report these transactions on his you in preparing Form 1041: Schedule D (Form 1040). The trust In general, a grantor trust is ignored • Pub. 550, Investment Income and for income tax purposes and all of the does not net the capital gains and Expenses, income, deductions, etc., are treated as losses, nor does it issue John Doe a • Pub. 559, Survivors, Executors, and belonging directly to the grantor. This Schedule K-1 (Form 1041) showing a Administrators, also applies to any portion of a trust $10 long-term capital loss. • Pub. 590, Individual Retirement

Arrangements (IRAs), and that is treated as a grantor trust. QSSTs. Income allocated to S

corporation stock held by the trust is • Pub. 4895, Tax Treatment of The following instructions apply Property Acquired From a Decedent treated as owned by the income only to grantor type trusts that Dying in 2010. beneficiary of the portion of the trust are not using an optional filing

CAUTION

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that owns the stock. Report this income method. following the rules discussed above for Assembly and How to report. If the entire trust is a grantor type trusts. A QSST cannot grantor trust, fill in only the entity Attachments elect any of the optional filing methods portion of Form 1041. Do not show any discussed below. Assemble any schedules, forms, and dollar amounts on the form itself; show attachments behind Form 1041 in the However, the trust, and not the dollar amounts only on an attachment following order: income beneficiary, is treated as the to the form. Do not use Schedule K-1 owner of the S corporation stock for 1. Schedule I (Form 1041); (Form 1041) as the attachment. figuring and attributing the tax results of 2. Schedule D (Form 1041); If only part of the trust is treated as a a disposition of the stock. For example, 3. Form 4952; grantor trust, report on Form 1041 only if the disposition is a sale, the QSST 4. Schedule H (Form 1040); the part of the income, deductions, etc., election ends as to the stock sold and 5. Form 3800; that is taxable to the trust. The amounts any gain or loss recognized on the sale 6. Form 4136; that are taxable directly to the grantor will be that of the trust. For more 7. Form 8855; are shown only on an attachment to the information on QSSTs, see Regulations 8. All other schedules and form. Do not use Schedule K-1 (Form section 1.1361-1(j). forms; and 1041) as the attachment. However, 9. All attachments. Schedule K-1 is used to reflect any Optional Filing Methods for

income distributed from the portion of Certain Grantor Type Trusts Attachments the trust that is not taxable directly to Generally, if a trust is treated as owned the grantor or owner. If you need more space on the forms or by one grantor or other person, the

schedules, attach separate sheets. Use The fiduciary must give the grantor trustee may choose Optional Method 1

the same size and format as on the (owner) of the trust a copy of the or Optional Method 2 as the trust’s

printed forms. But show the totals on attachment. method of reporting instead of filing

the printed forms. Attachment. On the attachment, Form 1041. A husband and wife will be

show: treated as one grantor for purposes of Attach these separate sheets after • The name, identifying number, and these two optional methods if: all the schedules and forms. Enter the

address of the person(s) to whom the • All of the trust is treated as owned by estate’s or trust’s EIN on each sheet.

income is taxable; the husband and wife, and Do not file a copy of the decedent’s • The income of the trust that is • The husband and wife file their

will or the trust instrument unless the taxable to the grantor or another person income tax return jointly for that tax IRS requests it. under sections 671 through 678. Report year.

the income in the same detail as it Generally, if a trust is treated as would be reported on the grantor’s owned by two or more grantors or other Special Reporting return had it been received directly by persons, the trustee may choose the grantor; and Optional Method 3 as the trust’s Instructions • Any deductions or credits that apply method of reporting instead of filing to this income. Report these deductions Form 1041. Grantor type trusts, the S portion of and credits in the same detail as they electing small business trusts (ESBTs), Once you choose the trust’s filing would be reported on the grantor’s and bankruptcy estates all have method, you must follow the rules return had they been received directly reporting requirements that are under Changing filing methods if you by the grantor. significantly different than other want to change to another method. The income taxable to the grantor or Subchapter J trusts and decedent’s Exceptions. The following trusts another person under sections 671 estates. Additionally, grantor type trusts cannot report using the optional filing through 678 and the deductions and have optional filing methods available. methods. credits that apply to that income must Pooled income funds have many similar • A common trust fund (as defined in be reported by that person on their own reporting requirements that other section 584(a)). income tax return. Subchapter J trusts (other than grantor • A foreign trust or a trust that has any type trusts and electing small business Example. The John Doe Trust is a of its assets located outside the United

trusts) have but there are some very grantor type trust. During the year, the States.

important differences. These reporting trust sold 100 shares of ABC stock for • A qualified subchapter S trust (as differences and optional filing methods $1,010 in which it had a basis of $10 defined in section 1361(d)(3)).

are discussed below by entity. and 200 shares of XYZ stock for $10 in • A trust all of which is treated as

which it had a $1,020 basis. owned by one grantor or one other Grantor Type Trusts The trust does not report these person whose tax year is other than a

A trust is a grantor trust if the grantor transactions on Form 1041. Instead, a calendar year.

retains certain powers or ownership schedule is attached to the Form 1041 • A trust all of which is treated as

benefits. This can also apply to only a showing each stock transaction owned by one or more grantors or other

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persons, one of which is not a U.S. trust, is the trustee or a co-trustee of 1041, the trustee must write “Pursuant

person. the trust, the trustee must give the to section 1.671-4(g), this is the final

• A trust all of which is treated as grantor or other person treated as Form 1041 for this grantor trust,” and

owned by one or more grantors or other owner of the trust a statement that: check the Final return box in item F.

persons if at least one grantor or other • Shows all items of income, For more details on changing person is an exempt recipient for deduction, and credit of the trust; reporting methods, including changes information reporting purposes, unless • Explains how the grantor or other from one optional method to another, at least one grantor or other person is person treated as owner of the trust see Regulations section 1.671-4(g). not an exempt recipient and the trustee takes those items into account when Backup withholding. The following reports without treating any of the figuring the grantor’s or other person’s grantor trusts are treated as payors for grantors or other persons as exempt taxable income or tax; and purposes of backup withholding. recipients. • Informs the grantor or other person 1. A trust established after 1995, all Optional Method 1. For a trust treated as the owner of the trust that

those items must be included when of which is owned by two or more treated as owned by one grantor or by grantors (treating spouses filing a joint figuring taxable income and credits on one other person, the trustee must give his or her income tax return. This return as one grantor). all payers of income during the tax year statement satisfies the requirement to 2. A trust with 10 or more grantors the name and TIN of the grantor or give the recipient copies of the Forms established after 1983 but before 1996. other person treated as the owner of 1099 filed by the trustee. the trust and the address of the trust. The trustee must withhold 28% of This method may be used only if the Optional Method 3. For a trust reportable payments made to any owner of the trust provides the trustee treated as owned by two or more grantor who is subject to backup with a signed Form W-9, Request for grantors or other persons, the trustee withholding. Taxpayer Identification Number and must give all payers of income during Certification. In addition, unless the For more information, see section the tax year the name, address, and 3406 and its regulations. grantor or other person treated as TIN of the trust. The trustee also must

owner of the trust is the trustee or a file with the IRS the appropriate Forms Pooled Income Funds co-trustee of the trust, the trustee must 1099 to report the income or gross give the grantor or other person treated If you are filing for a pooled income proceeds paid to the trust by all payers as owner of the trust a statement that: fund, attach a statement to support the during the tax year attributable to the • Shows all items of income, following: part of the trust treated as owned by deduction, and credit of the trust; • The calculation of the yearly rate of each grantor, or other person, showing • return, Identifies the payer of each item of the trust as the payer and each grantor, • The computation of the deduction for income; or other person treated as owner of the • Explains how the grantor or other distributions to the beneficiaries, and trust, as the payee. The trustee must person treated as owner of the trust • The computation of any charitable report each type of income in the deduction. takes those items into account when aggregate and each item of gross See section 642 and the regulations figuring the grantor’s or other person’s proceeds separately. The due date for thereunder for more information. taxable income or tax; and any Forms 1099 required to be filed • Informs the grantor or other person with the IRS by a trustee under this You do not have to complete

treated as the owner of the trust that method is February 28, 2011 (March Schedules A or B of Form 1041.

those items must be included when 31, 2011, if filed electronically). Also, you must file Form 5227, figuring taxable income and credits on Split-Interest Trust Information Return, In addition, the trustee must give his or her income tax return. for the pooled income fund. However, if each grantor or other person treated as Grantor trusts that have not all amounts were transferred in trust owner of the trust a statement that:

applied for an EIN and are before May 27, 1969, or if an amount • Shows all items of income,

going to file under Optional was transferred to the trust after May

TIP

deduction, and credit of the trust

Method 1 do not need an EIN for the 26, 1969, for which no deduction was attributable to the part of the trust

trust as long as they continue to report allowed under any of the sections listed treated as owned by the grantor or under that method. other person; under section 4947(a)(2), then Form

5227 does not have to be filed. Optional Method 2. For a trust • Explains how the grantor or other

treated as owned by one grantor or by person treated as owner of the trust Note. Form 1041-A is no longer filed

one other person, the trustee must give takes those items into account when by pooled income funds.

all payers of income during the tax year figuring the grantor’s or other person’s

the name, address, and TIN of the taxable income or tax; and Electing Small Business

trust. The trustee also must file with the • Informs the grantor or other person Trusts (ESBTs) treated as the owner of the trust that IRS the appropriate Forms 1099 to Special rules apply when figuring the report the income or gross proceeds those items must be included when tax on the S portion of an ESBT. The S paid to the trust during the tax year that figuring taxable income and credits on portion of an ESBT is the portion of the shows the trust as the payer and the his or her income tax return. This trust that consists of stock in one or grantor, or other person treated as statement satisfies the requirement to more S corporations and is not treated owner, as the payee. The trustee must give the recipient copies of the Forms as a grantor type trust. The tax on the S report each type of income in the 1099 filed by the trustee. portion: aggregate and each item of gross Changing filing methods. A trustee • Must be figured separately from the proceeds separately. The due date for who previously had filed Form 1041 can tax on the remainder of the ESBT (if any Forms 1099 required to be filed change to one of the optional methods any) and attached to the return, with the IRS by a trustee under this by filing a final Form 1041 for the tax • Is entered to the left of the Schedule method is February 28, 2011 (March year that immediately precedes the first G, line 7, entry space preceded by 31, 2011, if filed electronically). tax year for which the trustee elects to “Sec. 641(c),” and

In addition, unless the grantor, or report under one of the optional • Is included in the total tax on

other person treated as owner of the methods. On the front of the final Form Schedule G, line 7.

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 The tax on the remainder (non-S debtor-in-possession. If the case is later Transfer of Tax Attributes From

portion) of the ESBT is figured in the dismissed by the bankruptcy court, the the Individual Debtor to the

normal manner on Form 1041. individual debtor is treated as if the Bankruptcy Estate bankruptcy petition had never been Tax computation attachment. Attach The bankruptcy estate succeeds to the filed. to the return the tax computation for the following tax attributes of the individual S portion of the ESBT. A separate taxable entity is not debtor: created if a partnership or corporation To compute the tax on the S portion: 1. Net operating loss (NOL) files a petition under any chapter of title • Treat that portion of the ESBT as if it carryovers; 11 of the U.S. Code. were a separate trust; 2. Charitable contribution • Include only the income, losses, carryovers; deductions, and credits allocated to the Who Must File 3. Recovery of tax benefit items; ESBT as an S corporation shareholder Every trustee (or debtor-in-possession) 4. Credit carryovers; and gain or loss from the disposition of for an individual’s bankruptcy estate 5. Capital loss carryovers; S corporation stock; under chapter 7 or 11 of title 11 of the 6. Basis, holding period, and • Aggregate items of income, losses, U.S. Code must file a return if the character of assets; deductions, and credits allocated to the bankruptcy estate has gross income of 7. Method of accounting; ESBT as an S corporation shareholder $9,350 or more for tax years beginning 8. Unused passive activity losses; if the S portion of the ESBT has stock in 2010. 9. Unused passive activity credits; in more than one S corporation; and Failure to do so may result in an • Deduct state and local income taxes 10. Unused section 465 losses. estimated Request for Administrative and administrative expenses directly Expenses being filed by the IRS in the related to the S portion or allocated to

the S portion if the allocation is bankruptcy proceeding or a motion to Income, Deductions, and

reasonable in light of all the compel filing of the return. Credits

circumstances; The filing of a tax return for the Under section 1398(c), the taxable • Deduct interest expense paid or bankruptcy estate does not income of the bankruptcy estate

accrued on indebtedness incurred to relieve the individual debtor(s) generally is figured in the same manner

CAUTION

!

acquire stock in an S corporation; of his, her, or their individual tax as that of an individual. The gross • Do not claim a deduction for capital obligations. income of the bankruptcy estate

losses in excess of capital gains; includes any income included in • Do not claim an income distribution property of the estate as defined in title EIN deduction or an exemption amount; 11, sections 541 and 1115. Section • Do not claim an exemption amount in Every bankruptcy estate of an individual 1115 was added to title 11 of the U.S.

figuring the AMT; and required to file a return must have its Code by the Bankruptcy Abuse • Do not use the tax rate schedule to own EIN. The SSN of the individual Prevention and Consumer Protection debtor cannot be used as the EIN for figure the tax. The tax is 35% of the S Act of 2005. Section 1115 of title 11 of

portion’s taxable income except in the bankruptcy estate. the U.S. Code expands the definition of

figuring the maximum tax on qualified property of the estate in chapter 11

dividends and capital gains. Accounting Period cases filed by individuals after October

For additional information, see 16, 2005, and in chapter 11 cases A bankruptcy estate is allowed to have Regulations section 1.641(c)-1. begun by creditors against an individual a fiscal year. However, this period debtor (involuntary cases) after that Other information. When figuring the cannot be longer than 12 months. date. Under section 1115 of title 11 of tax and DNI on the remaining (non-S) When To File the U.S. Code, property of the portion of the trust, disregard the S File Form 1041 on or before the 15th bankruptcy estate includes (a) earnings corporation items. day of the 4th month following the close from services performed by the debtor

Do not apportion to the beneficiaries of the tax year. Use Form 7004 to apply after the beginning of the case (both

any of the S corporation items. wages and self-employment income) for an extension of time to file.

and before the case is closed, If the ESBT consists entirely of stock

in one or more S corporations, do not Disclosure of Return dismissed, or converted to a case

make any entries on lines 1–22 Information under a different chapter and (b)

of page 1. Instead: Under section 6103(e)(5), tax returns of property described in section 541 of

• Complete the entity portion; individual debtors who have filed for title 11 of the U.S. Code and income

• Follow the instructions above for bankruptcy under chapters 7 or 11 of earned therefrom that the debtor

figuring the tax on the S corporation title 11 are, upon written request, open acquires after the beginning of the case

and before the case is closed, items; to inspection by or disclosure to the

• Carry the tax from line 7 of Schedule trustee. dismissed, or converted. If section 1115

G to line 23 on page 1; and of title 11 of the U.S. Code applies, the The returns subject to disclosure to • Complete the rest of the return. bankruptcy estate’s gross income the trustee are those for the year the includes, as described above, (a) the The grantor portion (if any) of an bankruptcy begins and prior years. Use debtor’s earnings from services ESBT will follow the rules discussed Form 4506, Request for Copy of Tax performed after the beginning of the under Grantor Type Trusts on page 11. Return, to request copies of the case and (b) the income from property individual debtor’s tax returns.

Bankruptcy Estates acquired after the beginning of the If the bankruptcy case was not case. The bankruptcy estate that is created voluntary, disclosure cannot be made

when an individual debtor files a before the bankruptcy court has The income from property owned by

petition under either chapter 7 or 11 of entered an order for relief, unless the the debtor when the case began is also

title 11 of the U.S. Code is treated as a court rules that the disclosure is included in the bankruptcy estate’s

separate taxable entity. The bankruptcy needed for determining whether relief gross income. However, if this property

estate is administered by a trustee or a should be ordered. is exempted from the bankruptcy estate

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or is abandoned by the trustee or allowed a standard deduction of See Rev. Proc. 2006-24, 2006-22

debtor-in-possession, the income from $5,700. I.R.B. 943, available at www.irs.gov/irb/

the property is not included in the 2006-22_IRB/ar12.html.

bankruptcy estate’s gross income. Also Discharge of indebtedness. In a title

included in income is gain from the sale 11 case, gross income does not include Special Filing Instructions for of the bankruptcy estate’s property. To amounts that normally would be Bankruptcy Estates figure gain, the trustee or included in gross income resulting from Use Form 1041 only as a transmittal for debtor-in-possession must determine the discharge of indebtedness.

However, any amounts excluded from Form 1040. In the top margin of Form the correct basis of the property. 1040 write “Attachment to Form 1041. gross income must be applied to To determine whether any amount DO NOT DETACH.” Attach Form 1040 reduce certain tax attributes in a certain

paid or incurred by the bankruptcy to Form 1041. Complete only the order. Attach Form 982, Reduction of estate is allowable as a deduction or Tax Attributes Due to Discharge of identification area at the top of Form

credit, or is treated as wages for 1041. Enter the name of the individual Indebtedness (and Section 1082 Basis employment tax purposes, treat the Adjustment), to show the reduction of debtor in the following format: “John Q.

amount as if it were paid or incurred by Public Bankruptcy Estate.” Beneath, tax attributes.

the individual debtor in the same trade enter the name of the trustee in the

or business or other activity the debtor following format: “Avery Snow, Tax Rate Schedule engaged in before the bankruptcy Trustee.” In item D, enter the date the

proceedings began. Figure the tax for the bankruptcy estate petition was filed or the date of using the tax rate schedule below. conversion to a chapter 7 or 11 case. Administrative expenses. The Enter the tax on Form 1040, line 44. bankruptcy estate is allowed a Enter on Form 1041, line 23, the deduction for any administrative If taxable income is:

Of the total tax from line 60 of Form 1040. expense allowed under section 503 of But not Over— over— The tax is: amount Complete lines 24 through 29 of Form title 11 of the U.S. Code, and any fee or over— 1041, and sign and date it. charge assessed under chapter 123 of $0 $8,375 10% $0

title 28 of the U.S. Code, to the extent 8,375 34,000 $837.50 + 15% 8,375 In a chapter 11 case filed after 34,000 68,650 4,681.25 + 25% 34,000 not disallowed under an Internal 68,650 104,625 13,343.75 + 28% 68,650 October 16, 2005, the bankruptcy Revenue Code provision (for example, 104,625 186,825 23,416.75 + 33% 104,625 estate’s gross income may be affected section 263, 265, or 275). 186,825 ------ 50,542.75 + 35% 186,825 by section 1115 of title 11 of the U.S.

Administrative expense loss. When Code. See Income, Deductions, and

figuring an NOL, nonbusiness Prompt Determination of Tax Credits earlier. The debtor may receive

deductions (including administrative Liability a Form W-2, 1099-INT, 1099-DIV, or

expenses) are limited under section 1099-MISC or other information return To request a prompt determination of 172(d)(4) to the bankruptcy estate’s reporting wages or other income to the the tax liability of the bankruptcy estate, nonbusiness income. The excess debtor for the entire year, even though the trustee or debtor-in-possession nonbusiness deductions are an some or all of this income is includible must file a written request for the administrative expense loss that may in the bankruptcy estate’s gross income determination with the IRS. The request be carried back to each of the 3 must be submitted in duplicate and under section 1115 of title 11 of the

preceding tax years and forward to U.S. Code. If this happens, the income executed under penalties of perjury. each of the 7 succeeding tax years of The request must include a statement reported to the debtor on the Form W-2

the bankruptcy estate. The amount of indicating that it is a request for prompt or 1099, or other information return

an administrative expense loss that determination of tax liability and: (a) the (and the withheld income tax shown on

may be carried to any tax year is return type, and all the tax periods for these forms) must be reasonably determined after the NOL deductions which prompt determination is sought; allocated between the debtor and the

allowed for that year. An administrative (b) the name and location of the office bankruptcy estate. The expense loss is allowed only to the where the return was filed; (c) the debtor-in-possession (or the chapter 11 bankruptcy estate and cannot be debtor’s name; (d) the debtor’s SSN, trustee, if one was appointed) must carried to any tax year of the individual TIN, or EIN; (e) the type of bankruptcy attach a schedule that shows (a) all the debtor. estate; (f) the bankruptcy case number; income reported on the Form W-2,

Carryback of NOLs and credits. and (g) the court where the bankruptcy Form 1099, or other information return, If is pending. Send the request to the (b) the portion of this income includible the bankruptcy estate itself incurs an Centralized Insolvency Operation, P.O. NOL (apart from losses carried forward in the bankruptcy estate’s gross Box 21126, Philadelphia, PA 19114 to the estate from the individual debtor), income, and (c) all the withheld income (marked “Request for Prompt it can carry back its NOLs not only to tax, if any, and the portion of withheld Determination”). previous tax years of the bankruptcy tax reasonably allocated to the

estate, but also to tax years of the bankruptcy estate. Also, the The IRS will notify the trustee or individual debtor prior to the year in debtor-in-possesion (or the chapter 11 debtor-in-possession within 60 days which the bankruptcy proceedings trustee, if one was appointed) must from receipt of the request if the return began. Excess credits, such as the attach a copy of the Form W-2, if any, filed by the trustee or foreign tax credit, also may be carried issued to the debtor for the tax year if debtor-in-possession has been selected back to pre-bankruptcy years of the the Form W-2 reports wages to the for examination or has been accepted individual debtor. debtor and some or all of the wages are as filed. If the return is selected for

includible in the bankruptcy estate’s examination, it will be examined as Exemption. For tax years beginning in soon as possible. The IRS will notify gross income because of section 1115 2010, a bankruptcy estate is allowed a the trustee or debtor-in-possession of of title 11 of the U.S. Code. For more personal exemption of $3,650. any tax due within 180 days from details, including acceptable allocation

Standard deduction. For tax years receipt of the request or within any methods, see Notice 2006-83, 2006-40

beginning in 2010, a bankruptcy estate additional time permitted by the I.R.B. 596, available at www.irs.gov/irb/

that does not itemize deductions is bankruptcy court. 2006-40_IRB/ar12.html.

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There are special reporting have not relinquished complete

Specific Instructions requirements for grantor type dominion and control over the trust.

trusts, pooled income funds,

CAUTION

!

Generally, for transfers made in trust electing small business trusts, and Name of Estate or Trust after March 1, 1986, the grantor is bankruptcy estates. See Special treated as the owner of any portion of a Copy the exact name of the estate or Reporting Instructions on page 11. trust in which he or she has a trust from the Form SS-4, Application reversionary interest in either the for Employer Identification Number, that Decedent’s Estate income or corpus therefrom, if, as of you used to apply for the EIN. If the An estate of a deceased person is a the inception of that portion of the trust, name of the trust was changed during taxable entity separate from the the value of the reversionary interest is the tax year for which you are filing, decedent. It generally continues to exist more than 5% of the value of that enter the trust’s new name and check until the final distribution of the assets portion. Also, the grantor is treated as the Change in trust’s name box in item of the estate is made to the heirs and holding any power or interest that was F. other beneficiaries. The income earned held by either the grantor’s spouse at

If a grantor type trust (discussed from the property of the estate during the time that the power or interest was the period of administration or later), write the name, identification created or who became the grantor’s

number, and address of the grantor(s) settlement must be accounted for and spouse after the creation of that power

or other owner(s) in parentheses after reported by the estate. or interest. See Grantor Type Trusts on

the name of the trust. page 11 for more information. Simple Trust Pre-need funeral trusts. The A trust may qualify as a simple trust if: Name and Title of purchasers of pre-need funeral services

1. The trust instrument requires that are the grantors and the owners of Fiduciary all income must be distributed currently; pre-need funeral trusts established Enter the name and title of the 2. The trust instrument does not under state laws. See Rev. Rul.

fiduciary. If the name entered is provide that any amounts are to be 87-127, 1987-2 C.B. 156. However, the different than the name on the prior paid, permanently set aside, or used for trustees of pre-need funeral trusts can year’s return, see Change in Fiduciary’s charitable purposes; and elect to file the return and pay the tax Name and Change in Fiduciary on 3. The trust does not distribute for qualified funeral trusts. For more page 17. amounts allocated to the corpus of the information, see Form 1041-QFT, U.S.

trust. Income Tax Return for Qualified

Address Funeral Trusts.

Include the suite, room, or other unit Complex Trust Nonqualified deferred compensation

number after the street address. If the A complex trust is any trust that does plans. Taxpayers may adopt and

post office does not deliver mail to the not qualify as a simple trust as maintain grantor trusts in connection

street address and the fiduciary has a explained above. with nonqualified deferred

P.O. box, show the box number compensation plans (sometimes

Qualified Disability Trust referred to as “rabbi trusts”). Rev. Proc. instead.

A qualified disability trust is any 92-64, 1992-2 C.B. 422, provides a If you want a third party (such as an “model grantor trust” for use in rabbi nongrantor trust: accountant or an attorney) to receive trust arrangements. The procedure also mail for the estate or trust, enter on the 1. Described in 42 U.S.C. provides guidance for requesting street address line “C/O” followed by 1396p(c)(2)(B)(iv) and established rulings on the plans that use these solely for the benefit of an individual the third party’s name and street trusts.

address or P.O. box. under 65 years of age who is disabled, QSSTs. The beneficiary of a qualified and

If the estate or trust has had a subchapter S trust is treated as the 2. All the beneficiaries of which are

change of address (including a change substantial owner of that portion of the determined by the Commissioner of to an “in care of” name and address) Social Security to have been disabled trust which consists of stock in an S

and did not file Form 8822, Change of corporation for which an election under for some part of the tax year within the Address, check the Change in meaning of 42 U.S.C. 1382c(a)(3). section 1361(d)(2) has been made. See

fiduciary’s address box in item F. QSSTs on page 11.

A trust will not fail to meet item 2 If the estate or trust has a change of Bankruptcy Estate above just because the trust’s corpus mailing address (including a new ‘‘in may revert to a person who is not A chapter 7 or 11 bankruptcy estate is care of’’ name and address) after filing disabled after the trust ceases to have a separate and distinct taxable entity its return, file Form 8822 to notify the any disabled beneficiaries. from the individual debtor for federal IRS of the change. income tax purposes. See Bankruptcy

ESBT (S Portion Only) Estates on page 13. A. Type of Entity The S portion of an ESBT is the portion For more information, see section

Check the appropriate box that of the trust that consists of S 1398 and Pub. 908, Bankruptcy Tax

describes the entity for which you are corporation stock and that is not treated Guide.

filing the return. as owned by the grantor or another

person. See page 12 of the instructions Pooled Income Fund

In some cases, more than one box is for more information about an ESBT. A pooled income fund is a split-interest checked. For example, if only a portion trust with a remainder interest for a of a trust is a grantor type trust or if only Grantor Type Trust public charity and a life income interest a portion of an electing small business A grantor type trust is a legal trust retained by the donor or for another trust is the S portion, then more than under applicable state law that is not person. The property is held in a pool one box is checked. recognized as a separate taxable entity with other pooled income fund property

Note: Determination of entity status is for income tax purposes because the and does not include any tax-exempt

made on an annual basis. grantor or other substantial owners securities. The income for a retained

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life interest is figured using the yearly Nonexempt charitable trust treated Section 4947(a)(2) Trust rate of return earned by the trust. See as a private foundation. If a Check this box if the trust is a section 642(c) and the related nonexempt charitable trust is treated as split-interest trust described in section regulations for more information. though it were a private foundation 4947(a)(2). under section 509, then the fiduciary

must file Form 990-PF, Return of A split-interest trust is a trust that: B. Number of Schedules • Is not exempt from tax under section Private Foundation, in addition to Form K-1 Attached 501(a); 1041. • Has some unexpired interests that Every trust or decedent’s estate If a nonexempt charitable trust is are devoted to purposes other than claiming an income distribution religious, charitable, or similar purposes deduction on page 1, line 18, must treated as though it were a private described in section 170(c)(2)(B); and enter the number of Schedules K-1 foundation, and it has no taxable • Has amounts transferred in trust after (Form 1041) that are attached to Form income under Subtitle A, it may check May 26, 1969, for which a deduction 1041. the box on Form 990-PF, Part VII-A, was allowed under section 170 (for line 15 and enter the tax-exempt individual taxpayers) or similar Code interest received or accrued during the C. Employer sections for personal holding year on that line, instead of filing Form companies, foreign personal holding Identification Number 1041 to meet its section 6012 filing companies, or estates or trusts requirement for that tax year. Every estate or trust that is required to (including a deduction for estate or gift file Form 1041 must have an EIN. An tax purposes). Excise taxes. If a nonexempt EIN may be applied for: charitable trust is treated as a private Other returns that must be filed. • Online by clicking on the EIN link at The fiduciary of a split-interest trust foundation, then it is subject to the www.irs.gov/businesses/small. The EIN same excise taxes under chapters 41 must file Form 5227. However, see the is issued immediately once the and 42 that a private foundation is Instructions for Form 5227 for the application information is validated. exception that applies to split-interest subject to. If the nonexempt charitable • By telephone at 1-800-829-4933 from trusts other than section 664 charitable trust is liable for any of these taxes 7:00 a.m. to 10:00 p.m. in the remainder trusts. (except the section 4940 tax), then it fiduciary’s local time zone. Assistance reports these taxes on Form 4720, provided to callers from Alaska and Return of Certain Excise Taxes Under F. Initial Return, Hawaii will be based on the hours of

operation in the Pacific time zone. Chapters 41 and 42 of the Internal Amended Return, etc. • By mailing or faxing Form SS-4, Revenue Code. Taxes paid by the trust

Application for Employer Identification on Form 4720 or on Form 990-PF (the Amended Return

Number. section 4940 tax) cannot be taken as a

deduction on Form 1041. If you are filing an amended Form If the estate or trust has not received its 1041: EIN by the time the return is due, write • Check the “Amended return” box, “Applied for” and the date you applied Not a Private Foundation • Complete the entire return, in the space for the EIN. For more Check this box if the nonexempt • Correct the appropriate lines with the details, see Pub. 583, Starting a charitable trust (section 4947(a)(1)) is new information, and Business and Keeping Records. not treated as a private foundation • Refigure the estate’s or trust’s tax

under section 509. For more liability. D. Date Entity Created information, see Regulations section If you are amending the return for an Enter the date the trust was created, or, 53.4947-1. NOL carryback, write “NOL Carryback” if a decedent’s estate, the date of the at the top of page 1. Other returns that must be filed. If a decedent’s death. If the total tax on line 23 is larger on nonexempt charitable trust is not the amended return than on the original treated as though it were a private E. Nonexempt Charitable return, you generally should pay the foundation, the fiduciary must file Form difference with the amended return. and Split-Interest Trusts 990, Return of Organization Exempt However, you should adjust this From Income Tax, or Form 990-EZ, amount if there is any increase or Short Form Return of Organization Section 4947(a)(1) Trust decrease in the total payments shown Exempt from Income Tax, in addition to Check this box if the trust is a on line 25. Form 1041, if the trust meets the filing nonexempt charitable trust within the Attach a sheet that explains the requirements for either of those forms. meaning of section 4947(a)(1). reason for the amendments and

If a nonexempt charitable trust is not identifies the lines and amounts being A nonexempt charitable trust is a changed on the amended return. treated as though it were a private trust:

• That is not exempt from tax under foundation, and it has no taxable Amended Schedule H (Form 1040).

section 501(a); income under Subtitle A, it may answer If you discover an error on a Schedule

• In which all of the unexpired interests “Yes” on Form 990, Part V, line 12a H that you previously filed with Form

are devoted to one or more charitable and enter the tax-exempt interest 1041, file an “Amended” Form 1041

purposes described in section received or accrued during the year on and attach a corrected Schedule H.

170(c)(2)(B); and Form 990, Part V, line 12b instead of In the top margin of your corrected

• For which a deduction was allowed filing Form 1041 to meet its section Schedule H, write “Amended,” (using

under section 170 (for individual 6012 filing requirement for that tax year red ink, if possible) and the date you

taxpayers) or similar Code section for (or if Form 990-EZ is filed instead of discovered the error. Also, on an

personal holding companies, foreign Form 990, you may check the box on attachment explain the reason for your

personal holding companies, or estates Form 990-EZ, line 43 and enter the correction. If you owe tax, pay the tax in

or trusts (including a deduction for tax-exempt interest received or accrued full with your amended Form 1041. If

estate or gift tax purposes). during the year on that line). you overpaid tax on a previously filed

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Schedule H, depending on whether you If the address shown on Form 1041 income earned after the date of death

choose the adjustment or claim for changes after you file the form that should be reported on the income

refund process to correct the error, you (including a change to an ‘‘in care of’’ tax return of the decedent’s estate.

must either repay or reimburse the name and address), file Form 8822 to When preparing the decedent’s final

employee’s share of social security and notify the IRS of the change. income tax return, report on Schedule

Medicare tax or get the employee’s B (Form 1040A or 1040), line 1 the total

consent to the filing of a refund claim G. Section 645 Election interest shown on Form 1099-INT.

for their share. See Pub. 926, Under the last entry on line 1, subtotal If a section 645 election was made by Household Employer’s Tax Guide, for all the interest reported on line 1. Below filing Form 8855, check the box in item more information. the subtotal, write “Form 1041” and the G. See Special Rule for Certain Amended Schedule K-1 (Form 1041). name and address shown on Form Revocable Trusts under Who Must File 1041 for the decedent’s estate. Also, If the amended return results in a and Form 8855 for more information show the part of the interest reported change to income, or a change in about this election. on Form 1041 and subtract it from the distribution of any income or other subtotal. information provided to a beneficiary, Income an amended Schedule K-1 (Form 1041) Line 2a—Total Ordinary must also be filed with the amended

Form 1041 and given to each Special Rule for Blind Trust Dividends

If you are reporting income from a beneficiary. Check the “Amended K-1” Report the estate’s or trust’s share of qualified blind trust (under the Ethics in box at the top of the amended all ordinary dividends received during

Schedule K-1. Government Act of 1978), do not the tax year. identify the payer of any income to the For the year of the decedent’s death, Final Return trust but complete the rest of the return Forms 1099-DIV issued in the as provided in the instructions. Also Check this box if this is a final return decedent’s name may include write “Blind Trust” at the top of page 1. because the estate or trust has dividends earned after the date of

terminated. Also, check the “Final K-1” Extraterritorial Income death that should be reported on the box at the top of Schedule K-1. income tax return of the decedent’s Exclusion If, on the final return, there are estate. When preparing the decedent’s

excess deductions, an unused capital The extraterritorial income exclusion is final income tax return, report on

loss carryover, or an NOL carryover, not allowed for transactions after 2006. Schedule B (Form 1040A or 1040), line

see the instructions for Schedule K-1, However, income from certain 5 the ordinary dividends shown on

box 11, on page 34. long-term sales and leases may still Form 1099-DIV. Under the last entry on qualify for the exclusion. For details and line 5, subtotal all the dividends

Change in Trust’s Name to figure the amount of the exclusion, reported on line 5. Below the subtotal,

If the name of the trust has changed see Form 8873, Extraterritorial Income write “Form 1041” and the name and

from the name shown on the prior Exclusion, and its separate instructions. address shown on Form 1041 for the

The estate or trust must report the decedent’s estate. Also, show the part year’s return (or Form SS-4 if this is the

first return being filed), be sure to check extraterritorial income exclusion on line of the ordinary dividends reported on

this box. 15a of Form 1041, page 1. Form 1041 and subtract it from the

Although the extraterritorial income subtotal.

Change in Fiduciary exclusion is entered on line 15a, it is an Report capital gain distributions If a different fiduciary enters his or her exclusion from income and should be on Schedule D (Form 1041), name on the line for Name and title of treated as tax-exempt income when line 9.

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completing other parts of the return. fiduciary than was shown on the prior

year’s return (or Form SS-4 if this is the Line 2b—Qualified Line 1—Interest Income first return being filed) and you did not Dividends Report the estate’s or trust’s share of file a Form 8822, be sure to check this all taxable interest income that was Enter the beneficiary’s allocable share box. If there is a change in the fiduciary received during the tax year. Examples of qualified dividends on line 2b(1) and whose address is used as the mailing of taxable interest include interest from: enter the estate’s or trust’s allocable address for the estate or trust after the • Accounts (including certificates of share on line 2b(2). return is filed, use Form 8822 to notify

the IRS. deposit and money market accounts) If the estate or trust received

with banks, credit unions, and thrift qualified dividends that were derived

Change in Fiduciary’s Name institutions; from IRD, you must reduce the amount

If the fiduciary changed his or her name • Notes, loans, and mortgages; on line 2b(2) by the portion of the

from the name that he or she entered • U.S. Treasury bills, notes, and estate tax deduction claimed on Form

on the prior year’s return (or Form SS-4 bonds; 1041, page 1, line 19, that is • U.S. savings bonds; attributable to those qualified dividends. if this is the first return being filed), be

sure to check this box. • Original issue discount; and Do not reduce the amounts on line 2b • Income received as a regular interest by any other allocable expenses.

Change in Fiduciary’s holder of a real estate mortgage Note. The beneficiary’s share (as investment conduit (REMIC). Address figured above) may differ from the

For taxable bonds acquired after amount entered on line 2b of Schedule If the same fiduciary who filed the prior 1987, amortizable bond premium is K-1 (Form 1041). year’s return (or Form SS-4 if this is the treated as an offset to the interest first return being filed) files the current Qualified dividends. Qualified income instead of as a separate year’s return and changed the address dividends are eligible for a lower tax interest deduction. See Pub. 550. on the return (including a change to an rate than other ordinary income.

‘‘in care of’’ name and address), and For the year of the decedent’s death, Generally, these dividends are reported

did not report the change on Form Forms 1099-INT issued in the to the estate or trust in box 1b of

8822, check this box. decedent’s name may include interest Form(s) 1099-DIV. See Pub. 550 for

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the definition of qualified dividends if from Schedule C (or Schedule C-EZ) attached schedule if the estate or trust

the estate or trust received dividends on line 3. has more than one item.

not reported on Form 1099-DIV. Items to be reported on line 8 Line 4—Capital Gain or Exception. Some dividends may include:

be reported to the estate or trust as in (Loss) • Unpaid compensation received by

box 1b of Form 1099-DIV but are not Enter the gain from Schedule D (Form the decedent’s estate that is IRD, and

qualified dividends. These include: 1041), Part III, line 15, column (3) or • Any part of a total distribution shown

• Dividends received on any share of the loss from Part IV, line 16. on Form 1099-R, Distributions From

stock that the estate or trust held for Pensions, Annuities, Retirement or

less than 61 days during the 121-day Do not substitute Schedule D Profit-Sharing Plans, IRAs, Insurance

period that began 60 days before the (Form 1040) for Schedule D Contracts, etc., that is treated as (Form 1041).

CAUTION

!

ex-dividend date. The ex-dividend date ordinary income. For more information,

is the first date following the declaration see the separate instructions for Form Line 5—Rents, Royalties, of a dividend on which the purchaser of 4972, Tax on Lump-Sum Distributions.

a stock is not entitled to receive the Partnerships, Other Estates

next dividend payment. When counting and Trusts, etc. Deductions

the number of days the stock was held, Use Schedule E (Form 1040), include the day the estate or trust Supplemental Income and Loss, to Depreciation, Depletion, and disposed of the stock but not the day it report the estate’s or trust’s share of Amortization acquired the stock. However, you income or (losses) from rents, royalties, cannot count certain days during which A trust or decedent’s estate is allowed partnerships, S corporations, other a deduction for depreciation, depletion, the estate’s or trust’s risk of loss was estates and trusts, and REMICs. Also diminished. See Pub. 550 for more and amortization only to the extent the use Schedule E (Form 1040) to report details. deductions are not apportioned to the farm rental income and expenses • Dividends attributable to periods beneficiaries. An estate or trust is not based on crops or livestock produced allowed to make an election under totaling more than 366 days that the by a tenant. Enter the net profit or (loss) estate or trust received on any share of section 179 to expense depreciable from Schedule E on line 5. See the preferred stock held for less than 91 business assets. instructions for Schedule E (Form 1040) days during the 181-day period that The estate’s or trust’s share of for reporting requirements. began 90 days before the ex-dividend depreciation, depletion, and If the estate or trust received a date. When counting the number of amortization is generally reported on Schedule K-1 from a partnership, S days the stock was held, include the the appropriate lines of Schedule C (or corporation, or other flow-through day the estate or trust disposed of the C-EZ), E, or F (Form 1040), the net entity, use the corresponding lines on stock but not the day it acquired the income or loss from which is shown on Form 1041 to report the interest, stock. However, you cannot count lines 3, 5, or 6 of Form 1041. If the dividends, capital gains, etc., from the certain days during which the estate’s deduction is not related to a specific flow-through entity. or trust’s risk of loss was diminished. business or activity, then report it on

See Pub. 550 for more details. line 15a. Line 6—Farm Income or Preferred dividends attributable to Depreciation. For a decedent’s

periods totaling less than 367 days are (Loss) estate, the depreciation deduction is subject to the 61-day holding period If the estate or trust operated a farm, apportioned between the estate and the rule above. use Schedule F (Form 1040), Profit or heirs, legatees, and devisees on the • Dividends on any share of stock to Loss From Farming, to report farm basis of the estate’s income allocable

the extent that the estate or trust is income and expenses. Enter the net to each. under an obligation (including a short profit or (loss) from Schedule F on line For a trust, the depreciation sale) to make related payments with 6. deduction is apportioned between the respect to positions in substantially If an estate or trust has farm income beneficiaries and the trust on similar or related property. rental income and expenses the basis of the trust income allocable • Payments in lieu of dividends, but

CAUTION

based on crops or livestock to each, unless the governing

!

only if you know or have reason to produced by a tenant, report the instrument (or local law) requires or know that the payments are not income and expenses on Schedule E permits the trustee to maintain a qualified dividends. (Form 1040). Do not use Form 4835 or depreciation reserve. If the trustee is

If you have an entry on line Schedule F (Form 1040) to report such required to maintain a reserve, the

2b(2), be sure you use income and expenses and do not deduction is first allocated to the trust,

Schedule D (Form 1041), the include the net profit or (loss) from such up to the amount of the reserve. Any

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Schedule D Tax Worksheet, or the income and expenses on line 6. excess is allocated among the income

Qualified Dividends Tax Worksheet, beneficiaries and the trust in the same

whichever applies, to figure the estate’s Line 7—Ordinary Gain or manner as the trust’s accounting

or trust’s tax. Figuring the estate’s or (Loss) income. See Regulations section

trust’s tax liability in this manner will 1.167(h)-1(b). Enter from line 17, Form 4797, Sales of usually result in a lower tax. Business Property, the ordinary gain or Depletion. For mineral or timber

property held by a decedent’s estate, loss from the sale or exchange of Line 3—Business Income or property other than capital assets and the depletion deduction is apportioned

(Loss) also from involuntary conversions between the estate and the heirs,

legatees, and devisees on the basis of If the estate operated a business, (other than casualty or theft). the estate’s income from such property report the income and expenses on

Schedule C (Form 1040), Profit or Loss Line 8—Other Income allocable to each.

From Business (or Schedule C-EZ Enter other items of income not For mineral or timber property held

(Form 1040), Net Profit From included on lines 1, 2a, and 3 through in trust, the depletion deduction is

Business). Enter the net profit or (loss) 7. List the type and amount on an apportioned between the income

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beneficiaries and the trust based on the purposes, on Form 1041 if the fiduciary Losses from passive activities

trust income from such property files a statement waiving the right to are first subject to the at-risk

allocable to each, unless the governing deduct the expenses and losses on rules. When the losses are

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instrument (or local law) requires or Form 706. The statement must be filed deductible under the at-risk rules, the

permits the trustee to maintain a before the expiration of the statutory passive activity rules then apply.

reserve for depletion. If the trustee is period of limitations for the tax year the Rental activities. Generally, rental required to maintain a reserve, the deduction is claimed. See Pub. 559 for activities are passive activities, whether deduction is first allocated to the trust, more information. or not the taxpayer materially up to the amount of the reserve. Any participates. However, certain excess is allocated among the Accrued Expenses taxpayers who materially participate in beneficiaries and the trust in the same Generally, an accrual basis taxpayer real property trades or businesses are manner as the trust’s accounting can deduct accrued expenses in the tax not subject to the passive activity income. See Regulations section year that: (a) all events have occurred limitations on losses from rental real

1.611-1(c)(4). that determine the liability; and (b) the estate activities in which they materially

Amortization. The deduction for amount of the liability can be figured participate. For more details, see

amortization is apportioned between an with reasonable accuracy. However, all section 469(c)(7).

estate or trust and its beneficiaries the events that establish liability are For tax years of an estate ending under the same principles used to treated as occurring only when less than 2 years after the decedent’s apportion the deductions for economic performance takes place. date of death, up to $25,000 of depreciation and depletion. There are exceptions for recurring deductions and deduction equivalents

The deduction for the amortization of items. See section 461(h). of credits from rental real estate

reforestation expenditures under activities in which the decedent actively

section 194 is allowed only to an Limitations on participated are allowed. Any excess

estate. losses or credits are suspended for the

Deductions year and carried forward. Allocable share from a passthrough

entity. Depreciation, depletion, and Portfolio income. Portfolio income is

amortization received from a At-Risk Loss Limitations not treated as income from a passive

passthrough entity on a Schedule K-1 Generally, the amount the estate or activity, and passive losses and credits

generally may not be applied to offset is apportioned and reported in the trust has “at-risk” limits the loss it can

same manner as discussed above. A deduct for any tax year. Use Form it. Portfolio income generally includes

section 179 expense received from a 6198, At-Risk Limitations, to figure the interest, dividends, royalties, and

passthrough entity on a Schedule K-1 deductible loss for the year and file it income from annuities. Portfolio income

is not deductible by the estate or trust. with Form 1041. For more information, of an estate or trust must be accounted

for separately. see Pub. 925, Passive Activity and Allocation of Deductions for At-Risk Rules. Forms to file. See Form 8582,

Tax-Exempt Income Passive Activity Loss Limitations, to

Generally, no deduction that would Passive Activity Loss and figure the amount of losses allowed

otherwise be allowable is allowed for from passive activities. See Form Credit Limitations 8582-CR, Passive Activity Credit any expense (whether for business or In general. Section 469 and the Limitations, to figure the amount of for the production of income) that is regulations thereunder generally limit credit allowed for the current year. allocable to tax-exempt income. losses from passive activities to the Examples of tax-exempt income amount of income derived from all Transactions Between include:

• Certain death benefits (section 101), passive activities. Similarly, credits from Related Taxpayers

• Interest on state or local bonds passive activities are generally limited Under section 267, a trust that uses the to the tax attributable to such activities. (section 103), accrual method of accounting may only These limitations are first applied at the • Compensation for injuries or sickness deduct business expenses and interest estate or trust level. (section 104), and owed to a related party in the year the

• Income from discharge of Generally, an activity is a passive payment is included in the income of

indebtedness in a title 11 case (section the related party. For this purpose, a activity if it involves the conduct of any 108). related party includes: trade or business, and the taxpayer

Exception. State income taxes and does not materially participate in the 1. A grantor and a fiduciary of any

business expenses that are allocable to activity. Passive activities do not trust;

tax-exempt interest are deductible. include working interests in oil and gas 2. A fiduciary of a trust and a

properties. See section 469(c)(3). fiduciary of another trust, if the same Expenses that are directly allocable person is a grantor of both trusts; to tax-exempt income are allocated only Note. Material participation standards 3. A fiduciary of a trust and a to tax-exempt income. A reasonable for estates and trusts have not been beneficiary of such trust; proportion of expenses indirectly established by regulations. 4. A fiduciary of a trust and a allocable to both tax-exempt income beneficiary of another trust, if the same and other income must be allocated to For a grantor trust, material person is a grantor of both trusts; each class of income. participation is determined at the 5. A fiduciary of a trust and a grantor level. Deductions That May Be corporation more than 50% in value of

If the estate or trust distributes an the outstanding stock of which is Allowable for Estate Tax interest in a passive activity, the basis owned, directly or indirectly, by or for Purposes of the property immediately before the the trust or by or for a person who is a

Administration expenses and casualty distribution is increased by the passive grantor of the trust; and

and theft losses deductible on Form activity losses allocable to the interest, 6. An executor of an estate and a

706 may be deducted, to the extent and such losses cannot be deducted. beneficiary of that estate, except for a

otherwise deductible for income tax See section 469(j)(12). sale or exchange to satisfy a pecuniary

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bequest (that is, a bequest of a sum of Types of interest to include on line indebtedness secured by a qualified

money). 10 are: residence of a beneficiary of an estate

1. Any investment interest (subject or trust is treated as qualified residence

to limitations—see below); interest if the residence would be a Line 10—Interest

2. Any qualified residence interest qualified residence (that is, the principal Enter the amount of interest (subject to (see later); and residence or the secondary residence limitations) paid or incurred by the 3. Any interest payable under selected by the beneficiary) if owned by estate or trust on amounts borrowed by the beneficiary. The beneficiary must section 6601 on any unpaid portion of the estate or trust, or on debt acquired have a present interest in the estate or the estate tax attributable to the value by the estate or trust (for example, of a reversionary or remainder interest trust or an interest in the residuary of outstanding obligations from the in property for the period during which the estate or trust. See Pub. 936, Home decedent) that is not claimed elsewhere an extension of time for payment of Mortgage Interest Deduction, for an on the return. explanation of the general rules for such tax is in effect.

deducting home mortgage interest. If the proceeds of a loan were used

for more than one purpose (for Investment interest. Generally, See section 163(h)(3) for a definition investment interest is interest (including example, to purchase a portfolio of qualified residence interest and for amortizable bond premium on taxable investment and to acquire an interest in limitations on indebtedness. bonds acquired after October 22, 1986, a passive activity), the fiduciary must Qualified mortgage insurance make an interest allocation according to but before January 1, 1988) that is paid premiums. Enter (on the worksheet or incurred on indebtedness that is the rules in Temporary Regulations below) the qualified mortgage properly allocable to property held for section 1.163-8T. insurance premiums paid under a investment. Investment interest does mortgage insurance contract issued Do not include interest paid on not include any qualified residence after December 31, 2006, in connection indebtedness incurred or continued to interest, or interest that is taken into with qualified residence acquisition debt purchase or carry obligations on which account under section 469 in figuring that was secured by a principal or the interest is wholly exempt from income or loss from a passive activity. secondary residence. See Prepaid income tax. Generally, net investment income is mortgage insurance below if the estate

Personal interest is not deductible. the excess of investment income over or trust paid any premiums allocable

Examples of personal interest include investment expenses. Investment after 2010. If at least one other person

interest paid on: expenses are those expenses (other was liable for and paid the premiums in

• Revolving charge accounts used to than interest) allowable after application connection with the loan, and the

purchase personal use property; of the 2% floor on miscellaneous premiums were reported on Form 1098, itemized deductions. • Personal notes for money borrowed include the estate’s or trust’s share of

from a bank, credit union, or other The amount of the investment the 2010 premiums on the worksheet

person; interest deduction may be limited. Use below.

• Installment loans on personal use Form 4952, Investment Interest Qualified mortgage insurance is property; and Expense Deduction, to figure the mortgage insurance provided by the • Underpayments of federal, state, or allowable investment interest Department of Veterans Affairs, the local income taxes. deduction. Federal Housing Administration, or the

If you must complete Form 4952, Rural Housing Service, and private Interest that is paid or incurred on check the box on line 10 of Form 1041 mortgage insurance (as defined in indebtedness allocable to a trade or

and attach Form 4952. Then, add the section 2 of the Homeowners business (including a rental activity) deductible investment interest to the Protection Act of 1998 as in effect on should be deducted on the appropriate other types of deductible interest and December 20, 2006). line of Schedule C (or C-EZ), E, or F enter the total on line 10. (Form 1040), the net income or loss Mortgage insurance provided by the

from which is shown on line 3, 5, or 6 of Qualified residence interest. Interest Department of Veterans Affairs and the

Form 1041. paid or incurred by an estate or trust on Rural Housing Service is commonly

Qualified Mortgage Insurance Premiums Deduction Worksheet Keep for Your Records

1. Enter the total premiums the estate or trust paid in 2010 for qualified mortgage insurance for a contract issued

after December 31, 2006 ........................................................... . 1.

2. Enter the estate’s or trust’s AGI ........................................ . 2.

3. Enter $100,000 .................................................... . 3.

4. Is the amount on line 2 more than the amount on line 3?

No. The deduction is not limited. Include the amount from line 1 above on Form

1041, line 10. Do not complete the rest of this worksheet.

Yes. Subtract line 3 from line 2. If the result is not a multiple of $1,000, increase it to

the next multiple of $1,000. For example, increase $425 to $1,000, increase

$2,025 to $3,000, etc. ....................................... . 4.

5. Divide line 4 by $10,000. Enter the result as a decimal. If the result is 1.0 or more, enter 1.0 ............ . 5. .

6. Multiply line 1 by line 5 ............................................................ . 6.

7. Qualified mortgage insurance premiums deduction. Subtract line 6 from line 1. Enter the result here and

include the amount on Form 1041, line 10 ............................................... . 7.

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known as a funding fee and guarantee vans, and off-road vehicles. Also For tax-exempt bonds, you cannot

fee, respectively. These fees can be include any state and local general deduct the premium that is amortized.

deducted fully in 2010 if the mortgage sales taxes paid for a leased motor Although the premium cannot be

insurance contract was issued in 2010. vehicle. Do not include sales taxes paid deducted, you must amortize the

Contact the mortgage insurance issuer on items used in a trade or business. premium and reduce the estate’s or

to determine the deductible amount if it An estate or trust cannot use the trust’s basis in the tax-exempt bond by

is not included in box 4 of Form 1098. Optional Sales Tax Tables for the amount of premium amortized. In

individuals in Pub. 600, State and Local the case of a premium on a tax-exempt Prepaid mortgage insurance. If General Sales Taxes, to figure its bond, or if the fiduciary has made an the estate or trust paid mortgage deduction. election to amortize the premium on a insurance premiums allocable to • State, local, and foreign real property taxable bond, the basis in the bond periods after the end of its tax year, taxes. must be reduced by the amount of such premiums must be allocated over • State and local personal property amortization. the shorter of:

• The stated term of the mortgage, or taxes. For more information, see section

• 84 months, beginning with the month • Foreign or U.S. possession income 171 and Pub. 550.

taxes. You may want to take a credit for the insurance was obtained. If you claim a bond premium the tax instead of a deduction. See the deduction for the estate or trust, figure The premiums are treated as paid in instructions for Schedule G, line 2a, on the deduction on a separate sheet and the year to which they are allocated. If page 27 for more details. attach it to Form 1041. the mortgage is satisfied before its • The generation-skipping transfer term, no deduction is allowed for the (GST) tax imposed on income Casualty and theft losses. Use Form

unamortized balance. See Pub. 936 for 4684, Casualties and Thefts, to figure distributions.

details. These allocation rules do not any deductible casualty and theft Do not deduct: apply to qualified mortgage insurance losses. • Federal income taxes; provided by the Department of Domestic production activities • Estate, inheritance, legacy, Veterans Affairs or the Rural Housing deduction. The estate or trust may be succession, and gift taxes; or Service. able to deduct up to 9% of its share of • Federal duties and excise taxes. qualified production activities income Limit on the amount that is Line 12—Fiduciary Fees (QPAI) from the following activities. deductible. The estate or trust cannot

deduct mortgage insurance premiums if Enter the deductible fees paid or 1. Construction performed in the

the estate’s or trust’s AGI is more than United States. incurred to the fiduciary for $109,000. If the estate’s or trust’s AGI administering the estate or trust during 2. Engineering or architectural

is more than $100,000, its deduction is the tax year. services performed in the United States

limited and you must use the worksheet for construction projects in the United

below to figure the deduction. See How Fiduciary fees deducted on States.

Form 706 cannot be deducted to figure AGI for estates and trusts on 3. Any lease, rental, license, sale, on Form 1041.

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page 22 for information on figuring AGI. exchange, or other disposition of:

a. Tangible personal property, Line 15a—Other Deductions Line 11—Taxes computer software, and sound

Enter any deductible taxes paid or Not Subject to the 2% Floor recordings that the estate or trust

Attach your own schedule, listing by manufactured, produced, grew, or incurred during the tax year that are not

deductible elsewhere on Form 1041. type and amount all allowable extracted in whole or in significant part

Deductible taxes include the following: deductions that are not deductible within the United States;

• State and local income taxes. You elsewhere on Form 1041. b. Any qualified film the estate or

trust produced; or can deduct state and local income Do not include any losses on taxes unless you elect to deduct state c. Electricity, natural gas, or potable worthless bonds and similar obligations and local general sales taxes. You water the estate or trust produced in and nonbusiness bad debts. Report the United States. cannot deduct both. these losses on Schedule D (Form • State and local general sales taxes. 1041). In certain cases, the United States You can elect to deduct state and local Do not deduct medical or funeral includes the Commonwealth of Puerto general sales taxes instead of state and expenses on Form 1041. Medical Rico. local income taxes. Generally, you can

elect to deduct the actual state and expenses of the decedent paid by the The deduction does not apply to estate may be deductible on the income derived from: local general sales taxes (including decedent’s income tax return for the compensating use taxes) you paid in • The sale of food and beverages the year incurred. See section 213(c). 2010 if the tax rate was the same as estate or trust prepared at a retail Funeral expenses are deductible only establishment; the general sales tax rate. However, on Form 706. • Property the estate or trust leased, sales taxes on food, clothing, medical The following are examples of licensed, or rented for use by any supplies, and motor vehicles are

deductible as a general sales tax even deductions that are reported on line related person; or

15a. • The transmission or distribution of if the tax rate was less than the general electricity, natural gas, or potable water. sales tax rate. Sales taxes on motor Bond premium(s). For taxable bonds

vehicles are also deductible as a acquired before October 23, 1986, if The deduction cannot exceed 9% of

general sales tax if the tax rate was the fiduciary elected to amortize the modified AGI or 50% of certain Form

more than the general sales tax rate, premium, report the amortization on this W-2 wages. QPAI, as well as Form W-2

but the tax is deductible only up to the line. You cannot deduct the wages, must be apportioned between

amount of tax that would have been amortization for tax-exempt bonds. If the trust or estate and its beneficiaries.

imposed at the general sales tax rate. you made the election to amortize the For more details, see Form 8903,

Motor vehicles include cars, premium, the basis in the taxable bond Domestic Production Activities

motorcycles, motor homes, recreational must be reduced by the amount of Deduction, and its separate

vehicles, sport utility vehicles, trucks, amortization. instructions.

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Special rule for oil-related QPAI. How to figure AGI for estates and The trust also claims an exemption

If the estate or trust has oil-related trusts. You figure AGI by subtracting of $100 on line 20.

QPAI, the domestic production activities the following from total income on line 9 Using the facts in this example: deduction is reduced by 3% of the of page 1: AMID = 1,500 – (.02(AGI)) smallest of: 1. The administration costs of the • Oil-related QPAI, In all situations, use the following estate or trust (the total of lines 12, 14, • QPAI, or equation to compute the AGI: and 15a to the extent they are costs

• Modified AGI. incurred in the administration of the AGI = (line 9) – (the total of lines 12,

estate or trust) that would not have 14, and 15a to the extent they are costs See Form 8903 for details. been incurred if the property were not incurred in the administration of the

Net operating loss deduction held by the estate or trust; estate or trust that would not have been

2. The income distribution deduction incurred if the property were not held by (NOLD). An estate or trust is allowed

(line 18); the estate or trust) – (line 18) – (line the NOLD under section 172.

3. The amount of the exemption 20).

If you claim an NOLD for the estate (line 20); Note. There are no other deductions or trust, figure the deduction on a 4. The domestic production claimed by the trust on line 15a that are separate sheet and attach it to this activities deduction claimed on line 15a; deductible in arriving at AGI. return. and Figuring AGI in this example, we get: 5. The NOLD claimed on line 15a. Estate’s or trust’s share of AGI = 35,000 – 2,000 – DNI – 100 amortization, depreciation, and For those estates and trusts whose depletion not claimed elsewhere. Since the value of line 18 is not If income distribution deduction is limited you cannot deduct the estate’s or known because it is limited to the DNI, to the actual distribution, and not the you are left with the following: trust’s apportioned share of DNI (that is, the income distribution is amortization, depreciation, and AGI = 32,900 – DNI less than the DNI), when computing the depletion as rent or royalty expenses AGI, use the amount of the actual Substitute the value of AGI in the on Schedule E (Form 1040), or as distribution. equation: business or farm expenses on

Schedule C, C-EZ, or F (Form 1040), For those estates and trusts whose AMID = 1,500 – (.02(32,900 – DNI))

itemize the estate’s or trust’s income distribution deduction is limited The equation cannot be solved until

apportioned share of the deductions on to the DNI (that is, the actual the value of DNI is known. The DNI can

an attached sheet and include them on distribution exceeds the DNI), the DNI be expressed in terms of the AMID. To

line 15a. Itemize each beneficiary’s must be figured taking into account the do this, compute the DNI using the

apportioned share of the deductions allowable miscellaneous itemized known values. In this example, the DNI

and report them in the appropriate box deductions (AMID) after application of is equal to the total income of the trust

of Schedule K-1 (Form 1041). the 2% floor. In this situation there are (less any capital gains allocated to two unknown amounts: (a) the AMID corpus or plus any capital loss from line

Line 15b—Allowable and (b) the DNI. 4); less total deductions from line 16

Miscellaneous Itemized Computing line 15b. To compute line (excluding any miscellaneous itemized

15b, use the equation below: deductions); less the AMID. Deductions Subject to the AMID = Total miscellaneous Thus, DNI = (line 9) – (line 15, 2% Floor column (2) of Schedule D (Form 1041)) itemized deductions – (.02(AGI)) Miscellaneous itemized deductions are – (line 16) – (AMID) The following example illustrates deductible only to the extent that the how algebraic equations can be used to Substitute the known values: aggregate amount of such deductions solve for these unknown amounts. DNI = 35,000 – 20,000 – 2,000 – exceeds 2% of AGI.

Example. The Malcolm Smith AMID

Among the miscellaneous itemized Trust, a complex trust, earned $20,000 DNI = 13,000 – AMID deductions that must be included on of dividend income, $20,000 of capital Substitute the value of DNI in the line 15b are expenses for the gains, and a fully deductible $5,000 equation to solve for AMID: production or collection of income loss from XYZ partnership (chargeable under section 212, such as investment AMID = 1,500 – (.02(32,900 – to corpus) in 2010. The trust instrument advisory fees, subscriptions to (13,000 – AMID))) provides that capital gains are added to investment advisory publications, and corpus. Fifty percent of the fiduciary AMID = 1,500 – (.02(32,900 – the cost of safe deposit boxes. fees are allocated to income and 50% 13,000 + AMID))

Miscellaneous itemized deductions to corpus. The trust claimed a $2,000 AMID = 1,500 – (658 – 260 +

do not include deductions for: deduction on line 12 of Form 1041. The .02AMID) trust incurred $1,500 of miscellaneous • Interest under section 163, AMID = 1,102 – .02AMID itemized deductions (chargeable to • Taxes under section 164, income), which are subject to the 2% 1.02AMID = 1,102 • The amortization of bond premium floor. There are no other deductions. AMID = 1,080 under section 171, The trustee made a discretionary • Estate taxes attributable to IRD DNI = 11,920 (i.e., 13,000 – 1,080) distribution of the accounting income of under section 691(c), or AGI = 20,980 (i.e., 32,900 – 11,920) $17,500 to the trust’s sole beneficiary. • Expenses paid or incurred in Note. The income distribution Because the actual distribution can connection with the administration of deduction is equal to the smaller of the reasonably be expected to exceed the the estate or trust that would not have distribution ($17,500) or the DNI DNI, the trust must figure the DNI, been incurred if the property were not ($11,920). taking into account the allowable held in the estate or trust. miscellaneous itemized deductions, to Enter the value of AMID on line 15b

For other exceptions, see section determine the amount to enter on line (the DNI should equal line 7 of

67(b). 15b. Schedule B) and complete the rest of

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Form 1041 according to the on a separate sheet. Attach the sheet trust may have an NOL. Do not include

instructions. to your return. the deductions claimed on lines 13, 18,

and 20 when figuring the amount of the If the 2% floor is more than the If you claim a deduction for NOL. deductions subject to the 2% floor, no estate tax attributable to

deductions are allowed.

CAUTION

qualified dividends or capital Generally, an NOL may be carried

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gains, you may have to adjust the back to the prior 2 tax years. The

Line 18—Income amount on Form 1041, page 1, line 2-year carryback period does not apply

Distribution Deduction 2b(2), or Schedule D (Form 1041), line to the portion of an NOL attributable to

18. an eligible loss; a farming loss; a If the estate or trust was required to qualified disaster, GO Zone, or disaster distribute income currently or if it paid, Also, a deduction is allowed for the recovery assistance loss; or a specified credited, or was required to distribute GST tax imposed as a result of a liability loss. An estate or trust may also any other amounts to beneficiaries taxable termination or a direct skip elect to carry an NOL forward only, during the tax year, complete Schedule occurring as a result of the death of the instead of first carrying it back. For B to determine the estate’s or trust’s transferor. See section 691(c)(3). Enter more information, see the Instructions income distribution deduction. the estate’s or trust’s share of these for Form 1045, Application for Tentative However, if you are filing for a pooled deductions on line 19. Refund. income fund, do not complete Schedule

B. Instead, attach a statement to Line 20—Exemption Complete Schedule A of Form 1045

support the computation of the income to figure the amount of the NOL that is Decedents’ estates. A decedent’s distribution deduction. See Pooled available for carryback or carryover. estate is allowed a $600 exemption. Income Funds on page 12 for more Use Form 1045 or file an amended

Trusts required to distribute all information. return to apply for a refund based on an income currently. A trust whose NOL carryback. For more details, see If the estate or trust claims an governing instrument requires that all Pub. 536, Net Operating Losses income distribution deduction, complete income be distributed currently is (NOLs) for Individuals, Estates, and and attach: allowed a $300 exemption, even if it Trusts. • Part I (through line 26) and Part II of distributed amounts other than income

Schedule I (Form 1041) to refigure the On the termination of the estate or during the tax year. trust, any unused NOL carryover that deduction on a minimum tax basis, and Qualified disability trusts. A qualified would be allowable to the estate or trust • Schedule K-1 (Form 1041) for each disability trust is allowed a $3,650 in a later tax year, but for the beneficiary to which a distribution was exemption. The exemption is not made or required to be made. termination, is allowed to the phased out for the 2010 tax year, beneficiaries succeeding to the property Cemetery perpetual care fund. On regardless of adjusted gross income. of the estate or trust. See the line 18, deduct the amount, not more A qualified disability trust is any trust: instructions for Schedule K-1 (Form than $5 per gravesite, paid for 1041), box 11, codes D and E on page maintenance of cemetery property. To 1. Described in 42 U.S.C. 34. 1396p(c)(2)(B)(iv) and established the right of the entry space for line 18, solely for the benefit of an individual Excess deductions on termination. enter the number of gravesites. Also under 65 years of age who is disabled, If the estate or trust has for its final year write “Section 642(i) trust” in and deductions (excluding the charitable parentheses after the trust’s name at 2. All of the beneficiaries of which deduction and exemption) in excess of the top of Form 1041. You do not have are determined by the Commissioner of its gross income, the excess is allowed to complete Schedules B of Form 1041 Social Security to have been disabled as an itemized deduction to the and K-1 (Form 1041). for some part of the tax year within the beneficiaries succeeding to the property Do not enter less than zero on line meaning of 42 U.S.C. 1382c(a)(3). of the estate or trust.

18. In general, an unused NOL A trust will not fail to meet item 2 carryover that is allowed to Line 19—Estate Tax above just because the trust’s corpus beneficiaries (as explained above) Deduction (Including Certain may revert to a person who is not cannot also be treated as an excess

Generation-Skipping disabled after the trust ceases to have deduction. However, if the final year of any disabled beneficiaries. Transfer Taxes) the estate or trust is also the last year All other trusts. A trust not described of the NOL carryover period, the NOL If the estate or trust includes IRD in its above is allowed a $100 exemption. carryover not absorbed in that tax year gross income, and such amount was by the estate or trust is included as an included in the decedent’s gross estate Tax and Payments excess deduction. See the instructions for estate tax purposes, the estate or for Schedule K-1 (Form 1041), box 11, trust is allowed to deduct in the same Line 22—Taxable Income code A on page 34. tax year that the income is included that

portion of the estate tax imposed on the Minimum taxable income. Line 22 Line 24a—2010 Estimated

decedent’s estate that is attributable to cannot be less than the larger of: Tax Payments and Amount the inclusion of the IRD in the • The inversion gain of the estate or decedent’s estate. For an example of trust, as figured under section 7874, if Applied From 2009 Return

the computation, see Regulations the estate or trust is an expatriated Enter the amount of any estimated tax

section 1.691(c)-1 and Pub. 559. entity or a partner in an expatriated payment you made with Form 1041-ES

entity, or for 2010 plus the amount of any If any amount properly paid, • The sum of the excess inclusions of overpayment from the 2009 return that credited, or required to be distributed the estate or trust from Schedule Q was applied to the 2010 estimated tax. by an estate or trust to a beneficiary (Form 1066), line 2c. consists of IRD received by the estate If the estate or trust is the beneficiary

or trust, do not include such amounts in NOL. If line 22 (figured without regard of another trust and received a

determining the estate tax deduction for to the minimum taxable income rule payment of estimated tax that was

the estate or trust. Figure the deduction stated above) is a loss, the estate or credited to the trust (as reflected on the

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Schedule K-1 issued to the trust), then Except for backup withholding • Enclose, but do not attach, the

report this amount separately with the (as explained below), withheld payment (and Form 1041-V, if

notation “section 643(g)” in the space income tax can not be passed completed) with Form 1041.

CAUTION

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next to line 24a and include this amount through to beneficiaries on either To pay by credit or debit card. in the amount entered on line 24a. Schedule K-1 or Form 1041-T. For information on paying your taxes

Backup withholding. electronically, including by credit or If the estate or Do not include on Form 1041 debit card, go to www.irs.gov/e-pay. trust received a 2010 Form 1099 estimated tax paid by an showing federal income tax withheld individual before death. Instead,

CAUTION

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Line 29a—Credited to 2011 (that is, backup withholding) on interest include those payments on the income, dividends, or other income, Estimated Tax decedent’s final income tax return. check the box and include the amount Enter the amount from line 28 that you

Line 24b—Estimated Tax withheld on income retained by the want applied to the estate’s or trust’s

estate or trust in the total for line 24e. 2011 estimated tax. Payments Allocated to Report on Schedule K-1 (Form Beneficiaries 1041), box 13, using code B, any credit The trustee (or executor, for the final for backup withholding on income Schedule A—Charitable

year of the estate) may elect under

section 643(g) to have any portion of its distributed to the beneficiary. Deduction

estimated tax treated as a payment of Line 24f—Credit for Tax Paid estimated tax made by a beneficiary or General Instructions on Undistributed Capital beneficiaries. The election is made on Generally, any part of the gross income

Form 1041-T, Allocation of Estimated Gains of an estate or trust (other than a

Tax Payments to Beneficiaries, which Attach Copy B of Form 2439, Notice to simple trust) that, under the terms of

must be filed by the 65th day after the Shareholder of Undistributed the will or governing instrument, is paid

close of the trust’s tax year. Form Long-Term Capital Gains. (or treated as paid) during the tax year

1041-T shows the amounts to be for a charitable purpose specified in

allocated to each beneficiary. This Line 24g—Credit for Federal section 170(c) is allowed as a

amount is reported on the beneficiary’s deduction to the estate or trust. It is not Tax on Fuels Schedule K-1 (Form 1041), box 13, necessary that the charitable Enter any credit for federal excise taxes using code A. organization be created or organized in paid on fuels that are ultimately used the United States. Attach Form 1041-T to your return for nontaxable purposes (for example, only if you have not yet filed it; A pooled income fund or a section an off-highway business use). Attach however, attaching Form 1041-T to 4947(a)(1) nonexempt charitable trust Form 4136, Credit for Federal Tax Paid

Form 1041 does not extend the due treated as a private foundation must on Fuels. See Pub. 510, Excise Taxes,

date for filing Form 1041-T. If you have attach a separate sheet to Form 1041 for more information.

already filed Form 1041-T, do not instead of using Schedule A of Form

attach a copy to your return. 1041 to figure the charitable deduction. Line 26—Estimated Tax

Additional return to be filed by Penalty Failure to file Form 1041-T by trusts. Trusts, other than split-interest the due date (March 7, 2011, for If line 27 is at least $1,000 and more trusts or nonexempt charitable trusts,

CAUTION

calendar year estates and than 10% of the tax shown on Form

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that claim a charitable deduction also

trusts) will result in an invalid election. 1041, or the estate or trust underpaid file Form 1041-A unless the trust is

An invalid election will require the filing its 2010 estimated tax liability for any required to distribute currently to the of amended Schedules K-1 for each payment period, it may owe a penalty. beneficiaries all the income for the year beneficiary who was allocated a See Form 2210 to determine whether determined under section 643(b) and payment of estimated tax. the estate or trust owes a penalty and related regulations. to figure the amount of the penalty. Pooled income funds and charitable Line 24d—Tax Paid With Note. The penalty may be waived lead trusts also file Form 5227. See

Form 7004 under certain conditions. See Pub. 505, Form 5227 for information about any

Tax Withholding and Estimated Tax, for exceptions. If you filed Form 7004 to request an

extension of time to file Form 1041, details. Election to treat contributions as

enter the amount that you paid with the paid in the prior tax year. The

extension request. Line 27—Tax Due fiduciary of an estate or trust may elect

You must pay the tax in full when the to treat as paid during the tax year any

Line 24e—Federal Income return is filed. You may pay by check or amount of gross income received

Tax Withheld money order or by credit or debit card. during that tax year or any prior tax

Also, you may pay by EFTPS. For more year that was paid in the next tax year Use line 24e to claim a credit for any information about EFTPS, see for a charitable purpose. federal income tax withheld (and not Electronic Deposits on page 8. For example, if a calendar year repaid) by: (a) an employer on wages estate or trust makes a qualified and salaries of a decedent received by To pay by check or money order. charitable contribution on February 7, the decedent’s estate; (b) a payer of If you pay by check or money order: 2011, from income earned in 2010 or certain gambling winnings (for example, • Make it payable to “United States prior, then the fiduciary can elect to state lottery winnings); or (c) a payer of Treasury,” treat the contribution as paid in 2010. distributions from pensions, annuities, • Make sure the name of the estate or

retirement or profit-sharing plans, IRAs, trust appears on the payment, To make the election, the fiduciary

insurance contracts, etc., received by a • Write the estate’s or trust’s EIN and must file a statement with Form 1041

decedent’s estate or trust. Attach a “2010 Form 1041” on the payment, for the tax year in which the

copy of Form W-2, Form W-2G, or • Consider completing the 2010 Form contribution is treated as paid. This

Form 1099-R to the front of the return. 1041-V, and statement must include:

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1. The name and address of the use of an organization described in credited, or was required to distribute

fiduciary; section 170(c); or the trust must have any other amounts to beneficiaries

2. The name of the estate or trust; been created by a grantor who was at during the tax year, complete Schedule

3. An indication that the fiduciary is all times after October 9, 1969, under a B to determine the estate’s or trust’s

making an election under section mental disability to change the terms of income distribution deduction.

642(c)(1) for contributions treated as the trust. Note. Use Schedule I (Form 1041) to paid during such tax year; Also, certain testamentary trusts that compute the DNI and income

4. The name and address of each were established by a will that was distribution deduction on a minimum tax

organization to which any such executed on or before October 9, 1969, basis.

contribution is paid; and may qualify. See Regulations section Pooled income funds. Do not 5. The amount of each contribution 1.642(c)-2(b). complete Schedule B for these funds. and date of actual payment or, if Do not include any capital gains for Instead, attach a separate statement to applicable, the total amount of the tax year allocated to corpus and support the computation of the income contributions paid to each organization paid or permanently set aside for distribution deduction. See Pooled during the next tax year, to be treated charitable purposes. Instead, enter Income Funds on page 12 for more as paid in the prior tax year. these amounts on line 4. information.

The election must be filed by the due Line 2—Tax-Exempt Income Separate share rule. If a single trust date (including extensions) for Form Allocable to Charitable or an estate has more than one

1041 for the next tax year. If the original beneficiary, and if different beneficiaries Contributions return was filed on time, you may make have substantially separate and the election on an amended return filed Any estate or trust that pays or sets independent shares, their shares are

no later than 6 months after the due aside any part of its income for a treated as separate trusts or estates for date of the return (excluding charitable purpose must reduce the the sole purpose of determining the extensions). Write “Filed pursuant to deduction by the portion allocable to DNI allocable to the respective

section 301.9100-2” at the top of the any tax-exempt income. If the beneficiaries.

amended return and file it at the same governing instrument specifically If the separate share rule applies, address you used for your original provides as to the source from which figure the DNI allocable to each return. amounts are paid, permanently set beneficiary on a separate sheet and aside, or to be used for charitable For more information about the attach the sheet to this return. Any purposes, the specific provisions charitable deduction, see section 642(c) deduction or loss that is applicable control. In all other cases, determine and related regulations. solely to one separate share of the trust the amount of tax-exempt income or estate is not available to any other Specific Instructions allocable to charitable contributions by share of the same trust or estate. multiplying line 1 by a fraction, the

numerator of which is the total For more information, see section Line 1—Amounts Paid or 663(c) and related regulations. Permanently Set Aside for tax-exempt income of the estate or

Charitable Purposes From trust, and the denominator of which is Withholding of tax on foreign the gross income of the estate or trust. persons. The fiduciary may be liable Gross Income Do not include in the denominator any for withholding tax on distributions to Enter amounts that were paid for a losses allocated to corpus. beneficiaries who are foreign persons. charitable purpose out of the estate’s or For more information, see Pub. 515, Line 4—Capital Gains for the trust’s gross income, including any Withholding of Tax on Nonresident capital gains that are attributable to Tax Year Allocated to Corpus Aliens and Foreign Entities, and Forms income under the governing instrument and Paid or Permanently Set 1042 and 1042-S.

or local law. Include amounts paid Aside for Charitable Purposes during the tax year from gross income Specific Instructions Enter the total of all capital gains for the received in a prior tax year, but only if tax year that are: no deduction was allowed for any prior Line 1—Adjusted Total Income • Allocated to corpus, and tax year for these amounts. • Paid or permanently set aside for Generally, enter on line 1, Schedule B,

Estates, and certain trusts, may charitable purposes. the amount from line 17 on page 1 of

claim a deduction for amounts Form 1041. However, if both line 4 and Line 6—Section 1202 Exclusion permanently set aside for a charitable line 17 on page 1 of Form 1041 are

purpose from gross income. Such Allocable to Capital Gains Paid losses, enter on line 1, Schedule B, the

amounts must be permanently set or Permanently Set Aside for smaller of those losses. If line 4 is zero

aside during the tax year to be used Charitable Purposes or a gain and line 17 is a loss, enter

exclusively for religious, charitable, zero on line 1, Schedule B. If the exclusion of gain from the sale or scientific, literary, or educational exchange of qualified small business If you are filing for a simple trust, purposes, or for the prevention of (QSB) stock was claimed, enter the part subtract from adjusted total income any cruelty to children or animals, or for the of the gain included on Schedule A, extraordinary dividends or taxable stock establishment, acquisition, lines 1 and 4, that was excluded under dividends included on page 1, line 2, maintenance, or operation of a public section 1202. and determined under the governing cemetery not operated for profit. instrument and applicable local law to

For a trust to qualify, the trust may be allocable to corpus.

not be a simple trust, and the set aside Schedule B—Income Line 2—Adjusted Tax-Exempt amounts must be required by the terms Distribution Deduction Interest of a trust instrument that was created

on or before October 9, 1969. To figure the adjusted tax-exempt

General Instructions interest: Further, the trust instrument must

provide for an irrevocable remainder If the estate or trust was required to Step 1. Add tax-exempt interest

interest to be transferred to or for the distribute income currently or if it paid, income on line 2 of Schedule A, any

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expenses allowable under section 212 Line 8—Accounting Income day of the tax year and must be

allocable to tax-exempt interest, and included on line 10. If you are filing for a decedent’s estate any interest expense allocable to or a simple trust, skip this line. If you Unless a section 643(e)(3) election tax-exempt interest. are filing for a complex trust, enter the is made, the value of all noncash

Step 2. income for the tax year determined property actually paid, credited, or Subtract the Step 1 total

from the amount of tax-exempt interest under the terms of the governing required to be distributed to any

instrument and applicable local law. Do beneficiaries is the smaller of: (including exempt-interest dividends)

received. not include extraordinary dividends or 1. The estate’s or trust’s adjusted taxable stock dividends determined basis in the property immediately Section 212 expenses that are under the governing instrument and before distribution, plus any gain or directly allocable to tax-exempt interest applicable local law to be allocable to minus any loss recognized by the are allocated only to tax-exempt corpus. estate or trust on the distribution (basis interest. A reasonable proportion of of beneficiary), or section 212 expenses that are indirectly Lines 9 and 10 2. The FMV of such property. allocable to both tax-exempt interest Do not include any: and other income must be allocated to If a section 643(e)(3) election is made • Amounts deducted on prior year’s each class of income. by the fiduciary, then the amount return that were required to be entered on line 10 will be the FMV of Figure the interest expense allocable distributed in the prior year; the property. to tax-exempt interest according to the • Amount that is properly paid or

guidelines in Rev. Proc. 72-18, 1972-1 credited as a gift or bequest of a A fiduciary of a complex trust or a

C.B. 740. specific amount of money or specific decedent’s estate may elect to treat

property. (To qualify as a gift or any amount paid or credited to a See Regulations sections 1.643(a)-5 bequest, the amount must be paid in beneficiary within 65 days following the and 1.265-1 for more information. three or fewer installments.) An amount close of the tax year as being paid or

Line 3 that can be paid or credited only from credited on the last day of that tax year.

income is not considered a gift or To make this election, see the Include all capital gains, whether or not bequest; or instructions for Question 6 on page 29. distributed, that are attributable to

income under the governing instrument • Amount paid or permanently set The beneficiary includes the

or local law. For example, if the trustee aside for charitable purposes or amounts on line 10 in his or her income

distributed 50% of the current year’s otherwise qualifying for the charitable only to the extent of his or her deduction. proportionate share of the DNI. capital gains to the income

beneficiaries (and reflects this amount Complex trusts. If the second tier Line 9—Income Required To Be in column (1), line 15 of Schedule D distributions exceed the DNI allocable Distributed Currently (Form 1041)), but under the governing to the second tier, the trust may have

instrument all capital gains are Line 9 is to be completed by all simple an accumulation distribution. See the

attributable to income, then include trusts as well as complex trusts and line 11 instructions below.

100% of the capital gains on line 3. If decedent’s estates that are required to

distribute income currently, whether it is Line 11—Total Distributions the amount on Schedule D (Form

1041), line 15, column (1) is a net loss, distributed or not. The determination of If line 11 is more than line 8, and you

enter zero. whether trust income is required to be are filing for a complex trust that has

distributed currently depends on the previously accumulated income, see If the exclusion of gain from the sale terms of the governing instrument and the instructions on page 29 to see if or exchange of QSB stock was the applicable local law. you must complete Schedule J (Form claimed, do not reduce the gain on line 1041). 3 by any amount excluded under The line 9 distributions are referred

section 1202. to as first tier distributions and are Line 12—Adjustment for

deductible by the estate or trust to the Tax-Exempt Income Line 5 extent of the DNI. The beneficiary In figuring the income distribution In figuring the amount of long-term and includes such amounts in his or her deduction, the estate or trust is not short-term capital gain for the tax year income to the extent of his or her allowed a deduction for any item of the included on Schedule A, line 1, the proportionate share of the DNI. DNI that is not included in the gross specific provisions of the governing income of the estate or trust. Thus, for Line 10—Other Amounts Paid, instrument control if the instrument purposes of figuring the allowable specifically provides as to the source Credited, or Otherwise income distribution deduction, the DNI from which amounts are paid, Required To Be Distributed (line 7) is figured without regard to any permanently set aside, or to be used for Line 10 is to be completed only by a tax-exempt interest. charitable purposes. decedent’s estate or complex trust. If tax-exempt interest is the only In all other cases, determine the These distributions consist of any other tax-exempt income included in the total amount to enter by multiplying line 1 of amounts paid, credited, or required to distributions (line 11), and the DNI (line Schedule A by a fraction, the numerator be distributed and are referred to as 7) is less than or equal to line 11, then of which is the amount of net capital second tier distributions. Such amounts enter on line 12 the amount from line 2.

gains that are included in the include annuities to the extent not paid If tax-exempt interest is the only accounting income of the estate or trust out of income, mandatory and tax-exempt income included in the total (that is, not allocated to corpus) and are discretionary distributions of corpus, distributions (line 11), and the DNI is distributed to charities, and the and distributions of property in kind. more than line 11 (that is, the estate or denominator of which is all items of If Form 1041-T was timely filed to trust made a distribution that is less income (including the amount of such elect to treat estimated tax payments than the DNI), then figure the net capital gains) included in the DNI. as made by a beneficiary, the adjustment by multiplying line 2 by a

Reduce the amount on line 5 by any payments are treated as paid or fraction, the numerator of which is the

allocable section 1202 exclusion. credited to the beneficiary on the last total distributions (line 11), and the

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denominator of which is the DNI (line 2010 Tax Rate Schedule 1041 if the estate or trust received

7). Enter the result on line 12. qualified dividends that were IRD. If taxable

income Line 1c—AMT. Attach Schedule I

is: If line 11 includes tax-exempt (Form 1041) if: Of the income other than tax-exempt interest, But not • The estate or trust must complete Over— Its tax is: amount figure line 12 by subtracting the total of over— over— Schedule B.

the following from tax-exempt income $0 $2,300 15% $0 • The estate or trust claims a credit on

2,300 5,350 $345.00 + 25% 2,300 line 2b, 2c, or 2d of Schedule G. included on line 11:

5,350 8,200 1,107.50 + 28% 5,350 • The estate’s or trust’s share of 1. The charitable contribution 8,200 11,200 1,905.50 + 33% 8,200 alternative minimum taxable income deduction allocable to such tax-exempt 11,200 ----- 2,895.50 + 35% 11,200 (line 29 of Schedule I (Form 1041)) income, and exceeds $22,500.

2. Expenses allocable to tax-exempt Enter the amount from line 56 of

income. Schedule D (Form 1041) and Schedule I (Form 1041) on line 1c.

Schedule D Tax Worksheet. Use

Part V of Schedule D (Form 1041) or Line 2a—Foreign Tax Credit Expenses that are directly allocable the Schedule D Tax Worksheet, Attach Form 1116, Foreign Tax Credit to tax-exempt income are allocated only whichever is applicable, to figure the (Individual, Estate, or Trust), if you elect to tax-exempt income. A reasonable estate’s or trust’s tax if the estate or to claim credit for income or profits proportion of expenses indirectly trust files Schedule D (Form 1041) and taxes paid or accrued to a foreign

allocable to both tax-exempt income has: country or a U.S. possession. The

and other income must be allocated to • A net capital gain and any taxable estate or trust may claim credit for that

each class of income. income, or part of the foreign taxes not allocable to

• Qualified dividends on line 2b(2) of the beneficiaries (including charitable

Form 1041 and any taxable income. beneficiaries). Enter the estate’s or

trust’s share of the credit on line 2a. Qualified Dividends Tax Worksheet. Schedule G—Tax See Pub. 514, Foreign Tax Credit for If you do not have to complete Part I or Individuals, for details.

Computation Part II of Schedule D and the estate or

trust has an amount entered on line Line 2b—General Business 2b(2) of Form 1041 and any taxable Line 1a Credit income (line 22), then figure the

2010 tax rate schedule. For tax years estate’s or trust’s tax using the Do not include any amounts that beginning in 2010, figure the tax using worksheet below and enter the tax on are allocated to a beneficiary. line 1a. the Tax Rate Schedule below and enter Credits that are allocated

CAUTION

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the tax on line 1a. However, see the Note. You must reduce the amount between the estate or trust and the

Instructions for Schedule D (Form you enter on line 2b(2) of Form 1041 by beneficiaries are listed in the

1041) and the Qualified Dividends Tax the portion of the section 691(c) instructions for Schedule K-1, box 13,

Worksheet below. deduction claimed on line 19 of Form on page 34. Generally, these credits

Qualified Dividends Tax Worksheet—Schedule G, line 1a Keep for Your Records

Caution: Do not use this worksheet if the estate or trust must complete Schedule D (Form 1041).

1. Enter the amount from Form 1041, line 22 ......................... . 1.

2. Enter the amount from Form 1041, line 2b(2) ....... . 2.

3. If you are claiming investment interest expense on Form

4952, enter the amount from line 4g; otherwise enter -0- 3.

4. Subtract line 3 from line 2. If zero or less, enter -0- ................... . 4.

5. Subtract line 4 from line 1. If zero or less, enter -0- ................... . 5.

6. Enter the smaller of the amount on line 1 or $2,300 .................. . 6.

7. Is the amount on line 5 equal to or more than the amount on line 6?

 Yes. Skip lines 7 and 8; go to line 9 and check the ‘‘No’’ box.

No. Enter the amount from line 5 ........................... . 7.

8. Subtract line 7 from line 6 .................................... . 8.

9. Are the amounts on lines 4 and 8 the same?

 Yes. Skip lines 9 through 12; go to line 13.

No. Enter the smaller of line 1 or line 4 ....................... . 9.

10. Enter the amount from line 8 (if line 8 is blank, enter -0-) ............... . 10.

11. Subtract line 10 from line 9 .................................... . 11.

12. Multiply line 11 by 15% (.15) .................................................. . 12.

13. Figure the tax on the amount on line 5. Use the 2010 Tax Rate Schedule .................. . 13.

14. Add lines 12 and 13 ......................................................... . 14.

15. Figure the tax on the amount on line 1. Use the 2010 Tax Rate Schedule .................. . 15.

16. Tax on all taxable income. Enter the smaller of line 14 or line 15 here and on Sch. G, line 1a ... . 16.

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are apportioned on the basis of the recaptured. See Regulations 1.30-1(b) 2. The estate or trust withheld

income allocable to the estate or trust for details. If the estate or trust owes federal income tax during 2010 at the

and the beneficiaries. any recapture tax, include it on line 5 request of any household employee.

Enter on line 2b the estate’s or and write “QEVCR” on the dotted line to 3. The estate or trust paid total cash

the left of the entry space. wages of $1,000 or more in any trust’s total general business credit calendar quarter of 2009 or 2010 to allowed for the current year from Form Recapture of the Indian employment household employees. 3800. The estate or trust must file Form credit. Generally, if the estate or trust 3800 to claim any of the general terminates a qualified employee less Note. See Amended Schedule H business credits. If the estate’s or than 1 year after the date of initial (Form 1040) under F. Initial Return, trust’s only source of credits listed in employment, any Indian employment Amended Return, etc., earlier for Part I for Form 3800 is from credit allowed for a prior tax year by information on filing an amended passthrough entities, you may not be reason of wages paid or incurred to that Schedule H (Form 1040) for a Form required to complete the source credit employee must be recaptured. See 1041. form. See the Instructions for Form Form 8845 for details. If the estate or 3800 for more information. trust owes any recapture tax, include it Line 7—Total Tax

Line 2c—Credit for Prior on line 5 and write “IECR” on the dotted Tax on ESBTs. Attach the tax line to the left of the entry space. Year Minimum Tax computation to the return. To the left of

Recapture of the new markets credit. the line 7 entry space, write “Sec. An estate or trust that paid AMT in a If the estate or trust owes any new 641(c)” and the amount of tax on the S previous year may be eligible for a markets recapture tax, include it on line corporation items. Include this amount minimum tax credit in 2010. See Form in the total tax on line 7. 8801, Credit for Prior Year Minimum 5 and write “NMCR” on the dotted line

Tax— to the left of the entry space. For more See Electing Small Business Trusts Individuals, Estates, and Trusts. information, including how to figure the (ESBTs) on page 12 for the special tax

Line 2d—Bond Credits recapture amount, see section 45D(g). computation rules that apply to the

Complete and attach Form 8912, Credit portion of an ESBT consisting of stock Recapture of the credit for in one or more S corporations. to Holders of Tax Credit Bonds, if the employer-provided child care estate or trust claims a credit for Interest on deferred tax attributable facilities. If the facility ceased to holding a tax credit bond. Also, be sure to installment sales of certain operate as a qualified child care facility to include the credit in interest income. timeshares and residential lots and or there was a change in ownership, certain nondealer real property Line 3—Total Credits part or all of the credit may have to be installment obligations. If an recaptured. See Form 8882 for details. To claim a credit allowable to the estate obligation arising from the disposition of If the estate or trust owes any recapture or trust other than the credits entered real property to which section 453(l) or tax, include it on line 5 and write on lines 2a through 2d, include the 453A applies is outstanding at the close “ECCFR” on the dotted line to the left of allowable credit in the total for line 3. of the year, the estate or trust must the entry space. Complete and attach the appropriate include the interest due under section

form and write the form number and Recapture of the alternative motor 453(l)(3)(B) or 453A(c), whichever is

amount of the allowable credit on the vehicle credit. See section 30B(h)(8) applicable, in the amount to be entered

dotted line to the left of the entry space. on line 7 of Schedule G, Form 1041, for details. Include the tax on line 5 and

write “AMVCR” on the dotted line to the with the notation “Section 453(l) Line 5—Recapture Taxes interest” or “Section 453A(c) interest,” left of the entry space. whichever is applicable. Attach a Recapture of investment credit. If Recapture of the alternative fuel schedule showing the computation. the estate or trust disposed of vehicle refueling property credit. investment credit property or changed Form 4970, Tax on Accumulation See section 30C(e)(5) for details. its use before the end of the recapture Distribution of Trusts. Include on this Include the tax on line 5 and write period, see Form 4255, Recapture of line any tax due on an accumulation “ARPCR” on the dotted line to the left of distribution from a trust. To the left of Investment Credit, to figure the the entry space. recapture tax allocable to the estate or the entry space, write “From Form

4970” and the amount of the tax. trust. Include the tax on line 5 and write Line 6—Household “ICR” on the dotted line to the left of the Form 8697, Interest Computation

entry space. Employment Taxes Under the Look-Back Method for

Recapture of low-income housing If any of the following apply, get Completed Long-Term Contracts.

credit. If the estate or trust disposed Schedule H (Form 1040), Household Include the interest due under the

of property (or there was a reduction in Employment Taxes, and its instructions, look-back method of section 460(b)(2). 

the qualified basis of the property) on to see if the estate or trust owes these To the left of the entry space, write

which the low-income housing credit taxes. “From Form 8697” and the amount of

was claimed, see Form 8611, interest due. 1. The estate or trust paid any one Recapture of Low-Income Housing household employee cash wages of Form 8866, Interest Computation

Credit, to figure any recapture tax $1,700 or more in 2010. Cash wages Under the Look-Back Method for

allocable to the estate or trust. Include include wages paid by checks, money Property Depreciated Under the

the tax on line 5 and write “LIHCR” on orders, etc. When figuring the amount Income Forecast Method. Include

the dotted line to the left of the entry of cash wages paid, combine cash the interest due under the look-back

space. wages paid by the estate or trust with method of section 167(g)(2). To the left

Recapture of qualified electric cash wages paid to the household of the entry space, write “From Form

vehicle credit. employee in the same calendar year by 8866” and the amount of interest due. If the estate or trust

claimed the qualified electric vehicle the household of the decedent or Interest on deferral of gain from

credit in a prior tax year for a vehicle beneficiary for whom the administrator, certain constructive ownership

that ceased to qualify for the credit, part executor, or trustee of the estate or transactions. Include the interest due

or all of the credit may have to be trust is acting. under section 1260(b) on any deferral

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of gain from certain constructive Exception. Check “No” if either of the information already reported on Form

ownership transactions. To the left of following applies to the estate or trust: 1098.

the entry space, write “1260(b)” and the • The combined value of the accounts

amount of interest due. was $10,000 or less during the whole Question 6

Form 5329, Additional Taxes on year, or To make the section 663(b) election to Qualified Plans (Including IRAs) and • The accounts were with a U.S. treat any amount paid or credited to a Other Tax-Favored Accounts. If the military banking facility operated by a beneficiary within 65 days following the estate or trust fails to receive the U.S. financial institution. close of the tax year as being paid or minimum distribution under section Get Form TD F 90-22.1, Report of credited on the last day of that tax year, 4974, use Form 5329 to pay the excise Foreign Bank and Financial Accounts, check the box. This election can be tax. To the left of the entry space, write to see if the estate or trust is made by the fiduciary of a complex “From Form 5329” and the amount of considered to have an interest in or trust or the executor of a decedent’s

the tax. signature or other authority over a estate. For the election to be valid, you

bank, securities, or other financial must file Form 1041 by the due date

account in a foreign country. You can (including extensions). Once made, the Other Information get Form TD F 90-22.1 from the IRS election is irrevocable.

website at www.irs.gov/pub/irs-pdf/

Question 1 f90221.pdf. Question 7

If the estate or trust received If you checked “Yes” for Question 3, To make the section 643(e)(3) election tax-exempt income, figure the allocation file Form TD F 90-22.1 by June 30, to recognize gain on property of expenses between tax-exempt and 2011, with the Department of the distributed in kind, check the box and taxable income on a separate sheet Treasury at the address shown on the see the Instructions for Schedule D

and attach it to the return. Enter only form. Form TD F 90-22.1 is not a tax (Form 1041). the deductible amounts on the return. return, so do not file it with Form 1041.

Do not figure the allocation on the If you are required to file Form Question 9 return itself. For more information, see

the instructions for Allocation of TD F 90-22.1 but do not, you Generally, a beneficiary is a skip

CAUTION

may have to pay a penalty of up person if the beneficiary is in a

!

Deductions for Tax-Exempt Income on

page 19. to $10,000 (more in some cases). generation that is two or more

generations below the generation of the Report the amount of tax-exempt Question 4 transferor to the trust. interest income received or accrued in

the space provided below Question 1. The estate or trust may be required to To determine if a beneficiary that is a file Form 3520, Annual Return To Also, include any exempt-interest trust is a skip person, and for Report Transactions With Foreign dividends the estate or trust received exceptions to the general rules, see the Trusts and Receipt of Certain Foreign as a shareholder in a mutual fund or definition of a skip person in the Gifts, if: other regulated investment company. instructions for Schedule R of Form • It directly or indirectly transferred 706. Question 2 property or money to a foreign trust.

For this purpose, any U.S. person who All salaries, wages, and other created a foreign trust is considered a compensation for personal services

must be included on the return of the transferor; Schedule J (Form 1041) • It is treated as the owner of any part person who earned the income, even if of the assets of a foreign trust under — Accumulation the income was irrevocably assigned to the grantor trust rules; or a trust by a contract assignment or Distribution for Certain • It received a distribution from a similar arrangement. foreign trust. Complex Trusts The grantor or person creating the

trust is considered the owner if he or An owner of a foreign trust must General Instructions she keeps “beneficial enjoyment” of or ensure that the trust files an

annual information return on Use Schedule J (Form 1041) to report

TIP

substantial control over the trust

property. The trust’s income, Form 3520-A, Annual Information an accumulation distribution for a

deductions, and credits are allocable to Return of Foreign Trust With a U.S. domestic complex trust that was:

the owner. Owner. • Previously treated at any time as a

foreign trust (unless an exception is If you checked “Yes” for Question 2, Question 5 provided in future regulations), or see Special Reporting Instructions on • Created before March 1, 1984, page 11. An estate or trust claiming an interest unless that trust would not be deduction for qualified residence

Question 3 aggregated with other trusts under the interest (as defined in section rules of section 643(f) if that section Check the “Yes” box and enter the 163(h)(3)) on seller-provided financing

must include on an attachment to the applied to the trust. name of the foreign country if either 1

or 2 below applies. 2010 Form 1041 the name, address, An accumulation distribution is the and TIN of the person to whom the 1. The estate or trust owns more excess of amounts properly paid, interest was paid or accrued (that is, than 50% of the stock in any credited, or required to be distributed the seller). corporation that owns one or more (other than income required to be

foreign bank accounts. If the estate or trust received or distributed currently) over the DNI of

2. At any time during the year the accrued such interest, it must provide the trust reduced by income required to

estate or trust had an interest in or identical information on the person be distributed currently. To have an

signature or other authority over a liable for such interest (that is, the accumulation distribution, the

bank, securities, or other financial buyer). This information does not need distribution must exceed the accounting

account in a foreign country. to be reported if it duplicates income of the trust.

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Specific Instructions 1983 – 1996 ..... . Form 1041, Schedule B, line 9 Regulations section 1.643(b)-1. Some 1997 – 2009 ..... . Form 1041, Schedule B, line 7 examples of outside income are: (a)

Part I—Accumulation income taxable to the trust under For information about throwback section 691; (b) unrealized accounts Distribution in 2010 years, see the instructions for line 13. receivable that were assigned to the For purposes of line 6, in figuring the trust; and (c) distributions from another Line 1—Distribution Under DNI of the trust for a throwback year, trust that include the DNI or UNI of the Section 661(a)(2) subtract any estate tax deduction for other trust. IRD if the income is includible in Enter the amount from Form 1041,

Schedule B, line 10, for 2010. This is figuring the DNI of the trust for that Line 16—Tax-Exempt Interest

year. the amount properly paid, credited, or Included on Line 13

required to be distributed other than the Line 7—Distributions Made For each throwback year, divide line 15 amount of income for the current tax During Earlier Years by line 6 and multiply the result by the year required to be distributed currently. following: Enter the applicable amounts as Line 2—DNI follows: Throwback Amount from line

Enter the amount from Form 1041, year(s)

Throwback Amount from line Schedule B, line 7, for 2010. This is the 1969 – 1977 ... . Form 1041, Schedule C, line 2(a) year(s)

amount of DNI for the current tax year 1978 – 1979 ... . Form 1041, line 58(a)

1969 – 1977 ..... . Form 1041, Schedule C, line 8 1980 ....... . Form 1041, line 57(a) determined under section 643(a). 1978 ......... . Form 1041, line 64 1981 – 1982 ... . Form 1041, line 55(a)

1979 ......... . Form 1041, line 65 1983 – 2009 ... . Form 1041, Schedule B, line 2 Line 3—Distribution Under 1980 ......... . Form 1041, line 64

Section 661(a)(1) 1981 – 1982 ..... . Form 1041, line 62

1983 – 1996 ..... . Form 1041, Schedule B, line 13 Part III—Taxes Imposed on Enter the amount from Form 1041,

Schedule B, line 9, for 2010. This is the 1997 – 2009 ..... . Form 1041, Schedule B, line 11 Undistributed Net Income

amount of income for the current tax For the regular tax computation, if there Line 11—Prior Accumulation year required to be distributed currently. is a capital gain, complete lines 18 Distribution Thrown Back to through 25 for each throwback year. If Line 5—Accumulation Any Throwback Year the trustee elected the alternative tax Distribution Enter the amount of prior accumulation on capital gains, complete lines 26

If line 11 of Form 1041, Schedule B, is distributions thrown back to the through 31 instead of lines 18 through

more than line 8 of Form 1041, throwback years. Do not enter 25 for each applicable year. If there is

Schedule B, complete the rest of distributions excluded under section no capital gain for any year, or there is

Schedule J and file it with Form 1041, 663(a)(1) for gifts, bequests, etc. a capital loss for every year, enter on

unless the trust has no previously line 9 the amount of the tax for each

accumulated income. Line 13—Throwback Years year identified in the instruction for line

Generally, amounts accumulated Allocate the amount on line 5 that is an 18 and do not complete Part III. If the

accumulation distribution to the earliest trust received an accumulation before a beneficiary reaches age 21

may be excluded by the beneficiary. applicable year first, but do not allocate distribution from another trust, see

See sections 665 and 667(c) for more than the amount on line 12 for Regulations section 1.665(b)-1A.

exceptions relating to multiple trusts. any throwback year. An accumulation Note. The alternative tax on capital distribution is thrown back first to the The trustee reports to the IRS the total gains was repealed for tax years earliest preceding tax year in which amount of the accumulation distribution beginning after December 31, 1978. there is undistributed net income (UNI). before any reduction for income The maximum rate on net capital gain Then, it is thrown back beginning with accumulated before the beneficiary for 1981, 1987, and 1991 through 2009 the next earliest year to any remaining reaches age 21. If the multiple trust is not an alternative tax for this preceding tax years of the trust. The rules do not apply, the beneficiary purpose. portion of the accumulation distribution claims the exclusion when filing Form

4970, as you may not be aware that the allocated to the earliest preceding tax Line 18—Regular Tax

beneficiary may be a beneficiary of year is the amount of the UNI for that Enter the applicable amounts as year. The portion of the accumulation other trusts with other trustees. follows:

distribution allocated to any remaining For examples of accumulation preceding tax year is the amount by Throwback Amount from line

distributions that include payments from which the accumulation distribution is year(s)

one trust to another trust, and amounts larger than the total of the UNI for all 1969 – 1976 ... . Form 1041, page 1, line 24

distributed for a dependent’s support, 1977 ....... . Form 1041, page 1, line 26 earlier preceding tax years. see Regulations section 1.665(b)-1A(b). 1978 – 1979 ... . Form 1041, line 27

A tax year of a trust during which the 1980 – 1984 ... . Form 1041, line 26c

Part II—Ordinary Income 1985 – 1986 ... . Form 1041, line 25c trust was a simple trust for the entire 1987 ....... . Form 1041, line 22c Accumulation Distribution year is not a preceding tax year unless 1988 – 2009 ... . Form 1041, Schedule G, line 1a (a) during that year the trust received Enter the applicable year at the top of outside income, or (b) the trustee did each column for each throwback year. Line 19—Trust’s Share of Net not distribute all of the trust’s income Short-Term Gain Line 6—DNI for Earlier Years that was required to be distributed

currently for that year. In this case, UNI For each throwback year, enter the Enter the applicable amounts as for that year must not be more than the smaller of the capital gain from the two follows: greater of the outside income or income lines indicated. If there is a capital loss

Throwback not distributed during that year. or a zero on either or both of the two

year(s) Amount from line lines indicated, enter zero on line 19. The term “outside income” means

1969 – 1977 ..... . Form 1041, Schedule C, line 5 amounts that are included in the DNI of Throwback Amount from line 1978 – 1979 ..... . Form 1041, line 61 year(s) 1980 the trust for that year but that are not ......... . Form 1041, line 60

1981 – 1982 ..... . Form 1041, line 58 “income” of the trust as defined in 1969 – 1970 . . Schedule D, line 10, column 2, or

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Schedule D, line 12, column 2 1970 .......... . Schedule D, line 19

1971 – 1978 . . Schedule D, line 14, column 2, or 1971 .......... . Schedule D, line 50

Schedule D, line 16, column 2 1972 – 1975 ...... . Schedule D, line 48 Schedule K-1 (Form

1979 ..... . Schedule D, line 18, column (b), or 1976 – 1978 ...... . Schedule D, line 27

Schedule D, line 20, column (b) 1041)— Beneficiary’s

1980 – 1981 . . Schedule D, line 14, column (b), or

Schedule D, line 16, column (b) Line 27—Trust’s Share of Net Share of Income,

1982 ..... . Schedule D, line 16, column (b), or Short-Term Gain

Schedule D, line 18, column (b) Deductions, Credits, etc. If there is a loss on any of the following 1983 – 1996 . . Schedule D, line 15, column (b), or lines, enter zero on line 27 for the Schedule D, line 17, column (b) applicable throwback year. Otherwise, General Instructions

1997 – 2002 . . Schedule D, line 14, column (2), or enter the applicable amounts as Use Schedule K-1 (Form 1041) to Schedule D, line 16, column (2)

2003 ..... . Schedule D, line 14a, column (2), or follows: report the beneficiary’s share of

Schedule D, line 16a, column (2) income, deductions, and credits from a

2004 – 2009 . . Schedule D, line 13, column (2), or Throwback Amount from line trust or a decedent’s estate.

Schedule D, line 15, column (2) year(s)

1969 – 1970 ... . Schedule D, line 10, column 2 Grantor type trusts do not use 1971 – 1978 ... . Schedule D, line 14, column 2 Line 20—Trust’s Share of Net Schedule K-1 (Form 1041) to

Long-Term Gain report the income, deductions,

CAUTION

!

Line 28—Trust’s Share of

Enter the applicable amounts as or credits of the grantor (or other Taxable Income Less Section person treated as owner). See Grantor follows: 1202 Deduction Type Trusts on page 11.

Throwback Amount from line Enter the applicable amounts as year(s) follows: Who Must File

1969 – 1970 ..... . 50% of Schedule D, line 13(e) The fiduciary (or one of the joint Throwback year(s) Amount from line 1971 – 1977 ..... . 50% of Schedule D, line 17(e) fiduciaries) must file Schedule K-1. A 1969 ........... . Schedule D, line 19 1978 ......... . Schedule D, line 17(e), or line copy of each beneficiary’s Schedule 1970 ........... . Schedule D, line 18 31, whichever is applicable, 1971 ........... . Schedule D, line 38 K-1 is attached to the Form 1041 filed

less Form 1041, line 23 1972 – 1975 ....... . Schedule D, line 39 with the IRS, and each beneficiary is 1979 ......... . Schedule D, line 25 or line 27, 1976 – 1978 ....... . Schedule D, line 21 given a copy of his or her respective whichever is applicable, less

Form 1041, line 23 Schedule K-1. One copy of each

1980 – 1981 ..... . Schedule D, line 21, less Part IV—Allocation to Schedule K-1 must be retained for the

Schedule D, line 22 Beneficiary fiduciary’s records. 1982 ......... . Schedule D, line 23, less

1983 – 1986 ..... . Schedule D, line 22, less

Schedule D, line 24 Complete Part IV for each beneficiary. Beneficiary’s Identifying If the accumulation distribution is Schedule D, line 23 Number allocated to more than one beneficiary, 1987 – 1996 ..... . Schedule D, the smaller 

attach an additional copy of Schedule J As a payer of income, you are required of any gain on line 16 

 or line 17, column (b) with Part IV completed for each to request and provide a proper

additional beneficiary. Give each identifying number for each recipient of 1997 – 2001 ..... . Schedule D, the smaller

of any gain on line 15c or beneficiary a copy of his or her income. Enter the beneficiary’s number

line 16, column (2) respective Part IV information. If more on the respective Schedule K-1 when

2002 ......... . Schedule D, the smaller than 5 throwback years are involved, you file Form 1041. Individuals and

of any gain on line 15a or use another Schedule J, completing business recipients are responsible for

line 16, column (2) Parts II and III for each additional giving you their TINs upon request. You

2003 ......... . Schedule D, the smaller throwback year. may use Form W-9 to request the

of any gain on line 15a or beneficiary’s identifying number. line 16a, column (2) If the beneficiary is a nonresident

2004 – 2009 ..... . Schedule D, the smaller alien individual or a foreign corporation, Penalty. You may be charged a $50 of any gain on line 14a see section 667(e) about retaining the penalty for each failure to provide a or line 15, column (2) character of the amounts distributed to required TIN, unless reasonable cause determine the amount of the U.S. is established for not providing it. Line 22—Taxable Income withholding tax. Explain any reasonable cause in a Enter the applicable amounts as The beneficiary uses Form 4970 to signed affidavit and attach it to this follows: return. figure the tax on the distribution. The

Throwback Amount from line beneficiary also uses Form 4970 for the

year(s) section 667(b)(6) tax adjustment if an Substitute Forms

1969 – 1976 ....... . Form 1041, page 1, line 23 accumulation distribution is subject to You do not need IRS approval to use a

1977 ........... . Form 1041, page 1, line 25 estate or generation-skipping transfer substitute Schedule K-1 if it is an exact

1978 – 1979 ....... . Form 1041, line 26 tax. This is because the trustee may copy of the IRS schedule. The boxes 1980 – 1984 ....... . Form 1041, line 25

1985 – 1986 ....... . Form 1041, line 24 not be the estate or generation-skipping must use the same numbers and titles

1987 ........... . Form 1041, line 21 transfer tax return filer. and must be in the same order and

1988 – 1996 ....... . Form 1041, line 22 format as on the comparable IRS 1997 ........... . Form 1041, line 23 Schedule K-1. The substitute schedule 1998 – 2009 ....... . Form 1041, line 22 must include the OMB number and the

6-digit form ID code in the upper Line 26—Tax on Income Other right-hand corner of the schedule. Than Long-Term Capital Gain You must provide each beneficiary Enter the applicable amounts as with the Instructions for Beneficiary follows: Filing Form 1040 or other prepared

Throwback Amount from line specific instructions for each item

year(s) reported on the beneficiary’s Schedule

1969 .......... . Schedule D, line 20 K-1.

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Inclusion of Amounts in year that were credited or required to Depreciation, Depletion, and

Beneficiaries’ Income be distributed in that earlier year. Amortization on page 18 and Rev. Rul.

Character of income. 74-530, 1974-2 C.B. 188. The Simple trust. The beneficiary of a

simple trust must include in his or her beneficiary’s income is considered to Beneficiary’s Tax Year have the same proportion of each class gross income the amount of the income The beneficiary’s income from the of items entering into the computation required to be distributed currently, estate or trust must be included in the of DNI that the total of each class has whether or not distributed, or if the beneficiary’s tax year during which the to the DNI (for example, half dividends income required to be distributed tax year of the estate or trust ends. See and half interest if the income of the currently to all beneficiaries exceeds Pub. 559 for more information, estate or trust is half dividends and half the DNI, his or her proportionate share including the effect of the death of a interest). of the DNI. The determination of beneficiary during the tax year of the whether trust income is required to be Allocation of deductions. estate or trust.

distributed currently depends on the Generally, items of deduction that enter

terms of the trust instrument and into the computation of DNI are General Reporting applicable local law. See Regulations allocated among the items of income to Information section 1.652(c)-4 for a comprehensive the extent such allocation is not

inconsistent with the rules set out in If the return is for a fiscal year or a example. section 469 and its regulations, relating short tax year, fill in the tax year space Estates and complex trusts. The to passive activity loss limitations, in the at the top of each Schedule K-1. On beneficiary of a decedent’s estate or following order. each Schedule K-1, enter the complex trust must include in his or her information about the estate or trust gross income the sum of: First, all deductions directly and the beneficiary in Parts I and II attributable to a specific class of income 1. The amount of the income (items A through H). In Part III, enter are deducted from that income. For required to be distributed currently, or if the beneficiary’s share of each item of example, rental expenses, to the extent the income required to be distributed income, deduction, credit, and any allowable, are deducted from rental currently to all beneficiaries exceeds other information the beneficiary needs income. the DNI (figured without taking into to file his or her income tax return.

account the charitable deduction), his Second, deductions that are not Codes. In box 9 and boxes 11 through or her proportionate share of the DNI directly attributable to a specific class of 14, identify each item by entering a (as so figured), and income generally may be allocated to code in the column to the left of the 2. All other amounts properly paid, any class of income, as long as a entry space for the dollar amount. credited, or required to be distributed, reasonable portion is allocated to any These codes are identified in these or if the sum of the income required to tax-exempt income. Deductions instructions and on the back of the be distributed currently and other considered not directly attributable to a Schedule K-1. amounts properly paid, credited, or specific class of income under this rule

required to be distributed to all Attached statements. Enter an include fiduciary fees, safe deposit box

beneficiaries exceeds the DNI, his or asterisk (*) after the code, if any, in the rental charges, and state income and

her proportionate share of the excess column to the left of the dollar amount personal property taxes. The charitable

of DNI over the income required to be entry space for each item for which you deduction, however, must be ratably

distributed currently. have attached a statement providing apportioned among each class of additional information. For those income included in DNI.

See Regulations section 1.662(c)-4 informational items that cannot be Finally, any excess deductions that for a comprehensive example. reported as a single dollar amount, are directly attributable to a class of enter the code and asterisk in the For complex trusts that have more income may be allocated to another left-hand column and enter “STMT” in than one beneficiary, and if different class of income. However, in no case the entry space to the right to indicate beneficiaries have substantially can excess deductions from a passive that the information is provided on an separate and independent shares, their activity be allocated to income from a attached statement. More than one shares are treated as separate trusts nonpassive activity, or to portfolio attached statement can be placed on for the sole purpose of determining the income earned by the estate or trust. the same sheet of paper and should be amount of DNI allocable to the Excess deductions attributable to identified in alphanumeric order by box respective beneficiaries. A similar rule tax-exempt income cannot offset any number followed by the letter code (if applies to treat substantially separate other class of income. any). For example: “Box 9, Code and independent shares of different In no case can deductions be A—Depreciation” (followed by the beneficiaries of an estate as separate allocated to an item of income that is information the beneficiary needs). estates. For examples of the application not included in the computation of DNI, of the separate share rule, see the Too few entry spaces on Schedule or attributable to corpus. regulations under section 663(c). K-1? If the estate or trust has more

You cannot show any negative coded items than the number of spaces Gifts and bequests. Do not include in amounts for any class of income shown in box 9 or boxes 11 through 14, do not the beneficiary’s income any gifts or in boxes 1 through 8 of Schedule K-1. enter a code or dollar amount in the last bequests of a specific sum of money or However, for the final year of the estate entry space of the box. In the last entry of specific property under the terms of or trust, certain deductions or losses space, enter an asterisk in the left the governing instrument that are paid can be passed through to the column and enter “STMT” in the entry or credited in three installments or less. beneficiary(ies). See the instructions for space to the right. Report the additional Amounts that can be paid or credited box 11 for more information on these items on an attached statement and

only from income of the estate or trust deductions and losses. Also, the provide the box number, code, do not qualify as a gift or bequest of a beneficiary’s share of depreciation and description, and dollar amount or specific sum of money. depletion is apportioned separately. information for each additional item. For

Past years. Do not include in the These deductions may be allocated to example: “Box 13, Code H—Alcohol

beneficiary’s income any amounts the beneficiary(ies) in amounts greater and Cellulosic Biofuels Fuel

deducted on Form 1041 for an earlier than his or her income. See Credit—$500.00.”

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Specific Instructions Boxes 4a through 4c—Net estates and trusts have not yet been

Long-Term Capital Gain issued.

Part I. Information About the Enter the beneficiary’s share of the net Any directly apportionable deduction,

long-term capital gain from Schedule D such as depreciation, is treated by the Estate or Trust

(Form 1041), lines 14a through 14c, beneficiary as having been incurred in On each Schedule K-1, enter the name, column (1), minus allocable deductions. the same activity as incurred by the address, and identifying number of the estate or trust. However, the character estate or trust. Also, enter the name Do not enter a loss in boxes 4a of such deduction may be determined and address of the fiduciary. through 4c. If, for the final year of the as if the beneficiary incurred the estate or trust, there is a capital loss deduction directly. Item D carryover, enter in box 11, using code

C, the beneficiary’s share of the To assist the beneficiary in figuring If the fiduciary of a trust or decedent’s long-term capital loss carryover. (If the any applicable passive activity loss estate filed Form 1041-T, you must beneficiary is a corporation, see the limitations, also attach a separate check this box and enter the date it was

instructions for box 3.) See section schedule showing the beneficiary’s filed.

642(h) and related regulations for more share of directly apportionable

Item E deductions derived from each trade or information.

business, rental real estate, and other If this is the final year of the estate or Gains or losses from the complete or rental activity. trust, you must check this box. partial disposition of a rental, rental real

estate, or trade or business activity that Enter the beneficiary’s share of Note. If this is the final K-1 for the is a passive activity must be shown on directly apportioned deductions using beneficiary, check the “Final K-1” box at an attachment to Schedule K-1. codes A through C. the top of Schedule K-1. Depreciation (code A). Enter the Box 5—Other Portfolio and Part II. Information About the beneficiary’s share of the depreciation Nonbusiness Income deductions directly apportioned to each Beneficiary Enter the beneficiary’s share of activity reported in boxes 5 through 8. Complete a Schedule K-1 for each annuities, royalties, or any other See the instructions on page 18 for a beneficiary. On each Schedule K-1, income, minus allocable deductions discussion of how the depreciation enter the beneficiary’s name, address, (other than directly apportionable deduction is apportioned between the and identifying number. deductions), that is not subject to any beneficiaries and the estate or trust.

passive activity loss limitation rules at Report any AMT adjustment or tax Item H the beneficiary level. Use boxes 6 preference item attributable to Check the foreign beneficiary box if the through 8 to report income items depreciation separately in box 12, using beneficiary is a nonresident alien subject to the passive activity rules at code G.

individual, a foreign corporation, or a the beneficiary’s level. Note. An estate or trust cannot make foreign estate or trust. Otherwise, check Boxes 6 through 8—Ordinary an election under section 179 to the domestic beneficiary box. Business Income, Rental Real expense certain depreciable business

assets. Part III. Beneficiary’s Share Estate, and Other Rental Depletion (code B). Enter the of Current Year Income, Income

beneficiary’s share of the depletion Deductions, Credits, and Enter the beneficiary’s share of trade or deduction under section 611 directly business, rental real estate, and other Other Items apportioned to each activity reported in rental income, minus allocable boxes 5 through 8. See the instructions deductions (other than directly Box 1—Interest on page 18 for a discussion of how the apportionable deductions). To assist Enter the beneficiary’s share of the depletion deduction is apportioned the beneficiary in figuring any taxable interest income minus allocable between the beneficiaries and the applicable passive activity loss deductions. estate or trust. Report any tax limitations, also attach a separate preference item attributable to depletion schedule showing the beneficiary’s Box 2a—Total Ordinary separately in box 12, using code H. share of income derived from each Dividends trade or business, rental real estate, Amortization (code C). Itemize the

Enter the beneficiary’s share of ordinary and other rental activity. beneficiary’s share of the amortization

dividends minus allocable deductions. deductions directly apportioned to each Box 9—Directly Apportioned activity reported in boxes 5 through 8. Box 3—Net Short-Term Capital Deductions Apportion the amortization deductions

Gain between the estate or trust and the

Enter the beneficiary’s share of the net The limitations on passive beneficiaries in the same way that the

activity losses and credits under depreciation and depletion deductions short-term capital gain from Schedule D section 469 apply to estates and are divided. Report any AMT

CAUTION

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(Form 1041), line 13, column (1), minus trusts. Estates and trusts that distribute adjustment attributable to amortization allocable deductions. Do not enter a income to beneficiaries are allowed to separately in box 12, using code I. loss on line 3. If, for the final year of the apportion depreciation, depletion, and estate or trust, there is a capital loss Box 10—Estate Tax Deduction amortization deductions to the carryover, enter in box 11, using code beneficiaries. These deductions are (Including Certain B, the beneficiary’s share of short-term referred to as “directly apportionable Generation-Skipping Transfer capital loss carryover. However, if the

beneficiary is a corporation, enter in deductions.” Taxes)

box 11, using code B, the beneficiary’s Rules for treating a beneficiary’s If the distribution deduction consists of

share of all short- and long-term capital income and directly apportionable any IRD, and the estate or trust was

loss carryovers as a single item. See deductions from an estate or trust and allowed a deduction under section

section 642(h) and related regulations other rules for applying the passive loss 691(c) for the estate tax paid

for more information. and credit limitations to beneficiaries of attributable to such income (see the

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line 19 instructions on page 23), then Box 11, Codes D and E—NOL Box 13—Credits and Credit

the beneficiary is allowed an estate tax Carryover Recapture deduction in proportion to his or her Upon termination of a trust or Enter each beneficiary’s share of the share of the distribution that consists of decedent’s estate, a beneficiary credits and credit recapture using the such income. For an example of the succeeding to its property is allowed to applicable codes. Listed below are the computation, see Regulations section deduct any unused NOL (and any credits that can be allocated to the 1.691(c)-2. Figure the computation on a ATNOL) carryover for regular and AMT beneficiary(ies). Attach a statement if separate sheet and attach it to the purposes if the carryover would be additional information must be provided return. allowable to the estate or trust in a later to the beneficiary as explained below.

tax year but for the termination. Enter in Box 11, Code A—Excess • Credit for estimated taxes (code box 11, using codes D and E, the Deductions on Termination A)—Payment of estimated tax to be unused carryover amounts. credited to the beneficiary (section If this is the final return of the estate or 643(g)). trust, and there are excess deductions Box 12—AMT Items

on termination (see the instructions for See the instructions for line 24b

line 22 on page 23), enter the Adjustment for minimum tax on page 24 before you make an beneficiary’s share of the excess purposes (code A). Enter the entry to allocate any estimated

CAUTION

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deductions in box 11, using code A. beneficiary’s share of the adjustment tax payments to a beneficiary. If the Figure the deductions on a separate for minimum tax purposes. fiduciary does not make a valid sheet and attach it to the return. election, then the IRS will disallow the To figure the adjustment, subtract estimated tax payment that is reported Excess deductions on termination the beneficiary’s share of the income on Schedule K-1 and claimed on the occur only during the last tax year of distribution deduction figured on beneficiary’s return. the trust or decedent’s estate when the Schedule B, line 15, from the • Credit for backup withholding (code total deductions (excluding the beneficiary’s share of the income B). charitable deduction and exemption) distribution deduction on a minimum tax • The low-income housing credit (code are greater than the gross income basis figured on Schedule I (Form C). Attach a statement that shows the during that tax year. 1041), line 44. The difference is the beneficiary’s share of the amount, if beneficiary’s share of the adjustment Generally, a deduction based on an any, entered on line 6 of Form 8586 for minimum tax purposes. NOL carryover is not available to a with instructions to report that amount

beneficiary as an excess deduction. Note. Schedule B, line 15 equals the on line 4 of Form 8586 or line 1d of

However, if the last tax year of the sum of all Schedule K-1s, box 1, 2a, 3, Form 3800 if the beneficiary’s only

estate or trust is also the last year in 4a, 5, 6, 7, and 8. source for the credit is a passthrough

which an NOL carryover may be taken entity. Also, show the beneficiary’s

(see section 172(b)), the NOL carryover AMT adjustment attributable to share of the amount, if any, entered on

is considered an excess deduction on qualified dividends, net short-term line 19 of Form 8586 with instructions

the termination of the estate or trust to capital gains, or net long-term to report that amount on line 11 of Form

the extent it is not absorbed by the capital gains (codes B through D). If 8586.

estate or trust during its final tax year. any part of the amount reported in box • Rehabilitation credit and energy

For more information, see Regulations 12, code A, is attributable to qualified credit (code D). Attach a statement that

section 1.642(h)-4 for a discussion of dividends (code B), net short-term shows the beneficiary’s apportioned

the allocation of the carryover among capital gain (code C), or net long-term share of basis, expenditures, and other

the beneficiaries. capital gain (code D), enter that part information that is necessary for the

using the applicable code. beneficiary to complete Form 3468, Only the beneficiary of an estate or Investment Credit, for the rehabilitation trust that succeeds to its property is AMT adjustment attributable to credit and the energy credit. See the allowed to deduct that entity’s excess unrecaptured section 1250 gain or Instructions for Form 3468 for more deductions on termination. A 28% rate gain (codes E and F). Enter information. beneficiary who does not have enough the beneficiary’s distributive share of • Other qualifying investment credit income in that year to absorb the entire any AMT adjustments to the (code E). Attach a statement that deduction may not carry the balance unrecaptured section 1250 gain (code shows the beneficiary’s apportioned over to any succeeding year. An E) or 28% rate gain (code F), share of qualified investment and other individual beneficiary must be able to whichever is applicable, in box 12. information that is necessary for the itemize deductions in order to claim the Accelerated depreciation, depletion, beneficiary to complete Form 3468 for excess deductions in determining the qualifying advanced coal project and amortization (codes G through taxable income. credit, qualifying gasification project I). Enter any adjustments or tax credit, and qualifying advanced energy Box 11, Codes B and preference items attributable to project credit. See the Instructions for C—Unused Capital Loss depreciation, depletion, or amortization Form 3468 for more information. that were directly apportioned to the Carryover • Work opportunity credit (code F). beneficiary. For property placed in Upon termination of the trust or • Credit for small employer health service before 1987, report separately decedent’s estate, the beneficiary insurance premiums (code G). the accelerated depreciation of real and succeeding to the property is allowed • Alcohol and cellulosic biofuel fuels leased personal property. as a deduction any unused capital loss credit (code H). If the credit includes

carryover under section 1212. If the Exclusion items (code J). Enter the the small ethanol producer credit,

estate or trust incurs capital losses in beneficiary’s share of the adjustment attach a statement that shows the

the final year, use the Capital Loss for minimum tax purposes from beneficiary’s share of the small ethanol

Carryover Worksheet in the Instructions Schedule K-1, box 12, code A, that is producer credit, the number of gallons

for Schedule D (Form 1041) to figure attributable to exclusion items claimed for the small ethanol producer

the amount of capital loss carryover to (Schedule I (Form 1041), lines 2 credit, and the estate’s or trust’s

be allocated to the beneficiary. through 6 and 8). productive capacity for alcohol.

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• Credit for increasing research provide any information the beneficiary share, if any, of Form W-2 wages. Do

activities (code I). will need to report recapture of credits. not enter more than 9% of the

• Renewable electricity, refined coal, beneficiary’s share, if any, of the

and Indian coal production credit (code Box 14—Other Information estate’s or trust’s QPAI. See Form 8903

J). Attach a statement that shows the Enter the dollar amounts and applicable and its instructions for more details.

amount of the credit the beneficiary codes for the items listed under Other

must report on line 9 and line 29 of Foreign trading gross receipts Information. (code G). Enter the beneficiary’s Form 8835, in case the beneficiary is Domestic production activities share, if any, of foreign trading gross required to file that form in addition to information. The estate or trust receipts. See Form 8873, Form 3800.

allocates QPAI (whether positive or Extraterritorial Income Exclusion, for • Empowerment zone and renewal negative) and Form W-2 wages based more information. community employment credit (code K).

• Indian employment credit (code L). on the relative proportion of the estate’s Other information (code H). List on a • Orphan drug credit (code M). or trust’s DNI that is distributed or separate sheet the tax information the • Credit for employer provided child required to be distributed to the beneficiary will need to complete his or care and facilities (code N). beneficiary. If the estate or trust has no her return that is not entered elsewhere • Biodiesel and renewable diesel fuels DNI for the tax year, QPAI and Form on Schedule K-1. credit (code O). If the credit includes W-2 wages are allocated entirely to the

the small agri-biodiesel credit, attach a estate or trust. For example, if the estate or trust

statement that shows the beneficiary’s participates in a transaction that must Qualified production activities share of the small agri-biodiesel credit, be disclosed on Form 8886 (see page income (code C). Enter the the number of gallons claimed for the 10), both the estate or trust and its beneficiary’s share, if any, of the small agri-biodiesel credit, and the beneficiaries may be required to file estate’s or trust’s QPAI from all estate’s or trust’s productive capacity Form 8886. The estate or trust must activities. The QPAI will be less than for agri-biodiesel. determine if any of its beneficiaries are zero if the cost of goods sold and • Nonconventional source fuel credit required to disclose the transaction and deductions allocated and apportioned (code P). provide those beneficiaries with to domestic production gross receipts • Credit to holders of tax credit bonds (DPGR) is more than the estate’s or information they will need to file Form

(code Q). 8886. This determination is based on trust’s DPGR. If any of the QPAI is • Agricultural chemicals security credit the category(ies) under which a oil-related QPAI, attach a statement (code R). transaction qualified for disclosure. See that shows the amount of oil-related • Energy efficient appliance credit the instructions for Form 8886 for QPAI. See Form 8903, Domestic (code S). details. Production Activities Deduction, and its • Credit for employer differential wage instructions for more details. payments (code T). Income tax withheld on wages

• Recapture of credits (code U). On an Form W-2 wages (code D). Use cannot be distributed to the

beneficiary.

CAUTION

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attached statement to Schedule K-1, code D to report the beneficiary’s

Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the

United States. You are required to give us the information. We need it to ensure that you are complying with these laws and

to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless

the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long

as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return

information are confidential, as required by Code section 6103.

The time needed to complete and file this form and related schedules will vary depending on individual circumstances. The

estimated average times are:

Form 1041 Schedule D Schedule I Schedule J Schedule K-1 Form 1041-V

Recordkeeping 38 hr., 58 min. 26 hr., 33 min. 17 hr., 42 min. 11 hr., 00 min. 6 hr., 27 min. 43 min.

Learning about the law 

or the form 16 hr., 11 min. 4 hr., 5 min. 4 hr., 22 min. 1 hr., 27 min. 35 min. - - - -

Preparing the form 30 hr., 34 min. 5 hr., 37 min. 4 hr., 51 min. 2 hr., 37 min. 43 min. - - - -

Copying, assembling, and sending

the form to the IRS 3 hr., 45 min. 51 min. - - - - 16 min. - - - - - - - -

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related

schedules simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products

Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send

the tax form to this address. Instead, see Where To File on page 7.

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Index

A E Income in respect of a decedent Qualified settlement

Accounting income ........... . 2 Electing small business (See IRD) funds .................... . 6

AGI ......................... . 22 trusts ................. . 12, 28 Inter vivos .................. . 2, 3 Split-interest trust .......... . 16

ESBT (S portion only) ..... . 15 Interest income .............. . 17 When to file ................ . 7 Alaska Native Settlement

S portion .................. . 12 Who must file .............. . 3 Trusts ..................... . 6 IRD .......................... . 3

Elections: Deduction Revocable Living Trusts: Allowable miscellaneous itemized ................. . 23

Section 643(e)(3) .......... . 26 Section 645 Election ....... . 17 deductions (AMID) ........ . 22

Section 643(g) .......... . 8, 24 Amended return ............. . 16 Section 645 ................ . 4 M

Amounts paid or permanently set Minimum taxable income S Special rule for qualified ..... . 23

aside ..................... . 25 Second tier distributions ..... . 26 revocable trusts .......... . 4 Assembly ................... . 11 Separate share rule ......... . 25 Treating contributions as paid in N Attachments ................ . 11 prior tax year Special filing instructions: ............ . 24 net operating loss ........... . 23 Bankruptcy estates ........ . 14 Electronic deposits ........... . 8 Nonexempt charitable Electing small business B ESBTs (See Electing small deduction ................. . 16 trusts ................... . 12 Bankruptcy estate ..... . 6, 13, 15 business trusts) Nonexempt charitable Grantor trusts ............. . 11

Bankruptcy information ...... . 13 Estate .................... . 3, 32 trust .................. . 16, 24 Pooled income funds ...... . 12

Beneficiary ................... . 3 Bankruptcy ............. . 6, 15 Nonqualified deferred Split-interest trust ............ . 16

Allocation of estimated tax Exemption for ............. . 23 compensation plans ....... . 15 Substitute forms ............. . 31 payment .............. . 8, 24 Foreign .................... . 3

Complex trust ............. . 32 Who must file .............. . 3

Estate .................... . 32 Estate tax deduction ......... . 23 P T

Simple trust ............... . 32 Estimated tax ......... . 8, 23, 24 Paid preparer ................ . 7 Tax rate schedule ........... . 27

Tax year for inclusion ...... . 32 Allocation of payments to Paid preparer authorization ... . 7 Taxable income ............. . 23

Withholding on foreign beneficiaries .......... . 8, 24 Penalties: Throwback years ............ . 30

person .................. . 25 Penalty ................... . 24 Estimated tax ............. . 24 Trusts ....................... . 3

Blind trust ................... . 17 Excess deductions .......... . 23 Failure to provide a required Alaska Native Settlement ... . 6

Exemption .................. . 23 TIN ..................... . 31 Blind ..................... . 17

Extraterritorial income Failure to provide information C Common trust fund ......... . 6 timely ................... . 9 exclusion ................. . 17 Complex .................. . 32 Cemetery perpetual care Late filing of return ......... . 9 Domestic .................. . 4 fund ...................... . 23 Late payment of tax ........ . 9 Exemption for ............. . 23 Charitable deduction ......... . 24 F Other ...................... . 9 Foreign ................... . 29 Charitable remainder Fiduciary ................ . 3, 4, 7 Trust fund recovery ......... . 9 Grantor .................... . 2 trusts ..................... . 16 Fiduciary accounting income (FAI) Underpaid estimated tax .... . 9 Inter vivos ............... . 2, 3 Common trust fund ........... . 6 (See Accounting income) Pooled income funds .... . 12, 15, Nonexempt charitable .... . 16, Final return .................. . 17 24, 25 24

D First tier distributions ......... . 26 Pre-need funeral trusts ....... . 15 Pre-need funeral .......... . 15

Foreign tax credit ............ . 27 Qualified disability ......... . 23 Decedent’s Estate ............ . 3

Form 1041-T .............. . 8, 24 Qualified revocable ......... . 4 Definitions: Q Simple .................... . 32 Accumulation Form 8855 ................... . 4 Qualified disability trust ...... . 23 Split-interest .............. . 16 distribution .............. . 29 Qualified revocable trust ...... . 4 Testamentary ............ . 2, 3 Beneficiary ................. . 3 G Qualified settlement funds ..... . 6 Who must file ........... . 4, 31 Complex trust ............. . 15 General business credit ...... . 27 Qualified small business Decedent’s Estate ....... . 3, 15 Grantor trusts ....... . 2, 4, 11, 15 stock ..................... . 26 DNI ........................ . 3 W Backup withholding ........ . 12 Qualified subchapter S trust Fiduciary ................... . 3 Where to file ................. . 7 Nonqualified deferred (QSST) ............. . 4, 11, 15 Grantor trusts ............. . 15 Who must file: compensation plans ..... . 15 IRD ........................ . 3 Optional filing methods Bankruptcy estate ......... . 13 .... . 11 Outside income ........... . 30 Pre-need funeral trusts R Decedent’s estate .......... . 3 .... . 15 Pooled income fund ....... . 15 Special filing instructions Returns: Trust ...................... . 4 ... . 11 Revocable Living Trust ..... . 3 GST tax deduction Amended ................. . 16 Withholding on foreign Simple trust ........... . 23 ............... . 15 Common trust fund ......... . 6 person .................... . 25 Trust ...................... . 3 Electronic and magnetic Trusts ..................... . 3 I media ................... . 6 ■ Distributable net income (See Income distribution Final ...................... . 17

DNI) deduction ........... . 2, 23, 25 Nonexempt charitable

DNI ....................... . 3, 25 trust .................... . 16

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