Department of the Treasury 2008 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 • The IRS is expected to release final

Revenue Code unless otherwise noted. G. Section 645 Election . . . . . . . . . .17 regulations regarding costs paid to an

Contents Page Income . . . . . . . . . . . . . . . . . . . . . .17 investment advisor by a nongrantor

What’s New . . . . . . . . . . . . . . . . . . . .1 Deductions . . . . . . . . . . . . . . . . . . .18 trust or estate as generally being

Reminders . . . . . . . . . . . . . . . . . . . .1 Tax and Payments . . . . . . . . . . . . .23 subject to the 2-percent floor for

Photographs of Missing Schedule A—Charitable miscellaneous itemized deductions (line

Children . . . . . . . . . . . . . . . . . . . . .2 Deduction . . . . . . . . . . . . . . . . . .24 15b). Additionally, the IRS is expected

Unresolved Tax Issues . . . . . . . . . . .2 Schedule B—Income to address the issue raised when a

How To Get Forms and Distribution Deduction . . . . . . . . .25 nongrantor trust or estate pays a

Publications . . . . . . . . . . . . . . . . . .2 Schedule G—Tax Bundled Fiduciary Fee for costs

General Instructions Computation . . . . . . . . . . . . . . . .27 incurred in-house by the fiduciary, . . . . . . . . . . . .2

Purpose of Form . . . . . . . . . . . . . . . .2 Other Information . . . . . . . . . . . . . .29 some of which are subject to the

Income Taxation of Trusts and Schedule J (Form 1041)— 2-percent floor. These final Regulations

Decedents’ Estates Accumulation Distribution for under section 1.67-4 will be consistent . . . . . . . . . . . .2

Abusive Trust Arrangements . . . . . . .3 Certain Complex Trusts . . . . . . . .30 with the Supreme Court’s holding in

Definitions Schedule K-1 (Form 1041)— Michael J. Knight, Trustee of William L. . . . . . . . . . . . . . . . . . . . . .3

Who Must File Beneficiary’s Share of Rudkin Testamentary Trust v. . . . . . . . . . . . . . . . . . .4

Electronic Filing . . . . . . . . . . . . . . . . .6 Income, Deductions, Credits, Commissioner, 552 U.S. __ (2008), Slip

When To File etc. . . . . . . . . . . . . . . . . . . . . . . .32 Op. 06-1286, 2008 -17 I.R.B. 828. Also, . . . . . . . . . . . . . . . . . .7

Period Covered . . . . . . . . . . . . . . . . .7 Index . . . . . . . . . . . . . . . . . . . . . . .37 the IRS has announced that the

Where To File . . . . . . . . . . . . . . . . . .7 unbundling of fees would not be

Who Must Sign . . . . . . . . . . . . . . . . .7 What’s New required for tax years beginning before

Accounting Methods January 2009. . . . . . . . . . . . . .8 • For 2008, Schedule I will not appear Accounting Periods . . . . . . . . . . . . . .8 • For tax years beginning in 2008, the on pages 3 and 4 of Form 1041. Rounding Off to Whole Dollars . . . . .8 requirement to file a return for a Instead, it will be a separate form titled Estimated Tax . . . . . . . . . . . . . . . . . .8 bankruptcy estate applies only if gross Schedule I (Form 1041), Alternative Interest and Penalties . . . . . . . . . . . .9 Minimum Tax — Estates and Trusts income is at least $8,950.

Other Forms That May Be (AMT). The filing requirements remain • For 2008, qualified disability trusts

Required . . . . . . . . . . . . . . . . . . . .9 the same for Schedule I as in previous can claim an exemption of up to

Additional Information . . . . . . . . . . .11 years. If you have to prepare a $3,500. A trust with modified adjusted

Assembly and Attachments . . . . . . .11 Schedule I (Form 1041), be sure to gross income above $159,950 loses

Special Reporting include it immediately after the Form part of the exemption deduction. See

Instructions . . . . . . . . . . . . . . . .11 1041. See Assembly and Attachments the instructions for line 20 on page 23

Grantor Type Trusts . . . . . . . . . . .11 for information about the correct for more details. In addition, the 2008

Pooled Income Funds assembly of the return. . . . . . . . . .12 reduction of the phaseout of the

Electing Small Business • For 2008, the Instructions for exemption for qualified disability trusts

Trusts Schedule D and the Instructions for . . . . . . . . . . . . . . . . . . . .12 is only 1

/2 the amount of the reduction

Bankruptcy Estates. Schedule I will be separate products . . . . . . . . . . .13 that otherwise would have applied for and will no longer be included in the Specific Instructions . . . . . . . . . . .14 2007. Instructions for Form 1041. Name of Estate or Trust . . . . . . . . . .14 • For Form 1041 filers, the automatic Name and Title of Fiduciary . . . . . . .15

Address . . . . . . . . . . . . . . . . . . . . .15 extension of time to file is now 5 Reminders

months. To apply for an automatic A. Type of Entity . . . . . . . . . . . . . . .15 • Review a copy of the trust instrument extension of time to file, use Form B. Number of Schedules K-1 (including any amendments) or the will, 7004, Application for Automatic Attached . . . . . . . . . . . . . . . . . . .15 if any, before preparing an estate’s or Extension of Time To File Certain C. Employer Identification trust’s return. Business Income Tax, Information, and Number . . . . . . . . . . . . . . . . . . . .16 Other Returns. • Include farm rental income and

D. Date Entity Created . . . . . . . . . . .16 • The estate and trust deduction for expenses based on crops or livestock

E. Nonexempt Charitable and produced by a tenant on line 5 and sales taxes, set to expire at the end of not

Split-Interest Trusts . . . . . . . . . . .16 2007, was extended through December on line 6 of Form 1041. Report the

F. Initial Return, Amended 31, 2009, by the Emergency Economic income and expenses on Part I of

Return, etc. . . . . . . . . . . . . . . . . .16 Stabilization Act of 2008. Schedule E (Form 1040).

Cat. No. 11372D
• Call, write, or fax the Taxpayer Photographs of Missing Advocate office in its area (see Pub. General Instructions

Children 1546, Taxpayer Advocate Service, Your

The Internal Revenue Service is a Voice At The IRS, for addresses and Purpose of Form phone numbers). proud partner with the National Center The fiduciary of a domestic decedent’s

for Missing and Exploited Children. • TTY/TDD help is available by calling estate, trust, or bankruptcy estate uses

Photographs of missing children 1-800-829-4059. Form 1041 to report:

selected by the Center may appear in • Visit the website at www.irs.gov/ • The income, deductions, gains,

instructions on pages that would advocate. losses, etc. of the estate or trust;

otherwise be blank. You can help bring • The income that is either

these children home by looking at the accumulated or held for future

photographs and calling How To Get Forms and distribution or distributed currently to

1-800-THE-LOST (1-800-843-5678) if the beneficiaries; Publications you recognize a child. • Any income tax liability of the estate

Internet. You can access the IRS or trust; and

Unresolved Tax Issues website 24 hours a day, 7 days a week • Employment taxes on wages paid to

at www.irs.gov to: household employees. If you have attempted to deal with an • Download forms, instructions, and IRS problem unsuccessfully, you publications; Income Taxation of should contact the Taxpayer Advocate.

The Taxpayer Advocate independently • Order IRS products online; Trusts and Decedents’

represents the estate’s or trust’s • Research your tax questions online;

interests and concerns within the IRS • Search publications online by topic or Estates

by protecting its rights and resolving keyword; A trust (except a grantor type trust) or a

problems that have not been fixed • View Internal Revenue Bulletins decedent’s estate is a separate legal

through normal channels. (IRBs) published in the last few years; entity for federal tax purposes. A

While Taxpayer Advocates cannot and decedent’s estate comes into existence

change the tax law or make a technical at the time of death of an individual. A • Sign up to receive local and national trust may be created during an tax decision, they can clear up tax news by email. individual’s life (inter vivos) or at the problems that resulted from previous DVD for tax products. You can order time of his or her death under a will contacts and ensure that the estate’s or

Pub. 1796, IRS Tax Products DVD, and (testamentary). If the trust instrument trust’s case is given a complete and

obtain: contains certain provisions, then the impartial review. person creating the trust (the grantor) is The estate’s or trust’s assigned • Current-year forms, instructions, and treated as the owner of the trust’s publications. personal advocate will listen to its point assets. Such a trust is a grantor type of view and will work with the estate or • Prior-year forms, instructions, and trust. See page 11 for special rules for trust to address its concerns. The publications. grantor trusts. estate or trust can expect the advocate • Tax Map: an electronic research tool

to provide: and finding aid. A trust or decedent’s estate figures

• An impartial and independent look at its gross income in much the same • Tax Law frequently asked questions. your problem, manner as an individual. Most • Tax Topics from the IRS telephone • Timely acknowledgment, deductions and credits allowed to response system. • The name and phone number of the individuals are also allowed to estates • Internal Revenue Code - Title 26. and trusts. However, there is one major individual assigned to its case,

• Updates on progress, • Fill-in, print, and save features for distinction. A trust or decedent’s estate

• Timeframes for action, most tax forms. is allowed an income distribution

• Speedy resolution, and • Internal Revenue Bulletins. deduction for distributions to

• Courteous service. • Toll-free and email technical support. beneficiaries. To figure this deduction,

the fiduciary must complete Schedule When contacting the Taxpayer The DVD is released twice during the B. The income distribution deduction Advocate, you should provide the year. determines the amount of any following information. — The first release will ship the distributions taxed to the beneficiaries. • The estate’s or trust’s name,

address, and employer identification beginning of January 2009. For this reason, a trust or decedent’s

number (EIN). estate sometimes is referred to as a — The final release will ship the • The name and telephone number of “pass-through” entity. The beneficiary, beginning of March 2009. an authorized contact person and the and not the trust or decedent’s estate,

hours he or she can be reached. pays income tax on his or her Purchase the DVD from National • The type of tax return and year(s) distributive share of income. Schedule Technical Information Service at involved. K-1 (Form 1041) is used to notify the www.irs.gov/cdorders for $30 (no • A detailed description of the problem. beneficiaries of the amounts to be handling fee) or call 1-877-233-6767 toll • Previous attempts to solve the included on their income tax returns. free to buy the DVD for $30 (plus a $6 problem and the office that had been handling fee). The price is discounted Before preparing Form 1041, the contacted. to $25 for orders placed prior to fiduciary must figure the accounting • A description of the hardship the December 1, 2008. income of the estate or trust under the estate or trust is facing and supporting will or trust instrument and applicable documentation (if applicable). By phone and in person. You can local law to determine the amount, if

You can contact a Taxpayer any, of income that is required to be order forms and publications by calling

Advocate as follows: distributed, because the income 1-800-TAX-FORM (1-800-829-3676).

• Call the Taxpayer Advocate’s toll-free distribution deduction is based, in part, You can also get most forms and

number: 1-877-777-4778 on that amount. publications at your local IRS office.

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the tax results promised by the income on the accrual method of Abusive Trust promoters of abusive trust accounting, and

Arrangements arrangements are not allowable under • Income to which the decedent had a

the law, and the participants in and contingent claim at the time of his or Certain trust arrangements purport to promoters of these arrangements may her death. reduce or eliminate federal taxes in be subject to civil or criminal penalties ways that are not permitted under the Some examples of IRD for a in appropriate cases. law. Abusive trust arrangements decedent who kept his or her books on

typically are promoted by the promise For more details, including the legal the cash method are:

of tax benefits with no meaningful principles that control the proper tax • Deferred salary payments that are

change in the taxpayer’s control over or treatment of these abusive trust payable to the decedent’s estate,

benefit from the taxpayer’s income or arrangements, see Notice 97-24, • Uncollected interest on U.S. savings

assets. The promised benefits may 1997-1 C.B. 409. bonds,

include reduction or elimination of • Proceeds from the completed sale of For additional information about income subject to tax; deductions for farm produce, and abusive tax arrangements, visit the IRS personal expenses paid by the trust; website at www.irs.gov and type in the • The portion of a lump-sum

depreciation deductions of an owner’s distribution to the beneficiary of a keyword “Scams” in the search box. personal residence and furnishings; a decedent’s IRA that equals the balance

stepped-up basis for property in the IRA at the time of the owner’s

transferred to the trust; the reduction or Definitions death. This includes unrealized

elimination of self-employment taxes; appreciation and income accrued to

and the reduction or elimination of gift Beneficiary that date, less the aggregate amount of

and estate taxes. These promised A beneficiary includes an heir, a the owner’s nondeductible contributions

benefits are inconsistent with the tax legatee, or a devisee. to the IRA. Such amounts are included

rules applicable to trust arrangements. in the beneficiary’s gross income in the

Abusive trust arrangements often Decedent’s Estate tax year that the distribution is received.

use trusts to hide the true ownership of The decedent’s estate is an entity that The IRD has the same character it assets and income or to disguise the is formed at the time of an individual’s would have had if the decedent had substance of transactions. These death and generally is charged with lived and received such amount. arrangements frequently involve more gathering the decedent’s assets, paying

than one trust, each holding different the decedent’s debts and expenses, Deductions and credits. The

assets of the taxpayer (for example, the and distributing the remaining assets. following deductions and credits, when

taxpayer’s business, business Generally, the estate consists of all the paid by the decedent’s estate, are

equipment, home, automobile, etc.). property, real or personal, tangible or allowed on Form 1041 even though

Some trusts may hold interests in other intangible, wherever situated, that the they were not allowable on the

trusts, purport to involve charities, or decedent owned an interest in at death. decedent’s final income tax return.

are foreign trusts. Funds may flow from • Business expenses deductible under

one trust to another trust by way of Distributable Net Income section 162.

rental agreements, fees for services, • Interest deductible under section (DNI) purchase agreements, and 163. The income distribution deduction distributions. • Taxes deductible under section 164. allowable to estates and trusts for Some of the abusive trust • Investment expenses described in amounts paid, credited, or required to section 212 (in excess of 2% of arrangements that have been identified be distributed to beneficiaries is limited adjusted gross income (AGI)). include unincorporated business trusts to DNI. This amount, which is figured • Percentage depletion allowed under (or organizations), equipment or service on Schedule B, line 7, is also used to section 611. trusts, family residence trusts, determine how much of an amount • Foreign tax credit. charitable trusts, and final trusts. In paid, credited, or required to be each of these trusts, the original owner distributed to a beneficiary will be For more information, see section of the assets that are nominally subject includible in his or her gross income. 691 or IRD in Pub. 559, Survivors, to the trust effectively retains the Executors, and Administrators. authority to cause financial benefits of Income, Deductions, and the trust to be directly or indirectly Credits in Respect of a Income Required To Be returned or made available to the

owner. For example, the trustee may be Decedent (IRD) Distributed Currently

the promoter, or a relative or friend of Income required to be distributed Income. When completing Form 1041, the owner who simply carries out the currently is income that is required you must take into account any items directions of the owner whether or not under the terms of the governing that are IRD. permitted by the terms of the trust. instrument and applicable local law to

When trusts are used for legitimate In general, IRD is income that a be distributed in the year it is received. decedent was entitled to receive but The fiduciary must be under a duty to business, family, or estate planning that was not properly includible in the distribute the income currently, even if purposes, either the trust, the decedent’s final income tax return the actual distribution is not made until beneficiary, or the transferor to the trust

will pay the tax on income generated by under the decedent’s method of after the close of the trust’s tax year. accounting. See Regulations section 1.651(a)-2. the trust property. Trusts cannot be

used to transform a taxpayer’s IRD includes:

personal, living, or educational • All accrued income of a decedent Fiduciary

expenses into deductible items, and who reported his or her income on the A fiduciary is a trustee of a trust, or an

cannot seek to avoid tax liability by cash method of accounting, executor, executrix, administrator,

ignoring either the true ownership of • Income accrued solely because of administratrix, personal representative,

income and assets or the true the decedent’s death in the case of a or person in possession of property of a

substance of transactions. Therefore, decedent who reported his or her decedent’s estate.

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Note. Any reference in these 2. Gross income of $600 or more electing trust do not have sufficient

instructions to “you” means the fiduciary (regardless of taxable income), or income to be required to file Form

of the estate or trust. 3. A beneficiary who is a 1041. However, if the estate is granted

nonresident alien. an extension of time to file Form 1041 Trust for its first tax year, the due date for

A trust is an arrangement created either Two or more trusts are treated as Form 8855 is the extended due date.

by a will or by an inter vivos declaration one trust if such trusts have Once made, the election is by which trustees take title to property substantially the same grantor(s) and irrevocable. substantially the same primary for the purpose of protecting or beneficiary(ies) and a principal purpose Qualified revocable trusts. In conserving it for the beneficiaries under of such trusts is avoidance of tax. This general, a QRT is any trust (or part of a the ordinary rules applied in chancery provision applies only to that portion of trust) that, on the day the decedent or probate courts. the trust that is attributable to died, was treated as owned by the

Revocable Living Trust contributions to corpus made after decedent because the decedent held

March 1, 1984. the power to revoke the trust as A revocable living trust is an described in section 676. An electing arrangement created by a written A trust is a domestic trust if: trust is a QRT for which a section 645 agreement or declaration during the life • A U.S. court is able to exercise election has been made. of an individual and can be changed or primary supervision over the

ended at any time during the administration of the trust (court test), Election period. The election period

individual’s life. A revocable living trust and is the period of time during which an

is generally created to manage and • One or more U.S. persons have the electing trust is treated as part of its

distribute property. Many people use authority to control all substantial related estate.

this type of trust instead of (or in decisions of the trust (control test). The election period begins on the addition to) a will. See Regulations section 301.7701-7 date of the decedent’s death and

Because this type of trust is for more information on the court and terminates on the earlier of:

revocable, it is treated as a grantor type control tests. • The day on which the electing trust

trust for tax purposes. See Grantor Also treated as a domestic trust is a and related estate, if any, distribute all

Type Trusts later for special filing of their assets, or trust (other than a trust treated as instructions that apply to grantor type wholly owned by the grantor) that: • The day before the applicable date.

trusts. • Was in existence on August 20, To determine the applicable date, first

1996, determine whether a Form 706, United Be sure to read Optional Filing • Was treated as a domestic trust on States Estate (and Generation-Skipping Methods for Certain Grantor August 19, 1996, and Transfer) Tax Return, is required to be Type Trusts. Generally, most

TIP

• Elected to continue to be treated as a filed as a result of the decedent’s people that have revocable living trusts domestic trust. death. If no Form 706 is required to be will be able to use Optional Method 1. filed, the applicable date is 2 years after This method is the easiest and least A trust that is not a domestic trust is the date of the decedent’s death. If burdensome way to meet your treated as a foreign trust. If you are the Form 706 is required, the applicable obligations. trustee of a foreign trust, file Form date is the later of 2 years after the 1040NR instead of Form 1041. Also, a date of the decedent’s death or 6 Who Must File foreign trust with a U.S. owner months after the final determination of generally must file Form 3520-A, liability for estate tax. For additional

Decedent’s Estate Annual Information Return of Foreign information, see Regulations section Trust With a U.S. Owner. The fiduciary (or one of the joint 1.645-1(f).

fiduciaries) must file Form 1041 for a If a domestic trust becomes a foreign Taxpayer identification number (TIN). domestic estate that has: trust, it is treated under section 684 as All QRTs must obtain a new TIN having transferred all of its assets to a 1. Gross income for the tax year of following the death of the decedent foreign trust, except to the extent a $600 or more, or whether or not a section 645 election is grantor or another person is treated as 2. A beneficiary who is a made. (Use Form W-9, Request for the owner of the trust when the trust nonresident alien. Taxpayer Identification Number and becomes a foreign trust. Certification, to notify payers of the new

An estate is a domestic estate if it is TIN.) Special Rule for Certain not a foreign estate. A foreign estate is Revocable Trusts An electing trust that continues after one the income of which is from the termination of the election period sources outside the United States that Section 645 provides that if both the does not need to obtain a new TIN is not effectively connected with the executor (if any) of an estate (the following the termination unless: conduct of a U.S. trade or business and related estate) and the trustee of a • An executor was appointed and is not includible in gross income. If you qualified revocable trust (QRT) elect the agreed to the election after the electing are the fiduciary of a foreign estate, file treatment in section 645, the trust must trust made a valid section 645 election, Form 1040NR, U.S. Nonresident Alien be treated and taxed as part of the and the electing trust had filed a return Income Tax Return, instead of Form related estate during the election as an estate under the trust’s TIN, or 1041. period. This election may be made by a • No executor was appointed and the QRT even if no executor is appointed QRT was the filing trust (as explained Trust for the related estate. later). The fiduciary (or one of the joint In general, Form 8855, Election To A related estate that continues after fiduciaries) must file Form 1041 for a Treat a Qualified Revocable Trust as

domestic trust taxable under section the termination of the election period Part of an Estate, must be filed by the 641 that has: does not need to obtain a new TIN. due date for Form 1041 for the first tax

1. Any taxable income for the tax year of the related estate. This applies For more information about TINs,

year, even if the combined related estate and including trusts with multiple owners,

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see Regulations sections 1.645-1 and If there is more than one electing If the electing trust continues in

301.6109-1(a). trust, the filing trustee is responsible for existence after the termination of the

General procedures for completing ensuring that the filing trust’s share of election period, the trustee must file

Form 1041 during the election the combined tax liability is paid. Form 1041 under the name and TIN of

period. the trust, using the calendar year as its For additional information on filing accounting period, if it is otherwise If there is an executor. The requirements when there is no required to file. following rules apply to filing Form 1041 executor, including application of the

while the election is in effect. separate share rule, see Regulations If there is no executor. If there is

• The executor of the related estate is section 1.645-1(e). For information on no executor, the following rules apply to

responsible for filing Form 1041 for the the requirements when an executor is filing Form 1041 for the tax year in

estate and all electing trusts. The return appointed after an election is made and which the election period ends.

the executor does not agree to the • The tax year of the electing trust is filed under the name and TIN of the

related estate. Be sure to check the election, see below. closes on the last day of the election

Decedent’s estate box at the top of period, and the Form 1041 filed for that Responsibilities of the trustee Form 1041. The executor continues to tax year includes all items of income, when there is an executor (or there file Form 1041 during the election deduction, and credit for the electing is no executor and the trustee is not

period even if the estate distributes all trust for the period beginning with the the filing trustee). When there is an

of its assets before the end of the first day of the tax year and ending with executor (or there is no executor and election period. the last day of the election period. the trustee is not the filing trustee), the • The Form 1041 includes all items of • The deemed distribution rules trustee of an electing trust is discussed above apply. income, deduction, and credit for the responsible for the following during the estate and all electing trusts. • Check the box to indicate that this election period. • The executor must attach a Form 1041 is a final return. • To timely provide the executor with statement to Form 1041 providing the • If the filing trust continues after the all the trust information necessary to following information for each electing termination of the election period, the allow the executor to file a complete, trust: (a) the name of the electing trust, trustee must obtain a new TIN. If the accurate, and timely Form 1041. (b) the TIN of the electing trust, and (c) trust meets the filing requirements, the • To ensure that the electing trust’s the name and address of the trustee of trustee must file a Form 1041 under the share of the combined tax liability is the electing trust. new TIN for the period beginning with paid. • The related estate and the electing the day after the close of the election

trust are treated as separate shares for The trustee does not file a Form period and, in general, ending

purposes of computing DNI and 1041 during the election period (except December 31 of that year. for a final return if the trust terminates applying distribution provisions. Also, Responsibilities of the trustee during the election period as explained each of those shares can contain two when there is an executor (or there later). or more separate shares. For more is no executor and the trustee is not

information, see Separate share rule on Procedures for completing Form the filing trustee). In addition to the

page 25 and Regulations section 1041 for the year in which the requirements listed above under this 1.645-1(e)(2)(iii). election terminates. same heading, the trustee is • The executor is responsible for responsible for the following. If there is an executor. If there is insuring that the estate’s share of the • If the trust will not continue after the an executor, the Form 1041 filed under combined tax obligation is paid. close of the election period, the trustee the name and TIN of the related estate

 For additional information, including must file a Form 1041 under the name for the tax year in which the election treatment of transfers between shares and TIN of the trust. Complete the terminates includes (a) the items of and charitable contribution deductions, entity information and items A, C, D, income, deduction, and credit for the

see Regulations section 1.645-1(e). and F. Indicate in item F that this is a related estate for its entire tax year, and final return. Do not report any items of If there is no executor. If no (b) the income, deductions, and credits income, deduction, or credit. executor has been appointed for the for the electing trust for the period that • If the trust will continue after the related estate, the trustee of the ends with the last day of the election close of the election period, the trustee electing trust files Form 1041 as if it period. If the estate will not continue must file a Form 1041 for the trust for was an estate. File using the TIN that after the close of the tax year, indicate the tax year beginning the day after the the QRT obtained after the death of the that this Form 1041 is a final return.

close of the election period and, in decedent. The trustee can choose a At the end of the last day of the general, ending December 31 of that fiscal year as the trust’s tax year during election period, the combined entity is year. Use the TIN obtained after the the election period. Be sure to check deemed to distribute the share decedent’s death. Follow the general the Decedent’s estate box at the top of comprising the electing trust to a new rules for completing the return. page 1 during the election period. The trust. All items of income, including net electing trust is entitled to a single $600 Special filing instructions. capital gains, that are attributable to the 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

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a valid election is not subsequently information (using the trust’s EIN), an amended return has not expired for

made, the QRT may be subject to checking the Final return box, and both the QSF’s first tax year and all

penalties and interest for failure to file signing and dating the form. Do not later tax years and the same tax years

and failure to pay. report items of income, deduction, and of the transferor. A grantor trust

credit. These items are reported on the election under this paragraph requires If the QRT files a Form 1041 for this related estate’s return. that the returns of the QSF and the short period, and a valid section 645 transferor for all affected tax years are election is subsequently made, then the Alaska Native Settlement consistent with the grantor trust trustee must file an amended Form Trusts election. This requirement may be 1041 for the electing trust, excluding all satisfied by timely filed original returns items of income, deduction, and credit The trustee of an Alaska Native or amended returns filed before the of the electing trust. These amounts are Settlement Trust may elect the special applicable period of limitations expires. then included on the first Form 1041 tax treatment for the trust and its For information about QSFs established filed by the executor for the related beneficiaries provided for in section by the U.S. government by February 3, estate (or the filing trustee for the 646. The election must be made by the 2006, see Regulations section electing trust filing as an estate). due date (including extensions) for filing 1.468B-5(c)(3). Later appointed executor. the trust’s tax return for its first tax year If an

executor for the related estate is not ending after June 7, 2001. Do not use Election statement. The election

appointed until after the trustee has Form 1041. Use Form 1041-N, U.S. statement may be made separately or,

made a valid section 645 election, the Income Tax Return for Electing Alaska if filed with Form 1041, on the

executor must agree to the trustee’s Native Settlement Trusts, to make the attachment described under Grantor

election and they must file a revised election. Additionally, Form 1041-N is Type Trusts. At the top of the election

Form 8855 within 90 days of the the trust’s income tax return and statement, write “Section 1.468B-1(k)

appointment of the executor. If the satisfies the section 6039H information Election” and include the transferor’s:

executor does not agree to the election, reporting requirement for the trust. • Name,

• Address, the election terminates as of the date of

appointment of the executor. Bankruptcy Estate • TIN, and

The bankruptcy trustee or debtor-in- • A statement that he or she will treat If the executor agrees to the possession must file Form 1041 for the the qualified settlement fund as a election, the trustee must amend any estate of an individual involved in grantor type trust. Form 1041 filed under the name and bankruptcy proceedings under chapter TIN of the electing trust for the period 7 or 11 of title 11 of the United States Widely Held Fixed beginning with the decedent’s death. Code if the estate has gross income for Investment Trust (WHFITs) The amended returns are still filed the tax year of $8,950 or more. See under the name and TIN of the electing Trustees and middlemen of WHFITs do Bankruptcy Estates on page 13 for trust, and they must include the items not file Form 1041. Instead, they report details. of income, deduction, and credit for the all items of gross income and proceeds

related estate for the periods covered on the appropriate Form 1099. For the Common Trust Funds by the returns. Also, attach a statement definition of a WHFIT, see Regulations Do not file Form 1041 for a common to the amended Forms 1041 identifying section 1.671-5(b)(22). A tax trust fund maintained by a bank. the name and TIN of the related estate, information statement that includes the Instead, the fund may use Form 1065, and the name and address of the information given to the IRS on Forms U.S. Return of Partnership Income, for executor. Check the Final return box on 1099, as well as additional information its return. For more details, see section the amended return for the tax year that identified in Regulations section 584 and Regulations section 1.6032-1. ends with the appointment of the 1.671-5(e) must be given to trust

executor. Except for this amended interest holders. See the General Qualified Settlement Funds return, all returns filed for the combined Instructions for Forms 1099, 1098,

entity after the appointment of the The trustee of a designated or qualified 5498, and W-2G for more information. settlement fund (QSF) generally must executor must be filed under the name

and TIN of the related estate. file Form 1120-SF, U.S. Income Tax Charitable Remainder Trusts

Return for Settlement Funds, instead of A section 664 charitable remainder trust If the election terminates as the Form 1041. (CRT) does not file Form 1041. Instead, result of a later appointed executor, the

executor of the related estate must file Special election. If a QSF has only a CRT files Form 5227, Split-Interest

Forms 1041 under the name and TIN of one transferor, the transferor may elect Trust Information Return. If the CRT

the related estate for all tax years of the to treat the QSF as a grantor type trust. has any unrelated business taxable

To make the grantor trust election, income, it also must file Form 4720, related estate beginning with the Return of Certain Excise Taxes Under decedent’s death. The electing trust’s the transferor must attach an election

election period and tax year terminate statement to a timely filed Form 1041, Chapters 41 and 42 of the Internal

Revenue Code. the day before the appointment of the including extensions, that the

executor. The trustee is not required to administrator files for the QSF for the

amend any of the returns filed by the tax year in which the settlement fund is Electronic Filing

electing trust for the period prior to the established. If Form 1041 is not filed Qualified fiduciaries or transmitters may appointment of the executor. The trust because Optional Method 1 or 2 was be able to file Form 1041 and related

must file a final Form 1041 following the chosen, attach the election statement schedules electronically. If you wish to instructions above for completing Form to a timely filed income tax return, do this, you must file Form 8633, 1041 in the year in which the election including extensions, of the transferor Application to Participate in the IRS terminates and there is no executor. for the tax year in which the settlement e-file Program. If you file Form 1041

Termination of the trust during the fund is established. electronically, you may now sign the

election period. If an electing trust Transition rule. A transferor can return electronically by using a personal

terminates during the election period, make a grantor trust election for a QSF identification number (PIN). See Form

the trustee of that trust must file a final that was established by February 3, 8879-F, IRS e-file Signature

Form 1041 by completing the entity 2006, if the applicable period for filing Authorization for Form 1041, for details.

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If you do not sign the electronically filed on June 30, 2009, must file Form 1041 The private delivery service can tell

return by using a PIN, you must file you how to get written proof of the by October 15, 2009. If the due date

Form 8453-F, U.S. Estate or Trust mailing date. falls on a Saturday, Sunday, or legal Income Tax Declaration and Signature holiday, file on the next business day. for Electronic Filing. Extension of Time To File

If more time is needed to file the estate For more details, get Pub. 1437,

Procedures for the 1041 Private Delivery Services or trust return, use Form 7004 to apply e-file Program,

U.S. Income Tax Returns For Estates You can use certain private delivery for an automatic 5-month extension of

services designated by the IRS to meet time to file. and Trusts For Tax Year 2008 and Pub.

1438, FILE SPECIFICATIONS, the “timely mailing as timely filing/

VALIDATION CRITERIA AND paying” rule for tax returns and Period Covered

RECORD LAYOUTS FOR THE payments. These private delivery File the 2008 return for calendar year ELECTRONIC FILING PROGRAM services include only the following. 2008 and fiscal years beginning in 2008 FOR FORM 1041, U.S. INCOME TAX • DHL Worldwide Express (DHL): DHL and ending in 2009. If the return is for a RETURN FOR ESTATES AND Same Day Service, DHL Next Day fiscal year or a short tax year (less than TRUSTS FOR TAX YEAR 2008. If 10:30 am, DHL Next Day 12:00 pm, 12 months), fill in the tax year space at Form 1041 is e-filed and there is a DHL Next Day 3:00 pm, and DHL 2nd the top of the form. balance due, the fiduciary may

authorize an electronic funds Day Service. The 2008 Form 1041 may also be

withdrawal with the return. • Federal Express (FedEx): FedEx used for a tax year beginning in 2009 if:

Priority Overnight, FedEx Standard 1. The estate or trust has a tax year

When To File Overnight, FedEx 2Day, FedEx of less than 12 months that begins and

International Priority, and FedEx ends in 2009, and For calendar year estates and trusts, International First. 2. The 2009 Form 1041 is not file Form 1041 and Schedule(s) K-1 on available by the time the estate or trust or before April 15, 2009. For fiscal year • United Parcel Service (UPS): UPS is required to file its tax return. estates and trusts, file Form 1041 by Next Day Air, UPS Next Day Air Saver, However, the estate or trust must show the 15th day of the 4th month following UPS 2nd Day Air, UPS 2nd Day Air its 2009 tax year on the 2008 Form the close of the tax year. For example, A.M., UPS Worldwide Express Plus, 1041 and incorporate any tax law an estate that has a tax year that ends and UPS Worldwide Express. changes that are effective for tax years

beginning after December 31, 2008.

Where To File

For all estates and trusts, including charitable and split-interest trusts (other than Charitable Who Must Sign

Remainder Trusts).

Fiduciary THEN use this address if you: The fiduciary, or an authorized

IF you are located in Are not enclosing a check or Are enclosing a check or money representative, must sign Form 1041. If

... money order ... order ... there are joint fiduciaries, only one is

required to sign the return. Connecticut, Delaware,

District of Columbia, A financial institution that submitted

Georgia, Illinois, estimated tax payments for trusts for Indiana, Kentucky, which it is the trustee must enter its EIN

Maine, Maryland, in the space provided for the EIN of the Massachusetts, fiduciary. Do not enter the EIN of the Michigan, New Department of the Treasury Department of the Treasury trust. For this purpose, a financial Hampshire, New Internal Revenue Service Center Internal Revenue Service Center

Jersey, New York, Cincinnati, Ohio 45999-0048 Cincinnati, Ohio 45999-0148 institution is one that maintains a

North Carolina, Ohio, Treasury Tax and Loan (TT&L)

Pennsylvania, Rhode account. If you are an attorney or other

Island, South Carolina, individual functioning in a fiduciary

Tennessee, Vermont, capacity, leave this space blank. Do not Virginia, West Virginia, enter your individual social security Wisconsin number (SSN).

Alabama, Alaska, If you, as fiduciary, fill in Form 1041, Arizona, Arkansas, leave the Paid Preparer’s space blank. California, Colorado, If someone prepares this return and Florida, Hawaii, Idaho,

Iowa, Kansas, does not charge you, that person

Louisiana, Minnesota, should not sign the return. Department of the Treasury Department of the Treasury Mississippi, Missouri, Internal Revenue Service Center Internal Revenue Service Center Montana, Nebraska, Paid Preparer Ogden, Utah 84201-0048 Ogden, Utah 84201-0148 Nevada, New Mexico, Generally, anyone who is paid to North Dakota, prepare a tax return must sign the Oklahoma, Oregon, return and fill in the other blanks in the South Dakota, Texas,

Utah, Washington, Paid Preparer’s Use Only area of the

Wyoming return.

A foreign country or Internal Revenue Service Center Internal Revenue Service Center The person required to sign the

United States P.O. Box 409101 P.O. Box 409101 return must:

possession Ogden, Utah 84409 Ogden, Utah 84409 • Complete the required preparer

information,

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• Sign it in the space provided for the information, see Pub. 538, Accounting However, if a return was not filed for

preparer’s signature (a facsimile Periods and Methods. 2008 or that return did not cover a full

signature is acceptable), and 12 months, item 2 does not apply.

• Give you a copy of the return for your Accounting Periods For this purpose, include household records. employment taxes in the tax shown on For a decedent’s estate, the moment of the tax return, but only if either of the Paid Preparer Authorization death determines the end of the following is true: If the fiduciary wants to allow the IRS to decedent’s tax year and the beginning • The estate or trust will have federal

discuss the estate’s or trust’s 2008 tax of the estate’s tax year. As executor or income tax withheld for 2009 (see the administrator, you choose the estate’s return with the paid preparer who instructions on page 24 for line 24e), or signed it, check the “Yes” box in the tax period when you file its first income • The estate or trust would be required tax return. The estate’s first tax year signature area of the return. This to make estimated tax payments for authorization applies only to the may be any period of 12 months or less 2009 even if it did not include that ends on the last day of a month. If individual whose signature appears in household employment taxes when the “Paid Preparer’s Use Only” section you select the last day of any month figuring estimated tax. of the estate’s or trust’s return. It does other than December, you are adopting

not apply to the firm, if any, shown in a fiscal tax year. Exceptions

that section. To change the accounting period of Estimated tax payments are not

an estate, get Form 1128, Application required from: If the “Yes” box is checked, the

fiduciary is authorizing the IRS to call To Adopt, Change, or Retain a Tax 1. An estate of a domestic decedent

the paid preparer to answer any Year. or a domestic trust that had no tax

questions that may arise during the liability for the full 12-month 2008 tax Generally, a trust must adopt a processing of the estate’s or trust’s year; calendar year. The following trusts are return. The fiduciary is also authorizing 2. A decedent’s estate for any tax exempt from this requirement: the paid preparer to: year ending before the date that is 2

• Give the IRS any information that is • A trust that is exempt from tax under years after the decedent’s death; or

missing from the estate’s or trust’s section 501(a); 3. A trust that was treated as owned

return, • A charitable trust described in section by the decedent if the trust will receive

• Call the IRS for information about the 4947(a)(1); and the residue of the decedent’s estate

processing of the estate’s or trust’s • A trust that is treated as wholly under the will (or if no will is admitted to

return or the status of its refund or owned by a grantor under the rules of probate, the trust primarily responsible

payment(s), and sections 671 through 679. for paying debts, taxes, and expenses

• Respond to certain IRS notices that of administration) for any tax year

the fiduciary has shared with the ending before the date that is 2 years

preparer about math errors, offsets, and Rounding Off to Whole after the decedent’s death.

return preparation. The notices will not Dollars be sent to the preparer. For more information, see Form You may round off cents to whole 1041-ES, Estimated Income Tax for The fiduciary is not authorizing the dollars on the estate’s or trust’s return Estates and Trusts. paid preparer to receive any refund and schedules. If you do round to check, bind the estate or trust to whole dollars, you must round all Electronic Deposits anything (including any additional tax amounts. To round, drop amounts A financial institution that maintains a liability), or otherwise represent the under 50 cents and increase amounts TT&L account, and acts as a fiduciary estate or trust before the IRS. from 50 to 99 cents to the next dollar. for at least 200 taxable trusts that are

The authorization will automatically For example, $1.39 becomes $1 and required to pay estimated tax, may be

end no later than the due date (without $2.50 becomes $3. required to deposit the estimated tax

regard to extensions) for filing the payments electronically using the If you have to add two or more estate’s or trust’s 2009 tax return. If the Electronic Federal Tax Payment amounts to figure the amount to enter fiduciary wants to expand the paid System (EFTPS). The electronic on a line, include cents when adding preparer’s authorization or revoke the deposit requirement applies in 2009 if: the amounts and round off only the authorization before it ends, see Pub. • The total deposits of depository taxes total. 947, Practice Before the IRS and (such as estimated, employment, or

Power of Attorney. excise tax) in 2007 were more than

Estimated Tax $200,000, or

Accounting Methods • The fiduciary (on behalf of a trust) Generally, an estate or trust must pay was required to use EFTPS in 2008. Figure taxable income using the estimated income tax for 2009 if it

method of accounting regularly used in expects to owe, after subtracting any If the fiduciary is required to use

keeping the estate’s or trust’s books withholding and credits, at least $1,000 EFTPS on behalf of a trust and fails to

and records. Generally, permissible in tax, and it expects the withholding do so, it may be subject to a 10%

methods include the cash method, the and credits to be less than the smaller penalty.

accrual method, or any other method of: A fiduciary that is not required to authorized by the Internal Revenue 1. 90% of the tax shown on the make electronic deposits of estimated Code. In all cases, the method used 2009 tax return, or tax on behalf of a trust may either use must clearly reflect income. 2. 100% of the tax shown on the the payment vouchers (see Form

Generally, the estate or trust may 2008 tax return (110% of that amount if 1041-ES) or voluntarily participate in

the estate’s or trust’s adjusted gross EFTPS. To enroll in or get more change its accounting method (for information about EFTPS, call income as a whole or for any material income on that return is more than

$150,000, and less than 2 1-800-555-4477. item) only by getting consent on Form /3 of gross

3115, Application for Change in income for 2008 or 2009 is from Depositing on time. For deposits

Accounting Method. For more made by EFTPS to be on time, the farming or fishing).

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fiduciary must initiate the transaction at penalty is 25% of the unpaid amount. including the definition of responsible

least 1 business day before the date The penalty applies to any unpaid tax persons.

the deposit is due. on the return. Any penalty is in addition

to interest charges on late payments. Other Penalties

Section 643(g) Election Other penalties can be imposed for If you include interest on either Fiduciaries of trusts that pay estimated negligence, substantial understatement of these penalties with your tax may elect under section 643(g) to of tax, and fraud. See Pub. 17, Your payment, identify and enter

TIP

have any portion of their estimated tax Federal Income Tax, for details on these amounts in the bottom margin of payments allocated to any of the these penalties. Form 1041, page 1. Do not include the beneficiaries.

The fiduciary of a decedent’s estate interest or penalty amount in the Other Forms That May balance of tax due on line 27. may make a section 643(g) election Be Required only for the final year of the estate. Failure To Provide Form W-2, Wage and Tax Statement, You make the election by filing Information Timely and Form W-3, Transmittal of Wage Form 1041-T, Allocation of Estimated You must provide Schedule K-1 (Form and Tax Statements. Tax Payments to Beneficiaries, by the 1041), on or before the day you are Form 56, Notice Concerning 65th day after the close of the estate’s required to file Form 1041, to each Fiduciary Relationship. You must notify or trust’s tax year. Then, you include beneficiary who receives a distribution the IRS of the creation or termination of that amount on the Schedule K-1 for of property or an allocation of an item of a fiduciary relationship. You may use the beneficiary(ies) for whom you the estate. Form 56 to provide this notice to the elected it.

For each failure to provide Schedule IRS. Failure to make a timely election will K-1 to a beneficiary when due and each Form 706, United States Estate (and result in the estimated tax payments failure to include on Schedule K-1 all Generation-Skipping Transfer) Tax not being transferred to the the information required to be shown Return, or Form 706-NA, United States beneficiary(ies) even if you entered the (or the inclusion of incorrect Estate (and Generation-Skipping amount you wanted transferred on

Schedule K-1. information), a $50 penalty may be Transfer) Tax Return, Estate of imposed with regard to each Schedule nonresident not a citizen of the United See the instructions for line 24b on K-1 for which a failure occurs. The States. page 24 for more details. maximum penalty is $100,000 for all Form 706-GS(D), such failures during a calendar year. If Generation-Skipping Transfer Tax Interest and Penalties the requirement to report information is Return for Distributions. intentionally disregarded, each $50

penalty is increased to $100 or, if Form 706-GS(D-1), Notification of Interest

greater, 10% of the aggregate amount Distribution From a Interest is charged on taxes not paid by of items required to be reported, and Generation-Skipping Trust. the due date, even if an extension of the $100,000 maximum does not apply. Form 706-GS(T), time to file is granted. Generation-Skipping Transfer Tax The penalty will not be imposed if Interest is also charged on penalties Return for Terminations. the fiduciary can show that not imposed for failure to file, negligence,

fraud, substantial valuation providing information timely was due to Form 709, United States Gift (and

misstatements, substantial reasonable cause and not due to willful Generation-Skipping Transfer) Tax

understatements of tax, and reportable neglect. Return.

transaction understatements. Interest is Form 720, Quarterly Federal Excise

charged on the penalty from the due Underpaid Estimated Tax Tax Return. Use Form 720 to report

date of the return (including If the fiduciary underpaid estimated tax, environmental excise taxes,

extensions). The interest charge is use Form 2210, Underpayment of communications and air transportation

figured at a rate determined under Estimated Tax by Individuals, Estates, taxes, fuel taxes, luxury tax on

section 6621. and Trusts, to figure any penalty. Enter passenger vehicles, manufacturers’ the amount of any penalty on line 26, taxes, ship passenger tax, and certain Late Filing of Return Form 1041. other excise taxes.

The law provides a penalty of 5% of the Caution. See Trust Fund Recovery tax due for each month, or part of a Trust Fund Recovery Penalty Penalty earlier.

month, for which a return is not filed up This penalty may apply if certain excise, Form 926, Return by a U.S. to a maximum of 25% of the tax due income, social security, and Medicare Transferor of Property to a Foreign (15% for each month, or part of a taxes that must be collected or withheld

month, up to a maximum of 75% if the Corporation. Use this form to report are not collected or withheld, or these certain information required under failure to file is fraudulent). If the return taxes are not paid. These taxes are section 6038B. is more than 60 days late, the minimum generally reported on Forms 720, 941,

penalty is the smaller of $100 or the tax 943, 944, or 945. The trust fund Form 940, Employer’s Annual

due. The penalty will not be imposed if recovery penalty may be imposed on all Federal Unemployment (FUTA) Tax

you can show that the failure to file on persons who are determined by the IRS Return. The estate or trust may be

time was due to reasonable cause. If to have been responsible for collecting, liable for FUTA tax and may have to file

the failure is due to reasonable cause, accounting for, or paying over these Form 940 if it paid wages of $1,500 or

attach an explanation to the return. taxes, and who acted willfully in not more in any calendar quarter during the

doing so. The penalty is equal to the calendar year (or the preceding Late Payment of Tax unpaid trust fund tax. See the calendar year) or one or more

Generally, the penalty for not paying instructions for Form 720, Pub. 15 employees worked for the estate or

tax when due is 1

/2 of 1% of the unpaid (Circular E), Employer’s Tax Guide, or trust for some part of a day in any 20

amount for each month or part of a Pub. 51 (Circular A), Agricultural different weeks during the calendar

month it remains unpaid. The maximum Employer’s Tax Guide, for more details, year (or the preceding calendar year).

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Form 941, Employer’s QUARTERLY distributions from an HSA, Archer MSA, 3. Had an acquisition, disposition, or

Federal Tax Return. Employers must or Medicare Advantage MSA. change in proportional interest in a

file this form quarterly to report income foreign partnership that: Also, use certain of these returns to tax withheld on wages and employer a. Increased its direct interest to at report amounts received as a nominee and employee social security and least 10%; on behalf of another person, except Medicare taxes. Certain small b. Reduced its direct interest of at amounts reported to beneficiaries on employers must file Form 944, least 10% to less than 10%; or Schedule K-1 (Form 1041). Employer’s ANNUAL Federal Tax c. Changed its direct interest by at Return, instead of Form 941. For more Form 8275, Disclosure Statement. least a 10% interest.

information, see the instructions for File Form 8275 to disclose items or 4. Contributed property to a foreign Form 944. Agricultural employers must positions, except those contrary to a partnership in exchange for a file Form 943, Employer’s Annual regulation, that are not otherwise partnership interest if: Federal Tax Return for Agricultural adequately disclosed on a tax return. a. Immediately after the Employees, instead of Form 941, to The disclosure is made to avoid parts contribution, the estate or trust owned, report income tax withheld and of the accuracy-related penalty directly or indirectly, at least a 10% employer and employee social security imposed for disregard of rules or interest in the foreign partnership or and Medicare taxes on farmworkers. substantial understatement of tax. Form b. The fair market value (FMV) of Caution. See Trust Fund Recovery 8275 is also used for disclosures the property the estate or trust Penalty earlier. relating to preparer penalties for contributed to the foreign partnership, understatements due to unrealistic Form 945, Annual Return of for a partnership interest, when added positions or disregard of rules. Withheld Federal Income Tax. Use this to other contributions of property made

form to report income tax withheld from Form 8275-R, Regulation Disclosure to the foreign partnership during the

nonpayroll payments, including Statement, is used to disclose any item preceding 12-month period, exceeds

pensions, annuities, IRAs, gambling $100,000. on a tax return for which a position has winnings, and backup withholding. been taken that is contrary to Treasury Also, the estate or trust may have to Caution. See Trust Fund Recovery regulations. file Form 8865 to report certain Penalty earlier. Form 8288, U.S. Withholding Tax dispositions by a foreign partnership of Form 1040, U.S. Individual Income Return for Dispositions by Foreign property it previously contributed to that Tax Return. Persons of U.S. Real Property foreign partnership if it was a partner at

Form 1040NR, U.S. Nonresident Interests, and Form 8288-A, Statement the time of the disposition.

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

Form 1042, Annual Withholding Tax use these forms to report and transmit Use Form 8886, Reportable Return for U.S. Source Income of tax withheld from amounts distributed to Transaction Disclosure Statement, to Foreign Persons, and Form 1042-S, a foreign beneficiary from a “U.S. real disclose information for each reportable Foreign Person’s U.S. Source Income property interest account” that a transaction in which the trust

Subject to Withholding. Use these domestic estate or trust is required to participated, directly or indirectly. Form forms to report and transmit withheld establish under Regulations section 8886 must be filed for each tax year tax on payments or distributions made 1.1445-5(c)(1)(iii). that the federal income tax liability of to nonresident alien individuals, foreign the estate or trust is affected by its partnerships, or foreign corporations to Form 8300, Report of Cash participation in the transaction. The the extent such payments or Payments Over $10,000 Received in a estate or trust may have to pay a distributions constitute gross income Trade or Business. Generally, this form penalty if it has a requirement to file from sources within the United States is used to report the receipt of more Form 8886 but you fail to file it. The that is not effectively connected with a than $10,000 in cash or foreign following are reportable transactions. U.S. trade or business. For more currency in one transaction (or a series • Any transaction that is the same as of related transactions). information, see sections 1441 and or substantially similar to tax avoidance 1442, and Pub. 515, Withholding of Tax Form 8855, Election To Treat a transactions identified by the IRS as on Nonresident Aliens and Foreign Qualified Revocable Trust as Part of an listed transaction.

Entities. Estate. This election allows a qualified • Any transaction offered under

Forms 1099-A, B, INT, LTC, MISC, conditions of confidentiality and for revocable trust to be treated and taxed

OID, R, S, and SA. You may have to which the estate or trust paid a (for income tax purposes) as part of its file these information returns to report minimum fee (confidential transaction). related estate during the election acquisitions or abandonments of period. • Any transaction for which the estate

secured property; proceeds from broker or trust or a related party has

and barter exchange transactions; contractual protection against Form 8865, Return of U.S. Persons

interest payments; payments of disallowance of the tax benefits With Respect to Certain Foreign

Partnerships. The estate or trust may long-term care and accelerated death (transaction with contractual

benefits; miscellaneous income protection). have to file Form 8865 if it:

payments; original issue discount; 1. Controlled a foreign partnership • Any transaction resulting in a loss of

distributions from pensions, annuities, (that is, owned more than a 50% direct at least $2 million in any single year or

retirement or profit-sharing plans, IRAs or indirect interest in a foreign $4 million in any combination of years

(including SEPs, SIMPLEs, Roth IRAs, partnership); ($50,000 in any single year if the loss is

Roth Conversions, and IRA 2. Owned at least a 10% direct or generated by a section 988 transaction)

recharacterizations), Coverdell ESAs, indirect interest in a foreign partnership (loss transactions).

insurance contracts, etc.; proceeds while U.S. persons controlled that • Any transaction substantially similar

from real estate transactions; and partnership; to one of the types of transactions

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identified by the IRS as a transaction of have optional filing methods available. be reported by that person on their own

interest. Pooled income funds have many similar income tax return.

See the Instructions for Form 8886 reporting requirements that other Example. The John Doe Trust is a

for more details and exceptions. Subchapter J trusts (other than grantor grantor type trust. During the year, the type trusts and electing small business trust sold 100 shares of ABC stock for Form 8918, Material Advisor trusts) have but there are some very $1,010 in which it had a basis of $10 Disclosure Statement. Material advisors important differences. These reporting and 200 shares of XYZ stock for $10 in who provide material aid, assistance, or differences and optional filing methods which it had a $1,020 basis. advice on organizing, managing, are discussed below by entity. promoting, selling, implementing, The trust does not report these

insuring, or carrying out any reportable Grantor Type Trusts transactions on Form 1041. Instead, a

transaction, and who directly or schedule is attached to the Form 1041 A trust is a grantor trust if the grantor indirectly receive or expect to receive a showing each stock transaction retains certain powers or ownership minimum fee, must use Form 8918 to separately and in the same detail as benefits. This can also apply to only a disclose any reportable transaction John Doe (grantor and owner) will need portion of a trust. See Grantor Type under Regulations section 301.6111-3. to report these transactions on his Trust on page 15 for details on what For more information, see Form 8918 Schedule D (Form 1040). The trust may makes a trust a grantor trust. and its instructions. not net the capital gains and losses, nor In general, a grantor trust is ignored may it issue John Doe a Schedule K-1 for tax purposes and all of the income, Additional Information (Form 1041) showing a $10 long-term deductions, etc., are treated as capital loss. The following publications may assist belonging directly to the grantor. This you in preparing Form 1041: also applies to any portion of a trust Optional Filing Methods for • Pub. 550, Investment Income and that is treated as a grantor trust. Certain Grantor Type Trusts Expenses, The following instructions apply Generally, if a trust is treated as owned • Pub. 559, Survivors, Executors, and only to grantor type trusts that by one grantor or other person, the Administrators, and CAUTION are not using an optional filing trustee may choose Optional Method 1 ! • Pub. 590, Individual Retirement method. or Optional Method 2 as the trust’s Arrangements (IRAs). method of reporting instead of filing File Form 1041 for a grantor trust Form 1041. A husband and wife will be Assembly and unless you use an optional filing treated as one grantor for purposes of method. Attachments these two optional methods if: If the entire trust is a grantor trust, fill • All of the trust is treated as owned by Assemble any schedules, forms, and in only the entity portion of Form 1041. the husband and wife, and attachments behind Form 1041 in the Do not show any dollar amounts on the • The husband and wife file their following order: form itself; show dollar amounts only on income tax return jointly for that tax 1. Schedule I (Form 1041); an attachment to the form. Do not use year. 2. Schedule D (Form 1041); Schedule K-1 (Form 1041) as the Generally, if a trust is treated as 3. Form 4952; attachment. owned by two or more grantors or other 4. Schedule H (Form 1040); If only part of the trust is treated as a persons, the trustee may choose 5. Form 4136; grantor trust, report on Form 1041 only Optional Method 3 as the trust’s 6. Form 8855; the part of the income, deductions, etc., method of reporting instead of filing 7. All other schedules and that is taxable to the trust. The amounts Form 1041. forms; and that are taxable directly to the grantor 8. All attachments. Once you choose the trust’s filing are shown only on an attachment to the method, you must follow the rules form. Do not use Schedule K-1 (Form under Changing filing methods if you Attachments 1041) as the attachment. want to change to another method. If you need more space on the forms or Also, the fiduciary must give the Exceptions. The following trusts schedules, attach separate sheets. Use grantor (owner) of the trust a copy of cannot report using the optional filing the same size and format as on the the attachment. methods. printed forms. But show the totals on On the attachment, report: • A common trust fund (as defined in the printed forms. • The name, identifying number, and section 584(a)). Attach these separate sheets after address of the person(s) to whom the • A foreign trust or a trust that has any all the schedules and forms. Enter the income is taxable; of its assets located outside the United

estate’s or trust’s EIN on each sheet. • The income of the trust that is States.

Do not file a copy of the decedent’s taxable to the grantor or another person • A qualified subchapter S trust (as

will or the trust instrument unless the under sections 671 through 678. Report defined in section 1361(d)(3)).

IRS requests it. the income in the same detail as it • A trust all of which is treated as

would be reported on the grantor’s owned by one grantor or one other return had it been received directly by person whose tax year is other than a

Special Reporting the grantor; and calendar year. • Any deductions or credits that apply • A trust all of which is treated as

Instructions to this income. Report these deductions owned by one or more grantors or other and credits in the same detail as they persons, one of which is not a U.S.

Grantor type trusts, the S portion of person. would be reported on the grantor’s

electing small business trusts (ESBTs), return had they been received directly • A trust all of which is treated as

and bankruptcy estates all have owned by one or more grantors or other by the grantor.

reporting requirements that are The income taxable to the grantor or persons if at least one grantor or other

significantly different than other another person under sections 671 person is an exempt recipient for

Subchapter J trusts and decedent’s through 678 and the deductions and information reporting purposes, unless

estates. Additionally, grantor type trusts credits that apply to that income must at least one grantor or other person is

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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 of which is owned by two or more

treated as owned by one grantor or by those items must be included when grantors (treating spouses filing a joint

one other person, the trustee must give figuring taxable income and credits on return as one grantor).

all payers of income during the tax year his or her income tax return. This 2. A trust with 10 or more grantors

the name and TIN of the grantor or statement satisfies the requirement to established after 1983 but before

other person treated as the owner of give the recipient copies of the Forms 1996.

1099 filed by the trustee. the trust and the address of the trust.

This method may be used only if the Optional Method 3. For a trust The trustee must withhold 28% of

owner of the trust provides the trustee reportable payments made to any treated as owned by two or more

with a signed Form W-9, Request for grantor who is subject to backup grantors or other persons, the trustee

Taxpayer Identification Number and must give all payers of income during withholding.

Certification. In addition, unless the the tax year the name, address, and For more information, see section

grantor or other person treated as TIN of the trust. The trustee also must 3406 and its regulations.

owner of the trust is the trustee or a file with the IRS the appropriate Forms

co-trustee of the trust, the trustee must 1099 to report the income or gross Pooled Income Funds

give the grantor or other person treated proceeds paid to the trust by all payers If you are filing for a pooled income

as owner of the trust a statement that: during the tax year attributable to the fund, attach a statement to support the • Shows all items of income, part of the trust treated as owned by following:

deduction, and credit of the trust; each grantor, or other person, showing • The calculation of the yearly rate of • Identifies the payer of each item of the trust as the payer and each grantor, return,

income; or other person treated as owner of the • The computation of the deduction for • Explains how the grantor or other trust, as the payee. The trustee must distributions to the beneficiaries, and

person treated as owner of the trust report each type of income in the • The computation of any charitable

takes those items into account when aggregate and each item of gross deduction.

figuring the grantor’s or other person’s proceeds separately. The due date for See section 642 and the regulations

taxable income or tax; and any Forms 1099 required to be filed thereunder for more information. • 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 March 2, 2009 (March 31, Schedules A or B of Form 1041. those items must be included when 2009, if filed electronically). Also, you must file Form 5227, figuring taxable income and credits on In addition, the trustee must give Split-Interest Trust Information Return, his or her income tax return. each grantor or other person treated as for the pooled income fund. However, if

Grantor trusts that have not owner of the trust a statement that: all amounts were transferred in trust

applied for an EIN and are • Shows all items of income, before May 27, 1969, or if an amount going to file under Optional deduction, and credit of the trust was transferred to the trust after May

TIP

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

trust as long as they continue to report treated as owned by the grantor or allowed under any of the sections listed

under that method. other person; under section 4947(a)(2), then Form

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

person treated as owner of the trust treated as owned by one grantor or by Note. Form 1041-A is no longer filed takes those items into account when one other person, the trustee must give by pooled income funds. figuring the grantor’s or other person’s all payers of income during the tax year

the name, address, and TIN of the taxable income or tax; and Electing Small Business • Informs the grantor or other person trust. The trustee also must file with the Trusts (ESBTs) treated as the owner of the trust that IRS the appropriate Forms 1099 to those items must be included when Special rules apply when figuring the report the income or gross proceeds figuring taxable income and credits on tax on the S portion of an ESBT. The S paid to the trust during the tax year that his or her income tax return. This portion of an ESBT is the portion of the shows the trust as the payer and the statement satisfies the requirement to trust that consists of stock in one or grantor, or other person treated as give the recipient copies of the Forms more S corporations and is not treated owner, as the payee. The trustee must 1099 filed by the trustee. as a grantor type trust. The tax on the S report each type of income in the 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 March 2, 2009 (March 31, year that immediately precedes the first G, line 7, entry space preceded by 2009, if filed electronically). tax year for which the trustee elects to “Sec. 641(c),” and report under one of the optional In addition, unless the grantor, or • 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. 1041, the trustee must write “Pursuant trust, is the trustee or a co-trustee of to section 1.671-4(g), this is the final The tax on the remainder (non-S the trust, the trustee must give the Form 1041 for this grantor trust,” and portion) of the ESBT is figured in the grantor or other person treated as check the Final return box in item F. normal manner on Form 1041. owner of the trust a statement that:

Tax computation attachment. Attach • Shows all items of income, For more details on changing to the return the tax computation for the deduction, and credit of the trust; reporting methods, including changes S portion of the ESBT. • Explains how the grantor or other from one optional method to another,

person treated as owner of the trust see Regulations section 1.671-4(g). To compute the tax on the S portion:

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• Treat that portion of the ESBT as if it files a petition under any chapter of title 1. Net operating loss (NOL)

were a separate trust; 11 of the U.S. Code. carryovers;

• Include only the income, losses, 2. Charitable contributions

deductions, and credits allocated to the carryovers; Who Must File ESBT as an S corporation shareholder 3. Recovery of tax benefit items; Every trustee (or debtor-in-possession) and gain or loss from the disposition of 4. Credit carryovers;

S corporation stock; 5. Capital loss carryovers; for an individual’s bankruptcy estate

under chapter 7 or 11 of title 11 of the • Aggregate items of income, losses, 6. Basis, holding period, and U.S. Code must file a return if the deductions, and credits allocated to the character of assets;

ESBT as an S corporation shareholder 7. Method of accounting; bankruptcy estate has gross income of

$8,950 or more for tax years beginning if the S portion of the ESBT has stock 8. Unused passive activity losses; in 2008. in more than one S corporation; 9. Unused passive activity credits;

• Deduct state and local income taxes and Failure to do so may result in an

and administrative expenses directly 10. Unused section 465 losses. estimated Request for Administrative

related to the S portion or allocated to Expenses being filed by the IRS in the

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;

• Deduct interest expense paid or The filing of a tax return for the Under section 1398(c), the taxable bankruptcy estate does not accrued on indebtedness incurred to income of the bankruptcy estate CAUTION relieve the individual debtor of

!

acquire stock in an S corporation; generally is figured in the same manner

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

• Do not claim an income distribution includes any income included in

deduction or an exemption amount; EIN property of the estate as defined in title

• Do not claim an exemption amount in 11, sections 541 and 1115. Section 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 • Do not use the tax rate schedule to Code by the Bankruptcy Abuse own EIN. The SSN of the individual

figure the tax. The tax is 35% of the S Prevention and Consumer Protection debtor cannot be used as the EIN for

portion’s taxable income except in Act of 2005. Section 1115 of title 11 of the bankruptcy estate. the U.S. Code expands the definition of figuring the maximum tax on qualified

dividends and capital gains. property of the estate in chapter 11 Accounting Period cases filed by individuals after October For additional information, see A bankruptcy estate is allowed to have 16, 2005, and in chapter 11 cases Regulations section 1.641(c)-1. a fiscal year. The period can be no begun by creditors against an individual

Other information. When figuring the longer than 12 months. debtor (involuntary cases) after that

tax and DNI on the remaining (non-S) date. Under section 1115 of title 11 of

portion of the trust, disregard the S When To File the U.S. Code, property of the

corporation items. File Form 1041 on or before the 15th bankruptcy estate includes (a) earnings

Do not apportion to the beneficiaries day of the 4th month following the close from services performed by the debtor

of the tax year. Use Form 7004 to apply after the beginning of the case (both any of the S corporation items. for an extension of time to file. wages and self-employment income) If the ESBT consists entirely of stock and before the case is closed, in one or more S corporations, do not Disclosure of Return dismissed, or converted to a case make any entries on lines 1–22 of page Information under a different chapter and (b) 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 items; to inspection by or disclosure to the and before the case is closed, • Carry the tax from line 7 of Schedule trustee. dismissed, or converted. If section 1115 G to line 23 on page 1; and The returns subject to disclosure to of title 11 of the U.S. Code applies, the • Complete the rest of the return. the trustee are those for the year the bankruptcy estate’s gross income

The grantor portion (if any) of an bankruptcy begins and prior years. Use includes, as described above, (a) the

ESBT will follow the rules discussed Form 4506, Request for Copy of Tax debtor’s earnings from services

under Grantor Type Trusts on page 11. Return, to request copies of the performed after the beginning of the

individual debtor’s tax returns. case and (b) the income from property

Bankruptcy Estates acquired after the beginning of the If the bankruptcy case was not The bankruptcy estate that is created case. 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 debtor-in-possession. If the case is later or is abandoned by the trustee or dismissed by the bankruptcy court, the Transfer of Tax Attributes From debtor-in-possession, the income from individual debtor is treated as if the the Individual Debtor to the the property is not included in the bankruptcy petition had never been Bankruptcy Estate bankruptcy estate’s gross income. Also filed. The bankruptcy estate succeeds to the included in income is gain from the sale

A separate taxable entity is not following tax attributes of the individual of the bankruptcy estate’s property. To

created if a partnership or corporation debtor: figure gain, the trustee or

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debtor-in-possession must determine gross income must be applied to DO NOT DETACH.” Attach Form 1040

the correct basis of the property. reduce certain tax attributes in a certain to Form 1041. Complete only the

To determine whether any amount order. Attach Form 982, Reduction of identification area at the top of Form

Tax Attributes Due to Discharge of 1041. Enter the name of the individual paid or incurred by the bankruptcy Indebtedness (and Section 1082 Basis debtor in the following format: “John Q. estate is allowable as a deduction or Adjustment), to show the reduction of Public Bankruptcy Estate.” Beneath, credit, or is treated as wages for tax attributes. enter the name of the trustee in the employment tax purposes, treat the following format: “Avery Snow, amount as if it were paid or incurred by Tax Rate Schedule Trustee.” In item D, enter the date the the individual debtor in the same trade Figure the tax for the bankruptcy estate petition was filed or the date of or business or other activity the debtor using the tax rate schedule below. conversion to a chapter 7 or 11 case. engaged in before the bankruptcy Enter the tax on Form 1040, line 44. proceedings began. Enter on Form 1041, line 23, the

total tax from line 61 of Form 1040. Administrative expenses. The If taxable income is:

bankruptcy estate is allowed a But not Of the Complete lines 24 through 29 of Form

Over — The tax is: amount over — 1041, and sign and date it. deduction for any administrative over —

expense allowed under section 503 of $0 $8,025 10% $0 In a chapter 11 case filed after title 11 of the U.S. Code, and any fee or 8,025 32,550 $802.50 + 15% 8,025 October 16, 2005, the bankruptcy 32,550 65,725 4,481.25 + 25% 32,550 charge assessed under chapter 123 of estate’s gross income may be affected 65,725 100,150 12,775.00 + 28% 65,725 title 28 of the U.S. Code, to the extent 100,150 178,850 22,414.00 + 33% 100,150 by section 1115 of title 11 of the U.S. not disallowed under an Internal 178,850 ------ 48,385.00 + 35% 178,850 Code. See Income, Deductions, and

Revenue Code provision (for example, Credits earlier. The debtor may receive section 263, 265, or 275). Prompt Determination of Tax a Form W-2, 1099-INT, 1099-DIV, or

Administrative expense loss. When Liability 1099-MISC or other information return

figuring an NOL, nonbusiness reporting wages or other income to the To request a prompt determination of deductions (including administrative debtor for the entire year, even though the tax liability of the bankruptcy estate, expenses) are limited under section some or all of this income is includible the trustee or debtor-in-possession 172(d)(4) to the bankruptcy estate’s in the bankruptcy estate’s gross income must file a written request for the nonbusiness income. The excess under section 1115 of title 11 of the determination with the IRS. The request nonbusiness deductions are an U.S. Code. If this happens, the income must be submitted in duplicate and administrative expense loss that may reported to the debtor on the Form W-2 executed under penalties of perjury. be carried back to each of the 3 or 1099, or other information return The request must include a statement preceding tax years and forward to (and the withheld income tax shown on indicating that it is a request for prompt each of the 7 succeeding tax years of these forms) must be reasonably determination of tax liability and: (a) the the bankruptcy estate. The amount of allocated between the debtor and the return type, and all the tax periods for an administrative expense loss that bankruptcy estate. The which prompt determination is sought; may be carried to any tax year is debtor-in-possession (or the chapter 11 (b) the name and location of the office determined after the NOL deductions trustee, if one was appointed) must where the return was filed; (c) the allowed for that year. An administrative attach a schedule that shows (a) all the debtor’s name; (d) the debtor’s SSN, expense loss is allowed only to the income reported on the Form W-2, TIN, or EIN; (e) the type of bankruptcy bankruptcy estate and cannot be Form 1099, or other information return, estate; (f) the bankruptcy case number; carried to any tax year of the individual (b) the portion of this income includible and (g) the court where the bankruptcy debtor. in the bankruptcy estate’s gross is pending. Send the request to the income, and (c) all the withheld income Carryback of NOLs and credits. If Centralized Insolvency Operation, P.O. tax, if any, and the portion of withheld the bankruptcy estate itself incurs an Box 21126, Philadelphia, PA 19114 tax reasonably allocated to the NOL (apart from losses carried forward (marked “Request for Prompt bankruptcy estate. Also, the to the estate from the individual debtor), Determination”). debtor-in-possesion (or the chapter 11 it can carry back its NOLs not only to The IRS will notify the trustee or trustee, if one was appointed) must previous tax years of the bankruptcy debtor-in-possession within 60 days attach a copy of the Form W-2, if any, estate, but also to tax years of the from receipt of the request if the return issued to the debtor for the tax year if individual debtor prior to the year in filed by the trustee or the Form W-2 reports wages to the which the bankruptcy proceedings debtor-in-possession has been selected debtor and some or all of the wages are began. Excess credits, such as the for examination or has been accepted includible in the bankruptcy estate’s foreign tax credit, also may be carried as filed. If the return is selected for gross income because of section 1115 back to pre-bankruptcy years of the examination, it will be examined as of title 11 of the U.S. Code. For more individual debtor. soon as possible. The IRS will notify details, including acceptable allocation Exemption. For tax years beginning in the trustee or debtor-in-possession of methods, see Notice 2006-83, 2006-40

2008, a bankruptcy estate is allowed a any tax due within 180 days from I.R.B. 596, available at www.irs.gov/irb/ personal exemption of $3,500. receipt of the request or within any 2006-40_IRB/ar12.html.

Standard deduction. For tax years additional time permitted by the

beginning in 2008, a bankruptcy estate bankruptcy court.

that does not itemize deductions is

allowed a standard deduction of See Rev. Proc. 2006-24, 2006-22 Specific Instructions I.R.B. 943, available atwww.irs.gov/irb/ $5,450. 2006-22_IRB/ar12.html.

Discharge of indebtedness. In a title

11 case, gross income does not include Special Filing Instructions for Name of Estate or Trust

amounts that normally would be Copy the exact name of the estate or Bankruptcy Estates

included in gross income resulting from Use Form 1041 only as a transmittal for trust from the Form SS-4, Application

the discharge of indebtedness. Form 1040. In the top margin of Form for Employer Identification Number, that

However, any amounts excluded from 1040 write “Attachment to Form 1041. you used to apply for the EIN. If the

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name of the trust was changed during of the estate is made to the heirs and more than 5% of the value of that

the tax year for which you are filing, other beneficiaries. The income earned portion. Also, the grantor is treated as

enter the trust’s new name and check from the property of the estate during holding any power or interest that was

the Change in trust’s name box in item the period of administration or held by either the grantor’s spouse at

F. settlement must be accounted for and the time that the power or interest was

reported by the estate. created or who became the grantor’s If a grantor type trust (discussed spouse after the creation of that power below), write the name, identification Simple Trust or interest. See Grantor Type Trusts on number, and address of the grantor(s) page 11 for more information. or other owner(s) in parentheses after A trust may qualify as a simple trust if:

the name of the trust. 1. The trust instrument requires that Pre-need funeral trusts. The

all income must be distributed currently; purchasers of pre-need funeral services Name and Title of 2. The trust instrument does not are the grantors and the owners of provide that any amounts are to be pre-need funeral trusts established Fiduciary paid, permanently set aside, or used for under state laws. See Rev. Rul.

Enter the name and title of the charitable purposes; and 87-127, 1987-2 C.B. 156. However, the

fiduciary. If the name entered is 3. The trust does not distribute trustees of pre-need funeral trusts can different than the name on the prior amounts allocated to the corpus of the elect to file the return and pay the tax year’s return, see Change in Fiduciary’s trust. for qualified funeral trusts. For more Name and Change in Fiduciary on information, see Form 1041-QFT, U.S.

page 17. Complex Trust Income Tax Return for Qualified

Funeral Trusts. A complex trust is any trust that does Address not qualify as a simple trust as Nonqualified deferred compensation Include the suite, room, or other unit explained above. plans. Taxpayers may adopt and number after the street address. If the maintain grantor trusts in connection post office does not deliver mail to the Qualified Disability Trust with nonqualified deferred street address and the fiduciary has a A qualified disability trust is any compensation plans (sometimes P.O. box, show the box number nongrantor trust: referred to as “rabbi trusts”). Rev. Proc. instead. 92-64, 1992-2 C.B. 422, provides a 1. Described in 42 U.S.C. If you want a third party (such as an “model grantor trust” for use in rabbi 1396p(c)(2)(B)(iv) and established accountant or an attorney) to receive trust arrangements. The procedure also solely for the benefit of an individual mail for the estate or trust, enter on the provides guidance for requesting under 65 years of age who is disabled, street address line “C/O” followed by rulings on the plans that use these and the third party’s name and street trusts. 2. All the beneficiaries of which are address or P.O. box. determined by the Commissioner of

If the estate or trust has had a Social Security to have been disabled Bankruptcy Estate

change of address (including a change for some part of the tax year within the A chapter 7 or 11 bankruptcy estate is

to an “in care of” name and address) meaning of 42 U.S.C. 1382c(a)(3). a separate and distinct taxable entity and did not file Form 8822, Change of from the individual debtor for federal

Address, check the Change in A trust will not fail to meet item 2 income tax purposes. See Bankruptcy

fiduciary’s address box in item F. above just because the trust’s corpus Estates on page 13.

may revert to a person who is not If the estate or trust has a change of disabled after the trust ceases to have For more information, see section mailing address (including a new ‘‘in any disabled beneficiaries. 1398 and Pub. 908, Bankruptcy Tax care of’’ name and address) after filing Guide. its return, file Form 8822 to notify the ESBT (S Portion Only) IRS of the change.

The S portion of an ESBT is the portion Pooled Income Fund

A. Type of Entity of the trust that consists of S A pooled income fund is a split-interest corporation stock and that is not treated trust with a remainder interest for a Check the appropriate box that as owned by the grantor or another public charity and a life income interest describes the entity for which you are person. See page 12 of the instructions retained by the donor or for another filing the return. for more information about an ESBT. person. The property is held in a pool

If only a portion of a trust is a grantor with other pooled income fund property

type trust or if only a portion of an Grantor Type Trust and does not include any tax-exempt electing small business trust is the S A grantor type trust is a legal trust securities. The income for a retained

portion, then more than one box can be under applicable state law that is not life interest is figured using the yearly

checked. recognized as a separate taxable entity rate of return earned by the trust. See

for income tax purposes because the section 642(c) and the related There are special reporting grantor or other substantial owners regulations for more information. requirements for grantor type have not relinquished complete CAUTION trusts, pooled income funds,

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dominion and control over the trust. electing small business trusts, and B. Number of Schedules

bankruptcy estates. See Special Generally, for transfers made in trust Reporting Instructions on page 11. after March 1, 1986, the grantor is K-1 Attached

treated as the owner of any portion of a Every trust or decedent’s estate Decedent’s Estate trust in which he or she has a claiming an income distribution

An estate of a deceased person is a reversionary interest in either the deduction on page 1, line 18, must

taxable entity separate from the income or corpus therefrom, if, as of enter the number of Schedules K-1

decedent. It generally continues to exist the inception of that portion of the trust, (Form 1041) that are attached to Form

until the final distribution of the assets the value of the reversionary interest is 1041.

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meet its section 6012 filing requirement trusts other than section 664 charitable C. Employer for that tax year. remainder trusts.

Identification Number Excise taxes. If a nonexempt

Every estate or trust that is required to charitable trust is treated as a private F. Initial Return,

file Form 1041 must have an EIN. An foundation, then it is subject to the Amended Return, etc. EIN may be applied for: same excise taxes under chapters 41

• Online by clicking on the EIN link at and 42 that a private foundation is

www.irs.gov/businesses/small. The EIN subject to. If the nonexempt charitable Amended Return

is issued immediately once the trust is liable for any of these taxes If you are filing an amended Form

application information is validated. (except the section 4940 tax), then it 1041:

• By telephone at 1-800-829-4933 from reports these taxes on Form 4720, • Check the “Amended return” box,

7:00 a.m. to 10:00 p.m. in the Return of Certain Excise Taxes Under • Complete the entire return,

fiduciary’s local time zone. Assistance Chapters 41 and 42 of the Internal • Correct the appropriate lines with the

provided to callers from Alaska and Revenue Code. Taxes paid by the trust new information, and

Hawaii will be based on the hours of on Form 4720 or on Form 990-PF (the • Refigure the estate’s or trust’s tax

operation in the Pacific time zone. section 4940 tax) cannot be taken as a liability.

• By mailing or faxing Form SS-4, deduction on Form 1041. If the total tax on line 23 is larger on Application for Employer Identification Not a Private Foundation the amended return than on the original Number. return, you generally should pay the If the estate or trust has not received its Check this box if the nonexempt difference with the amended return. EIN by the time the return is due, write charitable trust (section 4947(a)(1)) is However, you should adjust this “Applied for” in the space for the EIN. not treated as a private foundation amount if there is any increase or For more details, see Pub. 583, under section 509. For more decrease in the total payments shown Starting a Business and Keeping information, see Regulations section on line 25. Records. 53.4947-1.

Attach a sheet that explains the Other returns that must be filed. If a reason for the amendments and D. Date Entity Created nonexempt charitable trust is not identifies the lines and amounts being Enter the date the trust was created, or, treated as though it were a private changed on the amended return. foundation, the fiduciary must file, in if a decedent’s estate, the date of the

decedent’s death. addition to Form 1041, Form 990 (or Amended Schedule H (Form 1040). Form 990-EZ), Return of Organization If you discover an error on a Schedule Exempt From Income Tax, if the trust H that you previously filed with Form E. Nonexempt Charitable meets the filing requirements for either 1041, file an “Amended” Form 1041

and Split-Interest Trusts of those forms. and attach a corrected Schedule H.

If a nonexempt charitable trust is not In the top margin of your corrected Section 4947(a)(1) Trust treated as though it were a private Schedule H, write “Amended,” (using

Check this box if the trust is a foundation, and it has no taxable red ink, if possible) and the date you

nonexempt charitable trust within the income under Subtitle A, it may answer discovered the error. Also, on an

meaning of section 4947(a)(1). lines 12a and 12b in Part V of Form attachment explain the reason for your 990 (line 43 in Part V of Form 990-EZ) correction. If you owe tax, pay the tax in A nonexempt charitable trust is a instead of filing Form 1041 to meet its full with your amended Form 1041. If trust: section 6012 filing requirement for that you overpaid tax on a previously filed • That is not exempt from tax under tax year. Schedule H, depending on whether you section 501(a); choose the adjustment or claim for • In which all of the unexpired interests Section 4947(a)(2) Trust refund process to correct the error, you are devoted to one or more charitable Check this box if the trust is a must either repay or reimburse the purposes described in section split-interest trust described in section employee’s share of social security and 170(c)(2)(B); and 4947(a)(2). Medicare tax or get the employee’s • For which a deduction was allowed

 A split-interest trust is a trust that: consent to the filing of a refund claim under section 170 (for individual for their share. See Pub. 926, • Is not exempt from tax under section taxpayers) or similar Code section for Household Employer’s Tax Guide, for 501(a); personal holding companies, foreign more information. • Has some unexpired interests that personal holding companies, or estates

or trusts (including a deduction for are devoted to purposes other than Amended Schedule K-1 (Form 1041).

estate or gift tax purposes). religious, charitable, or similar purposes If the amended return results in a

described in section 170(c)(2)(B); and change to income, or a change in Nonexempt charitable trust treated • Has amounts transferred in trust after distribution of any income or other as a private foundation. If a May 26, 1969, for which a deduction information provided to a beneficiary, nonexempt charitable trust is treated as was allowed under section 170 (for an amended Schedule K-1 (Form 1041) though it were a private foundation individual taxpayers) or similar Code must also be filed with the amended

under section 509, then the fiduciary sections for personal holding Form 1041 and given to each must file Form 990-PF, Return of companies, foreign personal holding beneficiary. Check the “Amended K-1” Private Foundation, in addition to Form companies, or estates or trusts box at the top of the amended 1041. (including a deduction for estate or gift Schedule K-1.

tax purposes). If a nonexempt charitable trust is

treated as though it were a private Other returns that must be filed. Final Return

foundation, and it has no taxable The fiduciary of a split-interest trust Check this box if this is a final return

income under Subtitle A, it may answer must file Form 5227. However, see the because the estate or trust has

Statement 15 on Part VII-A of Form Instructions for Form 5227 for the terminated. Also, check the “Final K-1”

990-PF, instead of filing Form 1041 to exception that applies to split-interest box at the top of Schedule K-1.

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If, on the final return, there are death that should be reported on the Extraterritorial Income excess deductions, an unused capital income tax return of the decedent’s Exclusion loss carryover, or an NOL carryover, estate. When preparing the decedent’s

see the instructions for Schedule K-1, final income tax return, report on line 5 The extraterritorial income exclusion is

box 11, on page 34. of Schedule B (Form 1040) or Schedule not allowed for transactions after 2006.

However, income from certain 1 (Form 1040A) the ordinary dividends

Change in Trust’s Name long-term sales and leases may still shown on Form 1099-DIV. Under the

qualify for the exclusion. For details and last entry on line 5, subtotal all the If the name of the trust has changed to figure the amount of the exclusion, dividends reported on line 5. Below the from the name shown on the prior see Form 8873, Extraterritorial Income subtotal, write “Form 1041” and the year’s return (or Form SS-4 if this is the

first return being filed), be sure to check Exclusion, and its separate instructions. name and address shown on Form

The estate or trust must report the 1041 for the decedent’s estate. Also, this box. extraterritorial income exclusion on line show the part of the ordinary dividends 15a of Form 1041, page 1. reported on Form 1041 and subtract it Change in Fiduciary Although the extraterritorial income from the subtotal.

If a different fiduciary enters his or her exclusion is entered on line 15a, it is an name on the line for Name and title of Report capital gain distributions exclusion from income and should be fiduciary than was shown on the prior on Schedule D (Form 1041), treated as tax-exempt income when year’s return (or Form SS-4 if this is the line 9.

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completing other parts of the return. first return being filed) and you did not

file a Form 8822, be sure to check this Line 1—Interest Income Line 2b—Qualified

box. If there is a change in the fiduciary Report the estate’s or trust’s share of Dividends whose address is used as the mailing all taxable interest income that was address for the estate or trust after the Enter the beneficiary’s allocable share received during the tax year. Examples return is filed, use Form 8822 to notify of qualified dividends on line 2b(1) and of taxable interest include interest from: the IRS. enter the estate’s or trust’s allocable • Accounts (including certificates of share on line 2b(2). deposit and money market accounts) Change in Fiduciary’s Name with banks, credit unions, and thrift If the estate or trust received

If the fiduciary changed his or her name institutions; qualified dividends that were derived

from IRD, you must reduce the amount from the name that he or she entered • Notes, loans, and mortgages;

on the prior year’s return (or Form SS-4 • U.S. Treasury bills, notes, and on line 2b(2) by the portion of the

if this is the first return being filed), be bonds; estate tax deduction claimed on Form

sure to check this box. • U.S. savings bonds; 1041, page 1, line 19, that is

• Original issue discount; and attributable to those qualified dividends.

Change in Fiduciary’s • Income received as a regular interest Do not reduce the amounts on line 2b

holder of a real estate mortgage by any other allocable expenses. Address investment conduit (REMIC). Note. The beneficiary’s share (as If the same fiduciary who filed the prior For taxable bonds acquired after figured above) may differ from the year’s return (or Form SS-4 if this is the 1987, amortizable bond premium is amount entered on line 2b of Schedule first return being filed) files the current treated as an offset to the interest K-1 (Form 1041). year’s return and changed the address income instead of as a separate on the return (including a change to an Qualified dividends. Qualified interest deduction. See Pub. 550. ‘‘in care of’’ name and address), and dividends are eligible for a lower tax did not report the change on Form For the year of the decedent’s death, rate than other ordinary income. 8822, check this box. Forms 1099-INT issued in the Generally, these dividends are reported decedent’s name may include interest to the estate or trust in box 1b of If the address shown on Form 1041 income earned after the date of death Form(s) 1099-DIV. See Pub. 550 for changes after you file the form that should be reported on the income the definition of qualified dividends if (including a change to an ‘‘in care of’’ tax return of the decedent’s estate. the estate or trust received dividends name and address), file Form 8822 to When preparing the decedent’s final not reported on Form 1099-DIV. notify the IRS of the change. income tax return, report on line 1 of Exception. Some dividends may Schedule B (Form 1040) or Schedule 1 be reported to the estate or trust as in G. Section 645 Election (Form 1040A) the total interest shown box 1b of Form 1099-DIV but are not on Form 1099-INT. Under the last entry If a section 645 election was made by qualified dividends. These include: on line 1, subtotal all the interest filing Form 8855, check the box in item • Dividends received on any share of reported on line 1. Below the subtotal, G. See Special Rule for Certain stock that the estate or trust held for write “Form 1041” and the name and Revocable Trusts under Who Must File less than 61 days during the 121-day address shown on Form 1041 for the and Form 8855 for more information period that began 60 days before the decedent’s estate. Also, show the part about this election. ex-dividend date. The ex-dividend date of the interest reported on Form 1041 is the first date following the declaration and subtract it from the subtotal. of a dividend on which the purchaser of Income Line 2a—Total Ordinary a stock is not entitled to receive the

next dividend payment. When counting Special Rule for Blind Trust Dividends the number of days the stock was held, Report the estate’s or trust’s share of If you are reporting income from a include the day the estate or trust all ordinary dividends received during qualified blind trust (under the Ethics in disposed of the stock but not the day it

Government Act of 1978), do not acquired the stock. However, you the tax year.

identify the payer of any income to the For the year of the decedent’s death, cannot count certain days during which

trust but complete the rest of the return Forms 1099-DIV issued in the the estate’s or trust’s risk of loss was

as provided in the instructions. Also decedent’s name may include diminished. See Pub. 550 for more

write “Blind Trust” at the top of page 1. dividends earned after the date of details.

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• Dividends attributable to periods 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) section 179 to expense certain tangible

estate or trust received on any share of from Schedule E on line 5. See the property.

preferred stock held for less than 91 instructions for Schedule E (Form 1040) The estate’s or trust’s share of days during the 181-day period that for reporting requirements. depreciation, depletion, and began 90 days before the ex-dividend If the estate or trust received a amortization should be reported on the date. When counting the number of Schedule K-1 from a partnership, S appropriate lines of Schedule C (or days the stock was held, include the corporation, or other flow-through C-EZ), E, or F (Form 1040), the net day the estate or trust disposed of the entity, use the corresponding lines on income or loss from which is shown on stock but not the day it acquired the Form 1041 to report the interest, line 3, 5, or 6 of Form 1041. If the stock. However, you cannot count dividends, capital gains, etc., from the deduction is not related to a specific certain days during which the estate’s flow-through entity. business or activity, then report it on or trust’s risk of loss was diminished. line 15a. See Pub. 550 for more details. Line 6—Farm Income or

Preferred dividends attributable to Depreciation. For a decedent’s (Loss) estate, the depreciation deduction is periods totaling less than 367 days are If the estate or trust operated a farm, apportioned between the estate and the subject to the 61-day holding period use Schedule F (Form 1040), Profit or heirs, legatees, and devisees on the rule above. Loss From Farming, to report farm basis of the estate’s income allocable • Dividends on any share of stock to income and expenses. Enter the net to each. the extent that the estate or trust is profit or (loss) from Schedule F on line under an obligation (including a short For a trust, the depreciation 6. sale) to make related payments with 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

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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

Schedule F (Form 1040) to report such required to maintain a reserve, the If you have an entry on line income and expenses and do not deduction is first allocated to the trust, 2b(2), be sure you use include the net profit or (loss) from such up to the amount of the reserve. Any Schedule D (Form 1041), the

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income and expenses on line 6. excess is allocated among the Schedule D Tax Worksheet, or the beneficiaries and the trust in the same Qualified Dividends Tax Worksheet, Line 7—Ordinary Gain or manner as the trust’s accounting whichever applies, to figure the estate’s (Loss) income. See Regulations section or trust’s tax. Figuring the estate’s or Enter from line 17, Form 4797, Sales of 1.167(h)-1(b). trust’s tax liability in this manner will

usually result in a lower tax. Business Property, the ordinary gain or Depletion. For mineral or timber

loss from the sale or exchange of property held by a decedent’s estate, 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,

(other than casualty or theft). legatees, and devisees on the basis of If the estate operated a business, the estate’s income from such property report the income and expenses on Line 8—Other Income allocable to each. Schedule C (Form 1040), Profit or Loss Enter other items of income not From Business (or Schedule C-EZ For mineral or timber property held included on lines 1, 2a, and 3 through (Form 1040), Net Profit From in trust, the depletion deduction is 7. List the type and amount on an Business). Enter the net profit or (loss) apportioned between the income attached schedule if the estate or trust from Schedule C (or Schedule C-EZ) beneficiaries and the trust based on the has more than one item. on line 3. trust income from such property Items to be reported on line 8 allocable to each, unless the governing Line 4—Capital Gain or include: instrument (or local law) requires or

(Loss) • Unpaid compensation received by permits the trustee to maintain a the decedent’s estate that is IRD, and reserve for depletion. If the trustee is Enter the gain from Schedule D (Form • Any part of a total distribution shown required to maintain a reserve, the 1041), Part III, line 15, column (3) or on Form 1099-R, Distributions From deduction is first allocated to the trust, the loss from Part IV, line 16. Pensions, Annuities, Retirement or up to the amount of the reserve. Any Do not substitute Schedule D Profit-Sharing Plans, IRAs, Insurance excess is allocated among the (Form 1040) for Schedule D Contracts, etc., that is treated as beneficiaries and the trust in the same

(Form 1041). ordinary income. For more information, manner as the trust’s accounting CAUTION

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see the separate instructions for Form income. See Regulations section Line 5—Rents, Royalties, 4972, Tax on Lump-Sum Distributions. 1.611-1(c)(4).

Partnerships, Other Estates Amortization. The deduction for

and Trusts, etc. Deductions amortization is apportioned between an

estate or trust and its beneficiaries Use Schedule E (Form 1040), Depreciation, Depletion, and under the same principles for Supplemental Income and Loss, to Amortization apportioning the deductions for report the estate’s or trust’s share of depreciation and depletion. income or (losses) from rents, royalties, A trust or decedent’s estate is allowed

partnerships, S corporations, other a deduction for depreciation, depletion, The deduction for the amortization of

estates and trusts, and REMICs. Also and amortization only to the extent the reforestation expenditures under

use Schedule E (Form 1040) to report deductions are not apportioned to the section 194 is allowed only to an

farm rental income and expenses beneficiaries. An estate or trust is not estate.

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Allocation of Deductions for see Pub. 925, Passive Activity and Forms to file. See Form 8582,

At-Risk Rules. Passive Activity Loss Limitations, to Tax-Exempt Income figure the amount of losses allowed Generally, no deduction that would Passive Activity Loss and from passive activities. See Form otherwise be allowable is allowed for Credit Limitations 8582-CR, Passive Activity Credit any expense (whether for business or Limitations, to figure the amount of for the production of income) that is In general. Section 469 and the credit allowed for the current year. allocable to tax-exempt income. regulations thereunder generally limit

Examples of tax-exempt income losses from passive activities to the Transactions Between

amount of income derived from all include: Related Taxpayers • Certain death benefits (section 101), passive activities. Similarly, credits from

passive activities are generally limited Under section 267, a trust that uses the • Interest on state or local bonds

to the tax attributable to such activities. accrual method of accounting may only (section 103), These limitations are first applied at the deduct business expenses and interest • Compensation for injuries or sickness estate or trust level. owed to a related party in the year the (section 104), and payment is included in the income of • Income from discharge of Generally, an activity is a passive the related party. For this purpose, a indebtedness in a title 11 case (section activity if it involves the conduct of any related party includes: 108). trade or business, and the taxpayer 1. A grantor and a fiduciary of any does not materially participate in the Exception. State income taxes and trust; activity. Passive activities do not business expenses that are allocable to 2. A fiduciary of a trust and a include working interests in oil and gas tax-exempt interest are deductible. fiduciary of another trust, if the same properties. See section 469(c)(3). person is a grantor of both trusts; Expenses that are directly allocable Note. Material participation standards to tax-exempt income are allocated only 3. A fiduciary of a trust and a for estates and trusts have not been beneficiary of such trust; to tax-exempt income. A reasonable established by regulations. proportion of expenses indirectly 4. A fiduciary of a trust and a

allocable to both tax-exempt income For a grantor trust, material beneficiary of another trust, if the same

and other income must be allocated to participation is determined at the person is a grantor of both trusts;

each class of income. grantor level. 5. A fiduciary of a trust and a

corporation more than 50% in value of If the estate or trust distributes an

Deductions That May Be the outstanding stock of which is interest in a passive activity, the basis owned, directly or indirectly, by or for Allowable for Estate Tax of the property immediately before the the trust or by or for a person who is a distribution is increased by the passive Purposes grantor of the trust; and activity losses allocable to the interest, Administration expenses and casualty 6. An executor of an estate and a and such losses cannot be deducted.

and theft losses deductible on Form See section 469(j)(12). beneficiary of that estate, except for a

706 may be deducted, to the extent sale or exchange to satisfy a pecuniary

otherwise deductible for income tax Losses from passive activities bequest (that is, a bequest of a sum of

purposes, on Form 1041 if the fiduciary are first subject to the at-risk money).

files a statement waiving the right to rules. When the losses are

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deduct the expenses and losses on deductible under the at-risk rules, the Line 10—Interest Form 706. The statement must be filed passive activity rules then apply. Enter the amount of interest (subject to before the expiration of the statutory Rental activities. Generally, rental limitations) paid or incurred by the period of limitations for the tax year the activities are passive activities, whether estate or trust on amounts borrowed by deduction is claimed. See Pub. 559 for or not the taxpayer materially the estate or trust, or on debt acquired more information. participates. However, certain by the estate or trust (for example, taxpayers who materially participate in outstanding obligations from the Accrued Expenses real property trades or businesses are decedent) that is not claimed elsewhere Generally, an accrual basis taxpayer not subject to the passive activity on the return. can deduct accrued expenses in the tax limitations on losses from rental real

estate activities in which they materially If the proceeds of a loan were used year that: (a) all events have occurred participate. For more details, see for more than one purpose (for that determine the liability; and (b) the section 469(c)(7). example, to purchase a portfolio amount of the liability can be figured

with reasonable accuracy. However, all investment and to acquire an interest in For tax years of an estate ending a passive activity), the fiduciary must the events that establish liability are less than 2 years after the decedent’s make an interest allocation according to treated as occurring only when date of death, up to $25,000 of the rules in Temporary Regulations economic performance takes place. deductions and deduction equivalents section 1.163-8T. There are exceptions for recurring of credits from rental real estate

items. See section 461(h). activities in which the decedent actively Do not include interest paid on

participated are allowed. Any excess indebtedness incurred or continued to

Limitations on losses or credits are suspended for the purchase or carry obligations on which

year and carried forward. the interest is wholly exempt from Deductions income tax. Portfolio income. Portfolio income is

not treated as income from a passive Personal interest is not deductible. At-Risk Loss Limitations activity, and passive losses and credits Examples of personal interest include

Generally, the amount the estate or generally may not be applied to offset interest paid on:

trust has “at-risk” limits the loss it can it. Portfolio income generally includes • Revolving charge accounts used to

deduct for any tax year. Use Form interest, dividends, royalties, and purchase personal use property;

6198, At-Risk Limitations, to figure the income from annuities. Portfolio income • Personal notes for money borrowed

deductible loss for the year and file it of an estate or trust must be accounted from a bank, credit union, or other

with Form 1041. For more information, for separately. person;

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• Installment loans on personal use Expense Deduction, to figure the Department of Veterans Affairs, the

property; and allowable investment interest Federal Housing Administration, or the

• Underpayments of federal, state, or deduction. Rural Housing Service, and private

local income taxes. mortgage insurance (as defined in If you must complete Form 4952, section 2 of the Homeowners Interest that is paid or incurred on check the box on line 10 of Form 1041 Protection Act of 1998 as in effect on indebtedness allocable to a trade or and attach Form 4952. Then, add the December 20, 2006). business (including a rental activity) deductible investment interest to the

should be deducted on the appropriate other types of deductible interest and Mortgage insurance provided by the

line of Schedule C (or C-EZ), E, or F enter the total on line 10. Department of Veterans Affairs and the

(Form 1040), the net income or loss Rural Housing Service is commonly Qualified residence interest. Interest

from which is shown on line 3, 5, or 6 of known as a funding fee and guarantee paid or incurred by an estate or trust on Form 1041. fee, respectively. These fees can be indebtedness secured by a qualified deducted fully in 2008 if the mortgage Types of interest to include on line residence of a beneficiary of an estate insurance contract was issued in 2008. 10 are: or trust is treated as qualified residence Contact the mortgage insurance issuer interest if the residence would be a 1. Any investment interest (subject to determine the deductible amount if it qualified residence (that is, the principal to limitations—see below); is not included in box 4 of Form 1098. residence or the secondary residence 2. Any qualified residence interest selected by the beneficiary) if owned by Prepaid mortgage insurance. If (see later); and the estate or trust paid premiums for the beneficiary. The beneficiary must 3. Any interest payable under have a present interest in the estate or qualified mortgage insurance that are section 6601 on any unpaid portion of trust or an interest in the residuary of allocable to periods after 2008, such the estate tax attributable to the value the estate or trust. See Pub. 936, Home premiums are treated as paid in the of a reversionary or remainder interest Mortgage Interest Deduction, for an year in which they are allocated. No in property for the period during which explanation of the general rules for deduction is allowed for the an extension of time for payment of deducting home mortgage interest. unamortized balance if the mortgage is such tax is in effect. satisfied before its term. The two See section 163(h)(3) for a definition preceding sentences do not apply to Investment interest. Generally, of qualified residence interest and for qualified mortgage insurance provided investment interest is interest (including limitations on indebtedness. by the Department of Veterans Affairs amortizable bond premium on taxable Qualified mortgage insurance or the Rural Housing Service. bonds acquired after October 22, 1986, premiums. Enter (on the worksheet but before January 1, 1988) that is paid Limit on the amount that is below) the qualified mortgage or incurred on indebtedness that is deductible. The estate or trust cannot insurance premiums paid under a properly allocable to property held for deduct mortgage insurance premiums if mortgage insurance contract issued investment. Investment interest does the estate’s or trust’s AGI is more than after December 31, 2006, in connection not include any qualified residence $109,000. If the estate’s or trust’s AGI with qualified residence acquisition debt interest, or interest that is taken into is more than $100,000, its deduction is that was secured by a principal or account under section 469 in figuring limited and you must use the worksheet secondary residence. See Prepaid income or loss from a passive activity. below to figure the deduction. See How mortgage insurance below if the estate to figure AGI for estates and trusts on Generally, net investment income is or trust paid any premiums allocable page 22 for information on figuring AGI. the excess of investment income over after 2008. If at least one other person

investment expenses. Investment was liable for and paid the premiums in Line 11—Taxes

expenses are those expenses (other connection with the loan, and the Enter any deductible taxes paid or than interest) allowable after application premiums were reported on Form 1098, incurred during the tax year that are not of the 2% floor on miscellaneous include the estate’s or trust’s share of deductible elsewhere on Form 1041. itemized deductions. the 2008 premiums on the worksheet Deductible taxes include the following. below. The amount of the investment • State and local income taxes. You

interest deduction may be limited. Use Qualified mortgage insurance is can deduct state and local income

Form 4952, Investment Interest mortgage insurance provided by the taxes unless you elect to deduct state

Qualified Mortgage Insurance Premiums Deduction Worksheet Keep for Your Records

1. Enter the total premiums the estate or trust paid in 2008 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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and local general sales taxes. You Do not include any losses on b. Any qualified film the estate or

cannot deduct both. worthless bonds and similar obligations trust produced; or

• State and local general sales taxes. and nonbusiness bad debts. Report c. Electricity, natural gas, or potable

You can elect to deduct state and local these losses on Schedule D (Form water the estate or trust produced in

general sales taxes instead of state and 1041). the United States.

local income taxes. Generally, you can Do not deduct medical or funeral In certain cases, the United States elect to deduct the actual state and expenses on Form 1041. Medical includes the Commonwealth of Puerto local general sales taxes (including expenses of the decedent paid by the Rico. compensating use taxes) you paid in estate may be deductible on the 2008 if the tax rate was the same as The deduction does not apply to decedent’s income tax return for the the general sales tax rate. However, income derived from: year incurred. See section 213(c). sales taxes on food, clothing, medical • The sale of food and beverages the Funeral expenses are deductible only supplies, and motor vehicles are estate or trust prepared at a retail on Form 706. deductible as a general sales tax even establishment; The following are examples of if the tax rate was less than the general • Property the estate or trust leased, deductions that are reported on line sales tax rate. Sales taxes on motor licensed, or rented for use by any 15a. vehicles are also deductible as a related person; or

general sales tax if the tax rate was Bond premium(s). For taxable bonds • The transmission or distribution of

more than the general sales tax rate, acquired before October 23, 1986, if electricity, natural gas, or potable water.

but the tax is deductible only up to the the fiduciary elected to amortize the The deduction cannot exceed 6% of

amount of tax that would have been premium, report the amortization on this modified AGI or 50% of certain Form

imposed at the general sales tax rate. line. You cannot deduct the W-2 wages. QPAI, as well as Form W-2 Motor vehicles include cars, amortization for tax-exempt bonds. If wages, must be apportioned between motorcycles, motor homes, recreational you made the election to amortize the the trust or estate and its beneficiaries.

vehicles, sport utility vehicles, trucks, premium, the basis in the taxable bond For more details, see Form 8903, vans, and off-road vehicles. Also must be reduced by the amount of Domestic Production Activities

include any state and local general amortization. Deduction, and its separate sales taxes paid for a leased motor For tax-exempt bonds, you cannot instructions.

vehicle. Do not include sales taxes paid deduct the premium that is amortized. Net operating loss deduction on items used in a trade or business. Although the premium cannot be (NOLD). An estate or trust is allowed An estate or trust cannot use the deducted, you must amortize the the NOLD under section 172. Optional Sales Tax Tables for premium and reduce the estate’s or If you claim an NOLD for the estate individuals in Pub. 600, State and Local trust’s basis in the tax-exempt bond by General Sales Taxes, to figure its or trust, figure the deduction on a the amount of premium amortized. In separate sheet and attach it to this deduction. the case of a premium on a tax-exempt return. • State, local, and foreign real property bond, or if the fiduciary has made an taxes. Estate’s or trust’s share of election to amortize the premium on a • State and local personal property amortization, depreciation, and taxable bond, the basis in the bond depletion not claimed elsewhere. If taxes. must be reduced by the amount of you cannot deduct the amortization, • Foreign or U.S. possession income amortization. depreciation, and depletion as rent or taxes. You may want to take a credit for

the tax instead of a deduction. See the For more information, see section royalty expenses on Schedule E (Form 171 and Pub. 550. 1040), or as business or farm expenses instructions for Schedule G, line 2a, on

page 27 for more details. If you claim a bond premium on Schedule C, C-EZ, or F (Form

deduction for the estate or trust, figure 1040), itemize the fiduciary’s share of • The generation-skipping transfer the deductions on an attached sheet (GST) tax imposed on income the deduction on a separate sheet and

attach it to Form 1041. and include them on line 15a. Itemize distributions. each beneficiary’s share of the Casualty and theft losses. Use Form Do not deduct: deductions and report them in the 4684, Casualties and Thefts, to figure • Federal income taxes; appropriate box of Schedule K-1 (Form any deductible casualty and theft • Estate, inheritance, legacy, 1041). losses. succession, and gift taxes; or Domestic production activities Line 15b—Allowable • Federal duties and excise taxes.

deduction. The estate or trust may be Miscellaneous Itemized

able to deduct up to 6% of its share of Line 12—Fiduciary Fees Deductions Subject to the qualified production activities income Enter the deductible fees paid or 2% Floor (QPAI) from the following activities. incurred to the fiduciary for Miscellaneous itemized deductions are 1. Construction performed in the administering the estate or trust during United States. deductible only to the extent that the the tax year. aggregate amount of such deductions 2. Engineering or architectural exceeds 2% of AGI. services performed in the United States Fiduciary fees deducted on for construction projects in the United Among the miscellaneous itemized Form 706 cannot be deducted States. deductions that must be included on on Form 1041.

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3. Any lease, rental, license, sale, line 15b are expenses for the

exchange, or other disposition of: production or collection of income Line 15a—Other Deductions a. Tangible personal property, under section 212, such as investment

Not Subject to the 2% Floor computer software, and sound advisory fees, subscriptions to

Attach your own schedule, listing by recordings that the estate or trust investment advisory publications, and

the cost of safe deposit boxes. type and amount all allowable manufactured, produced, grew, or

deductions that are not deductible extracted in whole or in significant part Miscellaneous itemized deductions

elsewhere on Form 1041. within the United States; do not include deductions for:

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• Interest under section 163, itemized deductions (chargeable to 1.02AMID = 1,102

• Taxes under section 164, income), which are subject to the 2% AMID = 1,080 • The amortization of bond premium floor. There are no other deductions. DNI = 11,920 (i.e., 13,000 – 1,080) under section 171, The trustee made a discretionary

• Estate taxes attributable to IRD distribution of the accounting income of AGI = 20,980 (i.e., 32,900 – 11,920)

under section 691(c), or $17,500 to the trust’s sole beneficiary. Note. The income distribution • Expenses paid or incurred in Because the actual distribution can deduction is equal to the smaller of the connection with the administration of reasonably be expected to exceed the distribution ($17,500) or the DNI the estate or trust that would not have DNI, the trust must figure the DNI, ($11,920). been incurred if the property were not taking into account the allowable held in the estate or trust. Enter the value of AMID on line 15b miscellaneous itemized deductions, to (the DNI should equal line 7 of For other exceptions, see section determine the amount to enter on line Schedule B) and complete the rest of 67(b). 15b. Form 1041 according to the How to figure AGI for estates and The trust also claims an exemption instructions.

trusts. You figure AGI by subtracting of $100 on line 20. If the 2% floor is more than the the following from total income on line 9 Using the facts in this example: deductions subject to the 2% floor, no of page 1: AMID = 1,500 – (.02(AGI)) deductions are allowed.

1. The administration costs of the In all situations, use the following estate or trust (the total of lines 12, 14, Line 18—Income equation to compute the AGI: and 15a to the extent they are costs Distribution Deduction AGI = (line 9) – (the total of lines 12, incurred in the administration of the

14, and 15a to the extent they are costs If the estate or trust was required to estate or trust) that would not have distribute income currently or if it paid, been incurred if the property were not incurred in the administration of the

estate or trust that would not have been credited, or was required to distribute held by the estate or trust; incurred if the property were not held by any other amounts to beneficiaries 2. The income distribution deduction

the estate or trust) – (line 18) – (line during the tax year, complete Schedule (line 18); 20). B to determine the estate’s or trust’s 3. The amount of the exemption income distribution deduction. (line 20); Note. There are no other deductions However, if you are filing for a pooled 4. The domestic production claimed by the trust on line 15a that are income fund, do not complete Schedule activities deduction claimed on line 15a; deductible in arriving at AGI. B. Instead, attach a statement to and Figuring AGI in this example, we get: support the computation of the income 5. The NOLD claimed on line 15a. AGI = 35,000 – 2,000 – DNI – 100 distribution deduction.

For those estates and trusts whose Since the value of line 18 is not If the estate or trust claims an

income distribution deduction is limited known because it is limited to the DNI, income distribution deduction, complete

to the actual distribution, and not the you are left with the following: and attach:

DNI (that is, the income distribution is • Part I (through line 26) and Part II of AGI = 32,900 – DNI less than the DNI), when computing the Schedule I (Form 1041) to refigure the Substitute the value of AGI in the AGI, use the amount of the actual deduction on a minimum tax basis, and equation: distribution. • Schedule K-1 (Form 1041) for each

For those estates and trusts whose AMID = 1,500 – (.02(32,900 – DNI)) beneficiary to which a distribution was

The equation cannot be solved until made or required to be made. income distribution deduction is limited

to the DNI (that is, the actual the value of DNI is known. The DNI can Cemetery perpetual care fund. On

distribution exceeds the DNI), the DNI be expressed in terms of the AMID. To line 18, deduct the amount, not more

must be figured taking into account the do this, compute the DNI using the than $5 per gravesite, paid for

allowable miscellaneous itemized known values. In this example, the DNI maintenance of cemetery property. To

deductions (AMID) after application of is equal to the total income of the trust the right of the entry space for line 18,

the 2% floor. In this situation there are (less any capital gains allocated to enter the number of gravesites. Also

two unknown amounts: (a) the AMID corpus or plus any capital loss from line write “Section 642(i) trust” in

and (b) the DNI. 4); less total deductions from line 16 parentheses after the trust’s name at

Computing line 15b. To compute line (excluding any miscellaneous itemized the top of Form 1041. You do not have deductions); less the AMID. to complete Schedules B of Form 1041 15b, use the equation below: Thus, DNI = (line 9) – (line 15, and K-1 (Form 1041). AMID = Total miscellaneous column (2) of Schedule D (Form 1041)) Do not enter less than zero on line itemized deductions – (.02(AGI)) – (line 16) – (AMID) 18. The following example illustrates Substitute the known values: how algebraic equations can be used to Line 19—Estate Tax DNI = 35,000 – 20,000 – 2,000 – solve for these unknown amounts. AMID Deduction (Including Certain Example. The Malcolm Smith DNI = 13,000 – AMID Generation-Skipping Trust, a complex trust, earned $20,000

of dividend income, $20,000 of capital Substitute the value of DNI in the Transfer Taxes)

gains, and a fully deductible $5,000 If the estate or trust includes IRD in its equation to solve for AMID:

loss from XYZ partnership (chargeable gross income, and such amount was AMID = 1,500 – (.02(32,900 – to corpus) in 2008. The trust instrument included in the decedent’s gross estate (13,000 – AMID))) provides that capital gains are added to for estate tax purposes, the estate or AMID = 1,500 – (.02(32,900 – corpus. Fifty percent of the fiduciary trust is allowed to deduct in the same 13,000 + AMID)) fees are allocated to income and 50% tax year that the income is included that

to corpus. The trust claimed a $2,000 portion of the estate tax imposed on the AMID = 1,500 – (658 – 260 +

.02AMID) deduction on line 12 of Form 1041. The decedent’s estate that is attributable to

trust incurred $1,500 of miscellaneous AMID = 1,102 – .02AMID the inclusion of the IRD in the

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decedent’s estate. For an example of exemption if the trust’s modified AGI is entity or a partner in an expatriated

the computation, see Regulations less than or equal to $159,950. If its entity, or

section 1.691(c)-1 and Pub. 559. modified AGI exceeds $159,950, • The sum of the excess inclusions of

If any amount properly paid, complete the worksheet below to figure the estate or trust from Schedule Q

the amount of the trust’s exemption. To (Form 1066), line 2c. credited, or required to be distributed figure modified AGI, follow the by an estate or trust to a beneficiary NOL. If line 22 (figured without regard instructions for figuring AGI for line 15b consists of IRD received by the estate to the minimum taxable income rule on page 21, except use zero as the or trust, do not include such amounts in stated above) is a loss, the estate or amount of the trust’s exemption when determining the estate tax deduction for trust may have an NOL. Do not include figuring AGI. the estate or trust. Figure the deduction the deductions claimed on lines 13, 18,

on a separate sheet. Attach the sheet A qualified disability trust is any trust: and 20 when figuring the amount of the to your return. NOL. 1. Described in 42 U.S.C.

If you claim a deduction for 1396p(c)(2)(B)(iv) and established Generally, an NOL may be carried estate tax attributable to solely for the benefit of an individual back to the prior 2 tax years (3 years to qualified dividends or capital under 65 years of age who is disabled, CAUTION the extent the loss is an eligible loss; 5

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gains, you may have to adjust the and years to the extent the loss is a farming amount on Form 1041, page 1, line 2. All of the beneficiaries of which loss; 10 years to the extent the loss is a 2b(2), or Schedule D (Form 1041), line are determined by the Commissioner of specified liability loss). An estate or

18. Social Security to have been disabled trust may also elect to carry an NOL

Also, a deduction is allowed for the for some part of the tax year within the forward only, instead of first carrying it

GST tax imposed as a result of a meaning of 42 U.S.C. 1382c(a)(3). back. For more information, see the

taxable termination or a direct skip Instructions for Form 1045, Application

occurring as a result of the death of the A trust will not fail to meet item 2 for Tentative Refund.

transferor. See section 691(c)(3). Enter above just because the trust’s corpus Complete Schedule A of Form 1045 may revert to a person who is not the estate’s or trust’s share of these to figure the amount of the NOL that is deductions on line 19. disabled after the trust ceases to have available for carryback or carryover. any disabled beneficiaries. Use Form 1045 or file an amended Line 20—Exemption All other trusts. A trust not described return to apply for a refund based on an

Decedents’ estates. A decedent’s above is allowed a $100 exemption. NOL carryback. For more details, see

estate is allowed a $600 exemption. Pub. 536, Net Operating Losses

Trusts required to distribute all (NOLs) for Individuals, Estates, and Tax and Payments Trusts. income currently. A trust whose

governing instrument requires that all Line 22—Taxable Income On the termination of the estate or

income be distributed currently is trust, any unused NOL carryover that allowed a $300 exemption, even if it Minimum taxable income. Line 22 would be allowable to the estate or trust

distributed amounts other than income cannot be less than the larger of: in a later tax year, but for the during the tax year. • The inversion gain of the estate or termination, is allowed to the

Qualified disability trusts. A qualified trust, as figured under section 7874, if beneficiaries succeeding to the property

disability trust is allowed a $3,500 the estate or trust is an expatriated of the estate or trust. See the

Exemption Worksheet for Qualified Disability Trusts

Only—Line 20 Keep for Your Records

Note: If the trust’s modified AGI* is less than or equal to $159,950, enter $3,500 on Form 1041, line 20.

Otherwise, complete the worksheet below to figure the trust’s exemption.

1. Maximum exemption ............................................................... 1. $3,500

2. Enter the trust’s modified AGI* .......................................... 2.

3. Threshold amount ................................................... 3. $159,950

4. Subtract line 3 from line 2 .............................................. 4.

Note: If line 4 is more than $122,500, enter $2,333 on line 9 below. Do not complete lines 5

through 8.

5. Divide line 4 by $2,500. If the result is not a whole number, increase it to the next higher

whole number (for example, increase 0.0004 to 1) ............................ 5.

6. Multiply line 5 by 2% (.02) and enter the result as a decimal ..................... 6.

7. Multiply line 1 by line 6 .............................................................. 7.

8. Divide line 7 by 3 .................................................................. 8.

9. Exemption. Subtract line 8 from line 1. Enter the result here and on Form 1041, line 20 ............... 9.

*Figure the trust’s modified AGI in the same manner as AGI is figured in the line 15b instructions on page 21,

except use zero when figuring the amount of the trust’s exemption.

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instructions for Schedule K-1, box 11, already filed Form 1041-T, do not Line 26—Estimated Tax codes D and E. attach a copy to your return. Penalty Excess deductions on termination. Failure to file Form 1041-T by If line 27 is at least $1,000 and more If the estate or trust has for its final year the due date (March 6, 2009, for than 10% of the tax shown on Form deductions (excluding the charitable calendar year estates and 1041, or the estate or trust underpaid CAUTION

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deduction and exemption) in excess of trusts) will result in an invalid election. its 2008 estimated tax liability for any its gross income, the excess is allowed An invalid election will require the filing payment period, it may owe a penalty. as an itemized deduction to the of amended Schedules K-1 for each See Form 2210 to determine whether beneficiaries succeeding to the property beneficiary who was allocated a the estate or trust owes a penalty and of the estate or trust. payment of estimated tax. to figure the amount of the penalty.

In general, an unused NOL Note. The penalty may be waived carryover that is allowed to Line 24d—Tax Paid With under certain conditions. See Pub. 505, beneficiaries (as explained above) Form 7004 Tax Withholding and Estimated Tax, for cannot also be treated as an excess If you filed Form 7004 to request an details.

deduction. However, if the final year of extension of time to file Form 1041, the estate or trust is also the last year enter the amount that you paid with the Line 27—Tax Due

of the NOL carryover period, the NOL extension request. You must pay the tax in full when the carryover not absorbed in that tax year return is filed. Make the check or by the estate or trust is included as an Line 24e—Federal Income money order payable to the “United excess deduction. See the instructions Tax Withheld States Treasury.” Write the EIN and for Schedule K-1, box 11, code A. Use line 24e to claim a credit for any “2008 Form 1041” on the payment.

Enclose, but do not attach, the payment Line 24a—2008 Estimated federal income tax withheld (and not

repaid) by: (a) an employer on wages with Form 1041. Tax Payments and Amount and salaries of a decedent received by Applied From 2007 Return You may use EFTPS to pay the the decedent’s estate; (b) a payer of tax due for a trust. See Enter the amount of any estimated tax certain gambling winnings (for example, Electronic Deposits on page 8.

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payment you made with Form 1041-ES state lottery winnings); or (c) a payer of

distributions from pensions, annuities, for 2008 plus the amount of any Line 29a—Credited to 2009 overpayment from the 2007 return that retirement or profit-sharing plans, IRAs,

was applied to the 2008 estimated tax. insurance contracts, etc., received by a Estimated Tax

decedent’s estate or trust. Attach a Enter the amount from line 28 that you If the estate or trust is the beneficiary copy of Form W-2, Form W-2G, or want applied to the estate’s or trust’s of another trust and received a Form 1099-R to the front of the return. 2009 estimated tax. payment of estimated tax that was

credited to the trust (as reflected on the Except for backup withholding

Schedule K-1 issued to the trust), then (as explained below), withheld

report this amount separately with the CAUTION income tax may not be passed Schedule A—Charitable !

notation “section 643(g)” in the space through to beneficiaries on either Deduction next to line 24a and include this amount Schedule K-1 or Form 1041-T.

in the amount entered on line 24a. Backup withholding. If the estate or General Instructions

trust received a 2008 Form 1099 Do not include on Form 1041 Generally, any part of the gross income showing federal income tax withheld estimated tax paid by an of an estate or trust (other than a (that is, backup withholding) on interest individual before death. Instead, simple trust) that, under the terms of CAUTION

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income, dividends, or other income, include those payments on the the will or governing instrument, is paid check the box and include the amount decedent’s final income tax return. (or treated as paid) during the tax year withheld on income retained by the for a charitable purpose specified in Line 24b—Estimated Tax estate or trust in the total for line 24e. section 170(c) is allowed as a

Payments Allocated to Report on Schedule K-1 (Form deduction to the estate or trust. It is not

Beneficiaries 1041), box 13, using code B, any credit necessary that the charitable

for backup withholding on income organization be created or organized in The trustee (or executor, for the final distributed to the beneficiary. the United States. year of the estate) may elect under A pooled income fund or a section section 643(g) to have any portion of its Line 24f—Credit for Tax Paid 4947(a)(1) nonexempt charitable trust estimated tax treated as a payment of on Undistributed Capital treated as a private foundation must estimated tax made by a beneficiary or Gains attach a separate sheet to Form 1041 beneficiaries. The election is made on

Form 1041-T, Allocation of Estimated Attach Copy B of Form 2439, Notice to instead of using Schedule A of Form

Tax Payments to Beneficiaries, which Shareholder of Undistributed 1041 to figure the charitable deduction.

must be filed by the 65th day after the Long-Term Capital Gains. Additional return to be filed by

close of the trust’s tax year. Form trusts. Trusts, other than split-interest

1041-T shows the amounts to be Line 24g—Credit for Federal trusts or nonexempt charitable trusts,

allocated to each beneficiary. This Tax on Fuels that claim a charitable deduction also

amount is reported on the beneficiary’s file Form 1041-A unless the trust is Enter any credit for federal excise taxes Schedule K-1, box 13, using code A. required to distribute currently to the paid on fuels that are ultimately used beneficiaries all the income for the year Attach Form 1041-T to your return for nontaxable purposes (for example, determined under section 643(b) and only if you have not yet filed it; an off-highway business use). Attach related regulations. however, attaching Form 1041-T to Form 4136, Credit for Federal Tax Paid

Form 1041 does not extend the due on Fuels. See Pub. 510, Excise Taxes, Pooled income funds and charitable

date for filing Form 1041-T. If you have for more information. lead trusts also file Form 5227. See

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Form 5227 for information about any Estates, and certain trusts, may • Allocated to corpus, and

exceptions. claim a deduction for amounts • Paid or permanently set aside for

Election to treat contributions as permanently set aside for a charitable charitable purposes.

paid in the prior tax year. The purpose from gross income. Such

fiduciary of an estate or trust may elect amounts must be permanently set Line 6—Section 1202 Exclusion

to treat as paid during the tax year any aside during the tax year to be used Allocable to Capital Gains Paid

amount of gross income received exclusively for religious, charitable, or Permanently Set Aside for during that tax year or any prior tax scientific, literary, or educational Charitable Purposes year that was paid in the next tax year purposes, or for the prevention of If the exclusion of gain from the sale or for a charitable purpose. cruelty to children or animals, or for the

establishment, acquisition, exchange of qualified small business For example, if a calendar year maintenance, or operation of a public (QSB) stock was claimed, enter the part estate or trust makes a qualified of the gain included on Schedule A, cemetery not operated for profit. charitable contribution on February 7, lines 1 and 4, that was excluded under 2009, from income earned in 2008 or For a trust to qualify, the trust may section 1202.

prior, then the fiduciary can elect to not be a simple trust, and the set aside treat the contribution as paid in 2008. amounts must be required by the terms

To make the election, the fiduciary of a trust instrument that was created

must file a statement with Form 1041 on or before October 9, 1969. Schedule B—Income

for the tax year in which the Further, the trust instrument must Distribution Deduction contribution is treated as paid. This provide for an irrevocable remainder statement must include: interest to be transferred to or for the General Instructions 1. The name and address of the use of an organization described in If the estate or trust was required to fiduciary; section 170(c); or the trust must have distribute income currently or if it paid, 2. The name of the estate or trust; been created by a grantor who was at credited, or was required to distribute 3. An indication that the fiduciary is all times after October 9, 1969, under a making an election under section any other amounts to beneficiaries mental disability to change the terms of during the tax year, complete Schedule 642(c)(1) for contributions treated as the trust. B to determine the estate’s or trust’s paid during such tax year; Also, certain testamentary trusts that income distribution deduction. 4. The name and address of each

organization to which any such were established by a will that was Note. Use Schedule I (Form 1041) to contribution is paid; and executed on or before October 9, 1969, compute the DNI and income 5. The amount of each contribution may qualify. See Regulations section distribution deduction on a minimum tax

and date of actual payment or, if 1.642(c)-2(b). basis.

applicable, the total amount of Do not include any capital gains for contributions paid to each organization Pooled income funds. Do not the tax year allocated to corpus and during the next tax year, to be treated complete Schedule B for these funds. paid or permanently set aside for as paid in the prior tax year. Instead, attach a separate statement to charitable purposes. Instead, enter support the computation of the income these amounts on line 4. The election must be filed by the due distribution deduction. See Pooled

date (including extensions) for Form Income Funds on page 12 for more Line 2—Tax-Exempt Income 1041 for the next tax year. If the original information.

return was filed on time, you may make Allocable to Charitable

Contributions Separate share rule. If a single trust the election on an amended return filed

no later than 6 months after the due or an estate has more than one Any estate or trust that pays or sets date of the return (excluding beneficiary, and if different beneficiaries aside any part of its income for a extensions). Write “Filed pursuant to have substantially separate and charitable purpose must reduce the section 301.9100-2” at the top of the independent shares, their shares are deduction by the portion allocable to amended return and file it at the same treated as separate trusts or estates for any tax-exempt income. If the address you used for your original the sole purpose of determining the governing instrument specifically

return. DNI allocable to the respective provides as to the source from which beneficiaries. For more information about the amounts are paid, permanently set

charitable deduction, see section 642(c) aside, or to be used for charitable If the separate share rule applies, and related regulations. purposes, the specific provisions figure the DNI allocable to each control. In all other cases, determine beneficiary on a separate sheet and Specific Instructions the amount of tax-exempt income attach the sheet to this return. Any allocable to charitable contributions by deduction or loss that is applicable Line 1—Amounts Paid or multiplying line 1 by a fraction, the solely to one separate share of the trust Permanently Set Aside for numerator of which is the total or estate is not available to any other Charitable Purposes From tax-exempt income of the estate or share of the same trust or estate.

Gross Income trust, and the denominator of which is

the gross income of the estate or trust. For more information, see section Enter amounts that were paid for a Do not include in the denominator any 663(c) and related regulations. charitable purpose out of the estate’s or losses allocated to corpus. trust’s gross income, including any Withholding of tax on foreign

capital gains that are attributable to Line 4—Capital Gains for the persons. The fiduciary may be liable

income under the governing instrument for withholding tax on distributions to Tax Year Allocated to Corpus or local law. Include amounts paid beneficiaries who are foreign persons. and Paid or Permanently Set during the tax year from gross income For more information, see Pub. 515,

received in a prior tax year, but only if Withholding of Tax on Nonresident Aside for Charitable Purposes

no deduction was allowed for any prior Enter the total of all capital gains for the Aliens and Foreign Entities, and Forms

tax year for these amounts. tax year that are: 1042 and 1042-S.

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Specific Instructions Line 5 deductible by the estate or trust to the

extent of the DNI. The beneficiary In figuring the amount of long-term and

Line 1—Adjusted Total Income includes such amounts in his or her short-term capital gain for the tax year income to the extent of his or her Generally, enter on line 1, Schedule B, included on Schedule A, line 1, the proportionate share of the DNI. the amount from line 17 on page 1 of specific provisions of the governing

Form 1041. However, if both line 4 and instrument control if the instrument Line 10—Other Amounts Paid, line 17 on page 1 of Form 1041 are specifically provides as to the source

from which amounts are paid, Credited, or Otherwise losses, enter on line 1, Schedule B, the permanently set aside, or to be used for Required To Be Distributed smaller of those losses. If line 4 is zero

or a gain and line 17 is a loss, enter charitable purposes. Line 10 is to be completed only by a

zero on line 1, Schedule B. decedent’s estate or complex trust. In all other cases, determine the These distributions consist of any other If you are filing for a simple trust, amount to enter by multiplying line 1 of amounts paid, credited, or required to subtract from adjusted total income any Schedule A by a fraction, the numerator be distributed and are referred to as extraordinary dividends or taxable stock of which is the amount of net capital second tier distributions. Such amounts dividends included on page 1, line 2, gains that are included in the include annuities to the extent not paid and determined under the governing accounting income of the estate or trust out of income, mandatory and instrument and applicable local law to (that is, not allocated to corpus) and are discretionary distributions of corpus, be allocable to corpus. distributed to charities, and the and distributions of property in kind. denominator of which is all items of Line 2—Adjusted Tax-Exempt income (including the amount of such If Form 1041-T was timely filed to Interest net capital gains) included in the DNI. elect to treat estimated tax payments To figure the adjusted tax-exempt as made by a beneficiary, the Reduce the amount on line 5 by any interest: payments are treated as paid or allocable section 1202 exclusion. Step 1. Add tax-exempt interest credited to the beneficiary on the last

income on line 2 of Schedule A, any Line 8—Accounting Income day of the tax year and must be

expenses allowable under section 212 included on line 10. If you are filing for a decedent’s estate allocable to tax-exempt interest, and or a simple trust, skip this line. If you Unless a section 643(e)(3) election any interest expense allocable to are filing for a complex trust, enter the is made, the value of all noncash tax-exempt interest. income for the tax year determined property actually paid, credited, or Step 2. Subtract the Step 1 total under the terms of the governing required to be distributed to any from the amount of tax-exempt interest instrument and applicable local law. Do beneficiaries is the smaller of:

(including exempt-interest dividends) not include extraordinary dividends or 1. The estate’s or trust’s adjusted received. 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 Lines 9 and 10 section 212 expenses that are indirectly 2. The FMV of such property. allocable to both tax-exempt interest Do not include any:

• Amounts deducted on prior year’s If a section 643(e)(3) election is made and other income must be allocated to

by the fiduciary, then the amount each class of income. return that were required to be

distributed in the prior year; entered on line 10 will be the FMV of Figure the interest expense allocable • Amount that is properly paid or the property. to tax-exempt interest according to the credited as a gift or bequest of a guidelines in Rev. Proc. 72-18, 1972-1 A fiduciary of a complex trust or a specific amount of money or specific C.B. 740. decedent’s estate may elect to treat property. (To qualify as a gift or See Regulations sections 1.643(a)-5 any amount paid or credited to a bequest, the amount must be paid in and 1.265-1 for more information. beneficiary within 65 days following the 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 Include all capital gains, whether or not To make this election, see the bequest; or distributed, that are attributable to instructions for Question 6 on page 30. • Amount paid or permanently set income under the governing instrument aside for charitable purposes or The beneficiary includes the or local law. For example, if the trustee otherwise qualifying for the charitable amounts on line 10 in his or her income distributed 50% of the current year’s deduction. only to the extent of his or her capital gains to the income proportionate share of the DNI. beneficiaries (and reflects this amount Line 9—Income Required To Be in column (1), line 15 of Schedule D Distributed Currently Complex trusts. If the second tier

(Form 1041)), but under the governing distributions exceed the DNI allocable

instrument all capital gains are Line 9 is to be completed by all simple to the second tier, the trust may have attributable to income, then include trusts as well as complex trusts and an accumulation distribution. See the

100% of the capital gains on line 3. If decedent’s estates that are required to line 11 instructions below. distribute income currently, whether it is the amount on Schedule D (Form

1041), line 15, column (1) is a net loss, distributed or not. The determination of Line 11—Total Distributions

enter zero. whether trust income is required to be If line 11 is more than line 8, and you distributed currently depends on the If the exclusion of gain from the sale are filing for a complex trust that has terms of the governing instrument and or exchange of QSB stock was previously accumulated income, see the applicable local law. claimed, do not reduce the gain on line the instructions on page 30 to see if

3 by any amount excluded under The line 9 distributions are referred you must complete Schedule J (Form

section 1202. to as first tier distributions and are 1041).

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Line 12—Adjustment for Expenses that are directly allocable estate’s or trust’s tax if the estate or

Tax-Exempt Income to tax-exempt income are allocated only trust files Schedule D (Form 1041) and

to tax-exempt income. A reasonable has: In figuring the income distribution proportion of expenses indirectly • A net capital gain and any taxable deduction, the estate or trust is not allocable to both tax-exempt income income, or allowed a deduction for any item of the and other income must be allocated to • Qualified dividends on line 2b(2) of DNI that is not included in the gross each class of income. Form 1041 and any taxable income. income of the estate or trust. Thus, for Qualified Dividends Tax Worksheet. purposes of figuring the allowable If you do not have to complete Part I or income distribution deduction, the DNI Schedule G—Tax Part II of Schedule D and the estate or (line 7) is figured without regard to any trust has an amount entered on line tax-exempt interest. Computation 2b(2) of Form 1041 and any taxable

If tax-exempt interest is the only income (line 22), then figure the

tax-exempt income included in the total Line 1a estate’s or trust’s tax using the

worksheet below and enter the tax on distributions (line 11), and the DNI (line 2008 tax rate schedule. For tax years line 1a. 7) is less than or equal to line 11, then beginning in 2008, figure the tax using enter on line 12 the amount from line 2. Note. You must reduce the amount the Tax Rate Schedule below and enter

the tax on line 1a. However, see the you enter on line 2b(2) of Form 1041 by If tax-exempt interest is the only the portion of the section 691(c) instructions for Schedule D (Form tax-exempt income included in the total 1041) and the Qualified Dividends Tax deduction claimed on line 19 of Form

distributions (line 11), and the DNI is Worksheet below. 1041 if the estate or trust received

more than line 11 (that is, the estate or qualified dividends that were IRD.

trust made a distribution that is less 2008 Tax Rate Schedule Line 1c—AMT. Attach Schedule I than the DNI), then figure the (Form 1041) if: If taxable adjustment by multiplying line 2 by a income • The estate or trust must complete fraction, the numerator of which is the is: Schedule B. total distributions (line 11), and the Of the But not • The estate or trust claims a credit on denominator of which is the DNI (line Over — Its tax is: amount over — line 2b, 2c, or 2d of Schedule G. over — 7). Enter the result on line 12. $0 $2,200 15% $0 • The estate’s or trust’s share of

2,200 5,150 $330.00 + 25% 2,200 alternative minimum taxable income If line 11 includes tax-exempt 5,150 7,850 1,067.50 + 28% 5,150 (line 29 of Schedule I (Form 1041)) income other than tax-exempt interest, 7,850 10,700 1,823.50 + 33% 7,850 exceeds $22,500. figure line 12 by subtracting the total of 10,700 ----- 2,764.00 + 35% 10,700 Enter the amount from line 56 of the following from tax-exempt income Schedule I (Form 1041) on line lc. included on line 11:

1. The charitable contribution Schedule D (Form 1041) and Line 2a—Foreign Tax Credit

deduction allocable to such tax-exempt Schedule D Tax Worksheet. Use Attach Form 1116, Foreign Tax Credit income, and Part V of Schedule D (Form 1041) or (Individual, Estate, or Trust), if you elect

2. Expenses allocable to tax-exempt the Schedule D Tax Worksheet, to claim credit for income or profits

income. whichever is applicable, to figure the taxes paid or accrued to a foreign

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 $2,200 ................... 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 2008 Tax Rate Schedule ................... 13.

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

15. Figure the tax on the amount on line 1. Use the 2008 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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country or a U.S. possession. The • Credit for employer-provided child estate or trust claims a credit for

estate or trust may claim credit for that care facilities and services (Form holding a qualified energy conservation

part of the foreign taxes not allocable to 8882). bond, clean renewable energy bond,

the beneficiaries (including charitable • Biodiesel and renewable diesel fuels Gulf tax credit bond, Midwestern tax

beneficiaries). Enter the estate’s or credit (Form 8864). credit bond, qualified forestry

trust’s share of the credit on line 2a. • Low sulfur diesel fuel production conservation bond, or qualified zone

See Pub. 514, Foreign Tax Credit for credit (Form 8896). academy bond. Include the credit on

Individuals, for details. • Distilled spirits credit (Form 8906). line 3. On the dotted line to the left of

• Nonconventional source fuel credit the entry, write “Form 8912” and the Line 2b—Other Nonbusiness (Form 8907). amount of the credit. Also, be sure to

Credits • Energy efficient home credit (Form include the credit in interest income.

8908). Alternative motor vehicle credit. • Energy efficient appliance credit Line 5—Recapture Taxes Complete and attach Form 8910, (Form 8909). Alternative Motor Vehicle Credit, if the Recapture of investment credit. If • Alternative motor vehicle credit (Form estate claims a credit for alternative the estate or trust disposed of 8910). motor vehicles. Include the credit for investment credit property or changed • Alternative fuel vehicle refueling nondepreciable property on line 2b. its use before the end of the recapture property credit (Form 8911). period, see Form 4255, Recapture of Alternative fuel vehicle refueling • Credits for affected Midwestern Investment Credit, to figure the property credit. Complete and attach disaster area employers (Form recapture tax allocable to the estate or Form 8911, Alternative Fuel Vehicle 5884-A). trust. Refueling Property Credit, if the estate • Mine rescue team training credit claims a credit for alternative fuel (Form 8923). Recapture of low-income housing

vehicle refueling property. Include the • Agricultural chemicals security credit credit. If the estate or trust disposed

credit for nondepreciable property on (Form 8931). of property (or there was a reduction in

line 2b. • Credit for employer differential wage the qualified basis of the property) on

payments (Form 8932). which the low-income housing credit Line 2c—General Business • Carbon dioxide sequestration credit was claimed, see Form 8611,

Credit (Form 8933). Recapture of Low-Income Housing

• Credit for contributions to selected Credit, to figure any recapture tax

Do not include any amounts that community development corporations allocable to the estate or trust.

are allocated to a beneficiary. (Form 8847). Recapture of qualified electric Credits that are allocated • General credits from an electing CAUTION

!

vehicle credit. If the estate or trust between the estate or trust and the large partnership. Report these credits claimed the qualified electric vehicle beneficiaries are listed in the on Form 3800, line 1z. credit in a prior tax year for a vehicle instructions for Schedule K-1, box 13, The following general business that ceased to qualify for the credit, part on page 35. Generally, these credits credits have special tax liability limits. or all of the credit may have to be are apportioned on the basis of the These limits are now figured in Part II of recaptured. See Pub. 535 for details. If income allocable to the estate or trust Form 3800. See the Instructions for the estate or trust owes any recapture and the beneficiaries. Form 3800 for more information. tax, include it on line 5 and write

Enter on line 2c the estate’s or • Empowerment zone and renewal “QEVCR” on the dotted line to the left

trust’s total general business credit of the entry space. community employment credit (Form allowed for the current year from line 32 8844). Recapture of the Indian employment of Form 3800. The estate or trust must • Investment credit (Form 3468, Part III credit. Generally, if the estate or trust file Form 3800 to claim any of the only). terminates a qualified employee less general business credits. If the estate’s • Work opportunity credit (Form 5884). than 1 year after the date of initial or trust’s only source of credits listed on • Alcohol and cellulosic biofuel fuels employment, any Indian employment Part I for Form 3800 is from credit (Form 6478). credit allowed for a prior tax year by passthrough entities, you may not be • Renewable electricity, refined coal, reason of wages paid or incurred to that required to complete the source credit and Indian coal production credit (Form employee must be recaptured. See form. See the Instructions for Form 8835, Part II). Form 8845 for details. If the estate or 3800 for more information. • Credit for employer social security trust owes any recapture tax, include it The following general business and Medicare taxes (Form 8846). on line 5 and write “IECR” on the dotted

credits appear on Part I of Form 3800. • Qualified railroad track maintenance line to the left of the entry space. • Investment credit (Form 3468, Part II credit (Form 8900). Recapture of the new markets credit. only). • Low-income housing credit (Form If the estate or trust owes any new • Welfare-to-work credit (Form 8861). 8586, Part II). markets recapture tax, include it on line • Credit for increasing research 5 and write “NMCR” on the dotted line activities (Form 6765). Line 2d—Credit for Prior to the left of the entry space. For more • Low-income housing credit (Form Year Minimum Tax information, including how to figure the 8586, Part I). An estate or trust that paid AMT in a recapture amount, see section 45D(g). • Disabled access credit (Form 8826). previous year may be eligible for a • Renewable electricity, refined coal, Recapture of the credit for minimum tax credit in 2008. See Form and Indian coal production credit (Form employer-provided child care 8801, Credit for Prior Year Minimum 8835, Part I only). facilities. If the facility ceased to Tax—Individuals, Estates, and Trusts. • Indian employment credit (Form operate as a qualified child care facility

8845). or there was a change in ownership, Line 3—Total Credits • Orphan drug credit (Form 8820). part or all of the credit may have to be

• New markets credit (Form 8874). Credit to holders of tax credit bonds. recaptured. See Form 8882 for details.

• Credit for small employer pension Complete and attach Form 8912, Credit If the estate or trust owes any recapture

plan startup costs (Form 8881). to Holders of Tax Credit Bonds, if the tax, include it on line 5 and write

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“ECCFR” on the dotted line to the left of interest” or “Section 453A(c) interest,” must be included on the return of the

the entry space. whichever is applicable. Attach a person who earned the income, even if

Recapture of the alternative motor schedule showing the computation. the income was irrevocably assigned to

vehicle credit and the alternative fuel Form 4970, Tax on Accumulation a trust by a contract assignment or

vehicle refueling property credit. Distribution of Trusts. similar arrangement. Include on this

See section 30B(h)(8) or section line any tax due on an accumulation The grantor or person creating the 30C(e)(5), whichever is applicable, for distribution from a trust. To the left of trust is considered the owner if he or

details. the entry space, write “From Form she keeps “beneficial enjoyment” of or 4970” and the amount of the tax. substantial control over the trust Line 6—Household Form 8697, Interest Computation property. The trust’s income, Employment Taxes Under the Look-Back Method for deductions, and credits are allocable to

If any of the following apply, get Completed Long-Term Contracts. the owner.

Schedule H (Form 1040), Household Include the interest due under the If you checked “Yes” for Question 2, Employment Taxes, and its instructions, look-back method of section 460(b)(2). see Special Reporting Instructions on to see if the estate or trust owes these To the left of the entry space, write page 11. taxes. “From Form 8697” and the amount of

interest due. 1. The estate or trust paid any one Question 3

household employee cash wages of Form 8866, Interest Computation Check the “Yes” box and enter the $1,600 or more in 2008. Cash wages Under the Look-Back Method for name of the foreign country if either 1 include wages paid by checks, money Property Depreciated Under the or 2 below applies. orders, etc. When figuring the amount Income Forecast Method. Include

the interest due under the look-back 1. The estate or trust owns more of cash wages paid, combine cash

wages paid by the estate or trust with method of section 167(g)(2). To the left than 50% of the stock in any

of the entry space, write “From Form corporation that owns one or more cash wages paid to the household

8866” and the amount of interest due. foreign bank accounts. employee in the same calendar year by 2. At any time during the year the the household of the decedent or Interest on deferral of gain from estate or trust had an interest in or beneficiary for whom the administrator, certain constructive ownership signature or other authority over a executor, or trustee of the estate or transactions. Include the interest due bank, securities, or other financial trust is acting. under section 1260(b) on any deferral account in a foreign country. 2. The estate or trust withheld of gain from certain constructive federal income tax during 2008 at the ownership transactions. To the left of Exception. Check “No” if either of the request of any household employee. the entry space, write “1260(b)” and the following applies to the estate or trust: 3. The estate or trust paid total cash amount of interest due. • The combined value of the accounts wages of $1,000 or more in any Form 5329, Additional Taxes on was $10,000 or less during the whole calendar quarter of 2007 or 2008 to Qualified Plans (Including IRAs) and year, or household employees. Other Tax-Favored Accounts. If the • The accounts were with a U.S.

Note. See Amended Schedule H estate or trust fails to receive the military banking facility operated by a

(Form 1040) under F. Initial Return, minimum distribution under section U.S. financial institution.

4974, use Form 5329 to pay the excise Amended Return, etc., earlier for Get Form TD F 90-22.1, Report of tax. To the left of the entry space, write information on filing an amended Foreign Bank and Financial Accounts, “From Form 5329” and the amount of Schedule H (Form 1040) for a Form to see if the estate or trust is the tax. 1041. considered to have an interest in or

signature or other authority over a Line 7—Total Tax Other Information bank, securities, or other financial

Tax on ESBTs. Attach the tax account in a foreign country. You can

computation to the return. To the left of get Form TD F 90-22.1 from the IRS Question 1 the line 7 entry space, write “Sec. website at www.irs.gov/pub/irs-pdf/

641(c)” and the amount of tax on the S If the estate or trust received f90221.pdf.

corporation items. Include this amount tax-exempt income, figure the allocation If you checked “Yes” for Question 3, in the total tax on line 7. of expenses between tax-exempt and file Form TD F 90-22.1 by June 30, taxable income on a separate sheet See Electing Small Business Trusts 2009, with the Department of the and attach it to the return. Enter only (ESBTs) on page 12 for the special tax Treasury at the address shown on the the deductible amounts on the return. computation rules that apply to the form. Form TD F 90-22.1 is not a tax Do not figure the allocation on the portion of an ESBT consisting of stock return, so do not file it with Form 1041. return itself. For more information, see in one or more S corporations. the instructions for Allocation of Interest on deferred tax attributable If you are required to file Form Deductions for Tax-Exempt Income on to installment sales of certain TD F 90-22.1 but do not, you

timeshares and residential lots and page 19. CAUTION may have to pay a penalty of up

!

certain nondealer real property Report the amount of tax-exempt to $10,000 (more in some cases).

interest income received or accrued in installment obligations. If an

obligation arising from the disposition of the space provided below Question 1. Question 4

real property to which section 453(l) or The estate or trust may be required to Also, include any exempt-interest

453A applies is outstanding at the close file Form 3520, Annual Return To dividends the estate or trust received

of the year, the estate or trust must Report Transactions With Foreign as a shareholder in a mutual fund or

include the interest due under section Trusts and Receipt of Certain Foreign other regulated investment company.

453(l)(3)(B) or 453A(c), whichever is Gifts, if:

applicable, in the amount to be entered Question 2 • It directly or indirectly transferred

on line 7 of Schedule G, Form 1041, All salaries, wages, and other property or money to a foreign trust.

with the notation “Section 453(l) compensation for personal services For this purpose, any U.S. person who

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created a foreign trust is considered a exceptions relating to multiple trusts.

transferor; Schedule J (Form 1041) The trustee reports to the IRS the total

• It is treated as the owner of any part amount of the accumulation distribution

of the assets of a foreign trust under — Accumulation before any reduction for income

the grantor trust rules; or accumulated before the beneficiary Distribution for Certain reaches age 21. If the multiple trust • It received a distribution from a Complex Trusts rules do not apply, the beneficiary foreign trust. claims the exclusion when filing Form

4970, as you may not be aware that the An owner of a foreign trust must General Instructions beneficiary may be a beneficiary of ensure that the trust files an Use Schedule J (Form 1041) to report other trusts with other trustees. annual information return on

TIP

an accumulation distribution for a

Form 3520-A, Annual Information For examples of accumulation domestic complex trust that was: Return of Foreign Trust With a U.S. • Previously treated at any time as a distributions that include payments from

Owner. one trust to another trust, and amounts foreign trust (unless an exception is distributed for a dependent’s support, provided in future regulations), or see Regulations section 1.665(b)-1A(b). Question 5 • Created before March 1, 1984,

unless that trust would not be An estate or trust claiming an interest Part II—Ordinary Income aggregated with other trusts under the deduction for qualified residence rules of section 643(f) if that section Accumulation Distribution interest (as defined in section applied to the trust. Enter the applicable year at the top of 163(h)(3)) on seller-provided financing each column for each throwback year. must include on an attachment to the An accumulation distribution is the

2008 Form 1041 the name, address, excess of amounts properly paid, Line 6—DNI for Earlier Years

and TIN of the person to whom the credited, or required to be distributed Enter the applicable amounts as interest was paid or accrued (that is, (other than income required to be follows: the seller). distributed currently) over the DNI of

the trust reduced by income required to Throwback

If the estate or trust received or be distributed currently. To have an year(s) Amount from line

accrued such interest, it must provide accumulation distribution, the 1969 – 1977 ...... Schedule C, Form 1041, line 5

identical information on the person distribution must exceed the accounting 1978 – 1979 ...... Form 1041, line 61

1980 .......... Form 1041, line 60 liable for such interest (that is, the income of the trust. 1981 – 1982 ...... Form 1041, line 58 buyer). This information does not need 1983 – 1996 ...... Schedule B, Form 1041, line 9 to be reported if it duplicates Specific Instructions 1997 – 2007 ...... Schedule B, Form 1041, line 7

information already reported on Form

1098. Part I—Accumulation For information about throwback

Distribution in 2008 years, see the instructions for line 13.

Question 6 For purposes of line 6, in figuring the

Line 1—Distribution Under DNI of the trust for a throwback year, To make the section 663(b) election to subtract any estate tax deduction for Section 661(a)(2) treat any amount paid or credited to a IRD if the income is includible in beneficiary within 65 days following the Enter the amount from Schedule B of figuring the DNI of the trust for that close of the tax year as being paid or Form 1041, line 10, for 2008. This is year. credited on the last day of that tax year, the amount properly paid, credited, or

check the box. This election can be required to be distributed other than the Line 7—Distributions Made

made by the fiduciary of a complex amount of income for the current tax During Earlier Years

trust or the executor of a decedent’s year required to be distributed currently. Enter the applicable amounts as estate. For the election to be valid, you Line 2—DNI follows:

must file Form 1041 by the due date

(including extensions). Once made, the Enter the amount from Schedule B of Throwback Amount from line

Form 1041, line 7, for 2008. This is the year(s) election is irrevocable.

amount of DNI for the current tax year 1969 – 1977 ...... Schedule C, Form 1041, line 8

determined under section 643(a). 1978 .......... Form 1041, line 64 Question 7 1979 .......... Form 1041, line 65

To make the section 643(e)(3) election Line 3—Distribution Under 1980 .......... Form 1041, line 64

1981 – 1982 ...... Form 1041, line 62 to recognize gain on property Section 661(a)(1) 1983 – 1996 ...... Schedule B, Form 1041, line 13 distributed in kind, check the box and Enter the amount from Schedule B of 1997 – 2007 ...... Schedule B, Form 1041, line 11

see the Instructions for Schedule D Form 1041, line 9, for 2008. This is the

(Form 1041). amount of income for the current tax Line 11—Prior Accumulation

year required to be distributed currently. Distribution Thrown Back to

Question 9 Any Throwback Year Line 5—Accumulation

Generally, a beneficiary is a skip Distribution Enter the amount of prior accumulation

person if the beneficiary is in a distributions thrown back to the If line 11, Schedule B of Form 1041 is generation that is two or more throwback years. Do not enter more than line 8, Schedule B of Form generations below the generation of the distributions excluded under section 1041, complete the rest of Schedule J transferor to the trust. 663(a)(1) for gifts, bequests, etc. and file it with Form 1041, unless the

To determine if a beneficiary that is a trust has no previously accumulated Line 13—Throwback Years

income. trust is a skip person, and for Allocate the amount on line 5 that is an

exceptions to the general rules, see the Generally, amounts accumulated accumulation distribution to the earliest

definition of a skip person in the before a beneficiary reaches age 21 applicable year first, but do not allocate

instructions for Schedule R of Form may be excluded by the beneficiary. more than the amount on line 12 for

706. See sections 665 and 667(c) for any throwback year. An accumulation

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distribution is thrown back first to the Note. The alternative tax on capital Throwback Amount from line earliest preceding tax year in which gains was repealed for tax years year(s) there is undistributed net income (UNI). beginning after December 31, 1978. 2002 .......... Schedule D, the smaller Then, it is thrown back beginning with The maximum rate on net capital gain of any gain on line 15a or the next earliest year to any remaining for 1981, 1987, and 1991 through 2007 line 16, column (2)

preceding tax years of the trust. The is not an alternative tax for this 2003 .......... Schedule D, the smaller portion of the accumulation distribution purpose. of any gain on line 15a or

allocated to the earliest preceding tax line 16a, column (2)

year is the amount of the UNI for that Line 18—Regular Tax 2004 – 2007 ...... Schedule D, the smaller

of any gain on line 14a year. The portion of the accumulation Enter the applicable amounts as or line 15, column (2) distribution allocated to any remaining follows:

preceding tax year is the amount by Throwback Amount from line Line 22—Taxable Income which the accumulation distribution is year(s) larger than the total of the UNI for all Enter the applicable amounts as

1969 – 1976 .... Form 1041, page 1, line 24 earlier preceding tax years. follows:

1977 ........ Form 1041, page 1, line 26 Throwback Amount from line 1978 – 1979 .... Form 1041, line 27 A tax year of a trust during which the year(s) 1980 – 1984 .... Form 1041, line 26c trust was a simple trust for the entire 1985 – 1986 .... Form 1041, line 25c 1969 – 1976 ........ Form 1041, page 1, line 23 year is not a preceding tax year unless 1987 ........ Form 1041, line 22c 1977 ............ Form 1041, page 1, line 25

(a) during that year the trust received 1988 – 2007 .... Schedule G, Form 1041, line 1a 1978 – 1979 ........ Form 1041, line 26

outside income, or (b) the trustee did 1980 – 1984 ........ Form 1041, line 25

Line 19—Trust’s Share of Net 1985 – 1986 ........ Form 1041, line 24 not distribute all of the trust’s income 1987 ............ Form 1041, line 21 that was required to be distributed Short-Term Gain 1988 – 1996 ........ Form 1041, line 22 currently for that year. In this case, UNI For each throwback year, enter the 1997 ............ Form 1041, line 23

for that year must not be more than the 1998 – 2007 ........ Form 1041, line 22 smaller of the capital gain from the two greater of the outside income or income lines indicated. If there is a capital loss not distributed during that year. Line 26—Tax on Income Other or a zero on either or both of the two

lines indicated, enter zero on line 19. Than Long-Term Capital Gain The term “outside income” means

amounts that are included in the DNI of Enter the applicable amounts as Throwback Amount from line follows: the trust for that year but that are not year(s)

“income” of the trust as defined in 1969 – 1970 . . Schedule D, line 10, column 2, or Throwback Amount from line Regulations section 1.643(b)-1. Some Schedule D, line 12, column 2 year(s)

examples of outside income are: (a) 1971 – 1978 . . Schedule D, line 14, column 2, or 1969 ........... Schedule D, line 20 Schedule D, line 16, column 2 income taxable to the trust under 1970 ........... Schedule D, line 19 1979 ...... Schedule D, line 18, column (b), or section 691; (b) unrealized accounts 1971 ........... Schedule D, line 50 Schedule D, line 20, column (b) receivable that were assigned to the 1972 – 1975 ....... Schedule D, line 48 1980 – 1981 . . Schedule D, line 14, column (b), or 1976 – 1978 ....... Schedule D, line 27 trust; and (c) distributions from another Schedule D, line 16, column (b)

1982 ...... Schedule D, line 16, column (b), or trust that include the DNI or UNI of the

other trust. Schedule D, line 18, column (b) Line 27—Trust’s Share of Net

1983 – 1996 . . Schedule D, line 15, column (b), or

Schedule D, line 17, column (b) Short-Term Gain

Line 16—Tax-Exempt Interest If there is a loss on any of the following 1997 – 2002 . . Schedule D, line 14, column (2), or Included on Line 13 Schedule D, line 16, column (2) lines, enter zero on line 27 for the

For each throwback year, divide line 15 2003 ...... Schedule D, line 14a, column (2), or applicable throwback year. Otherwise,

Schedule D, line 16a, column (2) by line 6 and multiply the result by the enter the applicable amounts as 2004 – 2007 . . Schedule D, line 13, column (2), or following: follows: Schedule D, line 15, column (2)

Throwback Amount from line Throwback Amount from line

year(s) Line 20—Trust’s Share of Net year(s)

1969 – 1977 .... Schedule C, Form 1041, line 2(a) Long-Term Gain 1969 – 1970 .... Schedule D, line 10, column 2

1978 – 1979 .... Form 1041, line 58(a) 1971 – 1978 .... Schedule D, line 14, column 2 Enter the applicable amounts as 1980 ........ Form 1041, line 57(a) follows: 1981 – 1982 .... Form 1041, line 55(a) Line 28—Trust’s Share of 1983 – 2007 .... Schedule B, Form 1041, line 2 Throwback Amount from line Taxable Income Less Section year(s) 1202 Deduction Part III—Taxes Imposed on 1969 – 1970 ...... 50% of Schedule D, line 13(e) Enter the applicable amounts as Undistributed Net Income 1971 – 1977 ...... 50% of Schedule D, line 17(e) follows:

For the regular tax computation, if there 1978 .......... Schedule D, line 17(e), or line

31, whichever is applicable, Throwback year(s) Amount from line is a capital gain, complete lines 18 less Form 1041, line 23 through 25 for each throwback year. If 1969 ............ Schedule D, line 19 1979 .......... Schedule D, line 25 or line 27, 1970 ............ Schedule D, line 18 the trustee elected the alternative tax whichever is applicable, less 1971 ............ Schedule D, line 38 on capital gains, complete lines 26 Form 1041, line 23 1972 – 1975 ........ Schedule D, line 39 1980 – 1981 ...... Schedule D, line 21, less through 31 instead of lines 18 through 1976 – 1978 ........ Schedule D, line 21 Schedule D, line 22 25 for each applicable year. If there is 1982 .......... Schedule D, line 23, less no capital gain for any year, or there is Schedule D, line 24 Part IV—Allocation to a capital loss for every year, enter on 1983 – 1986 ...... Schedule D, line 22, less

line 9 the amount of the tax for each Schedule D, line 23 Beneficiary

1987 – 1996 ...... Schedule D, the smaller year identified in the instruction for line Complete Part IV for each beneficiary. of any gain on line 16 18 and do not complete Part III. If the If the accumulation distribution is or line 17, column (b)

trust received an accumulation allocated to more than one beneficiary, 1997 – 2001 ...... Schedule D, the smaller distribution from another trust, see attach an additional copy of Schedule J of any gain on line 15c or

Regulations section 1.665(b)-1A. with Part IV completed for each line 16, column (2)

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additional beneficiary. Give each on the respective Schedule K-1 when of DNI over the income required to be

beneficiary a copy of his or her you file Form 1041. Individuals and distributed currently.

respective Part IV information. If more business recipients are responsible for

than 5 throwback years are involved, giving you their TINs upon request. You See Regulations section 1.662(c)-4

use another Schedule J, completing may use Form W-9 to request the for a comprehensive example.

Parts II and III for each additional beneficiary’s identifying number. For complex trusts that have more throwback year. Penalty. You may be charged a $50 than one beneficiary, and if different

If the beneficiary is a nonresident beneficiaries have substantially penalty for each failure to provide a alien individual or a foreign corporation, separate and independent shares, their required TIN, unless reasonable cause see section 667(e) about retaining the shares are treated as separate trusts is established for not providing it. character of the amounts distributed to Explain any reasonable cause in a for the sole purpose of determining the

determine the amount of the U.S. amount of DNI allocable to the signed affidavit and attach it to this withholding tax. respective beneficiaries. A similar rule return. applies to treat substantially separate The beneficiary uses Form 4970 to Substitute Forms and independent shares of different figure the tax on the distribution. The beneficiaries of an estate as separate beneficiary also uses Form 4970 for the You do not need IRS approval to use a estates. For examples of the application section 667(b)(6) tax adjustment if an substitute Schedule K-1 if it is an exact of the separate share rule, see the accumulation distribution is subject to copy of the IRS schedule. The boxes regulations under section 663(c). estate or generation-skipping transfer must use the same numbers and titles

tax. This is because the trustee may and must be in the same order and Gifts and bequests. Do not include in

not be the estate or generation-skipping format as on the comparable IRS the beneficiary’s income any gifts or

transfer tax return filer. Schedule K-1. The substitute schedule bequests of a specific sum of money or

must include the OMB number and the of specific property under the terms of

6-digit form ID code in the upper the governing instrument that are paid

Schedule K-1 (Form right-hand corner of the schedule. or credited in three installments or less.

You must provide each beneficiary Amounts that can be paid or credited 1041)— Beneficiary’s with the Instructions for Beneficiary only from income of the estate or trust

Share of Income, do not qualify as a gift or bequest of a Filing Form 1040 or other prepared specific sum of money. specific instructions for each item Deductions, Credits, etc. reported on the beneficiary’s Schedule Past years. Do not include in the

K-1. beneficiary’s income any amounts What’s New deducted on Form 1041 for an earlier

On page 2 of Schedule K-1 (Form Inclusion of Amounts in year that were credited or required to

1041), we added two new credits that Beneficiaries’ Income be distributed in that earlier year.

may be passed through, the agricultural Simple trust. The beneficiary of a Character of income. The chemicals security credit (code R) and simple trust must include in his or her beneficiary’s income is considered to the credit for employer differential wage gross income the amount of the income have the same proportion of each class payments (code T). Also, we removed required to be distributed currently, of items entering into the computation the expired Hurricane Katrina housing whether or not distributed, or if the of DNI that the total of each class has credit (formerly code R). income required to be distributed to the DNI (for example, half dividends

General Instructions currently to all beneficiaries exceeds and half interest if the income of the

estate or trust is half dividends and half the DNI, his or her proportionate share Use Schedule K-1 (Form 1041) to of the DNI. The determination of interest). report the beneficiary’s share of whether trust income is required to be Allocation of deductions. income, deductions, and credits from a distributed currently depends on the Generally, items of deduction that enter trust or a decedent’s estate. terms of the trust instrument and into the computation of DNI are

Grantor type trusts do not use applicable local law. See Regulations allocated among the items of income to

Schedule K-1 (Form 1041) to section 1.652(c)-4 for a comprehensive the extent such allocation is not CAUTION report the income, deductions, example. inconsistent with the rules set out in

!

or credits of the grantor (or other section 469 and its regulations, relating Estates and complex trusts. The person treated as owner). See Grantor to passive activity loss limitations, in the beneficiary of a decedent’s estate or Type Trusts on page 11. following order. complex trust must include in his or her

Who Must File gross income the sum of: First, all deductions directly

attributable to a specific class of income The fiduciary (or one of the joint 1. The amount of the income are deducted from that income. For fiduciaries) must file Schedule K-1. A required to be distributed currently, or if example, rental expenses, to the extent copy of each beneficiary’s Schedule the income required to be distributed allowable, are deducted from rental K-1 is attached to the Form 1041 filed currently to all beneficiaries exceeds income. with the IRS, and each beneficiary is the DNI (figured without taking into

given a copy of his or her respective account the charitable deduction), his Second, deductions that are not

Schedule K-1. One copy of each or her proportionate share of the DNI directly attributable to a specific class of

Schedule K-1 must be retained for the (as so figured), and income generally may be allocated to

fiduciary’s records. 2. All other amounts properly paid, any class of income, as long as a

credited, or required to be distributed, reasonable portion is allocated to any Beneficiary’s Identifying or if the sum of the income required to tax-exempt income. Deductions Number be distributed currently and other considered not directly attributable to a

As a payer of income, you are required amounts properly paid, credited, or specific class of income under this rule

to request and provide a proper required to be distributed to all include fiduciary fees, safe deposit box

identifying number for each recipient of beneficiaries exceeds the DNI, his or rental charges, and state income and

income. Enter the beneficiary’s number her proportionate share of the excess personal property taxes. The charitable

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deduction, however, must be ratably have attached a statement providing Part III. Beneficiary’s Share apportioned among each class of additional information. For those of Current Year Income, income included in DNI. informational items that cannot be

reported as a single dollar amount, Deductions, Credits, and Finally, any excess deductions that

are directly attributable to a class of enter the code and asterisk in the Other Items

income may be allocated to another left-hand column and enter “STMT” in

class of income. However, in no case the entry space to the right to indicate Box 1—Interest

can excess deductions from a passive that the information is provided on an Enter the beneficiary’s share of the activity be allocated to income from a attached statement. More than one taxable interest income minus allocable

nonpassive activity, or to portfolio attached statement can be placed on deductions.

income earned by the estate or trust. the same sheet of paper and should be

Excess deductions attributable to identified in alphanumeric order by box Box 2a—Total Ordinary

tax-exempt income cannot offset any number followed by the letter code (if Dividends

other class of income. any). For example: “Box 9, Code Enter the beneficiary’s share of ordinary A—Depreciation” (followed by the In no case can deductions be dividends minus allocable deductions. information the beneficiary needs). allocated to an item of income that is Box 3—Net Short-Term Capital not included in the computation of DNI, Too few entry spaces on Schedule

or attributable to corpus. Gain K-1? If the estate or trust has more

You cannot show any negative coded items than the number of spaces Enter the beneficiary’s share of the net

in box 9 or boxes 11 through 14, do not short-term capital gain from line 13, amounts for any class of income shown enter a code or dollar amount in the last column (1), Schedule D (Form 1041), in boxes 1 through 8 of Schedule K-1.

However, for the final year of the estate entry space of the box. In the last entry minus allocable deductions. Do not

space, enter an asterisk in the left enter a loss on line 3. If, for the final or trust, certain deductions or losses column and enter “STMT” in the entry year of the estate or trust, there is a can be passed through to the space to the right. Report the additional capital loss carryover, enter in box 11, beneficiary(ies). See the instructions for items on an attached statement and using code B, the beneficiary’s share of box 11 for more information on these

provide the box number, code, short-term capital loss carryover. deductions and losses. Also, the

description, and dollar amount or However, if the beneficiary is a beneficiary’s share of depreciation and information for each additional item. For corporation, enter in box 11, using code depletion is apportioned separately.

These deductions may be allocated to example: “Box 13, Code H—Alcohol B, the beneficiary’s share of all shortand Cellulosic Biofuels Fuel and long-term capital loss carryovers as the beneficiary(ies) in amounts greater Credit—$500.00.” a single item. See section 642(h) and than his or her income. See

Depreciation, Depletion, and related regulations for more

Amortization Specific Instructions information. on page 18 and Rev. Rul.

74-530, 1974-2 C.B. 188. Boxes 4a through 4c—Net Part I. Information About the Beneficiary’s Tax Year Long-Term Capital Gain Estate or Trust The beneficiary’s income from the Enter the beneficiary’s share of the net

estate or trust must be included in the On each Schedule K-1, enter the name, long-term capital gain from lines 14a

beneficiary’s tax year during which the address, and identifying number of the through 14c, column (1), Schedule D

tax year of the estate or trust ends. See estate or trust. Also, enter the name (Form 1041) minus allocable

Pub. 559 for more information, and address of the fiduciary. deductions.

including the effect of the death of a Do not enter a loss in boxes 4a beneficiary during the tax year of the Item D through 4c. If, for the final year of the estate or trust. If the fiduciary of a trust or decedent’s estate or trust, there is a capital loss estate filed Form 1041-T, you must General Reporting carryover, enter in box 11, using code check this box and enter the date it was C, the beneficiary’s share of the Information filed. long-term capital loss carryover. (If the

If the return is for a fiscal year or a beneficiary is a corporation, see the

short tax year, fill in the tax year space Item E instructions for box 3.) See section

at the top of each Schedule K-1. On If this is the final year of the estate or 642(h) and related regulations for more

each Schedule K-1, enter the trust, you must check this box. information.

information about the estate or trust Note. If this is the final K-1 for the Gains or losses from the complete or and the beneficiary in Parts I and II beneficiary, check the “Final K-1” box at partial disposition of a rental, rental real (items A through I). In Part III, enter the the top of Schedule K-1. estate, or trade or business activity that beneficiary’s share of each item of is a passive activity must be shown on income, deduction, credit, and any Part II. Information About the an attachment to Schedule K-1. other information the beneficiary needs

to file his or her income tax return. Beneficiary Box 5—Other Portfolio and

Codes. In box 9 and boxes 11 through Complete a Schedule K-1 for each Nonbusiness Income

14, identify each item by entering a beneficiary. On each Schedule K-1, Enter the beneficiary’s share of code in the column to the left of the enter the beneficiary’s name, address, annuities, royalties, or any other entry space for the dollar amount. and identifying number. income, minus allocable deductions These codes are identified in these (other than directly apportionable instructions and on the back of the Item H deductions), that is not subject to any Schedule K-1. Check the foreign beneficiary box if the passive activity loss limitation rules at

Attached statements. Enter an the beneficiary level. Use boxes 6 beneficiary is a nonresident alien

asterisk (*) after the code, if any, in the through 8 to report income items individual, a foreign corporation, or a

column to the left of the dollar amount subject to the passive activity rules at foreign estate or trust. Otherwise, check

entry space for each item for which you the beneficiary’s level. the domestic beneficiary box.

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Boxes 6 through 8—Ordinary Note. An estate or trust cannot make the termination of the estate or trust to

Business Income, Rental Real an election under section 179 to the extent it is not absorbed by the

expense certain tangible property. estate or trust during its final tax year. Estate, and Other Rental For more information, see Regulations Income Depletion (code B). Enter the section 1.642(h)-4 for a discussion of beneficiary’s share of the depletion Enter the beneficiary’s share of trade or the allocation of the carryover among deduction under section 611 directly business, rental real estate, and other the beneficiaries. apportioned to each activity reported in rental income, minus allocable boxes 5 through 8. See the instructions Only the beneficiary of an estate or deductions (other than directly on page 18 for a discussion of how the trust that succeeds to its property is apportionable deductions). To assist depletion deduction is apportioned allowed to deduct that entity’s excess the beneficiary in figuring any between the beneficiaries and the deductions on termination. A applicable passive activity loss estate or trust. Report any tax beneficiary who does not have enough limitations, also attach a separate preference item attributable to depletion income in that year to absorb the entire schedule showing the beneficiary’s separately in box 12, using code H. deduction may not carry the balance share of income derived from each

Amortization (code C). Itemize the over to any succeeding year. An trade or business, rental real estate, beneficiary’s share of the amortization individual beneficiary must be able to and other rental activity. deductions directly apportioned to each itemize deductions in order to claim the

Box 9—Directly Apportioned activity reported in boxes 5 through 8. excess deductions in determining

Deductions Apportion the amortization deductions taxable income.

between the estate or trust and the Box 11, Codes B and The limitations on passive beneficiaries in the same way that the

depreciation and depletion deductions C—Unused Capital Loss activity losses and credits under are divided. Report any AMT Carryover CAUTION section 469 apply to estates and

!

trusts. Estates and trusts that distribute adjustment attributable to amortization Upon termination of the trust or

income to beneficiaries are allowed to separately in box 12, using code I. decedent’s estate, the beneficiary

apportion depreciation, depletion, and succeeding to the property is allowed Box 10—Estate Tax Deduction amortization deductions to the as a deduction any unused capital loss (Including Certain beneficiaries. These deductions are carryover under section 1212. If the

referred to as “directly apportionable Generation-Skipping Transfer estate or trust incurs capital losses in

deductions.” Taxes) the final year, use the Capital Loss

If the distribution deduction consists of Carryover Worksheet in the Instructions Rules for treating a beneficiary’s any IRD, and the estate or trust was for Schedule D (Form 1041) to figure income and directly apportionable allowed a deduction under section the amount of capital loss carryover to deductions from an estate or trust and 691(c) for the estate tax paid be allocated to the beneficiary. other rules for applying the passive loss attributable to such income (see the and credit limitations to beneficiaries of Box 11, Codes D and E—NOL line 19 instructions on page 22), then estates and trusts have not yet been Carryover the beneficiary is allowed an estate tax issued. deduction in proportion to his or her Upon termination of a trust or

Any directly apportionable deduction, share of the distribution that consists of decedent’s estate, a beneficiary

such as depreciation, is treated by the such income. For an example of the succeeding to its property is allowed to

beneficiary as having been incurred in computation, see Regulations section deduct any unused NOL (and any

the same activity as incurred by the 1.691(c)-2. Figure the computation on a ATNOL) carryover for regular and AMT

estate or trust. However, the character separate sheet and attach it to the purposes if the carryover would be

of such deduction may be determined return. allowable to the estate or trust in a later

as if the beneficiary incurred the tax year but for the termination. Enter in Box 11, Code A—Excess deduction directly. box 11, using codes D and E, the Deductions on Termination unused carryover amounts. To assist the beneficiary in figuring If this is the final return of the estate or any applicable passive activity loss trust, and there are excess deductions Box 12—AMT Items

limitations, also attach a separate on termination (see the instructions for Adjustment for minimum tax schedule showing the beneficiary’s line 22 on page 23), enter the purposes (code A). Enter the share of directly apportionable beneficiary’s share of the excess beneficiary’s share of the adjustment deductions derived from each trade or deductions in box 11, using code A. for minimum tax purposes. business, rental real estate, and other Figure the deductions on a separate rental activity. To figure the adjustment, subtract sheet and attach it to the return. the beneficiary’s share of the income Enter the beneficiary’s share of Excess deductions on termination distribution deduction figured on directly apportioned deductions using occur only during the last tax year of Schedule B, line 15, from the codes A through C. the trust or decedent’s estate when the beneficiary’s share of the income

Depreciation (code A). Enter the total deductions (excluding the distribution deduction on a minimum tax charitable deduction and exemption) beneficiary’s share of the depreciation basis figured on Schedule I (Form are greater than the gross income deductions directly apportioned to each 1041), line 44. The difference is the during that tax year. activity reported in boxes 5 through 8. beneficiary’s share of the adjustment See the instructions on page 18 for a Generally, a deduction based on an for minimum tax purposes.

discussion of how the depreciation NOL carryover is not available to a Note. Schedule B, line 15 equals the deduction is apportioned between the beneficiary as an excess deduction. sum of all Schedule K-1s, box 1, 2a, 3, beneficiaries and the estate or trust. However, if the last tax year of the 4a, 5, 6, 7, and 8. Report any AMT adjustment or tax estate or trust is also the last year in

preference item attributable to which an NOL carryover may be taken AMT adjustment attributable to

depreciation separately in box 12, using (see section 172(b)), the NOL carryover qualified dividends, net short-term

code G. is considered an excess deduction on capital gains, or net long-term

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capital gains (codes B through D). If to report that amount on line 11 of Form provide any information the beneficiary

any part of the amount reported in box 8586. will need to report recapture of credits.

12, code A, is attributable to qualified • Qualified rehabilitation expenditures dividends (code B), net short-term (code D). Attach a statement that Box 14—Other Information

capital gain (code C), or net long-term shows the dates, basis, and Enter the dollar amounts and applicable

capital gain (code D), enter that part expenditures and their corresponding codes for the items listed under Other

using the applicable code. line on Form 3468 for reporting each Information.

AMT adjustment attributable to item of information. Domestic production activities unrecaptured section 1250 gain or • Basis of other investment credit information. The estate or trust

28% rate gain (codes E and F). Enter property (code E). Attach a statement allocates QPAI (whether positive or the beneficiary’s distributive share of that shows the basis of and negative) and Form W-2 wages based any AMT adjustments to the corresponding lines for reporting on the relative proportion of the trust’s unrecaptured section 1250 gain (code property qualifying for the energy credit, or estate’s DNI that is distributed or

E) or 28% rate gain (code F), qualifying advanced coal project credit, required to be distributed to the whichever is applicable, in box 12. and qualifying gasification project beneficiary. If the estate or trust has no

Accelerated depreciation, depletion, credit. If the statement shows an DNI for the tax year, QPAI and Form

and amortization (codes G through amount for line 5c, 5f, 5i, 5l, 11c, 11f, or W-2 wages are allocated entirely to the 11i, then the information for the I). Enter any adjustments or tax estate or trust. subsequent line on Form 3468 must be preference items attributable to provided. Qualified production activities depreciation, depletion, or amortization income (code C). Enter the • Work opportunity credit (code F). that were directly apportioned to the beneficiary’s share, if any, of the beneficiary. For property placed in • Welfare-to-work credit (code G). estate’s or trust’s QPAI. The QPAI will service before 1987, report separately • Alcohol and cellulosic biofuel fuels be less than zero if the cost of goods the accelerated depreciation of real and credit (code H). If the credit includes sold and deductions allocated and leased personal property. the small ethanol producer credit, apportioned to domestic production attach a statement that shows the Exclusion items (code J). Enter the gross receipts (DPGR) is more than the beneficiary’s share of the small ethanol beneficiary’s share of the adjustment estate’s or trust’s DPGR. See Form producer credit, the number of gallons for minimum tax purposes from 8903, Domestic Production Activities claimed for the small ethanol producer Schedule K-1, box 12, code A, that is Deduction, and its instructions for more credit, and the estate’s or trust’s attributable to exclusion items details. productive capacity for alcohol. (Schedule I (Form 1041), lines 2 • Credit for increasing research Form W-2 wages (code D). Use through 6 and 8). activities (code I). code D to report the beneficiary’s

Box 13—Credits and Credit share, if any, of Form W-2 wages. Do • Renewable electricity, refined coal,

Recapture not enter more than 6% of the and Indian coal production credit (code beneficiary’s share, if any, of the Enter each beneficiary’s share of the J). Attach a statement that shows the estate’s or trust’s QPAI. See Form 8903 credits and credit recapture using the amount of the credit the beneficiary

must report on line 9 and line 29 of and its instructions for more details. applicable codes. Listed below are the

credits that can be allocated to the Form 8835, in case the beneficiary is Foreign trading gross receipts

beneficiary(ies). Attach a statement if required to file that form in addition to (code G). Enter the beneficiary’s

additional information must be provided Form 3800. share, if any, of foreign trading gross

to the beneficiary as explained below. • Empowerment zone and renewal receipts. See Form 8873,

community employment credit (code K). Extraterritorial Income Exclusion, for • Credit for estimated taxes (code • Indian employment credit (code L). more information. A)—Payment of estimated tax to be • Orphan drug credit (code M). credited to the beneficiary (section Other information (code H). List on a

643(g)). • Credit for employer provided child separate sheet the tax information the care and facilities (code N). beneficiary will need to complete his or See the instructions for line 24b • Biodiesel and renewable diesel fuels her return that is not entered elsewhere on page 24 before you make an credit (code O). If the credit includes on Schedule K-1. CAUTION entry to allocate any estimated

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the small agri-biodiesel credit, attach a tax payments to a beneficiary. If the For example, if the estate or trust statement that shows the beneficiary’s fiduciary does not make a valid participates in a transaction that must share of the small agri-biodiesel credit, election, then the IRS will disallow the be disclosed on Form 8886 (see page the number of gallons claimed for the estimated tax payment that is reported 10), both the estate or trust and its small agri-biodiesel credit, and the on Schedule K-1 and claimed on the beneficiaries may be required to file estate’s or trust’s productive capacity beneficiary’s return. Form 8886. The estate or trust must for agri-biodiesel. • Credit for backup withholding (code determine if any of its beneficiaries are • Nonconventional source fuel credit B). required to disclose the transaction and (code P). • The low-income housing credit (code provide those beneficiaries with • Credit to holders of tax credit bonds C). Attach a statement that shows the information they will need to file Form (code Q). beneficiary’s share of the amount, if 8886. This determination is based on • Agricultural chemicals security credit any, entered on line 6 of Form 8586 the category(ies) under which a (code R). with instructions to report that amount transaction qualified for disclosure. See • Energy efficient appliance credit on line 4 of Form 8586 or line 1d of the instructions for Form 8886 for

Form 3800 if the beneficiary’s only (code S). details.

source for the credit is a pass-through • Credit for employer differential wage

entity. Also, show the beneficiary’s payments (code T). Income tax withheld on wages

share of the amount, if any, entered on • Recapture of credits (code U). On an cannot be distributed to the

beneficiary. line 19 of Form 8586 with instructions attached statement to Schedule K-1, CAUTION

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Privacy Act and 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. Section 6109 requires return preparers to provide

their identifying numbers on the return.

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

Recordkeeping 37 hr., 32 min. 33 hr., 14 min. 17 hr., 27 min. 39 hr., 27 min. 7 hr., 39 min.

Learning about the law

or the form 19 hr., 17 min. 2 hr., 46 min. 4 hr., 28 min. 1 hr., 17 min. 47 min.

Preparing the form 39 hr., 22 min. 4 hr., 20 min. 4 hr., 57 min. 1 hr., 59 min. 57 min.

Copying, assembling, and sending the

form to the IRS 5 hr., 22 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 earlier.

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Index

A E Income in respect of a decedent Split-interest trust . . . . . . . . . . . 16

Accounting income ............ 2 Electing small business (See IRD) When to file ................. 7

AGI . . . . . . . . . . . . . . . . . . . . . . . . . . 22 trusts .................. 12, 29 Inter vivos . . . . . . . . . . . . . . . . . . . 2, 4 Who must file ............... 4

Alaska Native Settlement ESBT (S portion only) . . . . . . 15 Interest income . . . . . . . . . . . . . . . 17 Revocable Living Trusts:

Trusts . . . . . . . . . . . . . . . . . . . . . . 6 IRD . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 S portion . . . . . . . . . . . . . . . . . . . 12 Section 645 Election . . . . . . . . 17

Allowable miscellaneous itemized Elections: Deduction . . . . . . . . . . . . . . . . . . 22

deductions (AMID) ..... 21, 22 Section 643(e)(3) . . . . . . . . . . . 26 S Section 643(g) . . . . . . . . . . . 9, 24 Amended return . . . . . . . . . . . . . . 16 M Second tier distributions . . . . . . 26 Section 645 ................. 4 Amounts paid or permanently set Minimum taxable income . . . . . . 23 Separate share rule . . . . . . . . . . 25 Special rule for qualified aside . . . . . . . . . . . . . . . . . . . . . . 25 Special filing instructions: revocable trusts ........... 4 Assembly . . . . . . . . . . . . . . . . . . . . 11 Treating contributions as paid in Bankruptcy estates . . . . . . . . . 14 N Attachments . . . . . . . . . . . . . . . . . 11 prior tax year . . . . . . . . . . . . . 25 Electing small business net operating loss . . . . . . . . . . . . 23 trusts . . . . . . . . . . . . . . . . . . . . 12 Electronic deposits ............ 8 Nonexempt charitable Grantor trusts . . . . . . . . . . . . . . 11 B ESBTs (See Electing small deduction . . . . . . . . . . . . . . . . . . 16 Pooled income funds . . . . . . . 12 Bankruptcy estate . . . . . . 6, 13, 15 business trusts) Nonexempt charitable Split-interest trust . . . . . . . . . . . . . 16 Bankruptcy information . . . . . . . 13 Estate . . . . . . . . . . . . . . . . . . . . . 4, 32 trust ................... 16, 24 Substitute forms . . . . . . . . . . . . . . 32 Beneficiary .................... 3 Bankruptcy . . . . . . . . . . . . . . 6, 15 Nonqualified deferred Allocation of estimated tax Exemption for . . . . . . . . . . . . . . 23 compensation plans . . . . . . . . 15

payment . . . . . . . . . . . . . . . 9, 24 Foreign ..................... 4 T

Complex trust . . . . . . . . . . . . . . 32 Who must file ............... 4 Tax rate schedule . . . . . . . . . . . . 27

Estate . . . . . . . . . . . . . . . . . . . . . 32 Estate tax deduction . . . . . . . . . . 22 P Taxable income . . . . . . . . . . . . . . 23

Simple trust . . . . . . . . . . . . . . . . 32 Estimated tax . . . . . . . . . . . . . . 8, 24 Paid preparer ................. 7 Throwback years . . . . . . . . . . . . . 30

Tax year for inclusion . . . . . . . 33 Allocation of payments to Paid preparer authorization .... 8 Trusts ........................ 4 Withholding on foreign beneficiaries . . . . . . . . . . . 8, 24 Penalties: Alaska Native Settlement .... 6

person . . . . . . . . . . . . . . . . . . . 25 Penalty . . . . . . . . . . . . . . . . . . . . 24 Estimated tax . . . . . . . . . . . . . . 24 Blind . . . . . . . . . . . . . . . . . . . . . . 17

Blind trust . . . . . . . . . . . . . . . . . . . . 17 Excess deductions . . . . . . . . . . . 24 Failure to provide a required Common trust fund .......... 6

Exemption . . . . . . . . . . . . . . . . . . . 23 TIN . . . . . . . . . . . . . . . . . . . . . . 32 Complex . . . . . . . . . . . . . . . . . . . 32

Extraterritorial income Failure to provide information C Domestic ................... 4 timely .................... 9 exclusion . . . . . . . . . . . . . . . . . . 17 Exemption for . . . . . . . . . . . . . . 23 Cemetery perpetual care Late filing of return .......... 9 Foreign . . . . . . . . . . . . . . . . . . . . 29 fund . . . . . . . . . . . . . . . . . . . . . . . 22 Late payment of tax ......... 9 Grantor ..................... 2 Charitable deduction . . . . . . . . . . 24 F Other ....................... 9 Inter vivos . . . . . . . . . . . . . . . . 2, 4 Charitable remainder Fiduciary . . . . . . . . . . . . . . . . . 3, 4, 7 Trust fund recovery .......... 9 Nonexempt charitable . . . . . 16, trusts . . . . . . . . . . . . . . . . . . . . . . 16 Fiduciary accounting income (FAI) Underpaid estimated tax ..... 9 24

Common trust fund ............ 6 (See Accounting income) Pooled income funds ..... 12, 15, Pre-need funeral . . . . . . . . . . . 15

Final return . . . . . . . . . . . . . . . . . . . 16 24, 25 Qualified disability . . . . . . . . . . 23

D First tier distributions . . . . . . . . . . 26 Pre-need funeral trusts . . . . . . . . 15 Qualified revocable .......... 4

Foreign tax credit . . . . . . . . . . . . . 27 Simple . . . . . . . . . . . . . . . . . . . . . 32 Decedent’s Estate ............. 3

Form 1041-T . . . . . . . . . . . . . . . 9, 24 Split-interest . . . . . . . . . . . . . . . 16 Definitions: Q Testamentary . . . . . . . . . . . . . 2, 4 Accumulation Form 8855 .................... 4 Qualified disability trust . . . . . . . 23 Who must file . . . . . . . . . . . . 4, 32 distribution . . . . . . . . . . . . . . . 30 Qualified revocable trust ....... 4

Beneficiary .................. 3 G Qualified settlement funds ...... 6 Complex trust . . . . . . . . . . . . . . 15 General business credit . . . . . . . 28 Qualified small business W

Decedent’s Estate . . . . . . . . 3, 15 stock . . . . . . . . . . . . . . . . . . . . . . 26 Where to file .................. 7 Grantor trusts . . . . . . . . . . 2, 11, 15 DNI . . . . . . . . . . . . . . . . . . . . . . . . . 3 Backup withholding Who must file: . . . . . . . . . 12 Fiduciary .................... 3 Nonqualified deferred Bankruptcy estate . . . . . . . . . . 13 Grantor trusts . . . . . . . . . . . . . . 15 R Decedent’s estate ........... 4 compensation plans . . . . . . 15 IRD . . . . . . . . . . . . . . . . . . . . . . . . . 3 Optional filing methods Returns: Trust ....................... 4 . . . . . 11 Outside income . . . . . . . . . . . . 31 Pre-need funeral trusts . . . . . 15 Amended . . . . . . . . . . . . . . . . . . 16 Withholding on foreign Pooled income fund . . . . . . . . 15 Common trust fund .......... 6 Special filing instructions . . . . 11 person . . . . . . . . . . . . . . . . . . . . . 25 Revocable Living Trust ...... 4 Electronic and magnetic

Simple trust GST tax deduction . . . . . . . . . . . . 23 . . . . . . . . . . . . . . . . 15 media .................... 6 ■ Trust ....................... 4 Final . . . . . . . . . . . . . . . . . . . . . . . 16

Trusts ...................... 4 I Nonexempt charitable

Distributable net income (See trust . . . . . . . . . . . . . . . . . . . . . 16 Income distribution

DNI) Qualified settlement deduction . . . . . . . . . . . . 2, 22, 25

DNI . . . . . . . . . . . . . . . . . . . . . . . . 3, 25 funds ..................... 6

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