Department of the Treasury

2011

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 should select more than one box, when

Revenue Code unless otherwise noted. Income .................. ... .17 appropriate, to reflect the type of entity.

Contents Page Deductions ............... ... .19 Section E clarification. On page 1 of What’s New ............... .... .1 Tax and Payments ......... ... .23 Form 1041, we amended Section E to

Reminders ............... .... .1 Schedule A—Charitable clarify that the checkbox for ‘‘not a

Photographs of Missing Deduction .............. ... .25 private foundation’’ is available only for

Children ................ .... .2 Schedule B—Income charitable trusts described in section

Unresolved Tax Issues ...... .... .2 Distribution Deduction ..... ... .25 4947(a)(1), and not to split-interest

How To Get Forms and Schedule G—Tax trusts described in section 4947(a)(2).

Publications ............. .... .2 Computation ............ ... .27 Bankruptcy estate filing threshold. General Instructions ....... .... .2 Other Information .......... ... .29 For tax years beginning in 2011, the Purpose of Form ........... .... .2 Schedule J (Form 1041)— requirement to file a return for a Accumulation Distribution for Income Taxation of Trusts and bankruptcy estate applies only if gross Decedents’ Estates ....... .... .2 Certain Complex Trusts .... ... .30 income is at least $9,500.

Abusive Trust Arrangements . . .... .3 Schedule K-1 (Form 1041)— Automatic 6-month extension of time Definitions Beneficiary’s Share of ................ .... .3 to file bankruptcy estate return. Who Must File Income, Deductions, Credits, ............. .... .4 Beginning June 24, 2011, an individual Electronic Filing ............ .... .7 etc. ................... ... .31 filing a Chapter 7 or Chapter 11 Where To File ............. .... .7 Index ................... ... .37 bankruptcy estate return is eligible for When To File ............. .... .7 an automatic 6-month extension

Period Covered ............ .... .7 What’s New instead of a 5-month extension.

Who Must Sign ............ .... .7 Future developments. The IRS has Qualified disability trust. For 2011, Accounting Methods ........ .... .8 created a page on IRS.gov for qualified disability trusts can claim an Accounting Periods ......... .... .8 information about Form 1041 and its exemption of up to $3,700. The Rounding Off to Whole Dollars .... .8 instructions, at www.irs.gov/form1041. exemption is no longer phased out. Estimated Tax ............. .... .8 Information about any future Basis of decedent’s estate property. Interest and Penalties ....... .... .9 developments affecting Form 1041 Other Forms That May Be The special election allowing the use of (such as legislation enacted after we Required the modified carryover basis rules of ............... .... .9 release it) will be posted on that page. Additional Information ....... ... .11 section 1022 for property acquired from

Section 67(e) regulations. At the a decedent was repealed for decedents Assembly and Attachments ... ... .11 time of publication, the proposed dying in 2011. Generally, the basis of Special Reporting regulations under section 67(e) were property acquired from a decedent is Instructions ............ ... .11 not yet final. These regulations clarify the FMV of the property at the date of Grantor Type Trusts ....... ... .11 which costs, such as investment the decedent’s death. Pooled Income Funds ..... ... .13 advisory and bundled fiduciary fees, Electing Small Business

Trusts ................ ... .13 incurred by estates and nongrantor Reminders trusts are not exempt from the 2% floor Bankruptcy Estates. • Review a copy of the will or trust ....... ... .13 for miscellaneous itemized deductions.

Specific Instructions instrument, including any amendments ....... ... .15 Notice 2011-37 (available at www.irs.

Name of Estate or Trust or codicils, before preparing an estate’s ...... ... .15 gov/irb/2011-20_IRB/ar08.html) or trust’s return. Name and Title of Fiduciary ... ... .15 extends the existing interim guidance • The election to deduct state and local Address ................. ... .15 providing that taxpayers will not be sales taxes instead of state and local A. Type of Entity ........... ... .15 required to determine the portion of a income taxes has been extended B. Number of Schedules K-1 bundled fiduciary fee that is subject to through tax year 2011. Attached the 2% floor under section 67 for ............... ... .16 • We encourage you to use Form C. Employer Identification taxable years that begin before the 1041-V to accompany your payment of Number publication of final regulations. If the ................ ... .16 a balance of tax due on Form 1041, D. Date Entity Created regulations are finalized later in the ....... ... .16 particularly if your payment is made by filing season, an update will be posted E. Nonexempt Charitable and check or money order. at www.irs.gov/form1041. Split-Interest Trusts ....... ... .16 • If an amended return is filed for an

F. Initial Return, Amended Section A clarification. On page 1 of NOL carryback, write “NOL Carryback”

Return, etc. ............. ... .17 Form 1041, we changed the text of at the top of the page. See Amended

G. Section 645 Election ...... ... .17 Section A to clarify that taxpayers Return, later, for complete information.

Feb 02, 2012 Cat. No. 11372D
Photographs of Missing • Call, write, or fax the Taxpayer

Advocate office in its area (see Pub. Children 1546, Taxpayer Advocate Service, Your General Instructions

The Internal Revenue Service is a Voice At The IRS, for addresses and

proud partner with the National Center phone numbers). Purpose of Form for Missing and Exploited Children. • TTY/TDD help is available by calling The fiduciary of a domestic decedent’s Photographs of missing children 1-800-829-4059. estate, trust, or bankruptcy estate uses selected by the Center may appear in • Visit the website at www.irs.gov/ Form 1041 to report: instructions on pages that would advocate. • The income, deductions, gains, otherwise be blank. You can help bring losses, etc. of the estate or trust; these children home by looking at the How To Get Forms and • The income that is either photographs and calling accumulated or held for future 1-800-THE-LOST (1-800-843-5678) if Publications distribution or distributed currently to you recognize a child. the beneficiaries; Internet. You can access the IRS • Any income tax liability of the estate Unresolved Tax Issues website 24 hours a day, 7 days a week, or trust; and at IRS.gov to: If you have attempted to deal with an • Employment taxes on wages paid to • Download forms, instructions, and IRS problem unsuccessfully, you household employees. publications; should contact the Taxpayer Advocate

Service (TAS). The Taxpayer Advocate • Order IRS products online; Income Taxation of

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

or trust’s interests and concerns within Trusts and Decedents’ • Search publications online by topic or the IRS by protecting its rights and keyword; Estates resolving problems that have not been • Use the online Internal Revenue A trust or a decedent’s estate is a fixed through normal channels. Code, Regulations, or other official separate legal entity for federal tax While Taxpayer Advocates cannot guidance; purposes. A decedent’s estate comes change the tax law or make a technical • View Internal Revenue Bulletins into existence at the time of death of an

tax decision, they can clear up (IRBs) published in the last few years; individual. A trust may be created problems that resulted from previous and during an individual’s life (inter vivos) contacts and ensure that the estate’s or • Sign up to receive local and national or at the time of his or her death under

trust’s case is given a complete and tax news by email. a will (testamentary). If the trust

impartial review. instrument contains certain provisions, DVD for tax products. You can order The estate’s or trust’s assigned then the person creating the trust (the

personal advocate will listen to its point Pub. 1796, IRS Tax Products DVD, and grantor) is treated as the owner of the obtain: of view and will work with the estate or trust’s assets. Such a trust is a grantor

• Current-year forms, instructions, and type trust. See Grantor Type Trusts, trust to address its concerns. The

estate or trust can expect the advocate publications. later, under Special Reporting

Instructions. to provide: • Prior-year forms, instructions, and

• An impartial and independent look at publications. A trust or decedent’s estate figures your problem, • Tax Map: an electronic research tool its gross income in much the same • Timely acknowledgment, and finding aid. manner as an individual. Most • The name and phone number of the • Tax Law frequently asked questions. deductions and credits allowed to individual assigned to its case, • Tax Topics from the IRS telephone individuals are also allowed to estates • Updates on progress, response system. and trusts. However, there is one major • Timeframes for action, • Internal Revenue Code - Title 26 of distinction. A trust or decedent’s estate • Speedy resolution, and the U.S. Code. is allowed an income distribution • Courteous service. deduction for distributions to • Fill-in, print, and save features for When contacting the Taxpayer most tax forms. beneficiaries. To figure this deduction,

Advocate, you should provide the the fiduciary must complete Schedule • Internal Revenue Bulletins. following information: B. The income distribution deduction • Toll-free and email technical support. • The estate’s or trust’s name, determines the amount of any

address, and employer identification distributions taxed to the beneficiaries. The DVD is released twice during number (EIN).

• The name and telephone number of the year. The first release will ship the For this reason, a trust or decedent’s

an authorized contact person and the beginning of January 2012. The final estate sometimes is referred to as a

hours he or she can be reached. release will ship the beginning of March “pass-through” entity. The beneficiary,

• The type of tax return and year(s) 2012. and not the trust or decedent’s estate,

pays income tax on his or her involved. Purchase the DVD from National • A detailed description of the problem. distributive share of income. Schedule

• Previous attempts to solve the Technical Information Service at K-1 (Form 1041) is used to notify the

problem and the office that had been www.irs.gov/cdorders for $30 (no beneficiaries of the amounts to be

handling fee) or call 1-877-233-6767 toll included on their income tax returns. contacted. free to buy the DVD for $30 (plus a $6 • A description of the hardship the handling fee). Before preparing Form 1041, the estate or trust is facing and supporting fiduciary must figure the accounting documentation (if applicable). By phone and in person. You can income of the estate or trust under the

You can contact a Taxpayer order forms and publications by calling will or trust instrument and applicable

Advocate as follows: 1-800-TAX-FORM (1-800-829-3676). local law to determine the amount, if

• Call the Taxpayer Advocate’s toll-free You can also get most forms and any, of income that is required to be

number: 1-877-777-4778. publications at your local IRS office. distributed, because the income

-2- 2011 Instructions for Form 1041
distribution deduction is based, in part, ignoring either the true ownership of • Income to which the decedent had a

on that amount. income and assets or the true contingent claim at the time of his or

substance of transactions. Therefore, her death.

Abusive Trust the tax results promised by the Some examples of IRD for a promoters of abusive trust decedent who kept his or her books on Arrangements arrangements are not allowable under the cash method are:

Certain trust arrangements purport to the law, and the participants in and • Deferred salary payments that are reduce or eliminate federal taxes in promoters of these arrangements may payable to the decedent’s estate, ways that are not permitted under the be subject to civil or criminal penalties • Uncollected interest on U.S. savings in appropriate cases. law. Abusive trust arrangements bonds,

typically are promoted by the promise For more details, including the legal • Proceeds from the completed sale of of tax benefits with no meaningful farm produce, and principles that control the proper tax change in the taxpayer’s control over or treatment of these abusive trust • The portion of a lump-sum benefit from the taxpayer’s income or distribution to the beneficiary of a arrangements, see Notice 97-24, assets. The promised benefits may decedent’s IRA that equals the balance 1997-1 C.B. 409. include reduction or elimination of in the IRA at the time of the owner’s

income subject to tax; deductions for For additional information about death. This includes unrealized

personal expenses paid by the trust; abusive tax arrangements, visit the IRS appreciation and income accrued to depreciation deductions of an owner’s website at IRS.gov and type “Abusive that date, less the aggregate amount of personal residence and furnishings; a Trusts” in the search box. the owner’s nondeductible contributions

stepped-up basis for property to the IRA. Such amounts are included

transferred to the trust; the reduction or Definitions in the beneficiary’s gross income in the elimination of self-employment taxes; tax year that the distribution is received. and the reduction or elimination of gift Beneficiary. A beneficiary includes an The IRD has the same character it and estate taxes. These promised heir, a legatee, or a devisee. would have had if the decedent had benefits are inconsistent with the tax Decedent’s estate. The decedent’s lived and received such amount. rules applicable to trust arrangements. estate is an entity that is formed at the Deductions and credits. The Abusive trust arrangements often time of an individual’s death and following deductions and credits, when use trusts to hide the true ownership of generally is charged with gathering the paid by the decedent’s estate, are assets and income or to disguise the decedent’s assets, paying the allowed on Form 1041 even though substance of transactions. These decedent’s debts and expenses, and they were not allowable on the arrangements frequently involve more distributing the remaining assets. decedent’s final income tax return. than one trust, each holding different Generally, the estate consists of all the • Business expenses deductible under assets of the taxpayer (for example, the property, real or personal, tangible or section 162. taxpayer’s business, business intangible, wherever situated, that the • Interest deductible under section equipment, home, automobile, etc.). decedent owned an interest in at death. 163. Some trusts may hold interests in other Distributable net income (DNI). The • Taxes deductible under section 164. trusts, purport to involve charities, or • Investment expenses described in income distribution deduction allowable are foreign trusts. Funds may flow from section 212 (in excess of 2% of to estates and trusts for amounts paid, one trust to another trust by way of adjusted gross income (AGI)). credited, or required to be distributed to rental agreements, fees for services, • Percentage depletion allowed under beneficiaries is limited to DNI. This purchase agreements, and section 611. amount, which is figured on Schedule distributions. B, line 7, is also used to determine how • Foreign tax credit.

Some of the abusive trust much of an amount paid, credited, or For more information, see section arrangements that have been identified required to be distributed to a 691 or IRD in Pub. 559, Survivors, include unincorporated business trusts beneficiary will be includible in his or Executors, and Administrators. (or organizations), equipment or service her gross income. Income required to be distributed trusts, family residence trusts, Income, deductions, and credits in currently. Income required to be charitable trusts, and final trusts. In respect of a decedent. distributed currently is income that is each of these trusts, the original owner required under the terms of the of the assets nominally subject to the Income. When completing Form governing instrument and applicable trust effectively retains the authority to 1041, you must take into account any local law to be distributed in the year it cause financial benefits of the trust to items that are income in respect of a is received. The fiduciary must be be directly or indirectly returned or decedent (IRD). under a duty to distribute the income made available to the owner. For currently, even if the actual distribution example, the trustee may be the In general, IRD is income that a is not made until after the close of the promoter, a relative, or a friend of the decedent was entitled to receive but trust’s tax year. See Regulations owner who simply carries out the that was not properly includible in the section 1.651(a)-2. directions of the owner whether or not decedent’s final income tax return

permitted by the terms of the trust. under the decedent’s method of Fiduciary. A fiduciary is a trustee of a

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

personal, living, or educational decedent who reported his or her Trust. A trust is an arrangement

expenses into deductible items, and income on the accrual method of created either by a will or by an inter

cannot seek to avoid tax liability by accounting, and vivos declaration by which trustees take

2011 Instructions for Form 1041 -3-
title to property for the purpose of of such trusts is avoidance of tax. This period. This election may be made by a

protecting or conserving it for the provision applies only to that portion of QRT even if no executor is appointed

beneficiaries under the ordinary rules the trust that is attributable to for the related estate.

applied in chancery or probate courts. contributions to corpus made after In general, Form 8855, Election To

Revocable living trust. March 1, 1984. A revocable Treat a Qualified Revocable Trust as

living trust is an arrangement created A trust is a domestic trust if: Part of an Estate, must be filed by the

by a written agreement or declaration • A U.S. court is able to exercise due date for Form 1041 for the first tax

during the life of an individual and can primary supervision over the year of the related estate. This applies

be changed or ended at any time administration of the trust (court test), even if the combined related estate and

during the individual’s life. A revocable and electing trust do not have sufficient

living trust is generally created to • One or more U.S. persons have the income to be required to file Form

manage and distribute property. Many authority to control all substantial 1041. However, if the estate is granted

people use this type of trust instead of decisions of the trust (control test). an extension of time to file Form 1041

(or in addition to) a will. See Regulations section 301.7701-7 for its first tax year, the due date for

Form 8855 is the extended due date. Because this type of trust is for more information on the court and

revocable, it is treated as a grantor type control tests. Once made, the election is

trust for tax purposes. See Grantor Also treated as a domestic trust is a irrevocable.

Type Trusts under Special Reporting trust (other than a trust treated as Qualified revocable trusts. In Instructions, later, for special filing wholly owned by the grantor) that: general, a QRT is any trust (or part of a instructions that apply to grantor trusts. • Was in existence on August 20, trust) that, on the day the decedent

Be sure to read Optional Filing 1996, died, was treated as owned by the

Methods for Certain Grantor • Was treated as a domestic trust on decedent because the decedent held

August 19, 1996, and the power to revoke the trust as Type Trusts. Generally, most

TIP

• Elected to continue to be treated as a described in section 676. An electing people that have revocable living trusts

will be able to use Optional Method 1. domestic trust. trust is a QRT for which a section 645

A trust that is not a domestic trust is election has been made. This method is the easiest and least

burdensome way to meet your treated as a foreign trust. If you are the Election period. The election period

obligations. trustee of a foreign trust, file Form is the period of time during which an

1040NR instead of Form 1041. Also, a electing trust is treated as part of its

Who Must File foreign trust with a U.S. owner related estate.

generally must file Form 3520-A, The election period begins on the Annual Information Return of Foreign Decedent’s Estate date of the decedent’s death and Trust With a U.S. Owner. terminates on the earlier of: The fiduciary (or one of the joint If a domestic trust becomes a foreign • The day on which the electing trust fiduciaries) must file Form 1041 for a trust, it is treated under section 684 as and related estate, if any, distribute all domestic estate that has: having transferred all of its assets to a of their assets, or 1. Gross income for the tax year of foreign trust, except to the extent a • The day before the applicable date. $600 or more, or grantor or another person is treated as To determine the applicable date, first 2. A beneficiary who is a the owner of the trust when the trust determine whether a Form 706, United nonresident alien. becomes a foreign trust. States Estate (and Generation-Skipping

Transfer) Tax Return, is required to be An estate is a domestic estate if it is Grantor Type Trusts filed as a result of the decedent’s not a foreign estate. A foreign estate is If all or any portion of a trust is a death. If no Form 706 is required to be one the income of which is from grantor type trust, then that trust or filed, the applicable date is 2 years after sources outside the United States that portion of a trust must follow the special the date of the decedent’s death. If is not effectively connected with the reporting requirements discussed later, Form 706 is required, the applicable conduct of a U.S. trade or business and under Special Reporting Instructions. date is the later of 2 years after the is not includible in gross income. If you See Grantor Type Trust under Specific date of the decedent’s death or 6 are the fiduciary of a foreign estate, file Instructions for more details on what months after the final determination of Form 1040NR, U.S. Nonresident Alien makes a trust a grantor type trust. liability for estate tax. For additional Income Tax Return, instead of Form

Note. A trust may be part grantor trust information, see Regulations section 1041.

and part “other” type of trust, for 1.645-1(f).

Trust example, simple or complex, or electing Taxpayer identification number (TIN).

The fiduciary (or one of the joint small business trust (ESBT). All QRTs must obtain a new TIN

following the death of the decedent fiduciaries) must file Form 1041 for a Qualified subchapter S trusts

domestic trust taxable under section whether or not a section 645 election is (QSSTs). QSSTs must follow the

641 that has: made. (Use Form W-9, Request for special reporting requirements for these Taxpayer Identification Number and 1. Any taxable income for the tax trusts discussed later, under Special Certification, to notify payers of the new year, Reporting Instructions. TIN.) 2. Gross income of $600 or more Special Rule for Certain (regardless of taxable income), or An electing trust that continues after

3. A beneficiary who is a Revocable Trusts the termination of the election period

nonresident alien. Section 645 provides that if both the does not need to obtain a new TIN

executor (if any) of an estate (the following the termination unless:

Two or more trusts are treated as related estate) and the trustee of a • An executor was appointed and

one trust if such trusts have qualified revocable trust (QRT) elect the agreed to the election after the electing

substantially the same grantor(s) and treatment in section 645, the trust must trust made a valid section 645 election,

substantially the same primary be treated and taxed as part of the and the electing trust had filed a return

beneficiary(ies) and a principal purpose related estate during the election as an estate under the trust’s TIN, or

-4- 2011 Instructions for Form 1041
• No executor was appointed and the trustee as the filing trustee. Form 1041 and 662 apply to this deemed

QRT was the filing trust (as explained is filed under the name and TIN of the distribution. The combined entity is

later). filing trustee’s trust. A statement entitled to an income distribution

providing the same information deduction for this deemed distribution, A related estate that continues after regarding the electing trusts (except the and the ‘‘new’’ trust must include its the termination of the election period filing trust) that is listed under If there is share of the distribution in its income. does not need to obtain a new TIN. an executor above must be attached to See Regulations sections For more information about TINs, these Forms 1041. All electing trusts 1.645-1(e)(2)(iii) and 1.645-1(h) for including trusts with multiple owners, must choose the same tax year. more information.

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 If there is an executor. The accounting period, if it is otherwise requirements when there is no following rules apply to filing Form 1041 required to file. 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. is filed under the name and TIN of the • The tax year of the electing trust the executor does not agree to 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 income, deduction, and credit for the discussed above apply. 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. applying distribution provisions. Also, for a final return if the trust terminates Responsibilities of the trustee each of those shares can contain two during the election period as explained when there is an executor (or there or more separate shares. For more later). is no executor and the trustee is not information, see Separate share rule, Procedures for completing Form the filing trustee). In addition to the later, 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 an executor, the Form 1041 filed under • If the trust will not continue after the combined tax obligation is paid. the name and TIN of the related estate close of the election period, the trustee For additional information, including for the tax year in which the election must file a Form 1041 under the name

treatment of transfers between shares terminates includes (a) the items of and TIN of the trust. Complete the and charitable contribution deductions, entity information and items A, C, D, income, deduction, and credit for the see Regulations section 1.645-1(e). related estate for its entire tax year, and and F. Indicate in item F that this is a

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

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

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

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

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

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

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

2011 Instructions for Form 1041 -5-
income tax return would be due for the must file a final Form 1041 following the Pooled Income Funds

tax year beginning with the decedent’s instructions above for completing Form Pooled income funds file Form 1041. death, but the trustee and executor (if 1041 in the year in which the election See Pooled Income Funds, later, for any) have decided to make a section terminates and there is no executor. the special reporting requirements for 645 election, then the QRT is not Termination of the trust during the these trusts. Additionally, pooled required to file a Form 1041 for the election period. If an electing trust income funds must file Form 5227, short tax year beginning with the terminates during the election period, Split-Interest Trust Information Return. decedent’s death and ending on the trustee of that trust must file a final December 31 of that year. However, if Form 1041 by completing the entity Qualified Funeral Trusts a valid election is not subsequently information (using the trust’s EIN), made, the QRT may be subject to Trustees of pre-need funeral trusts who checking the Final return box, and penalties and interest for failure to file elect treatment under section 685 file signing and dating the form. Do not and failure to pay. Form 1041-QFT, U.S. Income Tax report items of income, deduction, and Return for Qualified Funeral Trusts. All If the QRT files a Form 1041 for this credit. These items are reported on the other pre-need funeral trusts, see short period, and a valid section 645 related estate’s return. Grantor Type Trusts, later, for Form election is subsequently made, then the Alaska Native Settlement 1041 reporting requirements. trustee must file an amended Form

1041 for the electing trust, excluding all Trusts Qualified Settlement Funds items of income, deduction, and credit The trustee of an Alaska Native of the electing trust. These amounts are The trustee of a designated or qualified Settlement Trust may elect the special settlement fund (QSF) generally must then included on the first Form 1041 tax treatment for the trust and its filed by the executor for the related file Form 1120-SF, U.S. Income Tax beneficiaries provided for in section estate (or the filing trustee for the Return for Settlement Funds, instead of 646. The election must be made by the electing trust filing as an estate). Form 1041. due date (including extensions) for filing

Later appointed executor. If an the trust’s tax return for its first tax year Special election. If a QSF has only

executor for the related estate is not ending after June 7, 2001. Do not use one transferor, the transferor may elect

appointed until after the trustee has Form 1041. Use Form 1041-N, U.S. to treat the QSF as a grantor type trust.

made a valid section 645 election, the Income Tax Return for Electing Alaska To make the grantor trust election, executor must agree to the trustee’s Native Settlement Trusts, to make the the transferor must attach an election election and they must file a revised election. Additionally, Form 1041-N is statement to a timely filed Form 1041, Form 8855 within 90 days of the the trust’s income tax return and including extensions, that the appointment of the executor. If the satisfies the section 6039H information administrator files for the QSF for the executor does not agree to the election, reporting requirement for the trust. tax year in which the settlement fund is the election terminates as of the date of

Bankruptcy Estate established. If Form 1041 is not filed appointment of the executor. because Optional Method 1 or 2 was The bankruptcy trustee or debtor-in- If the executor agrees to the chosen, attach the election statement election, the trustee must amend any possession must file Form 1041 for the to a timely filed income tax return, Form 1041 filed under the name and estate of an individual involved in including extensions, of the transferor TIN of the electing trust for the period bankruptcy proceedings under chapter for the tax year in which the settlement beginning with the decedent’s death. 7 or 11 of title 11 of the United States fund is established.

The amended returns are still filed Code if the estate has gross income for

under the name and TIN of the electing the tax year of $9,500 or more. See Election statement. The election

Bankruptcy Estates, later, for details. statement may be made separately or, trust, and they must include the items

of income, deduction, and credit for the if filed with Form 1041, on the Charitable Remainder Trusts attachment described under Grantor related estate for the periods covered

by the returns. Also, attach a statement A section 664 charitable remainder trust Type Trusts, later. At the top of the

to the amended Forms 1041 identifying (CRT) does not file Form 1041. Instead, election statement, write “Section

the name and TIN of the related estate, a CRT files Form 5227, Split-Interest 1.468B-1(k) Election” and include the

and the name and address of the Trust Information Return. If the CRT transferor’s:

executor. Check the Final return box on has any unrelated business taxable • Name,

income, it also must file Form 4720, • Address, the amended return for the tax year that

ends with the appointment of the Return of Certain Excise Taxes Under • TIN, and

executor. Except for this amended Chapters 41 and 42 of the Internal • A statement that he or she will treat

return, all returns filed for the combined Revenue Code. the qualified settlement fund as a

entity after the appointment of the grantor type trust.

executor must be filed under the name Common Trust Funds

and TIN of the related estate. Do not file Form 1041 for a common Widely Held Fixed

trust fund maintained by a bank. Investment Trust (WHFITs) If the election terminates as the Instead, the fund may use Form 1065, result of a later appointed executor, the Trustees and middlemen of WHFITs do U.S. Return of Partnership Income, for executor of the related estate must file not file Form 1041. Instead, they report its return. For more details, see section Forms 1041 under the name and TIN of all items of gross income and proceeds 584 and Regulations section 1.6032-1. the related estate for all tax years of the on the appropriate Form 1099. For the

related estate beginning with the definition of a WHFIT, see Regulations Electing Small Business decedent’s death. The electing trust’s section 1.671-5(b)(22). A tax

election period and tax year terminate Trusts information statement that includes the

the day before the appointment of the Electing small business trusts file Form information given to the IRS on Forms

executor. The trustee is not required to 1041. However, see Electing Small 1099, as well as additional information

amend any of the returns filed by the Business Trusts (ESBTs), later, for a identified in Regulations section

electing trust for the period prior to the discussion of the special reporting 1.671-5(e) must be given to trust

appointment of the executor. The trust requirements for these trusts. interest holders. See the General

-6- 2011 Instructions for Form 1041
Instructions for Certain Information Form 1041, U.S. Income Tax Return for The private delivery service can tell

Returns for more information. Estates and Trusts for Tax Year 2011. you how to get written proof of the

If Form 1041 is e-filed and there is a mailing date.

Electronic Filing balance due, the fiduciary may

Qualified fiduciaries or transmitters may authorize an electronic funds When To File

be able to file Form 1041 and related withdrawal with the return. For calendar year estates and trusts,

schedules electronically. If you wish to file Form 1041 and Schedule(s) K-1 on

do this, you must file Form 8633, Private Delivery Services or before April 17, 2012. For fiscal year

Application to Participate in the IRS You can use certain private delivery estates and trusts, file Form 1041 by

e-file Program. If you file Form 1041 the 15th day of the 4th month following services designated by the IRS to meet electronically, you may now sign the the close of the tax year. For example, the “timely mailing as timely filing/ return electronically by using a personal an estate that has a tax year that ends paying” rule for tax returns and identification number (PIN). See Form on June 30, 2012, must file Form 1041 payments. These private delivery 8879-F, IRS e-file Signature by October 15, 2012. If the due date services include only the following. Authorization for Form 1041, for details. falls on a Saturday, Sunday, or legal • DHL Express (DHL): DHL Same Day If you do not sign the electronically filed holiday, file on the next business day. Service. return by using a PIN, you must file

Form 8453-F, U.S. Estate or Trust • Federal Express (FedEx): FedEx Extension of Time To File

Income Tax Declaration and Signature Priority Overnight, FedEx Standard If more time is needed to file the estate

for Electronic Filing. Overnight, FedEx 2Day, FedEx or trust return, use Form 7004 to apply

For more details, see Pub. 1437, International Priority, and FedEx for an automatic 5-month extension of

International First. Procedures for the Form 1041 e-file time to file.

Program, U.S. Income Tax Returns For • United Parcel Service (UPS): UPS Note. Beginning June 24, 2011, the Estates and Trusts For Tax Year 2011 Next Day Air, UPS Next Day Air Saver, automatic extension of time to file a

and Pub. 1438, File Specifications, UPS 2nd Day Air, UPS 2nd Day Air bankruptcy estate return has been Validation Criteria and Record Layouts A.M., UPS Worldwide Express Plus, increased to 6 months.

for the Electronic Filing Program for and UPS Worldwide Express.

Period Covered

File the 2011 return for calendar year

Where To File 2011 and fiscal years beginning in 2011

and ending in 2012. If the return is for a

fiscal year or a short tax year (less than

12 months), fill in the tax year space at For all estates and trusts, including charitable and split-interest trusts (other than Charitable

Remainder Trusts). the top of the form.

The 2011 Form 1041 may also be THEN use this address if you: used for a tax year beginning in 2012 if:

IF you are located in Are not enclosing a check or Are enclosing a check or money 1. The estate or trust has a tax year ... money order ... order ... of less than 12 months that begins and

Connecticut, Delaware, ends in 2012, and

District of Columbia, 2. The 2012 Form 1041 is not

Georgia, Illinois, available by the time the estate or trust

Indiana, Kentucky, is required to file its tax return.

Maine, Maryland, However, the estate or trust must show

Massachusetts, its 2012 tax year on the 2011 Form Michigan, New Department of the Treasury Department of the Treasury 1041 and incorporate any tax law Hampshire, New Internal Revenue Service Internal Revenue Service changes that are effective for tax years Jersey, New York, Cincinnati, Ohio 45999-0048 Cincinnati, Ohio 45999-0148 beginning after December 31, 2011. North Carolina, Ohio,

Pennsylvania, Rhode

Island, South Carolina,

Tennessee, Vermont, Who Must Sign

Virginia, West Virginia,

Wisconsin Fiduciary

The fiduciary, or an authorized Alabama, Alaska,

Arizona, Arkansas, representative, must sign Form 1041. If

California, Colorado, there are joint fiduciaries, only one is

Florida, Hawaii, Idaho, required to sign the return.

Iowa, Kansas, A financial institution that submitted Louisiana, Minnesota, Department of the Treasury Department of the Treasury estimated tax payments for trusts for Mississippi, Missouri,

Montana, Nebraska, Internal Revenue Service Internal Revenue Service which it is the trustee must enter its EIN

Ogden, Utah 84201-0048 Ogden, Utah 84201-0148 Nevada, New Mexico, in the space provided for the EIN of the

North Dakota, fiduciary. Do not enter the EIN of the

Oklahoma, Oregon, trust. For this purpose, a financial

South Dakota, Texas, institution is one that maintains a

Utah, Washington, Treasury Tax and Loan (TT&L) Wyoming account. If you are an attorney or other

A foreign country or Internal Revenue Service Internal Revenue Service individual functioning in a fiduciary

United States P.O. Box 409101 P.O. Box 409101 capacity, leave this space blank. Do not

possession Ogden, Utah 84409 Ogden, Utah 84409 enter your individual social security

number (SSN).

2011 Instructions for Form 1041 -7-
If you, as fiduciary, fill in Form 1041, The authorization will automatically If you have to add two or more

leave the Paid Preparer space blank. If end no later than the due date (without amounts to figure the amount to enter

someone prepares this return and does regard to extensions) for filing the on a line, include cents when adding

not charge you, that person should not estate’s or trust’s 2012 tax return. If the the amounts and round off only the

sign the return. fiduciary wants to expand the paid total.

preparer’s authorization or revoke the Paid Preparer authorization before it ends, see Pub. Estimated Tax

Generally, anyone who is paid to 947, Practice Before the IRS and Generally, an estate or trust must pay prepare a tax return must sign the Power of Attorney. estimated income tax for 2012 if it return and fill in the other blanks in the expects to owe, after subtracting any Paid Preparer Use Only area of the Accounting Methods withholding and credits, at least $1,000 return. Figure taxable income using the in tax, and it expects the withholding The person required to sign the method of accounting regularly used in and credits to be less than the smaller

return must: keeping the estate’s or trust’s books of: • Complete the required preparer and records. Generally, permissible 1. 90% of the tax shown on the information, methods include the cash method, the 2012 tax return, or • Sign it in the space provided for the accrual method, or any other method 2. 100% of the tax shown on the preparer’s signature (a facsimile authorized by the Internal Revenue 2011 tax return (110% of that amount if signature is acceptable), and Code. In all cases, the method used the estate’s or trust’s adjusted gross • Give you a copy of the return for your must clearly reflect income. income on that return is more than records. $150,000, and less than 2 Generally, the estate or trust may /3 of gross

Anyone who is paid to prepare change its accounting method (for income for 2011 or 2012 is from

the estate’s or trust’s return farming or fishing). income as a whole or for any material

CAUTION

must enter their PTIN in the item) only by getting consent on Form

!

Paid Preparer Use Only However, if a return was not filed for section. The 3115, Application for Change in

PTIN entered must have been issued Accounting Method. For more 2011 or that return did not cover a full

after September 27, 2010. For 12 months, item 2 does not apply. information, see Pub. 538, Accounting

information on applying for and Periods and Methods. For this purpose, include household receiving a PTIN, see Form W-12, IRS employment taxes in the tax shown on Paid Preparer Tax Identification Accounting Periods the tax return, but only if either of the Number (PTIN) Application and following is true: For a decedent’s estate, the moment of Renewal, or visit www.irs.gov/ptin. • The estate or trust will have federal death determines the end of the income tax withheld for 2012 (see the Paid Preparer Authorization decedent’s tax year and the beginning instructions for line 24e), or of the estate’s tax year. As executor or If the fiduciary wants to allow the IRS to • The estate or trust would be required administrator, you choose the estate’s discuss the estate’s or trust’s 2011 tax to make estimated tax payments for tax period when you file its first income return with the paid preparer who 2012 even if it did not include tax return. The estate’s first tax year signed it, check the “Yes” box in the household employment taxes when may be any period of 12 months or less signature area of the return. This figuring estimated tax. that ends on the last day of a month. If authorization applies only to the you select the last day of any month individual whose signature appears in Exceptions other than December, you are adopting the Paid Preparer Use Only area of the Estimated tax payments are not a fiscal tax year. estate’s or trust’s return. It does not required from: apply to the firm, if any, shown in that To change the accounting period of 1. An estate of a domestic decedent section. an estate, use Form 1128, Application or a domestic trust that had no tax To Adopt, Change, or Retain a Tax If the “Yes” box is checked, the liability for the full 12-month 2011 tax Year. fiduciary is authorizing the IRS to call year; the paid preparer to answer any Generally, a trust must adopt a 2. A decedent’s estate for any tax questions that may arise during the calendar year. The following trusts are year ending before the date that is 2 processing of the estate’s or trust’s exempt from this requirement: years after the decedent’s death; or return. The fiduciary is also authorizing • A trust that is exempt from tax under 3. A trust that was treated as owned

the paid preparer to: section 501(a); by the decedent if the trust will receive • Give the IRS any information that is • A charitable trust described in section the residue of the decedent’s estate

missing from the estate’s or trust’s 4947(a)(1); and under the will (or if no will is admitted to return, • A trust that is treated as wholly probate, the trust primarily responsible • Call the IRS for information about the owned by a grantor under the rules of for paying debts, taxes, and expenses processing of the estate’s or trust’s sections 671 through 679. of administration) for any tax year return or the status of its refund or ending before the date that is 2 years payment(s), and Rounding Off to Whole after the decedent’s death. • Respond to certain IRS notices that

the fiduciary has shared with the Dollars For more information, see Form preparer about math errors, offsets, and You may round off cents to whole 1041-ES, Estimated Income Tax for

return preparation. The notices will not dollars on the estate’s or trust’s return Estates and Trusts.

be sent to the preparer. and schedules. If you do round to

The fiduciary is not authorizing the whole dollars, you must round all Electronic Deposits

paid preparer to receive any refund amounts. To round, drop amounts A financial institution that has been

check, bind the estate or trust to under 50 cents and increase amounts designated as an authorized federal tax

anything (including any additional tax from 50 to 99 cents to the next dollar. depository, and acts as a fiduciary for

liability), or otherwise represent the For example, $1.39 becomes $1 and at least 200 taxable trusts that are

estate or trust before the IRS. $2.50 becomes $3. required to pay estimated tax, is

-8- 2011 Instructions for Form 1041
required to deposit the estimated tax month, up to a maximum of 75% if the the amount of any penalty on Form

payments electronically using the failure to file is fraudulent). If the return 1041, line 26.

Electronic Federal Tax Payment is more than 60 days late, the minimum

System (EFTPS). penalty is the smaller of $135 or the tax Trust Fund Recovery Penalty

A fiduciary that is not required to due. This penalty may apply if certain excise,

make electronic deposits of estimated income, social security, and Medicare The penalty will not be imposed if tax on behalf of a trust or an estate may taxes that must be collected or withheld you can show that the failure to file on voluntarily participate in EFTPS. To are not collected or withheld, or these time was due to reasonable cause. If

enroll in or get more information about taxes are not paid. These taxes are you receive a notice about penalty and EFTPS, visit the EFTPS website at generally reported on Forms 720, 941, interest after you file this return, send www.eftps.gov or call 1-800-555-4477. 943, 944, or 945. The trust fund us an explanation and we will Also, see Pub. 966, The Secure Way recovery penalty may be imposed on all determine if you meet To Pay Your Federal Taxes. persons who are determined by the IRS reasonable-cause criteria. Do not to have been responsible for collecting, Depositing on time. For a deposit attach an explanation when you file accounting for, or paying over these using EFTPS to be on time, the deposit Form 1041. taxes, and who acted willfully in not must be scheduled by 8:00 p.m. doing so. The penalty is equal to the Eastern time the day before the due Late Payment of Tax unpaid trust fund tax. See the date of the deposit. Generally, the penalty for not paying Instructions for Form 720, Pub. 15 tax when due is 1

Section 643(g) Election /2 of 1% of the unpaid (Circular E), Employer’s Tax Guide, or amount for each month or part of a Pub. 51 (Circular A), Agricultural Fiduciaries of trusts that pay estimated month it remains unpaid. The maximum Employer’s Tax Guide, for more details, tax may elect under section 643(g) to penalty is 25% of the unpaid amount. including the definition of responsible have any portion of their estimated tax The penalty applies to any unpaid tax persons. payments allocated to any of the on the return. Any penalty is in addition beneficiaries. to interest charges on late payments. Other Penalties

The fiduciary of a decedent’s estate Other penalties can be imposed for may make a section 643(g) election If you include interest on either negligence, substantial understatement only for the final year of the estate. of these penalties with your of tax, and fraud. See Pub. 17, Your payment, identify and enter

TIP

 You make the election by filing Federal Income Tax, for details on these amounts in the bottom margin of Form 1041-T, Allocation of Estimated these penalties. Form 1041, page 1. Do not include the Tax Payments to Beneficiaries, by the interest or penalty amount in the 65th day after the close of the estate’s balance of tax due on line 27. Other Forms That May or trust’s tax year. Then, you include

that amount on the Schedule K-1 (Form Be Required Failure To Provide 1041) for the beneficiary(ies) for whom Form W-2, Wage and Tax Statement, you elected it. Information Timely and Form W-3, Transmittal of Wage

Failure to make a timely election will You must provide Schedule K-1 (Form and Tax Statements.

result in the estimated tax payments 1041), on or before the day you are Form 56, Notice Concerning not being transferred to the required to file Form 1041, to each Fiduciary Relationship. You must notify beneficiary(ies) even if you entered the beneficiary who receives a distribution the IRS of the creation or termination of

amount you wanted transferred on of property or an allocation of an item of a fiduciary relationship. You may use Schedule K-1. the estate. Form 56 to provide this notice to the

See the instructions for line 24b for For each failure to provide Schedule IRS.

more details. K-1 to a beneficiary when due and each Form 706, United States Estate (and failure to include on Schedule K-1 all Generation-Skipping Transfer) Tax Interest and Penalties the information required to be shown Return, or Form 706-NA, United States (or the inclusion of incorrect Estate (and Generation-Skipping

Interest information), a $50 penalty may be Transfer) Tax Return, Estate of imposed with regard to each Schedule nonresident not a citizen of the United Interest is charged on taxes not paid by K-1 for which a failure occurs. The States. the due date, even if an extension of maximum penalty is $100,000 for all time to file is granted. Form 706-GS(D), such failures during a calendar year. If Generation-Skipping Transfer Tax Interest is also charged on penalties the requirement to report information is Return for Distributions. imposed for failure to file, negligence, intentionally disregarded, each $50 fraud, substantial valuation penalty is increased to $100 or, if Form 706-GS(D-1), Notification of

misstatements, substantial greater, 10% of the aggregate amount Distribution From a

understatements of tax, and reportable of items required to be reported, and Generation-Skipping Trust.

transaction understatements. Interest is the $100,000 maximum does not apply. Form 706-GS(T), charged on the penalty from the due Generation-Skipping Transfer Tax date of the return (including The penalty will not be imposed if Return for Terminations. extensions). The interest charge is the fiduciary can show that not

providing information timely was due to Form 709, United States Gift (and figured at a rate determined under reasonable cause and not due to willful Generation-Skipping Transfer) Tax section 6621.

neglect. Return.

Late Filing of Return Form 720, Quarterly Federal Excise

The law provides a penalty of 5% of the Underpaid Estimated Tax Tax Return. Use Form 720 to report

tax due for each month, or part of a If the fiduciary underpaid estimated tax, environmental excise taxes,

month, for which a return is not filed up use Form 2210, Underpayment of communications and air transportation

to a maximum of 25% of the tax due Estimated Tax by Individuals, Estates, taxes, fuel taxes, luxury tax on

(15% for each month, or part of a and Trusts, to figure any penalty. Enter passenger vehicles, manufacturers’

2011 Instructions for Form 1041 -9-
taxes, ship passenger tax, and certain U.S. trade or business. For more currency in one transaction (or a series

other excise taxes. information, see sections 1441 and of related transactions).

Caution. See Trust Fund Recovery 1442, and Pub. 515, Withholding of Tax Form 8855, Election To Treat a

Penalty earlier. on Nonresident Aliens and Foreign Qualified Revocable Trust as Part of an Entities. Estate. This election allows a qualified Form 926, Return by a U.S. Forms 1099-A, B, INT, LTC, MISC, revocable trust to be treated and taxed Transferor of Property to a Foreign OID, Q, R, S, and SA. You may have to (for income tax purposes) as part of its Corporation. Use this form to report file these information returns to report related estate during the election certain information required under acquisitions or abandonments of period. section 6038B.

secured property; proceeds from broker Form 8865, Return of U.S. Persons Form 940, Employer’s Annual and barter exchange transactions; With Respect to Certain Foreign Federal Unemployment (FUTA) Tax interest payments; payments of Partnerships. The estate or trust may Return. The estate or trust may be long-term care and accelerated death have to file Form 8865 if it: liable for FUTA tax and may have to file benefits; miscellaneous income Form 940 if it paid wages of $1,500 or 1. Controlled a foreign partnership payments; original issue discount; more in any calendar quarter during the (that is, owned more than a 50% direct distributions from Coverdell ESAs; calendar year (or the preceding or indirect interest in a foreign distributions from pensions, annuities, calendar year) or one or more partnership); retirement or profit-sharing plans, IRAs employees worked for the estate or 2. Owned at least a 10% direct or (including SEPs, SIMPLEs, Roth IRAs, trust for some part of a day in any 20 indirect interest in a foreign partnership Roth Conversions, and IRA different weeks during the calendar while U.S. persons controlled that recharacterizations), insurance year (or the preceding calendar year). partnership; contracts, etc.; proceeds from real 3. Had an acquisition, disposition, or Form 941, Employer’s QUARTERLY estate transactions; and distributions change in proportional interest in a Federal Tax Return. Employers must from an HSA, Archer MSA, or Medicare foreign partnership that: file this form quarterly to report income Advantage MSA. a. Increased its direct interest to at tax withheld on wages and employer Also, use certain of these returns to least 10%; and employee social security and report amounts received as a nominee b. Reduced its direct interest of at Medicare taxes. Certain small on behalf of another person, except least 10% to less than 10%; or employers must file Form 944, amounts reported to beneficiaries on c. Changed its direct interest by at Employer’s ANNUAL Federal Tax Schedule K-1 (Form 1041). least a 10% interest. Return, instead of Form 941. For more

information, see the Instructions for Form 8275, Disclosure Statement. 4. Contributed property to a foreign

Form 944. Agricultural employers must File Form 8275 to disclose items or partnership in exchange for a

positions, except those contrary to a partnership interest if: file Form 943, Employer’s Annual

Federal Tax Return for Agricultural regulation, that are not otherwise a. Immediately after the

Employees, instead of Form 941, to adequately disclosed on a tax return. contribution, the estate or trust owned,

report income tax withheld and The disclosure is made to avoid parts directly or indirectly, at least a 10%

employer and employee social security of the accuracy-related penalty interest in the foreign partnership or

b. The fair market value (FMV) of and Medicare taxes on farmworkers. imposed for disregard of rules or

substantial understatement of tax. Form the property the estate or trust Caution. See Trust Fund Recovery 8275 is also used for disclosures contributed to the foreign partnership, Penalty earlier.

relating to preparer penalties for for a partnership interest, when added Form 945, Annual Return of understatements due to unrealistic to other contributions of property made Withheld Federal Income Tax. Use this positions or disregard of rules. to the foreign partnership during the form to report income tax withheld from preceding 12-month period, exceeds Form 8275-R, Regulation Disclosure nonpayroll payments, including $100,000. pensions, annuities, IRAs, gambling Statement, is used to disclose any item

winnings, and backup withholding. on a tax return for which a position has Also, the estate or trust may have to been taken that is contrary to Treasury Caution. See Trust Fund Recovery file Form 8865 to report certain

Penalty regulations. dispositions by a foreign partnership of earlier.

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

Form 1040NR, U.S. Nonresident Interests, and Form 8288-A, Statement For more details, including penalties Alien Income Tax Return. of Withholding on Dispositions by for failing to file Form 8865, see Form

Form 1041-A, U.S. Information Foreign Persons of U.S. Real Property 8865 and its separate instructions.

Return Trust Accumulation of Interests. Use these forms to report and Form 8886, Reportable Transaction Charitable Amounts. transmit withheld tax on the sale of U.S. Disclosure Statement. Use Form 8886 real property by a foreign person. Also, Form 1042, Annual Withholding Tax to disclose information for each use these forms to report and transmit Return for U.S. Source Income of reportable transaction in which the trust tax withheld from amounts distributed to Foreign Persons, and Form 1042-S, participated, directly or indirectly. Form a foreign beneficiary from a “U.S. real Foreign Person’s U.S. Source Income 8886 must be filed for each tax year property interest account” that a Subject to Withholding. Use these that the federal income tax liability of domestic estate or trust is required to forms to report and transmit withheld the estate or trust is affected by its establish under Regulations section tax on payments or distributions made participation in the transaction. The 1.1445-5(c)(1)(iii). to nonresident alien individuals, foreign estate or trust may have to pay a

partnerships, or foreign corporations to Form 8300, Report of Cash penalty if it has a requirement to file

the extent such payments or Payments Over $10,000 Received in a Form 8886 but you fail to file it. The

distributions constitute gross income Trade or Business. Generally, this form following are reportable transactions.

from sources within the United States is used to report the receipt of more • Any transaction that is the same as

that is not effectively connected with a than $10,000 in cash or foreign or substantially similar to tax avoidance

-10- 2011 Instructions for Form 1041
transactions identified by the IRS as 7. Form 8855; Schedule K-1 (Form 1041) as the

listed transactions. 8. All other schedules and attachment.

• Any transaction offered under forms; and If only part of the trust is a grantor conditions of confidentiality and for 9. All attachments. type trust, the portion of the income, which the estate or trust paid a deductions, etc., that is allocable to the minimum fee (confidential transaction). Attachments non-grantor part of the trust is reported • Any transaction for which the estate If you need more space on the forms or on Form 1041, under normal reporting or trust or a related party has schedules, attach separate sheets. Use rules. The amounts that are allocable contractual protection against the same size and format as on the directly to the grantor are shown only disallowance of the tax benefits printed forms. But show the totals on on an attachment to the form. Do not (transaction with contractual the printed forms. use Schedule K-1 (Form 1041) as the protection). attachment. However, Schedule K-1 is • Any transaction resulting in a loss of Attach these separate sheets after used to reflect any income distributed at least $2 million in any single year or all the schedules and forms. Enter the from the portion of the trust that is not $4 million in any combination of years estate’s or trust’s EIN on each sheet. taxable directly to the grantor or owner. ($50,000 in any single year if the loss is Do not file a copy of the decedent’s generated by a section 988 transaction) The fiduciary must give the grantor will or the trust instrument unless the

(loss transactions). (owner) of the trust a copy of the IRS requests it. • Any transaction substantially similar attachment.

to one of the types of transactions Attachment. On the attachment,

identified by the IRS as a transaction of Special Reporting show:

interest. • The name, identifying number, and

See the Instructions for Form 8886 Instructions address of the person(s) to whom the

income is taxable; for more details and exceptions. Grantor type trusts, the S portion of • The income of the trust that is Form 8918, Material Advisor electing small business trusts (ESBTs), taxable to the grantor or another person Disclosure Statement. Material advisors and bankruptcy estates all have under sections 671 through 678. Report who provide material aid, assistance, or reporting requirements that are the income in the same detail as it advice on organizing, managing, significantly different than other would be reported on the grantor’s promoting, selling, implementing, Subchapter J trusts and decedent’s return had it been received directly by insuring, or carrying out any reportable estates. Additionally, grantor type trusts the grantor; and transaction, and who directly or have optional filing methods available. • Any deductions or credits that apply indirectly receive or expect to receive a Pooled income funds have many similar to this income. Report these deductions minimum fee, must use Form 8918 to reporting requirements that other and credits in the same detail as they disclose any reportable transaction Subchapter J trusts (other than grantor would be reported on the grantor’s under Regulations section 301.6111-3. type trusts and electing small business return had they been received directly For more information, see Form 8918 trusts) have but there are some very by the grantor. and its instructions. important differences. These reporting The income taxable to the grantor or Form 8939, Allocation of Increase in differences and optional filing methods another person under sections 671 Basis for Property Acquired From a are discussed below by entity. through 678 and the deductions and Decedent. This form is used to allocate

Grantor Type Trusts credits that apply to that income must any additional basis when an executor

makes the special section 1022 election be reported by that person on their own A trust is a grantor trust if the grantor income tax return. for property acquired from a decedent retains certain powers or ownership who died in 2010. benefits. This can also apply to only a Example. The John Doe Trust is a

portion of a trust. See Grantor Type grantor type trust. During the year, the

Additional Information Trust trust sold 100 shares of ABC stock for , later, for details on what makes a

trust a grantor trust. $1,010 in which it had a basis of $10 The following publications may assist and 200 shares of XYZ stock for $10 in you in preparing Form 1041: In general, a grantor trust is ignored which it had a $1,020 basis. • Pub. 550, Investment Income and for income tax purposes and all of the

Expenses, income, deductions, etc., are treated as The trust does not report these

• Pub. 559, Survivors, Executors, and belonging directly to the grantor. This transactions on Form 1041. Instead, a

Administrators, also applies to any portion of a trust schedule is attached to the Form 1041

• Pub. 590, Individual Retirement that is treated as a grantor trust. showing each stock transaction

Arrangements (IRAs), and separately and in the same detail as Note. If only a portion of the trust is a • Pub. 4895, Tax Treatment of John Doe (grantor and owner) will need grantor type trust, indicate both grantor Property Acquired From a Decedent to report these transactions on his Form trust and the other type of trust, for Dying in 2010. 8949 and Schedule D (Form 1040). example, simple or complex trust, as The trust does not net the capital gains the type of entities checked in Section Assembly and and losses, nor does it issue John Doe A on page 1 of Form 1041. a Schedule K-1 (Form 1041) showing a Attachments The following instructions apply $10 long-term capital loss.

Assemble any schedules, forms, and only to grantor type trusts that QSSTs. Income allocated to S

attachments behind Form 1041 in the are not using an optional filing corporation stock held by the trust is

CAUTION

!

following order: method. treated as owned by the income

1. Schedule I (Form 1041); How to report. If the entire trust is a beneficiary of the portion of the trust

2. Schedule D (Form 1041); grantor trust, fill in only the entity that owns the stock. Report this income

3. Form 4952; information of Form 1041. Do not show following the rules discussed above for

4. Schedule H (Form 1040); any dollar amounts on the form itself; grantor type trusts. A QSST cannot

5. Form 3800; show dollar amounts only on an elect any of the optional filing methods

6. Form 4136; attachment to the form. Do not use discussed below.

2011 Instructions for Form 1041 -11-
However, the trust, and not the other person treated as the owner of give the recipient copies of the Forms

income beneficiary, is treated as the the trust and the address of the trust. 1099 filed by the trustee.

owner of the S corporation stock for This method may be used only if the Optional Method 3. For a trust

figuring and attributing the tax results of owner of the trust provides the trustee treated as owned by two or more a disposition of the stock. For example, with a signed Form W-9, Request for grantors or other persons, the trustee if the disposition is a sale, the QSST Taxpayer Identification Number and must give all payers of income during election ends as to the stock sold and Certification. In addition, unless the the tax year the name, address, and any gain or loss recognized on the sale grantor or other person treated as TIN of the trust. The trustee also must

will be that of the trust. For more owner of the trust is the trustee or a file with the IRS the appropriate Forms information on QSSTs, see Regulations co-trustee of the trust, the trustee must 1099 to report the income or gross section 1.1361-1(j). give the grantor or other person treated proceeds paid to the trust by all payers as owner of the trust a statement that: during the tax year attributable to the Optional Filing Methods for • Shows all items of income, part of the trust treated as owned by Certain Grantor Type Trusts deduction, and credit of the trust; each grantor, or other person, showing Generally, if a trust is treated as owned • Identifies the payer of each item of the trust as the payer and each grantor, by one grantor or other person, the income; or other person treated as owner of the trustee may choose Optional Method 1 • Explains how the grantor or other trust, as the payee. The trustee must

or Optional Method 2 as the trust’s person treated as owner of the trust report each type of income in the method of reporting instead of filing takes those items into account when aggregate and each item of gross Form 1041. A husband and wife will be figuring the grantor’s or other person’s proceeds separately. The due date for treated as one grantor for purposes of taxable income or tax; and any Forms 1099 required to be filed these two optional methods if: • Informs the grantor or other person with the IRS by a trustee under this • All of the trust is treated as owned by treated as the owner of the trust that method is February 28, 2012 (April 2, the husband and wife, and those items must be included when 2012, if filed electronically). • The husband and wife file their figuring taxable income and credits on In addition, the trustee must give income tax return jointly for that tax his or her income tax return. each grantor or other person treated as year. Grantor trusts that have not owner of the trust a statement that:

Generally, if a trust is treated as applied for an EIN and are • Shows all items of income,

owned by two or more grantors or other going to file under Optional deduction, and credit of the trust

TIP

persons, the trustee may choose Method 1 do not need an EIN for the attributable to the part of the trust

Optional Method 3 as the trust’s treated as owned by the grantor or trust as long as they continue to report method of reporting instead of filing under that method. other person;

Form 1041. • Explains how the grantor or other Optional Method 2. For a trust

Once you choose the trust’s filing person treated as owner of the trust treated as owned by one grantor or by method, you must follow the rules takes those items into account when one other person, the trustee must give figuring the grantor’s or other person’s under Changing filing methods if you all payers of income during the tax year want to change to another method. taxable income or tax; and the name, address, and TIN of the • Informs the grantor or other person Exceptions. The following trusts trust. The trustee also must file with the treated as the owner of the trust that cannot report using the optional filing IRS the appropriate Forms 1099 to those items must be included when methods. report the income or gross proceeds figuring taxable income and credits on • A common trust fund (as defined in paid to the trust during the tax year that his or her income tax return. This section 584(a)). shows the trust as the payer and the statement satisfies the requirement to • A foreign trust or a trust that has any grantor, or other person treated as give the recipient copies of the Forms of its assets located outside the United owner, as the payee. The trustee must 1099 filed by the trustee. States. report each type of income in the Changing filing methods. A trustee • A qualified subchapter S trust (as aggregate and each item of gross who previously had filed Form 1041 can defined in section 1361(d)(3)). proceeds separately. The due date for change to one of the optional methods • A trust all of which is treated as any Forms 1099 required to be filed

with the IRS by a trustee under this by filing a final Form 1041 for the tax owned by one grantor or one other

method is February 28, 2012 (April 2, year that immediately precedes the first person whose tax year is other than a tax year for which the trustee elects to calendar year. 2012, if filed electronically). report under one of the optional • A trust all of which is treated as In addition, unless the grantor, or methods. On the front of the final Form owned by one or more grantors or other other person treated as owner of the 1041, the trustee must write “Pursuant persons, one of which is not a U.S. trust, is the trustee or a co-trustee of to section 1.671-4(g), this is the final person. the trust, the trustee must give the Form 1041 for this grantor trust,” and • A trust all of which is treated as grantor or other person treated as check the Final return box in item F. owned by one or more grantors or other owner of the trust a statement that: persons if at least one grantor or other For more details on changing • Shows all items of income, person is an exempt recipient for reporting methods, including changes deduction, and credit of the trust; from one optional method to another, information reporting purposes, unless • Explains how the grantor or other at least one grantor or other person is see Regulations section 1.671-4(g). person treated as owner of the trust not an exempt recipient and the trustee takes those items into account when Backup withholding. The following

reports without treating any of the grantor trusts are treated as payors for figuring the grantor’s or other person’s grantors or other persons as exempt purposes of backup withholding. taxable income or tax; and 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 1996.

-12- 2011 Instructions for Form 1041
The trustee must withhold 28% of if the S portion of the ESBT has stock $9,500 or more for tax years beginning

reportable payments made to any in more than one S corporation; in 2011.

grantor who is subject to backup • Deduct state and local income taxes Failure to do so may result in an withholding. and administrative expenses directly estimated Request for Administrative related to the S portion or allocated to For more information, see section Expenses being filed by the IRS in the the S portion if the allocation is 3406 and its regulations. bankruptcy proceeding or a motion to reasonable in light of all the compel filing of the return. Pooled Income Funds circumstances;

• Deduct interest expense paid or The filing of a tax return for the If you are filing for a pooled income accrued on indebtedness incurred to bankruptcy estate does not fund, attach a statement to support the acquire stock in an S corporation;

CAUTION

relieve the individual debtor(s)

!

following: • Do not claim a deduction for capital of his, her, or their individual tax • The calculation of the yearly rate of losses in excess of capital gains; obligations. return, • Do not claim an income distribution • The computation of the deduction for deduction or an exemption amount; distributions to the beneficiaries, and • Do not claim an exemption amount in EIN • The computation of any charitable figuring the AMT; and Every bankruptcy estate of an individual deduction. • Do not use the tax rate schedule to required to file a return must have its See section 642 and the regulations figure the tax. The tax is 35% of the S own EIN. The SSN of the individual thereunder for more information. portion’s taxable income except in debtor cannot be used as the EIN for

You do not have to complete figuring the maximum tax on qualified the bankruptcy estate.

Schedules A or B of Form 1041. dividends and capital gains.

Also, you must file Form 5227, For additional information, see Accounting Period

Split-Interest Trust Information Return, Regulations section 1.641(c)-1. A bankruptcy estate is allowed to have for the pooled income fund. However, if Other information. When figuring the a fiscal year. However, this period all amounts were transferred in trust cannot be longer than 12 months. tax and DNI on the remaining (non-S) before May 27, 1969, or if an amount portion of the trust, disregard the S was transferred to the trust after May When To File corporation items. 26, 1969, for which no deduction was File Form 1041 on or before the 15th allowed under any of the sections listed Do not apportion to the beneficiaries day of the 4th month following the close under section 4947(a)(2), then Form any of the S corporation items. of the tax year. Use Form 7004 to apply 5227 does not have to be filed. If the ESBT consists entirely of stock for an automatic 6-month extension of

Note. Form 1041-A is no longer filed in one or more S corporations, do not time to file.

by pooled income funds. make any entries on lines 1–22 

of page 1. Instead: Disclosure of Return

Electing Small Business • Complete the entity portion; Information

Trusts (ESBTs) • Follow the instructions above for Under section 6103(e)(5), tax returns of figuring the tax on the S corporation individual debtors who have filed for Special rules apply when figuring the items; bankruptcy under chapters 7 or 11 of tax on the S portion of an ESBT. The S • Carry the tax from line 7 of Schedule title 11 are, upon written request, open portion of an ESBT is the portion of the G to line 23 on page 1; and to inspection by or disclosure to the trust that consists of stock in one or • Complete the rest of the return. trustee. more S corporations and is not treated

as a grantor type trust. The tax on the S The grantor portion (if any) of an The returns subject to disclosure to

portion: ESBT will follow the rules discussed the trustee are those for the year the • Must be figured separately from the under Grantor Type Trusts, earlier. bankruptcy begins and prior years. Use

tax on the remainder of the ESBT (if Form 4506, Request for Copy of Tax

any) and attached to the return, Bankruptcy Estates Return, to request copies of the • Is entered to the left of the Schedule The bankruptcy estate that is created individual debtor’s tax returns.

G, line 7, entry space preceded by when an individual debtor files a If the bankruptcy case was not “Sec. 641(c),” and petition under either chapter 7 or 11 of voluntary, disclosure cannot be made • Is included in the total tax on title 11 of the U.S. Code is treated as a before the bankruptcy court has Schedule G, line 7. separate taxable entity. The bankruptcy entered an order for relief, unless the estate is administered by a trustee or a The tax on the remainder (non-S court rules that the disclosure is debtor-in-possession. If the case is later portion) of the ESBT is figured in the needed for determining whether relief dismissed by the bankruptcy court, the normal manner on Form 1041. should be ordered. individual debtor is treated as if the

Tax computation attachment. Attach

to the return the tax computation for the bankruptcy petition had never been Transfer of Tax Attributes From filed.

S portion of the ESBT. the Individual Debtor to the

A separate taxable entity is not Bankruptcy Estate To compute the tax on the S portion: created if a partnership or corporation • Treat that portion of the ESBT as if it The bankruptcy estate succeeds to the files a petition under any chapter of title were a separate trust; following tax attributes of the individual 11 of the U.S. Code. • debtor: Include only the income, losses,

deductions, and credits allocated to the 1. Net operating loss (NOL)

ESBT as an S corporation shareholder Who Must File carryovers;

and gain or loss from the disposition of Every trustee (or debtor-in-possession) 2. Charitable contribution 

S corporation stock; for an individual’s bankruptcy estate carryovers;

• Aggregate items of income, losses, under chapter 7 or 11 of title 11 of the 3. Recovery of tax benefit items;

deductions, and credits allocated to the U.S. Code must file a return if the 4. Credit carryovers;

ESBT as an S corporation shareholder bankruptcy estate has gross income of 5. Capital loss carryovers;

2011 Instructions for Form 1041 -13-
6. Basis, holding period, and amount as if it were paid or incurred by Tax Rate Schedule

character of assets; the individual debtor in the same trade Figure the tax for the bankruptcy estate 7. Method of accounting; or business or other activity the debtor using the tax rate schedule below. 8. Unused passive activity losses; engaged in before the bankruptcy Enter the tax on Form 1040, line 44. 9. Unused passive activity credits; proceedings began.

and If taxable income is: Administrative expenses. The 10. Unused section 465 losses. Of the bankruptcy estate is allowed a But not Over— The tax is: amount over— deduction for any administrative over—

Income, Deductions, and expense allowed under section 503 of $0 $8,500 10% $0

Credits 8,500 34,500 $850.00 + 15% 8,500 title 11 of the U.S. Code, and any fee or 34,500 69,675 4,750.00 + 25% 34,500

Under section 1398(c), the taxable charge assessed under chapter 123 of 69,675 106,150 13,543.75 + 28% 69,675

income of the bankruptcy estate title 28 of the U.S. Code, to the extent 106,150 189,575 23,756.75 + 33% 106,150

not disallowed under an Internal 189,575 ------ 51,287.00 + 35% 189,575 generally is figured in the same manner

as that of an individual. The gross Revenue Code provision (for example,

income of the bankruptcy estate section 263, 265, or 275). Prompt Determination of Tax

includes any income included in Liability Administrative expense loss. When

property of the estate as defined in title To request a prompt determination of figuring an NOL, nonbusiness 11, sections 541 and 1115. Section deductions (including administrative the tax liability of the bankruptcy estate,

1115 was added to title 11 of the U.S. expenses) are limited under section the trustee or debtor-in-possession

Code by the Bankruptcy Abuse 172(d)(4) to the bankruptcy estate’s must file a written request for the

Prevention and Consumer Protection nonbusiness income. The excess determination with the IRS. The request

Act of 2005. Section 1115 of title 11 of must be submitted in duplicate and nonbusiness deductions are an

the U.S. Code expands the definition of executed under penalties of perjury. administrative expense loss that may property of the estate in chapter 11 The request must include a statement be carried back to each of the 3

cases filed by individuals after October indicating that it is a request for prompt preceding tax years and forward to 16, 2005, and in chapter 11 cases determination of tax liability and: (a) the each of the 7 succeeding tax years of begun by creditors against an individual return type, and all the tax periods for the bankruptcy estate. The amount of debtor (involuntary cases) after that which prompt determination is sought; an administrative expense loss that date. Under section 1115 of title 11 of (b) the name and location of the office may be carried to any tax year is the U.S. Code, property of the where the return was filed; (c) the determined after the NOL deductions

bankruptcy estate includes (a) earnings debtor’s name; (d) the debtor’s SSN, allowed for that year. An administrative TIN, or EIN; (e) the type of bankruptcy from services performed by the debtor expense loss is allowed only to the estate; (f) the bankruptcy case number; after the beginning of the case (both bankruptcy estate and cannot be wages and self-employment income) and (g) the court where the bankruptcy carried to any tax year of the individual is pending. Send the request to the and before the case is closed, debtor. Centralized Insolvency Operation, P.O. dismissed, or converted to a case Carryback of NOLs and credits. If Box 7346, Philadelphia, PA under a different chapter and (b) the bankruptcy estate itself incurs an 19101-7436 (marked “Request for property described in section 541 of NOL (apart from losses carried forward Prompt Determination”). title 11 of the U.S. Code and income to the estate from the individual debtor), earned therefrom that the debtor The IRS will notify the trustee or it can carry back its NOLs not only to acquires after the beginning of the case debtor-in-possession within 60 days previous tax years of the bankruptcy and before the case is closed, from receipt of the request if the return estate, but also to tax years of the dismissed, or converted. If section 1115 filed by the trustee or individual debtor prior to the year in of title 11 of the U.S. Code applies, the debtor-in-possession has been selected which the bankruptcy proceedings bankruptcy estate’s gross income for examination or has been accepted

includes, as described above, (a) the began. Excess credits, such as the as filed. If the return is selected for

debtor’s earnings from services foreign tax credit, also may be carried examination, it will be examined as

performed after the beginning of the back to pre-bankruptcy years of the soon as possible. The IRS will notify individual debtor. case and (b) the income from property the trustee or debtor-in-possession of

acquired after the beginning of the Exemption. For tax years beginning in any tax due within 180 days from

receipt of the request or within any case. 2011, a bankruptcy estate is allowed a additional time permitted by the personal exemption of $3,700. The income from property owned by bankruptcy court. the debtor when the case began is also Standard deduction. For tax years See Rev. Proc. 2006-24, 2006-22 included in the bankruptcy estate’s beginning in 2011, a bankruptcy estate I.R.B. 943, available at www.irs.gov/irb/ gross income. However, if this property that does not itemize deductions is 2006-22_IRB/ar12.html. is exempted from the bankruptcy estate allowed a standard deduction of

or is abandoned by the trustee or $5,800. Special Filing Instructions for debtor-in-possession, the income from Discharge of indebtedness. In a title Bankruptcy Estates the property is not included in the 11 case, gross income does not include Use Form 1041 only as a transmittal for bankruptcy estate’s gross income. Also amounts that normally would be Form 1040. In the top margin of Form included in income is gain from the sale included in gross income resulting from 1040 write “Attachment to Form 1041. of the bankruptcy estate’s property. To the discharge of indebtedness. DO NOT DETACH.” Attach Form 1040 figure gain, the trustee or However, any amounts excluded from to Form 1041. Complete only the debtor-in-possession must determine gross income must be applied to identification area at the top of Form the correct basis of the property. reduce certain tax attributes in a certain 1041. Enter the name of the individual

To determine whether any amount order. Attach Form 982, Reduction of debtor in the following format: “John Q.

paid or incurred by the bankruptcy Tax Attributes Due to Discharge of Public Bankruptcy Estate.” Beneath,

estate is allowable as a deduction or Indebtedness (and Section 1082 Basis enter the name of the trustee in the

credit, or is treated as wages for Adjustment), to show the reduction of following format: “Avery Snow,

employment tax purposes, treat the tax attributes. Trustee.” In item D, enter the date the

-14- 2011 Instructions for Form 1041
petition was filed or the date of Name and Title of Simple Trust conversion to a chapter 7 or 11 case. Fiduciary A trust may qualify as a simple trust if:

Enter on Form 1041, line 23, the Enter the name and title of the 1. The trust instrument requires that total tax from line 61 of Form 1040. all income must be distributed currently; fiduciary. If the name entered is Complete lines 24 through 29 of Form different than the name on the prior 2. The trust instrument does not

1041, and sign and date it. year’s return, see Change in Fiduciary’s provide that any amounts are to be

Name paid, permanently set aside, or used for and Change in Fiduciary, later. In a chapter 11 case filed after charitable purposes; and October 16, 2005, the bankruptcy 3. The trust does not distribute estate’s gross income may be affected Address amounts allocated to the corpus of the by section 1115 of title 11 of the U.S.

Code. See Include the suite, room, or other unit trust. Income, Deductions, and number after the street address. If the Credits earlier. The debtor may receive post office does not deliver mail to the a Form W-2, 1099-INT, 1099-DIV, or Complex Trust street address and the fiduciary has a 1099-MISC or other information return P.O. box, show the box number A complex trust is any trust that does reporting wages or other income to the not qualify as a simple trust as instead. debtor for the entire year, even though explained above. some or all of this income is includible If you want a third party (such as an in the bankruptcy estate’s gross income accountant or an attorney) to receive Qualified Disability Trust under section 1115 of title 11 of the mail for the estate or trust, enter on the A qualified disability trust is any U.S. Code. If this happens, the income street address line “C/O” followed by nongrantor trust: reported to the debtor on the Form W-2 the third party’s name and street or 1099, or other information return 1. Described in 42 U.S.C. address or P.O. box. (and the withheld income tax shown on 1396p(c)(2)(B)(iv) and established

these forms) must be reasonably If the estate or trust has had a solely for the benefit of an individual

allocated between the debtor and the change of address (including a change under 65 years of age who is disabled,

bankruptcy estate. The to an “in care of” name and address) and

debtor-in-possession (or the chapter 11 and did not file Form 8822-B, Change 2. All the beneficiaries of which are

trustee, if one was appointed) must of Address—Business, check the determined by the Commissioner of

attach a schedule that shows (a) all the Change in fiduciary’s address box in Social Security to have been disabled

income reported on the Form W-2, item F. for some part of the tax year within the

Form 1099, or other information return, meaning of 42 U.S.C. 1382c(a)(3). If the estate or trust has a change of (b) the portion of this income includible mailing address (including a new ‘‘in in the bankruptcy estate’s gross A trust will not fail to meet item 2 care of’’ name and address) after filing income, and (c) all the withheld income above just because the trust’s corpus its return, file Form 8822-B to notify the tax, if any, and the portion of withheld may revert to a person who is not IRS of the change. tax reasonably allocated to the disabled after the trust ceases to have

bankruptcy estate. Also, the any disabled beneficiaries.

debtor-in-possesion (or the chapter 11 A. Type of Entity trustee, if one was appointed) must ESBT (S Portion Only) Check the appropriate box(es) that attach a copy of the Form W-2, if any, describes the entity for which you are The S portion of an ESBT is the portion issued to the debtor for the tax year if filing the return. of the trust that consists of S

the Form W-2 reports wages to the corporation stock and that is not treated debtor and some or all of the wages are In some cases, more than one box is as owned by the grantor or another includible in the bankruptcy estate’s checked. Check all boxes that apply to person. See Electing Small Business gross income because of section 1115 your trust. For example, if only a portion Trusts (ESBTs), earlier, for more of title 11 of the U.S. Code. For more of a trust is a grantor type trust or if only information about an ESBT. details, including acceptable allocation a portion of an electing small business methods, see Notice 2006-83, 2006-40 trust is the S portion, then more than Grantor Type Trust I.R.B. 596, available at www.irs.gov/irb/ one box is checked. A grantor type trust is a legal trust 2006-40_IRB/ar12.html. Note. Determination of entity status is under applicable state law that is not

made on an annual basis. recognized as a separate taxable entity

for income tax purposes because the

Specific Instructions There are special reporting grantor or other substantial owners

requirements for grantor type have not relinquished complete

CAUTION

trusts, pooled income funds, dominion and control over the trust.

!

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

If a grantor type trust (discussed other beneficiaries. The income earned holding any power or interest that was

later), write the name, identification from the property of the estate during held by either the grantor’s spouse at

number, and address of the grantor(s) the period of administration or the time that the power or interest was

or other owner(s) in parentheses after settlement must be accounted for and created or who became the grantor’s

the name of the trust. reported by the estate. spouse after the creation of that power

2011 Instructions for Form 1041 -15-
or interest. See Grantor Type Trusts, C. Employer year on that line, instead of filing Form

earlier, for more information. 1041 to meet its section 6012 filing Identification Number requirement for that tax year. Pre-need funeral trusts. The Every estate or trust that is required to Excise taxes. If a nonexempt purchasers of pre-need funeral services file Form 1041 must have an EIN. An charitable trust is treated as a private are the grantors and the owners of EIN may be applied for: foundation, then it is subject to the pre-need funeral trusts established • Online by clicking on the EIN link at same excise taxes under chapters 41 under state laws. See Rev. Rul. www.irs.gov/businesses/small. The EIN and 42 that a private foundation is 87-127, 1987-2 C.B. 156. However, the is issued immediately once the subject to. If the nonexempt charitable trustees of pre-need funeral trusts can application information is validated. trust is liable for any of these taxes elect to file the return and pay the tax • By telephone at 1-800-829-4933 from (except the section 4940 tax), then it for qualified funeral trusts. For more 7:00 a.m. to 7:00 p.m. in the fiduciary’s reports these taxes on Form 4720, information, see Form 1041-QFT, U.S. local time zone. Assistance provided to Return of Certain Excise Taxes Under Income Tax Return for Qualified callers from Alaska and Hawaii will be Chapters 41 and 42 of the Internal Funeral Trusts. based on the hours of operation in the Revenue Code. Taxes paid by the trust

Nonqualified deferred compensation Pacific time zone. on Form 4720 or on Form 990-PF (the

plans. Taxpayers may adopt and • By mailing or faxing Form SS-4, section 4940 tax) cannot be taken as a

maintain grantor trusts in connection Application for Employer Identification deduction on Form 1041.

with nonqualified deferred Number.

compensation plans (sometimes If the estate or trust has not received its Not a Private Foundation

referred to as “rabbi trusts”). Rev. Proc. EIN by the time the return is due, write Check this box if the nonexempt

92-64, 1992-2 C.B. 422, provides a “Applied for” and the date you applied charitable trust (section 4947(a)(1)) is

“model grantor trust” for use in rabbi in the space for the EIN. For more not treated as a private foundation

trust arrangements. The procedure also details, see Pub. 583, Starting a under section 509. For more

Business and Keeping Records. provides guidance for requesting information, see Regulations section

rulings on the plans that use these 53.4947-1.

trusts. D. Date Entity Created Other returns that must be filed. If a

Enter the date the trust was created, or, nonexempt charitable trust is not QSSTs. The beneficiary of a qualified if a decedent’s estate, the date of the treated as though it were a private subchapter S trust is treated as the decedent’s death. foundation, the fiduciary must file Form substantial owner of that portion of the 990, Return of Organization Exempt trust which consists of stock in an S E. Nonexempt Charitable From Income Tax, or Form 990-EZ, corporation for which an election under Short Form Return of Organization section 1361(d)(2) has been made. See and Split-Interest Trusts Exempt from Income Tax, in addition to QSSTs, earlier. Form 1041, if the trust meets the filing

Section 4947(a)(1) Trust requirements for either of those forms. Bankruptcy Estate Check this box if the trust is a If a nonexempt charitable trust is not A chapter 7 or 11 bankruptcy estate is nonexempt charitable trust within the treated as though it were a private a separate and distinct taxable entity meaning of section 4947(a)(1). foundation, and it has no taxable from the individual debtor for federal income under Subtitle A, it may answer income tax purposes. See Bankruptcy A nonexempt charitable trust is a “Yes” on Form 990, Part V, line 12a Estates, earlier. trust: and enter the tax-exempt interest • That is not exempt from tax under received or accrued during the year on For more information, see section section 501(a); Form 990, Part V, line 12b instead of 1398 and Pub. 908, Bankruptcy Tax • In which all of the unexpired interests filing Form 1041 to meet its section Guide. are devoted to one or more charitable 6012 filing requirement for that tax year purposes described in section (or if Form 990-EZ is filed instead of Pooled Income Fund 170(c)(2)(B); and Form 990, you may check the box on A pooled income fund is a split-interest • For which a deduction was allowed Form 990-EZ, line 43 and enter the under section 170 (for individual trust with a remainder interest for a tax-exempt interest received or accrued taxpayers) or similar Code section for public charity and a life income interest during the year on that line). personal holding companies, foreign retained by the donor or for another

person. The property is held in a pool personal holding companies, or estates Section 4947(a)(2) Trust

with other pooled income fund property or trusts (including a deduction for Check this box if the trust is a estate or gift tax purposes). and does not include any tax-exempt split-interest trust described in section securities. The income for a retained Nonexempt charitable trust treated 4947(a)(2). life interest is figured using the yearly as a private foundation. If a A split-interest trust is a trust that: rate of return earned by the trust. See nonexempt charitable trust is treated as • Is not exempt from tax under section section 642(c) and the related though it were a private foundation 501(a); regulations for more information. under section 509, then the fiduciary • Has some unexpired interests that must file Form 990-PF, Return of are devoted to purposes other than Private Foundation, in addition to Form B. Number of Schedules religious, charitable, or similar purposes 1041. described in section 170(c)(2)(B); and K-1 Attached If a nonexempt charitable trust is • Has amounts transferred in trust after

Every trust or decedent’s estate treated as though it were a private May 26, 1969, for which a deduction

claiming an income distribution foundation, and it has no taxable was allowed under section 170 (for

deduction on page 1, line 18, must income under Subtitle A, it may check individual taxpayers) or similar Code

enter the number of Schedules K-1 the box on Form 990-PF, Part VII-A, sections for personal holding

(Form 1041) that are attached to Form line 15 and enter the tax-exempt companies, foreign personal holding

1041. interest received or accrued during the companies, or estates or trusts

-16- 2011 Instructions for Form 1041
(including a deduction for estate or gift beneficiary. Check the “Amended K-1” Income tax purposes). box at the top of the amended

Other returns that must be filed. Schedule K-1. Special Rule for Blind Trust The fiduciary of a split-interest trust If you are reporting income from a must file Form 5227. However, see the Final Return qualified blind trust (under the Ethics in Instructions for Form 5227 for the Check this box if this is a final return Government Act of 1978), do not exception that applies to split-interest because the estate or trust has identify the payer of any income to the trusts other than section 664 charitable terminated. Also, check the “Final K-1” trust but complete the rest of the return remainder trusts. box at the top of Schedule K-1. as provided in the instructions. Also

write “Blind Trust” at the top of page 1. F. Initial Return, If, on the final return, there are

Amended Return, etc. excess deductions, an unused capital Extraterritorial Income

loss carryover, or an NOL carryover, Exclusion see the instructions for Schedule K-1, Amended Return box 11, later. The extraterritorial income exclusion is

not allowed for transactions after 2006. If you are filing an amended Form

1041: However, income from certain Change in Trust’s Name • Check the “Amended return” box, long-term sales and leases may still

• Complete the entire return, If the name of the trust has changed qualify for the exclusion. For details and from the name shown on the prior • Correct the appropriate lines with the to figure the amount of the exclusion,

new information, and year’s return (or Form SS-4 if this is the see Form 8873, Extraterritorial Income

• Refigure the estate’s or trust’s tax first return being filed), be sure to check Exclusion, and its separate instructions.

liability. this box. The estate or trust must report the

extraterritorial income exclusion on line If you are amending the return for an Change in Fiduciary 15a of Form 1041, page 1. NOL carryback, write “NOL Carryback”

at the top of page 1. If a different fiduciary enters his or her Although the extraterritorial income name on the line for Name and title of exclusion is entered on line 15a, it is an If the total tax on line 23 is larger on fiduciary than was shown on the prior exclusion from income and should be the amended return than on the original year’s return (or Form SS-4 if this is the treated as tax-exempt income when return, you generally should pay the first return being filed) and you did not completing other parts of the return. difference with the amended return. file a Form 8822-B, be sure to check However, you should adjust this

amount if there is any increase or this box. If there is a change in the Line 1—Interest Income

fiduciary whose address is used as the decrease in the total payments shown Report the estate’s or trust’s share of mailing address for the estate or trust on line 25. all taxable interest income that was after the return is filed, use Form Attach a sheet that explains the received during the tax year. Examples 8822-B to notify the IRS. of taxable interest include interest from: reason for the amendments and • Accounts (including certificates of identifies the lines and amounts being Change in Fiduciary’s Name deposit and money market accounts) changed on the amended return. with banks, credit unions, and thrift If the fiduciary changed his or her name Amended Schedule H (Form 1040). institutions; from the name that he or she entered If you discover an error on a Schedule on the prior year’s return (or Form SS-4 • Notes, loans, and mortgages; H that you previously filed with Form if this is the first return being filed), be • U.S. Treasury bills, notes, and 1041, file an “Amended” Form 1041 sure to check this box. bonds; and attach a corrected Schedule H. • U.S. savings bonds; In the top margin of your corrected • Original issue discount; and Change in Fiduciary’s Schedule H, write “Amended,” (using • Income received as a regular interest red ink, if possible) and the date you Address holder of a real estate mortgage discovered the error. Also, on an If the same fiduciary who filed the prior investment conduit (REMIC).

attachment explain the reason for your year’s return (or Form SS-4 if this is the For taxable bonds acquired after correction. If you owe tax, pay the tax in first return being filed) files the current 1987, amortizable bond premium is full with your amended Form 1041. If year’s return and changed the address treated as an offset to the interest you overpaid tax on a previously filed on the return (including a change to an Schedule H, depending on whether you income instead of as a separate ‘‘in care of’’ name and address), and interest deduction. See Pub. 550. choose the adjustment or claim for did not report the change on Form refund process to correct the error, you 8822-B, check this box. For the year of the decedent’s death, must either repay or reimburse the Forms 1099-INT issued in the

employee’s share of social security and If the address shown on Form 1041 decedent’s name may include interest Medicare tax or get the employee’s changes after you file the form income earned after the date of death

consent to the filing of a refund claim (including a change to an ‘‘in care of’’ that should be reported on the income for their share. See Pub. 926, name and address), file Form 8822-B to tax return of the decedent’s estate.

Household Employer’s Tax Guide, for notify the IRS of the change. When preparing the decedent’s final more information. income tax return, report on Schedule

Amended Schedule K-1 (Form 1041). G. Section 645 Election B (Form 1040A or 1040), line 1 the total

If the amended return results in a interest shown on Form 1099-INT.

change to income, or a change in If a section 645 election was made by Under the last entry on line 1, subtotal

distribution of any income or other filing Form 8855, check the box in item all the interest reported on line 1. Below

information provided to a beneficiary, G. See Special Rule for Certain the subtotal, write “Form 1041” and the

an amended Schedule K-1 (Form 1041) Revocable Trusts under Who Must File name and address shown on Form

must also be filed with the amended and Form 8855 for more information 1041 for the decedent’s estate. Also,

Form 1041 and given to each about this election. show the part of the interest reported

2011 Instructions for Form 1041 -17-
on Form 1041 and subtract it from the is the first date following the declaration Line 5—Rents, Royalties, subtotal. of a dividend on which the purchaser of Partnerships, Other Estates a stock is not entitled to receive the Line 2a—Total Ordinary next dividend payment. When counting and Trusts, etc.

Dividends the number of days the stock was held, Use Schedule E (Form 1040),

Report the estate’s or trust’s share of include the day the estate or trust Supplemental Income and Loss, to

all ordinary dividends received during disposed of the stock but not the day it report the estate’s or trust’s share of acquired the stock. However, you income or (losses) from rents, royalties, the tax year. cannot count certain days during which partnerships, S corporations, other For the year of the decedent’s death, the estate’s or trust’s risk of loss was estates and trusts, and REMICs. Also Forms 1099-DIV issued in the diminished. See Pub. 550 for more use Schedule E (Form 1040) to report decedent’s name may include details. farm rental income and expenses dividends earned after the date of • Dividends attributable to periods based on crops or livestock produced death that should be reported on the totaling more than 366 days that the by a tenant. Enter the net profit or (loss) income tax return of the decedent’s estate or trust received on any share of from Schedule E on line 5. See the estate. When preparing the decedent’s preferred stock held for less than 91 Instructions for Schedule E (Form final income tax return, report on days during the 181-day period that 1040) for reporting requirements. Schedule B (Form 1040A or 1040), line began 90 days before the ex-dividend 5 the ordinary dividends shown on If the estate or trust received a date. When counting the number of Form 1099-DIV. Under the last entry on Schedule K-1 from a partnership, S days the stock was held, include the line 5, subtotal all the dividends corporation, or other flow-through day the estate or trust disposed of the reported on line 5. Below the subtotal, entity, use the corresponding lines on stock but not the day it acquired the write “Form 1041” and the name and Form 1041 to report the interest, stock. However, you cannot count address shown on Form 1041 for the dividends, capital gains, etc., from the certain days during which the estate’s decedent’s estate. Also, show the part flow-through entity. or trust’s risk of loss was diminished.

of the ordinary dividends reported on See Pub. 550 for more details. Line 6—Farm Income or Form 1041 and subtract it from the Preferred dividends attributable to

subtotal. (Loss) periods totaling less than 367 days are

subject to the 61-day holding period If the estate or trust operated a farm, Report capital gain distributions rule above. use Schedule F (Form 1040), Profit or on Schedule D (Form 1041), • Dividends on any share of stock to Loss From Farming, to report farm line 9.

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the extent that the estate or trust is income and expenses. Enter the net

under an obligation (including a short profit or (loss) from Schedule F on line Line 2b—Qualified sale) to make related payments with 6. Dividends respect to positions in substantially If an estate or trust has farm Enter the beneficiary’s allocable share similar or related property. rental income and expenses of qualified dividends on line 2b(1) and • Payments in lieu of dividends, but

CAUTION

based on crops or livestock

!

enter the estate’s or trust’s allocable only if you know or have reason to produced by a tenant, report the share on line 2b(2). know that the payments are not income and expenses on Schedule E qualified dividends. If the estate or trust received (Form 1040). Do not use Form 4835 or

qualified dividends that were derived If you have an entry on line Schedule F (Form 1040) to report such from IRD, you must reduce the amount 2b(2), be sure you use income and expenses and do not

on line 2b(2) by the portion of the Schedule D (Form 1041), the include the net profit or (loss) from such

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estate tax deduction claimed on Form Schedule D Tax Worksheet, or the income and expenses on line 6. 1041, page 1, line 19, that is Qualified Dividends Tax Worksheet, attributable to those qualified dividends. whichever applies, to figure the estate’s Line 7—Ordinary Gain or

Do not reduce the amounts on line 2b or trust’s tax. Figuring the estate’s or (Loss) by any other allocable expenses. trust’s tax liability in this manner will Enter from line 17, Form 4797, Sales of Note. The beneficiary’s share (as usually result in a lower tax. Business Property, the ordinary gain or figured above) may differ from the loss from the sale or exchange of amount entered on line 2b of Schedule Line 3—Business Income or property other than capital assets and K-1 (Form 1041). (Loss) also from involuntary conversions

(other than casualty or theft). Qualified dividends. Qualified If the estate operated a business,

dividends are eligible for a lower tax report the income and expenses on

rate than other ordinary income. Schedule C (Form 1040), Profit or Loss Line 8—Other Income

Generally, these dividends are reported From Business (or Schedule C-EZ Enter other items of income not

to the estate or trust in box 1b of (Form 1040), Net Profit From included on lines 1, 2a, and 3 through

Form(s) 1099-DIV. See Pub. 550 for Business). Enter the net profit or (loss) 7. List the type and amount on an

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

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

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

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

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

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

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

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

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

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

ex-dividend date. The ex-dividend date

CAUTION

(Form 1041).

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ordinary income. For more information,

-18- 2011 Instructions for Form 1041
see Form 4972, Tax on Lump-Sum income. See Regulations section year that: (a) all events have occurred

Distributions, and its instructions. 1.611-1(c)(4). that determine the liability; and (b) the

Amortization. The deduction for amount of the liability can be figured

Deductions amortization is apportioned between an with reasonable accuracy. However, all

estate or trust and its beneficiaries the events that establish liability are

Depreciation, Depletion, and under the same principles used to treated as occurring only when

apportion the deductions for economic performance takes place. Amortization depreciation and depletion. There are exceptions for recurring

A trust or decedent’s estate is allowed items. See section 461(h). The deduction for the amortization of a deduction for depreciation, depletion, reforestation expenditures under and amortization only to the extent the section 194 is allowed only to an Limitations on deductions are not apportioned to the

beneficiaries. An estate or trust is not estate. Deductions

allowed to make an election under Allocable share from a pass-through

section 179 to expense depreciable entity. Depreciation, depletion, and At-Risk Loss Limitations

business assets. amortization received from a Generally, the amount the estate or pass-through entity on a Schedule K-1 The estate’s or trust’s share of trust has “at-risk” limits the loss it can is apportioned and reported in the depreciation, depletion, and deduct for any tax year. Use Form same manner as discussed above. A amortization is generally reported on 6198, At-Risk Limitations, to figure the section 179 expense received from a the appropriate lines of Schedule C (or deductible loss for the year and file it pass-through entity on a Schedule K-1 C-EZ), E, or F (Form 1040), the net with Form 1041. For more information, is not deductible by the estate or trust. income or loss from which is shown on see Pub. 925, Passive Activity and

lines 3, 5, or 6 of Form 1041. If the Allocation of Deductions for At-Risk Rules.

deduction is not related to a specific

business or activity, then report it on Tax-Exempt Income Passive Activity Loss and

line 15a. Generally, no deduction that would Credit Limitations

Depreciation. otherwise be allowable is allowed for For a decedent’s any expense (whether for business or In general. Section 469 and the estate, the depreciation deduction is regulations thereunder generally limit for the production of income) that is apportioned between the estate and the allocable to tax-exempt income. losses from passive activities to the heirs, legatees, and devisees on the Examples of tax-exempt income amount of income derived from all basis of the estate’s income allocable include: passive activities. Similarly, credits from to each. • Certain death benefits (section 101), passive activities are generally limited For a trust, the depreciation • to the tax attributable to such activities. Interest on state or local bonds deduction is apportioned between the (section 103), These limitations are first applied at the income beneficiaries and the trust on • Compensation for injuries or sickness estate or trust level.

the basis of the trust income allocable (section 104), and Generally, an activity is a passive to each, unless the governing • Income from discharge of activity if it involves the conduct of any instrument (or local law) requires or indebtedness in a title 11 case (section trade or business, and the taxpayer permits the trustee to maintain a 108). does not materially participate in the depreciation reserve. If the trustee is Exception. State income taxes and activity. Passive activities do not required to maintain a reserve, the business expenses that are allocable to include working interests in oil and gas deduction is first allocated to the trust, tax-exempt interest are deductible. properties. See section 469(c)(3). up to the amount of the reserve. Any

excess is allocated among the income Expenses that are directly allocable Note. Material participation standards

beneficiaries and the trust in the same to tax-exempt income are allocated only for estates and trusts have not been

manner as the trust’s accounting to tax-exempt income. A reasonable established by regulations.

income. See Regulations section proportion of expenses indirectly For a grantor trust, material 1.167(h)-1(b). allocable to both tax-exempt income participation is determined at the

Depletion. and other income must be allocated to For mineral or timber grantor level. each class of income. property held by a decedent’s estate, If the estate or trust distributes an the depletion deduction is apportioned Deductions That May Be interest in a passive activity, the basis between the estate and the heirs, Allowable for Estate Tax of the property immediately before the legatees, and devisees on the basis of distribution is increased by the passive the estate’s income from such property Purposes activity losses allocable to the interest, allocable to each. Administration expenses and casualty and such losses cannot be deducted.

For mineral or timber property held and theft losses deductible on Form See section 469(j)(12).

in trust, the depletion deduction is 706 may be deducted, to the extent Losses from passive activities apportioned between the income otherwise deductible for income tax

are first subject to the at-risk beneficiaries and the trust based on the purposes, on Form 1041 if the fiduciary rules. When the losses are

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trust income from such property files a statement waiving the right to deductible under the at-risk rules, the allocable to each, unless the governing deduct the expenses and losses on

Form 706. The statement must be filed passive activity rules then apply. instrument (or local law) requires or

permits the trustee to maintain a before the expiration of the statutory Rental activities. Generally, rental

reserve for depletion. If the trustee is period of limitations for the tax year the activities are passive activities, whether

required to maintain a reserve, the deduction is claimed. See Pub. 559 for or not the taxpayer materially

deduction is first allocated to the trust, more information. participates. However, certain

up to the amount of the reserve. Any taxpayers who materially participate in

excess is allocated among the Accrued Expenses real property trades or businesses are

beneficiaries and the trust in the same Generally, an accrual basis taxpayer not subject to the passive activity

manner as the trust’s accounting can deduct accrued expenses in the tax limitations on losses from rental real

2011 Instructions for Form 1041 -19-
estate activities in which they materially 4. A fiduciary of a trust and a • Installment loans on personal use

participate. For more details, see beneficiary of another trust, if the same property; and

section 469(c)(7). person is a grantor of both trusts; • Underpayments of federal, state, or

5. A fiduciary of a trust and a local income taxes. For tax years of an estate ending corporation more than 50% in value of Interest that is paid or incurred on less than 2 years after the decedent’s the outstanding stock of which is indebtedness allocable to a trade or date of death, up to $25,000 of owned, directly or indirectly, by or for business (including a rental activity) deductions and deduction equivalents the trust or by or for a person who is a should be deducted on the appropriate of credits from rental real estate grantor of the trust; and line of Schedule C (or C-EZ), E, or F activities in which the decedent actively 6. An executor of an estate and a (Form 1040), the net income or loss participated are allowed. Any excess beneficiary of that estate, except for a from which is shown on line 3, 5, or 6 of losses or credits are suspended for the sale or exchange to satisfy a pecuniary Form 1041. year and carried forward. bequest (that is, a bequest of a sum of Types of interest to include on line Portfolio income. Portfolio income is money). 10 are: not treated as income from a passive 1. Any investment interest (subject activity, and passive losses and credits Line 10—Interest to limitations—see below); generally may not be applied to offset Enter the amount of interest (subject to 2. Any qualified residence interest it. Portfolio income generally includes limitations) paid or incurred by the (see later); and interest, dividends, royalties, and estate or trust on amounts borrowed by 3. Any interest payable under income from annuities. Portfolio income section 6601 on any unpaid portion of of an estate or trust must be accounted the estate or trust, or on debt acquired

by the estate or trust (for example, the estate tax attributable to the value for separately. outstanding obligations from the of a reversionary or remainder interest

Forms to file. See Form 8582, decedent) that is not claimed elsewhere in property for the period during which

Passive Activity Loss Limitations, to on the return. an extension of time for payment of

figure the amount of losses allowed such tax is in effect.

from passive activities. See Form If the proceeds of a loan were used

for more than one purpose (for Investment interest. Generally, 8582-CR, Passive Activity Credit example, to purchase a portfolio investment interest is interest (including Limitations, to figure the amount of investment and to acquire an interest in amortizable bond premium on taxable credit allowed for the current year. a passive activity), the fiduciary must bonds acquired after October 22, 1986,

make an interest allocation according to but before January 1, 1988) that is paid Transactions Between

the rules in Temporary Regulations or incurred on indebtedness that is Related Taxpayers section 1.163-8T. properly allocable to property held for

Under section 267, a trust that uses the investment. Investment interest does

accrual method of accounting may only Do not include interest paid on not include any qualified residence

deduct business expenses and interest indebtedness incurred or continued to interest, or interest that is taken into

owed to a related party in the year the purchase or carry obligations on which account under section 469 in figuring

payment is included in the income of the interest is wholly exempt from income or loss from a passive activity. income tax. the related party. For this purpose, a Generally, net investment income is related party includes: Personal interest is not deductible. the excess of investment income over

1. A grantor and a fiduciary of any Examples of personal interest include investment expenses. Investment

trust; interest paid on: expenses are those expenses (other

2. A fiduciary of a trust and a • Revolving charge accounts used to than interest) allowable after application

fiduciary of another trust, if the same purchase personal use property; of the 2% floor on miscellaneous

person is a grantor of both trusts; itemized deductions. • Personal notes for money borrowed

3. A fiduciary of a trust and a from a bank, credit union, or other The amount of the investment

beneficiary of such trust; person; interest deduction may be limited. Use

Qualified Mortgage Insurance Premiums Deduction Worksheet Keep for Your Records

1. Enter the total premiums the estate or trust paid in 2011 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.

-20- 2011 Instructions for Form 1041
Form 4952, Investment Interest periods after the end of its tax year, • State, local, and foreign real property

Expense Deduction, to figure the such premiums must be allocated over taxes.

allowable investment interest the shorter of: • State and local personal property

deduction. • The stated term of the mortgage, or taxes.

• 84 months, beginning with the month • Foreign or U.S. possession income If you must complete Form 4952, the insurance was obtained. taxes. You may want to take a credit for check the box on line 10 of Form 1041 the tax instead of a deduction. See the and attach Form 4952. Then, add the The premiums are treated as paid in instructions for Schedule G, line 2a, deductible investment interest to the the year to which they are allocated. If later, for more details. other types of deductible interest and the mortgage is satisfied before its • The generation-skipping transfer enter the total on line 10. term, no deduction is allowed for the (GST) tax imposed on income Qualified residence interest. Interest unamortized balance. See Pub. 936 for distributions. paid or incurred by an estate or trust on details. These allocation rules do not

apply to qualified mortgage insurance Do not deduct: indebtedness secured by a qualified provided by the Department of • Federal income taxes; residence of a beneficiary of an estate Veterans Affairs or the Rural Housing • Estate, inheritance, legacy, or trust is treated as qualified residence Service. succession, and gift taxes; or interest if the residence would be a • Federal duties and excise taxes. qualified residence (that is, the principal Limit on the amount that is residence or the secondary residence deductible. The estate or trust cannot Line 12—Fiduciary Fees selected by the beneficiary) if owned by deduct mortgage insurance premiums if Enter the deductible fees paid or the beneficiary. The beneficiary must the estate’s or trust’s AGI is more than have a present interest in the estate or incurred to the fiduciary for $109,000. If the estate’s or trust’s AGI trust or an interest in the residuary of administering the estate or trust during is more than $100,000, its deduction is the tax year. the estate or trust. See Pub. 936, Home limited and you must use the worksheet Mortgage Interest Deduction, for an below to figure the deduction. See How Fiduciary fees deducted on explanation of the general rules for to figure AGI for estates and trusts, Form 706 cannot be deducted deducting home mortgage interest. later, for information on figuring AGI. on Form 1041.

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See section 163(h)(3) for a definition

of qualified residence interest and for Line 11—Taxes Line 15a—Other Deductions

limitations on indebtedness. Enter any deductible taxes paid or Not Subject to the 2% Floor Qualified mortgage insurance incurred during the tax year that are not Attach your own schedule, listing by premiums. Enter (on the worksheet deductible elsewhere on Form 1041. type and amount all allowable earlier) the qualified mortgage Deductible taxes include the following: deductions that are not deductible insurance premiums paid under a • State and local income taxes. You elsewhere on Form 1041. mortgage insurance contract issued can deduct state and local income Do not include any losses on after December 31, 2006, in connection taxes unless you elect to deduct state

with qualified residence acquisition debt worthless bonds and similar obligations and local general sales taxes. You and nonbusiness bad debts. Report that was secured by a principal or cannot deduct both.

secondary residence. See Prepaid • State and local general sales taxes. these losses on Schedule D (Form

mortgage insurance 1041). below if the estate You can elect to deduct state and local

or trust paid any premiums allocable general sales taxes instead of state and Do not deduct medical or funeral

after 2011. If at least one other person local income taxes. Generally, you can expenses on Form 1041. Medical

was liable for and paid the premiums in elect to deduct the actual state and expenses of the decedent paid by the

connection with the loan, and the local general sales taxes (including estate may be deductible on the

premiums were reported on Form 1098, compensating use taxes) you paid in decedent’s income tax return for the

include the estate’s or trust’s share of 2011 if the tax rate was the same as year incurred. See section 213(c).

the 2011 premiums on the worksheet the general sales tax rate. However, Funeral expenses are deductible only

below. sales taxes on food, clothing, medical on Form 706.

Qualified mortgage insurance is supplies, and motor vehicles are The following are examples of

mortgage insurance provided by the deductible as a general sales tax even deductions that are reported on line

Department of Veterans Affairs, the if the tax rate was less than the general 15a. sales tax rate. Sales taxes on motor Federal Housing Administration, or the Bond premium(s). For taxable bonds Rural Housing Service, and private vehicles are also deductible as a acquired before October 23, 1986, if mortgage insurance (as defined in general sales tax if the tax rate was

more than the general sales tax rate, the fiduciary elected to amortize the section 2 of the Homeowners premium, report the amortization on this but the tax is deductible only up to the Protection Act of 1998 as in effect on line. You cannot deduct the December 20, 2006). amount of tax that would have been amortization for tax-exempt bonds. If imposed at the general sales tax rate. Mortgage insurance provided by the Motor vehicles include cars, you made the election to amortize the

Department of Veterans Affairs and the motorcycles, motor homes, recreational premium, the basis in the taxable bond

Rural Housing Service is commonly must be reduced by the amount of vehicles, sport utility vehicles, trucks, known as a funding fee and guarantee amortization. vans, and off-road vehicles. Also fee, respectively. These fees can be include any state and local general For tax-exempt bonds, you cannot deducted fully in 2011 if the mortgage sales taxes paid for a leased motor deduct the premium that is amortized. insurance contract was issued in 2011. vehicle. Do not include sales taxes paid Although the premium cannot be Contact the mortgage insurance issuer on items used in a trade or business. deducted, you must amortize the to determine the deductible amount if it An estate or trust cannot use the premium and reduce the estate’s or is not included in box 4 of Form 1098. Optional Sales Tax Tables for trust’s basis in the tax-exempt bond by

Prepaid mortgage insurance. If individuals in Pub. 600, State and Local the amount of premium amortized. In

the estate or trust paid mortgage General Sales Taxes, to figure its the case of a premium on a tax-exempt

insurance premiums allocable to deduction. bond, or if the fiduciary has made an

2011 Instructions for Form 1041 -21-
election to amortize the premium on a See Form 8903 for details. 1. The administration costs of the

taxable bond, the basis in the bond Net operating loss deduction estate or trust (the total of lines 12, 14,

must be reduced by the amount of and 15a to the extent they are costs (NOLD). An estate or trust is allowed

amortization. the NOLD under section 172. incurred in the administration of the

estate or trust) that would not have For more information, see section If you claim an NOLD for the estate been incurred if the property were not 171 and Pub. 550. or trust, figure the deduction on a held by the estate or trust; If you claim a bond premium separate sheet and attach it to this 2. The income distribution deduction deduction for the estate or trust, figure return. (line 18); the deduction on a separate sheet and Estate’s or trust’s share of 3. The amount of the exemption attach it to Form 1041. amortization, depreciation, and (line 20);

Casualty and theft losses. Use Form depletion not claimed elsewhere. If 4. The domestic production

4684, Casualties and Thefts, to figure you cannot deduct the estate’s or activities deduction claimed on line 15a;

any deductible casualty and theft trust’s apportioned share of and

losses. amortization, depreciation, and 5. The NOLD claimed on line 15a.

depletion as rent or royalty expenses Domestic production activities on Schedule E (Form 1040), or as For those estates and trusts whose deduction. The estate or trust may be business or farm expenses on income distribution deduction is limited able to deduct up to 9% of its share of Schedule C, C-EZ, or F (Form 1040), to the actual distribution, and not the qualified production activities income itemize the estate’s or trust’s DNI (that is, the income distribution is (QPAI) from the following activities. apportioned share of the deductions on less than the DNI), when computing the 1. Construction performed in the an attached sheet and include them on AGI, use the amount of the actual United States. line 15a. distribution.

2. Engineering or architectural Note. Do not report the beneficiary’s For those estates and trusts whose services performed in the United States apportioned share of depreciation, income distribution deduction is limited for construction projects in the United depletion, and amortization on line 15a. to the DNI (that is, the actual States. Report the beneficiary’s apportioned distribution exceeds the DNI), the DNI 3. Any lease, rental, license, sale, share of deductions on Schedule K-1 must be figured taking into account the exchange, or other disposition of: (Form 1041), box 9. allowable miscellaneous itemized a. Tangible personal property, deductions (AMID) after application of computer software, and sound Itemize each beneficiary’s the 2% floor. In this situation there are recordings that the estate or trust apportioned share of the deductions

and report them in the appropriate box two unknown amounts: (a) the AMID manufactured, produced, grew, or and (b) the DNI. extracted in whole or in significant part of Schedule K-1 (Form 1041).

within the United States; Computing line 15b. To compute line

b. Any qualified film the estate or Line 15b—Allowable 15b, use the equation below:

trust produced; or Miscellaneous Itemized AMID = Total miscellaneous

c. Electricity, natural gas, or potable Deductions Subject to the itemized deductions – (.02(AGI))

water the estate or trust produced in 2% Floor The following example illustrates the United States.

Miscellaneous itemized deductions are how algebraic equations can be used to

solve for these unknown amounts. In certain cases, the United States deductible only to the extent that the

includes the Commonwealth of Puerto aggregate amount of such deductions Example. The Malcolm Smith

Rico. exceeds 2% of AGI. Trust, a complex trust, earned $20,000

of dividend income, $20,000 of capital The deduction does not apply to Among the miscellaneous itemized gains, and a fully deductible $5,000 income derived from: deductions that must be included on loss from XYZ partnership (chargeable • The sale of food and beverages the line 15b are expenses for the to corpus) in 2011. The trust instrument estate or trust prepared at a retail production or collection of income provides that capital gains are added to establishment; under section 212, such as investment corpus. Fifty percent of the fiduciary • Property the estate or trust leased, advisory fees, subscriptions to

investment advisory publications, and fees are allocated to income and 50% licensed, or rented for use by any to corpus. The trust claimed a $2,000 related person; or the cost of safe deposit boxes. deduction on line 12 of Form 1041. The • The transmission or distribution of Miscellaneous itemized deductions trust incurred $1,500 of miscellaneous electricity, natural gas, or potable water. do not include deductions for: itemized deductions (chargeable to

The deduction cannot exceed 9% of • Interest under section 163, income), which are subject to the 2%

modified AGI or 50% of certain Form • Taxes under section 164, floor. There are no other deductions.

W-2 wages. QPAI, as well as Form W-2 • The amortization of bond premium The trustee made a discretionary

wages, must be apportioned between under section 171, distribution of the accounting income of

the trust or estate and its beneficiaries. • Estate taxes attributable to IRD $17,500 to the trust’s sole beneficiary.

For more details, see Form 8903, under section 691(c), or Because the actual distribution can Domestic Production Activities • Expenses paid or incurred in reasonably be expected to exceed the Deduction, and its separate connection with the administration of DNI, the trust must figure the DNI, instructions. the estate or trust that would not have taking into account the allowable been incurred if the property were not Special rule for oil-related QPAI. miscellaneous itemized deductions, to held in the estate or trust. If the estate or trust has oil-related determine the amount to enter on line

QPAI, the domestic production activities For other exceptions, see section 15b.

deduction is reduced by 3% of the 67(b). The trust also claims an exemption smallest of: How to figure AGI for estates and of $100 on line 20. • Oil-related QPAI, trusts. You figure AGI by subtracting Using the facts in this example: • QPAI, or the following from total income on line 9

• Modified AGI. of page 1: AMID = 1,500 – (.02(AGI))

-22- 2011 Instructions for Form 1041
In all situations, use the following Line 18— amount on Form 1041, page 1, line Income equation to compute the AGI: 2b(2), or Schedule D (Form 1041), line Distribution Deduction AGI = (line 9) 18. – (the total of lines 12, If the estate or trust was required to 14, and 15a to the extent they are costs Also, a deduction is allowed for the distribute income currently or if it paid, incurred in the administration of the GST tax imposed as a result of a credited, or was required to distribute estate or trust that would not have been taxable termination or a direct skip any other amounts to beneficiaries incurred if the property were not held by occurring as a result of the death of the during the tax year, complete Schedule the estate or trust) – (line 18) – (line transferor. See section 691(c)(3). Enter B to determine the estate’s or trust’s 20). the estate’s or trust’s share of these income distribution deduction. Note. There are no other deductions deductions on line 19. However, if you are filing for a pooled claimed by the trust on line 15a that are income fund, do not complete Schedule Line 20—Exemption deductible in arriving at AGI. B. Instead, attach a statement to

Figuring AGI in this example, we get: support the computation of the income Decedents’ estates. A decedent’s

distribution deduction. For more estate is allowed a $600 exemption. AGI = 35,000 – 2,000 – DNI – 100 information, see Pooled Income Funds, Trusts required to distribute all Since the value of line 18 is not earlier. income currently. A trust whose known because it is limited to the DNI, governing instrument requires that all If the estate or trust claims an you are left with the following: income distribution deduction, complete income be distributed currently is AGI = 32,900 – DNI and attach: allowed a $300 exemption, even if it

Substitute the value of AGI in the • Part I (through line 26) and Part II of distributed amounts other than income

equation: Schedule I (Form 1041) to refigure the during the tax year.

AMID = 1,500 – (.02(32,900 – DNI)) deduction on a minimum tax basis, and Qualified disability trusts. A qualified • Schedule K-1 (Form 1041) for each disability trust is allowed a $3,700 The equation cannot be solved until beneficiary to which a distribution was exemption. The exemption is not the value of DNI is known. The DNI can made or required to be made. phased out for the 2011 tax year, be expressed in terms of the AMID. To Cemetery perpetual care fund. On regardless of adjusted gross income. do this, compute the DNI using the

known values. In this example, the DNI line 18, deduct the amount, not more A qualified disability trust is any trust: than $5 per gravesite, paid for is equal to the total income of the trust 1. Described in 42 U.S.C. maintenance of cemetery property. To (less any capital gains allocated to 1396p(c)(2)(B)(iv) and established the right of the entry space for line 18, corpus or plus any capital loss from line solely for the benefit of an individual enter the number of gravesites. Also 4); less total deductions from line 16 under 65 years of age who is disabled, write “Section 642(i) trust” in (excluding any miscellaneous itemized and parentheses after the trust’s name at deductions); less the AMID. 2. All of the beneficiaries of which the top of Form 1041. You do not have Thus, DNI = (line 9) – are determined by the Commissioner of (line 15, to complete Schedules B of Form 1041 column (2) of Schedule D (Form 1041)) Social Security to have been disabled and K-1 (Form 1041). – (line 16) – (AMID) for some part of the tax year within the Do not enter less than zero on line meaning of 42 U.S.C. 1382c(a)(3). Substitute the known values: 18.

DNI = 35,000 – 20,000 – 2,000 – A trust will not fail to meet item 2

AMID Line 19—Estate Tax above just because the trust’s corpus

DNI = 13,000 – Deduction (Including Certain may revert to a person who is not AMID

Generation-Skipping disabled after the trust ceases to have Substitute the value of DNI in the any disabled beneficiaries. equation to solve for AMID: Transfer Taxes) All other trusts. A trust not described AMID = 1,500 – (.02(32,900 – If the estate or trust includes IRD in its above is allowed a $100 exemption. (13,000 – AMID))) gross income, and such amount was

AMID = 1,500 – (.02(32,900 – included in the decedent’s gross estate Tax and Payments 13,000 + AMID)) for estate tax purposes, the estate or

trust is allowed to deduct in the same AMID = 1,500 – (658 – 260 + tax year that the income is included that Line 22—Taxable Income

.02AMID) portion of the estate tax imposed on the Minimum taxable income. Line 22 AMID = 1,102 – .02AMID decedent’s estate that is attributable to cannot be less than the larger of: 1.02AMID = 1,102 the inclusion of the IRD in the • The inversion gain of the estate or decedent’s estate. For an example of AMID = 1,080 trust, as figured under section 7874, if the computation, see Regulations the estate or trust is an expatriated DNI = 11,920 (i.e., 13,000 – 1,080) section 1.691(c)-1 and Pub. 559. entity or a partner in an expatriated AGI = 20,980 (i.e., 32,900 – 11,920) If any amount properly paid, entity, or

Note. The income distribution credited, or required to be distributed • The sum of the excess inclusions of

deduction is equal to the smaller of the by an estate or trust to a beneficiary the estate or trust from Schedule Q

distribution ($17,500) or the DNI consists of IRD received by the estate (Form 1066), line 2c. ($11,920). or trust, do not include such amounts in NOL. If line 22 (figured without regard determining the estate tax deduction for Enter the value of AMID on line 15b to the minimum taxable income rule

(the DNI should equal line 7 of the estate or trust. Figure the deduction stated above) is a loss, the estate or on a separate sheet. Attach the sheet Schedule B) and complete the rest of trust may have an NOL. Do not include to your return. Form 1041 according to the the deductions claimed on lines 13, 18,

instructions. and 20 when figuring the amount of the If you claim a deduction for NOL. If the 2% floor is more than the estate tax attributable to

deductions subject to the 2% floor, no

CAUTION

qualified dividends or capital Generally, an NOL may be carried

!

deductions are allowed. gains, you may have to adjust the back to the prior 2 tax years and

2011 Instructions for Form 1041 -23-
forward for up to 20 years. The 2-year Do not include on Form 1041 Backup withholding. If the estate or

carryback period does not apply to the estimated tax paid by an trust received a 2011 Form 1099

portion of an NOL attributable to an

CAUTION

individual before death. Instead, showing federal income tax withheld

!

eligible loss; a farming loss; a qualified include those payments on the (that is, backup withholding) on interest

disaster, GO Zone, or disaster recovery decedent’s final income tax return. income, dividends, or other income,

assistance loss; or a specified liability check the box and include the amount

loss. An estate or trust may also elect Line 24b—Estimated Tax withheld on income retained by the

to carry an NOL forward only, instead Payments Allocated to estate or trust in the total for line 24e.

of first carrying it back. For more Beneficiaries Report on Schedule K-1 (Form information, see the Instructions for 1041), box 13, using code B, any credit Form 1045, Application for Tentative The trustee (or executor, for the final for backup withholding on income Refund. year of the estate) may elect under distributed to the beneficiary. section 643(g) to have any portion of its Complete Schedule A of Form 1045 estimated tax treated as a payment of Line 24f—Credit for Tax Paid to figure the amount of the NOL that is estimated tax made by a beneficiary or available for carryback or carryover. on Undistributed Capital beneficiaries. The election is made on Use Form 1045 or file an amended Form 1041-T, Allocation of Estimated Gains

return to apply for a refund based on an Tax Payments to Beneficiaries, which Attach Copy B of Form 2439, Notice to NOL carryback. For more details, see must be filed by the 65th day after the Shareholder of Undistributed Pub. 536, Net Operating Losses close of the trust’s tax year. Form Long-Term Capital Gains. (NOLs) for Individuals, Estates, and 1041-T shows the amounts to be Trusts. allocated to each beneficiary. This Line 24g—Credit for Federal

On the termination of the estate or amount is reported on the beneficiary’s Tax on Fuels

trust, any unused NOL carryover that Schedule K-1 (Form 1041), box 13, Enter any credit for federal excise taxes would be allowable to the estate or trust using code A. paid on fuels that are ultimately used in a later tax year, but for the Attach Form 1041-T to your return for nontaxable purposes (for example, termination, is allowed to the an off-highway business use). Attach only if you have not yet filed it; beneficiaries succeeding to the property Form 4136, Credit for Federal Tax Paid however, attaching Form 1041-T to of the estate or trust. See the Form 1041 does not extend the due on Fuels. See Pub. 510, Excise Taxes, instructions for Schedule K-1 (Form for more information. date for filing Form 1041-T. If you have 1041), box 11, codes D and E, later. already filed Form 1041-T, do not Line 26—Estimated Tax Excess deductions on termination. attach a copy to your return.

If the estate or trust has for its final year Penalty

deductions (excluding the charitable Failure to file Form 1041-T by If line 27 is at least $1,000 and more

deduction and exemption) in excess of the due date (March 5, 2012, for than 10% of the tax shown on Form

its gross income, the excess is allowed calendar year estates and 1041, or the estate or trust underpaid

CAUTION

!

as an itemized deduction to the trusts) will result in an invalid election. its 2011 estimated tax liability for any

beneficiaries succeeding to the property An invalid election will require the filing payment period, it may owe a penalty.

of the estate or trust. of amended Schedules K-1 for each See Form 2210 to determine whether

beneficiary who was allocated a the estate or trust owes a penalty and In general, an unused NOL payment of estimated tax. to figure the amount of the penalty. carryover that is allowed to

beneficiaries (as explained above) Note. The penalty may be waived Line 24d—Tax Paid With under certain conditions. See Pub. 505, cannot also be treated as an excess

deduction. However, if the final year of Form 7004 Tax Withholding and Estimated Tax, for

details. the estate or trust is also the last year If you filed Form 7004 to request an

of the NOL carryover period, the NOL extension of time to file Form 1041,

enter the amount that you paid with the Line 27—Tax Due carryover not absorbed in that tax year

by the estate or trust is included as an extension request. You must pay the tax in full when the

excess deduction. See the instructions return is filed. You may pay by check or

for Schedule K-1 (Form 1041), box 11, Line 24e—Federal Income money order or by credit or debit card.

code A, later. Also, you may pay by EFTPS. For more Tax Withheld information about EFTPS, see Use line 24e to claim a credit for any Line 24a—2011 Estimated Electronic Deposits, earlier. federal income tax withheld (and not Tax Payments and Amount To pay by check or money order. repaid) by: (a) an employer on wages If you pay by check or money order: Applied From 2010 Return and salaries of a decedent received by • Make it payable to “United States Enter the amount of any estimated tax the decedent’s estate; (b) a payer of Treasury,” certain gambling winnings (for example, payment you made with Form 1041-ES • Make sure the name of the estate or state lottery winnings); or (c) a payer of for 2011 plus the amount of any trust appears on the payment, distributions from pensions, annuities, overpayment from the 2010 return that • Write the estate’s or trust’s EIN and

was applied to the 2011 estimated tax. retirement or profit-sharing plans, IRAs, “2011 Form 1041” on the payment, insurance contracts, etc., received by a If the estate or trust is the beneficiary • Consider completing the 2011 Form decedent’s estate or trust. Attach a

of another trust and received a 1041-V, and copy of Form W-2, Form W-2G, or payment of estimated tax that was • Enclose, but do not attach, the Form 1099-R to the front of the return.

credited to the trust (as reflected on the payment (and Form 1041-V, if

Schedule K-1 issued to the trust), then Except for backup withholding completed) with Form 1041.

report this amount separately with the (as explained below), withheld To pay by credit or debit card.

notation “section 643(g)” in the space

CAUTION

income tax can not be passed For information on paying your taxes

!

next to line 24a and include this amount through to beneficiaries on either electronically, including by credit or

in the amount entered on line 24a. Schedule K-1 or Form 1041-T. debit card, go to www.irs.gov/e-pay.

-24- 2011 Instructions for Form 1041
Line 29a—Credited to 2012 4. The name and address of each Also, certain testamentary trusts that

organization to which any such were established by a will that was Estimated Tax contribution is paid; and executed on or before October 9, 1969,

Enter the amount from line 28 that you 5. The amount of each contribution may qualify. See Regulations section want applied to the estate’s or trust’s and date of actual payment or, if 1.642(c)-2(b). 2012 estimated tax. applicable, the total amount of Do not include any capital gains for contributions paid to each organization the tax year allocated to corpus and during the next tax year, to be treated paid or permanently set aside for Schedule A—Charitable as paid in the prior tax year. charitable purposes. Instead, enter

Deduction these amounts on line 4. The election must be filed by the due

date (including extensions) for Form Line 2—Tax-Exempt Income General Instructions 1041 for the next tax year. If the original Allocable to Charitable Generally, any part of the gross income return was filed on time, you may make Contributions of an estate or trust (other than a the election on an amended return filed

no later than 6 months after the due Any estate or trust that pays or sets simple trust) that, under the terms of date of the return (excluding aside any part of its income for a the will or governing instrument, is paid extensions). Write “Filed pursuant to charitable purpose must reduce the (or treated as paid) during the tax year section 301.9100-2” at the top of the deduction by the portion allocable to for a charitable purpose specified in amended return and file it at the same any tax-exempt income. If the section 170(c) is allowed as a address you used for your original governing instrument specifically deduction to the estate or trust. It is not

return. provides as to the source from which necessary that the charitable amounts are paid, permanently set organization be created or organized in For more information about the aside, or to be used for charitable the United States. charitable deduction, see section 642(c) purposes, the specific provisions A pooled income fund or a section and related regulations. control. In all other cases, determine 4947(a)(1) nonexempt charitable trust the amount of tax-exempt income treated as a private foundation must Specific Instructions allocable to charitable contributions by attach a separate sheet to Form 1041 multiplying line 1 by a fraction, the instead of using Schedule A of Form Line 1—Amounts Paid or numerator of which is the total 1041 to figure the charitable deduction. Permanently Set Aside for tax-exempt income of the estate or

Additional return to be filed by Charitable Purposes From trust, and the denominator of which is

trusts. Trusts, other than split-interest Gross Income the gross income of the estate or trust.

trusts or nonexempt charitable trusts, Enter amounts that were paid for a Do not include in the denominator any

that claim a charitable deduction also charitable purpose out of the estate’s or losses allocated to corpus.

file Form 1041-A unless the trust is trust’s gross income, including any required to distribute currently to the Line 4—Capital Gains for the capital gains that are attributable to beneficiaries all the income for the year income under the governing instrument Tax Year Allocated to Corpus

determined under section 643(b) and or local law. Include amounts paid and Paid or Permanently Set related regulations. during the tax year from gross income Aside for Charitable Purposes

Pooled income funds and charitable received in a prior tax year, but only if Enter the total of all capital gains for the lead trusts also file Form 5227. See no deduction was allowed for any prior tax year that are: Form 5227 for information about any tax year for these amounts. • Allocated to corpus, and exceptions. Estates, and certain trusts, may • Paid or permanently set aside for

Election to treat contributions as claim a deduction for amounts charitable purposes.

paid in the prior tax year. The permanently set aside for a charitable

fiduciary of an estate or trust may elect purpose from gross income. Such Line 6—Section 1202 Exclusion

to treat as paid during the tax year any amounts must be permanently set Allocable to Capital Gains Paid

amount of gross income received aside during the tax year to be used or Permanently Set Aside for

during that tax year or any prior tax exclusively for religious, charitable, Charitable Purposes year that was paid in the next tax year scientific, literary, or educational If the exclusion of gain from the sale or for a charitable purpose. purposes, or for the prevention of exchange of qualified small business cruelty to children or animals, or for the For example, if a calendar year (QSB) stock was claimed, enter the part establishment, acquisition, estate or trust makes a qualified of the gain included on Schedule A, maintenance, or operation of a public charitable contribution on February 7, lines 1 and 4, that was excluded under cemetery not operated for profit. 2012, from income earned in 2011 or section 1202.

prior, then the fiduciary can elect to For a trust to qualify, the trust may treat the contribution as paid in 2011. not be a simple trust, and the set aside

To make the election, the fiduciary amounts must be required by the terms Schedule B—Income

must file a statement with Form 1041 of a trust instrument that was created

for the tax year in which the on or before October 9, 1969. Distribution Deduction

contribution is treated as paid. This Further, the trust instrument must statement must include: provide for an irrevocable remainder General Instructions

1. The name and address of the interest to be transferred to or for the If the estate or trust was required to

fiduciary; use of an organization described in distribute income currently or if it paid,

2. The name of the estate or trust; section 170(c); or the trust must have credited, or was required to distribute

3. An indication that the fiduciary is been created by a grantor who was at any other amounts to beneficiaries

making an election under section all times after October 9, 1969, under a during the tax year, complete Schedule

642(c)(1) for contributions treated as mental disability to change the terms of B to determine the estate’s or trust’s

paid during such tax year; the trust. income distribution deduction.

2011 Instructions for Form 1041 -25-
Note. Use Schedule I (Form 1041) to Step 2. Subtract the Step 1 total under the terms of the governing

compute the DNI and income from the amount of tax-exempt interest instrument and applicable local law. Do

distribution deduction on a minimum tax (including exempt-interest dividends) not include extraordinary dividends or

basis. received. taxable stock dividends determined

under the governing instrument and Pooled income funds. Do not Section 212 expenses that are applicable local law to be allocable to complete Schedule B for these funds. directly allocable to tax-exempt interest corpus. are allocated only to tax-exempt Instead, attach a separate statement to

support the computation of the income interest. A reasonable proportion of Lines 9 and 10 distribution deduction. See Pooled section 212 expenses that are indirectly

allocable to both tax-exempt interest Do not include any: Income Funds, earlier, for more and other income must be allocated to • Amounts deducted on prior year’s information.

each class of income. return that were required to be Separate share rule. If a single trust distributed in the prior year; Figure the interest expense allocable or an estate has more than one • Amount that is properly paid or to tax-exempt interest according to the beneficiary, and if different beneficiaries credited as a gift or bequest of a guidelines in Rev. Proc. 72-18, 1972-1 have substantially separate and specific amount of money or specific C.B. 740. independent shares, their shares are property. (To qualify as a gift or treated as separate trusts or estates for See Regulations sections 1.643(a)-5 bequest, the amount must be paid in the sole purpose of determining the and 1.265-1 for more information. three or fewer installments.) An amount DNI allocable to the respective that can be paid or credited only from Line 3 beneficiaries. income is not considered a gift or Include all capital gains, whether or not bequest; or If the separate share rule applies, distributed, that are attributable to • Amount paid or permanently set figure the DNI allocable to each income under the governing instrument aside for charitable purposes or beneficiary on a separate sheet and or local law. For example, if the trustee otherwise qualifying for the charitable attach the sheet to this return. Any distributed 50% of the current year’s deduction. deduction or loss that is applicable capital gains to the income solely to one separate share of the trust beneficiaries (and reflects this amount Line 9—Income Required To Be or estate is not available to any other

share of the same trust or estate. in column (1), line 15 of Schedule D Distributed Currently (Form 1041)), but under the governing Line 9 is to be completed by all simple For more information, see section instrument all capital gains are trusts as well as complex trusts and 663(c) and related regulations. attributable to income, then include decedent’s estates that are required to

Withholding of tax on foreign 100% of the capital gains on line 3. If distribute income currently, whether it is the amount on Schedule D (Form persons. The fiduciary may be liable distributed or not. The determination of 1041), line 15, column (1) is a net loss, for withholding tax on distributions to whether trust income is required to be enter zero. beneficiaries who are foreign persons. distributed currently depends on the For more information, see Pub. 515, If the exclusion of gain from the sale terms of the governing instrument and Withholding of Tax on Nonresident or exchange of QSB stock was the applicable local law.

Aliens and Foreign Entities, and Forms claimed, do not reduce the gain on line

3 by any amount excluded under The line 9 distributions are referred 1042 and 1042-S.

section 1202. to as first tier distributions and are

Specific Instructions deductible by the estate or trust to the Line 5 extent of the DNI. The beneficiary

Line 1—Adjusted Total Income In figuring the amount of long-term and 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 Line 10—Other Amounts Paid, instrument control if the instrument line 17 on page 1 of Form 1041 are specifically provides as to the source Credited, or Otherwise losses, enter on line 1, Schedule B, the from which amounts are paid, Required To Be Distributed smaller of those losses. If line 4 is zero permanently set aside, or to be used for or a gain and line 17 is a loss, enter Line 10 is to be completed only by a charitable purposes. 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.

Line 2—Adjusted Tax-Exempt denominator of which is all items of If Form 1041-T was timely filed to income (including the amount of such Interest elect to treat estimated tax payments net capital gains) included in the DNI. 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. credited to the beneficiary on the last Step 1. Add tax-exempt interest Line 8—Accounting Income day of the tax year and must be income on line 2 of Schedule A, any included on line 10. expenses allowable under section 212 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

-26- 2011 Instructions for Form 1041
required to be distributed to any see if you must complete Schedule J 2. Expenses allocable to tax-exempt

beneficiaries is the smaller of: (Form 1041). income.

1. The estate’s or trust’s adjusted Line 12—Adjustment for basis in the property immediately Expenses that are directly allocable Tax-Exempt Income before distribution, plus any gain or to tax-exempt income are allocated only

minus any loss recognized by the In figuring the income distribution to tax-exempt income. A reasonable deduction, the estate or trust is not estate or trust on the distribution (basis proportion of expenses indirectly allowed a deduction for any item of the of beneficiary), or allocable to both tax-exempt income DNI that is not included in the gross 2. The FMV of such property. and other income must be allocated to income of the estate or trust. Thus, for each class of income. If a section 643(e)(3) election is made purposes of figuring the allowable

by the fiduciary, then the amount income distribution deduction, the DNI

entered on line 10 will be the FMV of (line 7) is figured without regard to any

the property. tax-exempt interest. Schedule G—Tax

If tax-exempt interest is the only A fiduciary of a complex trust or a Computation tax-exempt income included in the total decedent’s estate may elect to treat distributions (line 11), and the DNI (line any amount paid or credited to a Line 1a 7) is less than or equal to line 11, then beneficiary within 65 days following the enter on line 12 the amount from line 2. 2011 tax rate schedule. For tax years close of the tax year as being paid or beginning in 2011, figure the tax using credited on the last day of that tax year. If tax-exempt interest is the only the Tax Rate Schedule below and enter To make this election, see the tax-exempt income included in the total the tax on line 1a. However, see the instructions for Question 6, later. distributions (line 11), and the DNI is

more than line 11 (that is, the estate or Instructions for Schedule D (Form

The beneficiary includes the 1041) and the Qualified Dividends Tax trust made a distribution that is less

amounts on line 10 in his or her income Worksheet below. than the DNI), then figure the only to the extent of his or her adjustment by multiplying line 2 by a proportionate share of the DNI. fraction, the numerator of which is the 2011 Tax Rate Schedule total distributions (line 11), and the Complex trusts. If the second tier denominator of which is the DNI (line If taxable distributions exceed the DNI allocable income 7). Enter the result on line 12. to the second tier, the trust may have is:

an accumulation distribution. See the If line 11 includes tax-exempt Of the But not Over— Its tax is: amount line 11 instructions below. income other than tax-exempt interest, over— over— figure line 12 by subtracting the total of $0 $2,300 15% $0 Line 11—Total Distributions the following from tax-exempt income 2,300 5,450 $345.00 + 25% 2,300

If line 11 is more than line 8, and you included on line 11: 5,450 8,300 1,132.50 + 28% 5,450

8,300 11,350 1,930.50 + 33% 8,300 are filing for a complex trust that has 1. The charitable contribution

11,350 ----- 2,937.00 + 35% 11,350 previously accumulated income, see deduction allocable to such tax-exempt

the instructions for Schedule J, later, to income, and

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

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

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

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

3. If you are claiming investment interest expense on Form

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

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

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

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

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

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

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

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

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

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

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

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

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

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

13. Figure the tax on the amount on line 5. Use the 2011 Tax Rate Schedule .................. . 13.

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

15. Figure the tax on the amount on line 1. Use the 2011 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.

2011 Instructions for Form 1041 -27-
Schedule D (Form 1041) and 3800 to claim any of the general and write “QEVCR” on the dotted line to

Schedule D Tax Worksheet. Use business credits. Generally, if the the left of the entry space.

Part V of Schedule D (Form 1041) or estate’s or trust’s only source of a credit Recapture of the Indian employment the Schedule D Tax Worksheet, is from a pass-through entity and the credit. Generally, if the estate or trust whichever is applicable, to figure the beneficiary is not entitled to an terminates a qualified employee less estate’s or trust’s tax if the estate or allocable share of a credit, you are not than 1 year after the date of initial trust files Schedule D (Form 1041) and required to complete the source form employment, any Indian employment has: for that credit. However, certain credits credit allowed for a prior tax year by • A net capital gain and any taxable have limitations and special reason of wages paid or incurred to that income, or computations that may require you to employee must be recaptured. See • Qualified dividends on line 2b(2) of complete the source form. See the Form 8845 for details. If the estate or

Form 1041 and any taxable income. Instructions for Form 3800 for more trust owes any recapture tax, include it

Qualified Dividends Tax Worksheet. information. on line 5 and write “IECR” on the dotted

If you do not have to complete Part I or line to the left of the entry space. Line 2c—Credit for Prior Part II of Schedule D and the estate or Recapture of the new markets credit. trust has an amount entered on line Year Minimum Tax If the estate or trust owes any new 2b(2) of Form 1041 and any taxable An estate or trust that paid AMT in a markets recapture tax, include it on line income (line 22), then figure the previous year may be eligible for a 5 and write “NMCR” on the dotted line

estate’s or trust’s tax using the minimum tax credit in 2011. See Form to the left of the entry space. For more worksheet below and enter the tax on 8801, Credit for Prior Year Minimum information, including how to figure the line 1a. Tax—Individuals, Estates, and Trusts. recapture amount, see section 45D(g).

Note. You must reduce the amount Recapture of the credit for Line 2d—Bond Credits you enter on line 2b(2) of Form 1041 by employer-provided child care

the portion of the section 691(c) Complete and attach Form 8912, Credit facilities. If the facility ceased to

deduction claimed on line 19 of Form to Holders of Tax Credit Bonds, if the operate as a qualified child care facility

1041 if the estate or trust received estate or trust claims a credit for or there was a change in ownership,

qualified dividends that were IRD. holding a tax credit bond. Also, be sure part or all of the credit may have to be to include the credit in interest income. recaptured. See Form 8882 for details. Line 1c—AMT. Attach Schedule I If the estate or trust owes any recapture (Form 1041) if: Line 3—Total Credits tax, include it on line 5 and write • The estate or trust must complete To claim a credit allowable to the estate “ECCFR” on the dotted line to the left of Schedule B. or trust other than the credits entered the entry space. • The estate or trust claims a credit on

line 2b, 2c, or 2d of Schedule G. on lines 2a through 2d, include the Recapture of the alternative motor allowable credit in the total for line 3. • The estate’s or trust’s share of vehicle credit. See section 30B(h)(8) Complete and attach the appropriate alternative minimum taxable income for details. Include the tax on line 5 and

(line 29 of Schedule I (Form 1041)) form and write the form number and write “AMVCR” on the dotted line to the amount of the allowable credit on the exceeds $22,500. left of the entry space. dotted line to the left of the entry space. Enter the amount from line 56 of Recapture of the alternative fuel Schedule I (Form 1041) on line 1c. Line 5—Recapture Taxes vehicle refueling property credit.

See section 30C(e)(5) for details. Line 2a—Foreign Tax Credit Recapture of investment credit. If Include the tax on line 5 and write

Attach Form 1116, Foreign Tax Credit the estate or trust disposed of “ARPCR” on the dotted line to the left of

(Individual, Estate, or Trust), if you elect investment credit property or changed the entry space.

to claim credit for income or profits its use before the end of the recapture

taxes paid or accrued to a foreign period, see Form 4255, Recapture of Line 6—Household

country or a U.S. possession. The Investment Credit, to figure the Employment Taxes estate or trust may claim credit for that recapture tax allocable to the estate or If any of the following apply, get part of the foreign taxes not allocable to trust. Include the tax on line 5 and write Schedule H (Form 1040), Household the beneficiaries (including charitable “ICR” on the dotted line to the left of the Employment Taxes, and its instructions, beneficiaries). Enter the estate’s or entry space. to see if the estate or trust owes these trust’s share of the credit on line 2a. Recapture of low-income housing taxes. See Pub. 514, Foreign Tax Credit for credit. If the estate or trust disposed 1. The estate or trust paid any one Individuals, for details. of property (or there was a reduction in household employee cash wages of the qualified basis of the property) on Line 2b—General Business $1,700 or more in 2011. Cash wages which the low-income housing credit include wages paid by checks, money Credit was claimed, see Form 8611, orders, etc. When figuring the amount Recapture of Low-Income Housing of cash wages paid, combine cash Do not include any amounts that Credit, to figure any recapture tax wages paid by the estate or trust with are allocated to a beneficiary. allocable to the estate or trust. Include cash wages paid to the household

CAUTION

Credits that are allocated the tax on line 5 and write “LIHCR” on

!

employee in the same calendar year by between the estate or trust and the the dotted line to the left of the entry the household of the decedent or beneficiaries are listed in the space. beneficiary for whom the administrator, instructions for Schedule K-1, box 13, Recapture of qualified electric executor, or trustee of the estate or later. Generally, these credits are vehicle credit. If the estate or trust trust is acting. apportioned on the basis of the income claimed the qualified electric vehicle 2. The estate or trust withheld allocable to the estate or trust and the credit in a prior tax year for a vehicle federal income tax during 2011 at the beneficiaries. that ceased to qualify for the credit, part request of any household employee.

Enter on line 2b the estate’s or or all of the credit may have to be 3. The estate or trust paid total cash

trust’s total general business credit recaptured. See Regulations 1.30-1(b) wages of $1,000 or more in any

allowed for the current year from Form for details. If the estate or trust owes calendar quarter of 2010 or 2011 to

3800. The estate or trust must file Form any recapture tax, include it on line 5 household employees.

-28- 2011 Instructions for Form 1041
Note. See Amended Schedule H 4974, use Form 5329 to pay the excise to see if the estate or trust is

(Form 1040) under F. Initial Return, tax. To the left of the entry space, write considered to have an interest in or

Amended Return, etc., earlier for “From Form 5329” and the amount of signature or other authority over a

information on filing an amended the tax. bank, securities, or other financial

Schedule H (Form 1040) for a Form account in a foreign country. You can

1041. get Form TD F 90-22.1 from the IRS

Other Information website at www.irs.gov/pub/irs-pdf/ Line 7—Total Tax f90221.pdf.

Tax on ESBTs. Attach the tax Question 1 If you checked “Yes” for Question 3,

computation to the return. To the left of file Form TD F 90-22.1 by June 30, If the estate or trust received

the line 7 entry space, write “Sec. tax-exempt income, figure the allocation 2012, with the Department of the

641(c)” and the amount of tax on the S of expenses between tax-exempt and Treasury at the address shown on the

corporation items. Include this amount form. Form TD F 90-22.1 is not a tax taxable income on a separate sheet in the total tax on line 7. and attach it to the return. Enter only return, so do not file it with Form 1041.

See Electing Small Business Trusts the deductible amounts on the return. If you are required to file Form (ESBTs), earlier, for the special tax Do not figure the allocation on the TD F 90-22.1 but do not, you computation rules that apply to the return itself. For more information, see

CAUTION

may have to pay a penalty of up

!

portion of an ESBT consisting of stock the instructions for Allocation of to $10,000 (more in some cases). in one or more S corporations. Deductions for Tax-Exempt Income,

Interest on deferred tax attributable earlier. Question 4

to installment sales of certain Report the amount of tax-exempt The estate or trust may be required to timeshares and residential lots and interest income received or accrued in file Form 3520, Annual Return To

certain nondealer real property the space provided below Question 1. Report Transactions With Foreign installment obligations. If an Also, include any exempt-interest Trusts and Receipt of Certain Foreign obligation arising from the disposition of dividends the estate or trust received Gifts, if:

real property to which section 453(l) or as a shareholder in a mutual fund or • It directly or indirectly transferred

453A applies is outstanding at the close other regulated investment company. property or money to a foreign trust. of the year, the estate or trust must For this purpose, any U.S. person who

include the interest due under section Question 2 created a foreign trust is considered a 453(l)(3)(B) or 453A(c), whichever is All salaries, wages, and other transferor;

applicable, in the amount to be entered compensation for personal services • It is treated as the owner of any part on line 7 of Schedule G, Form 1041, must be included on the return of the of the assets of a foreign trust under with the notation “Section 453(l) person who earned the income, even if the grantor trust rules; or interest” or “Section 453A(c) interest,” the income was irrevocably assigned to • It received a distribution from a

whichever is applicable. Attach a a trust by a contract assignment or foreign trust. schedule showing the computation. similar arrangement. An owner of a foreign trust must Form 4970, Tax on Accumulation The grantor or person creating the ensure that the trust files an Distribution of Trusts. Include on this trust is considered the owner if he or annual information return on

TIP

line any tax due on an accumulation she keeps “beneficial enjoyment” of or Form 3520-A, Annual Information distribution from a trust. To the left of substantial control over the trust Return of Foreign Trust With a U.S. the entry space, write “From Form property. The trust’s income, Owner. 4970” and the amount of the tax. deductions, and credits are allocable to

Form 8697, Interest Computation the owner. Question 5

Under the Look-Back Method for If you checked “Yes” for Question 2, An estate or trust claiming an interest Completed Long-Term Contracts. see Special Reporting Instructions, deduction for qualified residence Include the interest due under the earlier. interest (as defined in section look-back method of section 460(b)(2). 163(h)(3)) on seller-provided financing To the left of the entry space, write Question 3 must include on an attachment to the

“From Form 8697” and the amount of Check the “Yes” box and enter the 2011 Form 1041 the name, address, interest due. name of the foreign country if either 1 and TIN of the person to whom the

Form 8866, Interest Computation or 2 below applies. interest was paid or accrued (that is,

Under the Look-Back Method for the seller). 1. The estate or trust owns more Property Depreciated Under the than 50% of the stock in any If the estate or trust received or Income Forecast Method. Include corporation that owns one or more accrued such interest, it must provide the interest due under the look-back foreign bank accounts. identical information on the person method of section 167(g)(2). To the left 2. At any time during the year the liable for such interest (that is, the of the entry space, write “From Form estate or trust had an interest in or buyer). This information does not need 8866” and the amount of interest due. signature or other authority over a to be reported if it duplicates Interest on deferral of gain from bank, securities, or other financial information already reported on Form certain constructive ownership account in a foreign country. 1098.

transactions. Include the interest due

under section 1260(b) on any deferral Exception. Check “No” if either of the Question 6

of gain from certain constructive following applies to the estate or trust: To make the section 663(b) election to ownership transactions. To the left of • The combined value of the accounts treat any amount paid or credited to a the entry space, write “1260(b)” and the was $10,000 or less during the whole beneficiary within 65 days following the amount of interest due. year, or close of the tax year as being paid or

Form 5329, Additional Taxes on • The accounts were with a U.S. credited on the last day of that tax year,

Qualified Plans (Including IRAs) and military banking facility operated by a check the box. This election can be

Other Tax-Favored Accounts. U.S. financial institution. If the made by the fiduciary of a complex

estate or trust fails to receive the Get Form TD F 90-22.1, Report of trust or the executor of a decedent’s

minimum distribution under section Foreign Bank and Financial Accounts, estate. For the election to be valid, you

2011 Instructions for Form 1041 -29-
must file Form 1041 by the due date Line 2—DNI Throwback Amount from line

year(s) (including extensions). Once made, the Enter the amount from Form 1041, election is irrevocable. 1969 – 1977 ..... . Form 1041, Schedule C, line 8 Schedule B, line 7, for 2011. This is the 1978 ......... . Form 1041, line 64

amount of DNI for the current tax year 1979 ......... . Form 1041, line 65

Question 7 determined under section 643(a). 1980 ......... . Form 1041, line 64

1981 – 1982 ..... . Form 1041, line 62 To make the section 643(e)(3) election Line 3—Distribution Under 1983 – 1996 ..... . Form 1041, Schedule B, line 13

to recognize gain on property 1997 – 2010 ..... . Form 1041, Schedule B, line 11 Section 661(a)(1) distributed in kind, check the box and

see the Instructions for Schedule D Enter the amount from Form 1041, Line 11—Prior Accumulation Schedule B, line 9, for 2011. This is the (Form 1041). Distribution Thrown Back to amount of income for the current tax Any Throwback Year year required to be distributed currently. Question 9 Enter the amount of prior accumulation

Generally, a beneficiary is a skip Line 5—Accumulation distributions thrown back to the

person if the beneficiary is in a Distribution throwback years. Do not enter

generation that is two or more If line 11 of Form 1041, Schedule B, is distributions excluded under section

generations below the generation of the more than line 8 of Form 1041, 663(a)(1) for gifts, bequests, etc.

transferor to the trust. Schedule B, complete the rest of Line 13—Throwback Years Schedule J and file it with Form 1041, To determine if a beneficiary that is a Allocate the amount on line 5 that is an unless the trust has no previously trust is a skip person, and for accumulation distribution to the earliest accumulated income.

exceptions to the general rules, see the applicable year first, but do not allocate

definition of a skip person in the Generally, amounts accumulated more than the amount on line 12 for before a beneficiary reaches age 21 instructions for Schedule R of Form any throwback year. An accumulation may be excluded by the beneficiary. 706. distribution is thrown back first to the See sections 665 and 667(c) for earliest preceding tax year in which exceptions relating to multiple trusts. there is undistributed net income (UNI). The trustee reports to the IRS the total Then, it is thrown back beginning with Schedule J (Form 1041) amount of the accumulation distribution the next earliest year to any remaining before any reduction for income — preceding tax years of the trust. The Accumulation accumulated before the beneficiary portion of the accumulation distribution reaches age 21. If the multiple trust Distribution for Certain allocated to the earliest preceding tax rules do not apply, the beneficiary year is the amount of the UNI for that Complex Trusts claims the exclusion when filing Form year. The portion of the accumulation 4970, as you may not be aware that the distribution allocated to any remaining General Instructions beneficiary may be a beneficiary of preceding tax year is the amount by other trusts with other trustees. Use Schedule J (Form 1041) to report which the accumulation distribution is

an accumulation distribution for a For examples of accumulation larger than the total of the UNI for all

domestic complex trust that was: distributions that include payments from earlier preceding tax years. one trust to another trust, and amounts • Previously treated at any time as a A tax year of a trust during which the distributed for a dependent’s support, foreign trust (unless an exception is trust was a simple trust for the entire see Regulations section 1.665(b)-1A(b). provided in future regulations), or year is not a preceding tax year unless • Created before March 1, 1984, Part II—Ordinary Income (a) during that year the trust received

unless that trust would not be outside income, or (b) the trustee did

aggregated with other trusts under the Accumulation Distribution not distribute all of the trust’s income

rules of section 643(f) if that section Enter the applicable year at the top of that was required to be distributed

applied to the trust. each column for each throwback year. currently for that year. In this case, UNI

for that year must not be more than the Line 6—DNI for Earlier Years An accumulation distribution is the greater of the outside income or income excess of amounts properly paid, Enter the applicable amounts as not distributed during that year. credited, or required to be distributed follows: The term “outside income” means (other than income required to be Throwback amounts that are included in the DNI of distributed currently) over the DNI of year(s) Amount from line the trust for that year but that are not the trust reduced by income required to 1969 – 1977 ..... . Form 1041, Schedule C, line 5 “income” of the trust as defined in be distributed currently. To have an 1978 – 1979 ..... . Form 1041, line 61 Regulations section 1.643(b)-1. Some accumulation distribution, the 1980 ......... . Form 1041, line 60 examples of outside income are: (a) distribution must exceed the accounting 1981 – 1982 ..... . Form 1041, line 58

1983 – 1996 ..... . Form 1041, Schedule B, line 9 income taxable to the trust under income of the trust. 1997 – 2010 ..... . Form 1041, Schedule B, line 7 section 691; (b) unrealized accounts

receivable that were assigned to the Specific Instructions For information about throwback trust; and (c) distributions from another years, see the instructions for line 13. trust that include the DNI or UNI of the

Part I—Accumulation For purposes of line 6, in figuring the other trust.

Distribution in 2011 DNI of the trust for a throwback year,

subtract any estate tax deduction for Line 16—Tax-Exempt Interest

Line 1—Distribution Under IRD if the income is includible in Included on Line 13

figuring the DNI of the trust for that Section 661(a)(2) For each throwback year, divide line 15 year. by line 6 and multiply the result by the Enter the amount from Form 1041, Line 7—Distributions Made following: Schedule B, line 10, for 2011. This is

the amount properly paid, credited, or During Earlier Years Throwback Amount from line

required to be distributed other than the Enter the applicable amounts as year(s)

amount of income for the current tax follows: 1969 – 1977 ... . Form 1041, Schedule C, line 2(a)

year required to be distributed currently. 1978 – 1979 ... . Form 1041, line 58(a)

-30- 2011 Instructions for Form 1041
1980 ....... . Form 1041, line 57(a) Throwback year(s) Amount from line

1981 – 1982 ... . Form 1041, line 55(a) Throwback Amount from line 1969 ........... . Schedule D, line 19 1983 – 2010 ... . Form 1041, Schedule B, line 2 year(s) 1970 ........... . Schedule D, line 18

1969 – 1970 ..... . 50% of Schedule D, line 13(e) 1971 ........... . Schedule D, line 38

Part III— 1972 – 1975 ....... . Schedule D, line 39 Taxes Imposed on 1971 – 1977 ..... . 50% of Schedule D, line 17(e) 1976 – 1978 ....... . Schedule D, line 21 Undistributed Net Income 1978 ......... . Schedule D, line 17(e), or line

31, whichever is applicable, For the regular tax computation, if there less Form 1041, line 23 Part IV—Allocation to is a capital gain, complete lines 18 1979 ......... . Schedule D, line 25 or line 27,

through 25 for each throwback year. If whichever is applicable, less Beneficiary Form 1041, line 23 the trustee elected the alternative tax Complete Part IV for each beneficiary. 1980 – 1981 ..... . Schedule D, line 21, less on capital gains, complete lines 26 Schedule D, line 22 If the accumulation distribution is

through 31 instead of lines 18 through 1982 ......... . Schedule D, line 23, less allocated to more than one beneficiary, 25 for each applicable year. If there is Schedule D, line 24 attach an additional copy of Schedule J 1983 – 1986 ..... . Schedule D, line 22, less no capital gain for any year, or there is Schedule D, line 23 with Part IV completed for each a capital loss for every year, enter on 1987 – 1996 ..... . Schedule D, the smaller additional beneficiary. Give each line 9 the amount of the tax for each of any gain on line 16 beneficiary a copy of his or her year identified in the instruction for line or line 17, column (b) respective Part IV information. If more 18 and do not complete Part III. If the 1997 – 2001 ..... . Schedule D, the smaller than 5 throwback years are involved, of any gain on line 15c or trust received an accumulation

line 16, column (2) use another Schedule J, completing distribution from another trust, see Parts II and III for each additional Regulations section 1.665(b)-1A. 2002 ......... . Schedule D, the smaller

of any gain on line 15a or throwback year.

Note. The alternative tax on capital line 16, column (2)

gains was repealed for tax years If the beneficiary is a nonresident 2003 ......... . Schedule D, the smaller

beginning after December 31, 1978. of any gain on line 15a or alien individual or a foreign corporation,

line 16a, column (2) The maximum rate on net capital gain see section 667(e) about retaining the 2004 – 2010 ..... . Schedule D, the smaller for 1981, 1987, and 1991 through 2010 character of the amounts distributed to of any gain on line 14a is not an alternative tax for this or line 15, column (2) determine the amount of the U.S.

purpose. withholding tax.

Line 22—Taxable Income

Line 18—Regular Tax The beneficiary uses Form 4970 to Enter the applicable amounts as Enter the applicable amounts as figure the tax on the distribution. The follows:

follows: beneficiary also uses Form 4970 for the Throwback Amount from line

year(s) section 667(b)(6) tax adjustment if an Throwback Amount from line accumulation distribution is subject to year(s) 1969 – 1976 ....... . Form 1041, page 1, line 23

1977 estate or generation-skipping transfer ........... . Form 1041, page 1, line 25 1969 – 1976 ... . Form 1041, page 1, line 24 1978 – 1979 ....... . Form 1041, line 26 tax. This is because the trustee may 1977 ....... . Form 1041, page 1, line 26

1978 – 1979 ... . Form 1041, line 27 1980 – 1984 ....... . Form 1041, line 25 not be the estate or generation-skipping 1985 – 1986 ....... . Form 1041, line 24 1980 – 1984 ... . Form 1041, line 26c transfer tax return filer. 1987 ........... . Form 1041, line 21 1985 – 1986 ... . Form 1041, line 25c 1988 – 1996 ....... . Form 1041, line 22 1987 ....... . Form 1041, line 22c 1997 ........... . Form 1041, line 23 1988 – 2010 ... . Form 1041, Schedule G, line 1a 1998 – 2010 ....... . Form 1041, line 22 Schedule K-1 (Form Line 19—Trust’s Share of Net Line 26—Tax on Income Other

Short-Term Gain Than Long-Term Capital Gain 1041)— Beneficiary’s

For each throwback year, enter the Enter the applicable amounts as Share of Income, smaller of the capital gain from the two follows:

lines indicated. If there is a capital loss Deductions, Credits, etc.

Throwback Amount from line or a zero on either or both of the two year(s) lines indicated, enter zero on line 19. General Instructions

1969 .......... . Schedule D, line 20

1970 .......... . Schedule D, line 19 Use Schedule K-1 (Form 1041) to Throwback Amount from line

year(s) 1971 .......... . Schedule D, line 50 report the beneficiary’s share of

1972 – 1975 ...... . Schedule D, line 48 income, deductions, and credits from a 1969 – 1970 . . Schedule D, line 10, column 2, or 1976 – 1978 ...... . Schedule D, line 27 Schedule D, line 12, column 2 trust or a decedent’s estate.

1971 – 1978 . . Schedule D, line 14, column 2, or

Schedule D, line 16, column 2 Line 27—Trust’s Share of Net Grantor type trusts do not use 1979 ..... . Schedule D, line 18, column (b), or Short-Term Gain

Schedule D, line 20, column (b) Schedule K-1 (Form 1041) to

1980 – 1981 . . Schedule D, line 14, column (b), or If there is a loss on any of the following

CAUTION

report the income, deductions,

!

Schedule D, line 16, column (b) lines, enter zero on line 27 for the or credits of the grantor (or other 1982 ..... . Schedule D, line 16, column (b), or applicable throwback year. Otherwise, person treated as owner). See Grantor Schedule D, line 18, column (b)

1983 – 1996 . . Schedule D, line 15, column (b), or enter the applicable amounts as Type Trusts, earlier.

Schedule D, line 17, column (b) follows:

1997 – 2002 . . Schedule D, line 14, column (2), or Throwback Amount from line Who Must File

Schedule D, line 16, column (2) year(s) The fiduciary (or one of the joint 2003 ..... . Schedule D, line 14a, column (2), or

Schedule D, line 16a, column (2) 1969 – 1970 ... . Schedule D, line 10, column 2 fiduciaries) must file Schedule K-1. A

2004 – 2010 . . Schedule D, line 13, column (2), or 1971 – 1978 ... . Schedule D, line 14, column 2 copy of each beneficiary’s Schedule Schedule D, line 15, column (2) K-1 is attached to the Form 1041 filed Line 28—Trust’s Share of with the IRS, and each beneficiary is Line 20—Trust’s Share of Net Taxable Income Less Section given a copy of his or her respective Long-Term Gain 1202 Deduction Schedule K-1. One copy of each

Enter the applicable amounts as Enter the applicable amounts as Schedule K-1 must be retained for the

follows: follows: fiduciary’s records.

2011 Instructions for Form 1041 -31-
Beneficiary’s Identifying amounts properly paid, credited, or rental charges, and state income and

Number required to be distributed to all personal property taxes. The charitable

beneficiaries exceeds the DNI, his or deduction, however, must be ratably As a payer of income, you are required her proportionate share of the excess apportioned among each class of to request and provide a proper of DNI over the income required to be income included in DNI. identifying number for each recipient of distributed currently. income. Enter the beneficiary’s number Finally, any excess deductions that

on the respective Schedule K-1 when are directly attributable to a class of See Regulations section 1.662(c)-4 you file Form 1041. Individuals and income may be allocated to another for a comprehensive example. business recipients are responsible for class of income. However, in no case For complex trusts that have more giving you their TINs upon request. You can excess deductions from a passive than one beneficiary, and if different may use Form W-9 to request the activity be allocated to income from a beneficiaries have substantially beneficiary’s identifying number. nonpassive activity, or to portfolio separate and independent shares, their income earned by the estate or trust. Penalty. You may be charged a $50 shares are treated as separate trusts Excess deductions attributable to penalty for each failure to provide a for the sole purpose of determining the tax-exempt income cannot offset any required TIN, unless reasonable cause amount of DNI allocable to the other class of income. is established for not providing it. respective beneficiaries. A similar rule Explain any reasonable cause in a In no case can deductions be applies to treat substantially separate signed affidavit and attach it to this allocated to an item of income that is and independent shares of different return. not included in the computation of DNI, beneficiaries of an estate as separate or attributable to corpus. Substitute Forms estates. For examples of the application

of the separate share rule, see the You cannot show any negative You do not need IRS approval to use a regulations under section 663(c). amounts for any class of income shown substitute Schedule K-1 if it is an exact Gifts and bequests. Do not include in in boxes 1 through 8 of Schedule K-1. copy of the IRS schedule. The boxes the beneficiary’s income any gifts or However, for the final year of the estate must use the same numbers and titles bequests of a specific sum of money or or trust, certain deductions or losses and must be in the same order and of specific property under the terms of can be passed through to the format as on the comparable IRS beneficiary(ies). See the instructions for the governing instrument that are paid Schedule K-1. The substitute schedule or credited in three installments or less. box 11 for more information on these must include the OMB number and the deductions and losses. Also, the 6-digit form ID code in the upper Amounts that can be paid or credited beneficiary’s share of depreciation and right-hand corner of the schedule. only from income of the estate or trust depletion is apportioned separately. do not qualify as a gift or bequest of a You must provide each beneficiary These deductions may be allocated to specific sum of money. with the Instructions for Beneficiary the beneficiary(ies) in amounts greater

Filing Form 1040 or other prepared Past years. Do not include in the than his or her income. See

specific instructions for each item beneficiary’s income any amounts Depreciation, Depletion, and deducted on Form 1041 for an earlier reported on the beneficiary’s Schedule Amortization, earlier, and Rev. Rul.

K-1. year that were credited or required to 74-530, 1974-2 C.B. 188. be distributed in that earlier year. Inclusion of Amounts in Beneficiary’s Tax Year Character of income. The Beneficiaries’ Income beneficiary’s income is considered to The beneficiary’s income from the

have the same proportion of each class estate or trust must be included in the Simple trust. The beneficiary of a of items entering into the computation beneficiary’s tax year during which the simple trust must include in his or her of DNI that the total of each class has tax year of the estate or trust ends. See gross income the amount of the income Pub. 559 for more information, to the DNI (for example, half dividends required to be distributed currently, and half interest if the income of the including the effect of the death of a whether or not distributed, or if the estate or trust is half dividends and half beneficiary during the tax year of the income required to be distributed estate or trust. interest). currently to all beneficiaries exceeds

the DNI, his or her proportionate share Allocation of deductions. General Reporting of the DNI. The determination of Generally, items of deduction that enter

whether trust income is required to be into the computation of DNI are Information

distributed currently depends on the allocated among the items of income to If the return is for a fiscal year or a

terms of the trust instrument and the extent such allocation is not short tax year, fill in the tax year space

applicable local law. See Regulations inconsistent with the rules set out in at the top of each Schedule K-1. On

section 1.652(c)-4 for a comprehensive section 469 and its regulations, relating each Schedule K-1, enter the

example. to passive activity loss limitations, in the information about the estate or trust

following order. and the beneficiary in Parts I and II Estates and complex trusts. The (items A through H). In Part III, enter beneficiary of a decedent’s estate or First, all deductions directly the beneficiary’s share of each item of complex trust must include in his or her attributable to a specific class of income income, deduction, credit, and any gross income the sum of: are deducted from that income. For other information the beneficiary needs example, rental expenses, to the extent 1. The amount of the income to file his or her income tax return. allowable, are deducted from rental required to be distributed currently, or if income. Codes. In box 9 and boxes 11 through the income required to be distributed 14, identify each item by entering a currently to all beneficiaries exceeds Second, deductions that are not code in the column to the left of the the DNI (figured without taking into directly attributable to a specific class of entry space for the dollar amount. account the charitable deduction), his income generally may be allocated to These codes are identified in these or her proportionate share of the DNI any class of income, as long as a instructions and on the back of the (as so figured), and reasonable portion is allocated to any Schedule K-1. 2. All other amounts properly paid, tax-exempt income. Deductions

credited, or required to be distributed, considered not directly attributable to a Attached statements. Enter an

or if the sum of the income required to specific class of income under this rule asterisk (*) after the code, if any, in the

be distributed currently and other include fiduciary fees, safe deposit box column to the left of the dollar amount

-32- 2011 Instructions for Form 1041
entry space for each item for which you Part III. Beneficiary’s Share subject to the passive activity rules at

have attached a statement providing the beneficiary’s level. of Current Year Income, additional information. For those Deductions, Credits, and Boxes 6 through 8—Ordinary informational items that cannot be Business Income, Rental Real reported as a single dollar amount, Other Items

enter the code and asterisk in the Estate, and Other Rental

left-hand column and enter “STMT” in Box 1—Interest Income

the entry space to the right to indicate Enter the beneficiary’s share of the Enter the beneficiary’s share of trade or that the information is provided on an taxable interest income minus allocable business, rental real estate, and other attached statement. More than one deductions. rental income, minus allocable attached statement can be placed on deductions (other than directly the same sheet of paper and should be Box 2a—Total Ordinary apportionable deductions). To assist identified in alphanumeric order by box Dividends the beneficiary in figuring any number followed by the letter code (if Enter the beneficiary’s share of ordinary applicable passive activity loss any). For example: “Box 9, Code dividends minus allocable deductions. limitations, also attach a separate A—Depreciation” (followed by the schedule showing the beneficiary’s information the beneficiary needs). Box 2b—Total Qualified share of income derived from each Dividends trade or business, rental real estate, Too few entry spaces on Schedule Enter the beneficiary’s share of and other rental activity. K-1? If the estate or trust has more qualified dividends minus allocable coded items than the number of spaces Box 9—Directly Apportioned deductions. in box 9 or boxes 11 through 14, do not Deductions enter a code or dollar amount in the last Box 3—Net Short-Term Capital entry space of the box. In the last entry Gain The limitations on passive space, enter an asterisk in the left Enter the beneficiary’s share of the net activity losses and credits under column and enter “STMT” in the entry short-term capital gain from Schedule D

CAUTION

section 469 apply to estates and

!

space to the right. Report the additional (Form 1041), line 13, column (1), minus trusts. Estates and trusts that distribute items on an attached statement and allocable deductions. Do not enter a income to beneficiaries are allowed to provide the box number, code, loss on line 3. If, for the final year of the apportion depreciation, depletion, and description, and dollar amount or estate or trust, there is a capital loss amortization deductions to the information for each additional item. For carryover, enter in box 11, using code beneficiaries. These deductions are example: “Box 13, Code H—Alcohol B, the beneficiary’s share of short-term referred to as “directly apportionable and Cellulosic Biofuels Fuel deductions.” capital loss carryover. However, if the Credit—$500.00.” beneficiary is a corporation, enter in Rules for treating a beneficiary’s box 11, using code B, the beneficiary’s income and directly apportionable Specific Instructions share of all short- and long-term capital deductions from an estate or trust and

loss carryovers as a single item. See other rules for applying the passive loss Part I. Information About the section 642(h) and related regulations and credit limitations to beneficiaries of

Estate or Trust for more information. estates and trusts have not yet been

On each Schedule K-1, enter the name, issued. Boxes 4a through 4c—Net address, and identifying number of the Long-Term Capital Gain Any directly apportionable deduction, estate or trust. Also, enter the name such as depreciation, is treated by the Enter the beneficiary’s share of the net and address of the fiduciary. beneficiary as having been incurred in long-term capital gain from Schedule D the same activity as incurred by the (Form 1041), lines 14a through 14c, Item D estate or trust. However, the character column (1), minus allocable deductions. If the fiduciary of a trust or decedent’s of such deduction may be determined

estate filed Form 1041-T, you must Do not enter a loss in boxes 4a as if the beneficiary incurred the

check this box and enter the date it was through 4c. If, for the final year of the deduction directly. estate or trust, there is a capital loss filed. To assist the beneficiary in figuring carryover, enter in box 11, using code any applicable passive activity loss C, the beneficiary’s share of the Item E limitations, also attach a separate long-term capital loss carryover. (If the If this is the final year of the estate or schedule showing the beneficiary’s beneficiary is a corporation, see the trust, you must check this box. share of directly apportionable instructions for box 3.) See section deductions derived from each trade or Note. If this is the final K-1 for the 642(h) and related regulations for more business, rental real estate, and other beneficiary, check the “Final K-1” box at information. rental activity. the top of Schedule K-1. Gains or losses from the complete or Enter the beneficiary’s share of partial disposition of a rental, rental real directly apportioned deductions using Part II. Information About the estate, or trade or business activity that codes A through C. is a passive activity must be shown on Beneficiary an attachment to Schedule K-1. Depreciation (code A). Enter the

Complete a Schedule K-1 for each beneficiary’s share of the depreciation beneficiary. On each Schedule K-1, Box 5—Other Portfolio and deductions directly apportioned to each enter the beneficiary’s name, address, Nonbusiness Income activity reported in boxes 5 through 8. and identifying number. Enter the beneficiary’s share of See the instructions on page 18 for a

annuities, royalties, or any other discussion of how the depreciation Item H income, minus allocable deductions deduction is apportioned between the

Check the foreign beneficiary box if the (other than directly apportionable beneficiaries and the estate or trust.

beneficiary is a nonresident alien deductions), that is not subject to any Report any AMT adjustment or tax

individual, a foreign corporation, or a passive activity loss limitation rules at preference item attributable to

foreign estate or trust. Otherwise, check the beneficiary level. Use boxes 6 depreciation separately in box 12, using

the domestic beneficiary box. through 8 to report income items code G.

2011 Instructions for Form 1041 -33-
Note. An estate or trust cannot make is considered an excess deduction on capital gains (codes B through D). If

an election under section 179 to the termination of the estate or trust to any part of the amount reported in box

expense certain depreciable business the extent it is not absorbed by the 12, code A, is attributable to qualified

assets. estate or trust during its final tax year. dividends (code B), net short-term

For more information, see Regulations capital gain (code C), or net long-term Depletion (code B). Enter the section 1.642(h)-4 for a discussion of capital gain (code D), enter that part beneficiary’s share of the depletion the allocation of the carryover among using the applicable code. deduction under section 611 directly the beneficiaries. apportioned to each activity reported in AMT adjustment attributable to

boxes 5 through 8. See Depreciation, Only the beneficiary of an estate or unrecaptured section 1250 gain or

Depletion, and Amortization, earlier, for trust that succeeds to its property is 28% rate gain (codes E and F). Enter

a discussion of how the depletion allowed to deduct that entity’s excess the beneficiary’s distributive share of

deduction is apportioned between the deductions on termination. A any AMT adjustments to the

beneficiaries and the estate or trust. beneficiary who does not have enough unrecaptured section 1250 gain (code

Report any tax preference item income in that year to absorb the entire E) or 28% rate gain (code F),

attributable to depletion separately in deduction may not carry the balance whichever is applicable, in box 12.

box 12, using code H. over to any succeeding year. An Accelerated depreciation, depletion, Amortization (code C). Itemize the individual beneficiary must be able to and amortization (codes G through beneficiary’s share of the amortization itemize deductions in order to claim the I). Enter any adjustments or tax deductions directly apportioned to each excess deductions in determining preference items attributable to activity reported in boxes 5 through 8. taxable income. depreciation, depletion, or amortization Apportion the amortization deductions Box 11, Codes B and that were directly apportioned to the between the estate or trust and the beneficiary. For property placed in C—Unused Capital Loss beneficiaries in the same way that the service before 1987, report separately depreciation and depletion deductions Carryover the accelerated depreciation of real and are divided. Report any AMT Upon termination of the trust or leased personal property. adjustment attributable to amortization decedent’s estate, the beneficiary Exclusion items (code J). Enter the separately in box 12, using code I. succeeding to the property is allowed beneficiary’s share of the adjustment as a deduction any unused capital loss Box 10—Estate Tax Deduction for minimum tax purposes from carryover under section 1212. If the (Including Certain Schedule K-1, box 12, code A, that is estate or trust incurs capital losses in Generation-Skipping Transfer attributable to exclusion items the final year, use the Capital Loss (Schedule I (Form 1041), lines 2 Taxes) Carryover Worksheet in the Instructions through 6 and 8). If the distribution deduction consists of for Schedule D (Form 1041) to figure

any IRD, and the estate or trust was the amount of capital loss carryover to Box 13—Credits and Credit

allowed a deduction under section be allocated to the beneficiary. Recapture 691(c) for the estate tax paid Box 11, Codes D and E—NOL Enter each beneficiary’s share of the attributable to such income (see the Carryover credits and credit recapture using the line 19 instructions), then the applicable codes. Listed below are the beneficiary is allowed an estate tax Upon termination of a trust or credits that can be allocated to the deduction in proportion to his or her decedent’s estate, a beneficiary beneficiary(ies). Attach a statement if share of the distribution that consists of succeeding to its property is allowed to additional information must be provided such income. For an example of the deduct any unused NOL (and any to the beneficiary as explained below. computation, see Regulations section ATNOL) carryover for regular and AMT

1.691(c)-2. Figure the computation on a purposes if the carryover would be • Credit for estimated taxes (code

separate sheet and attach it to the allowable to the estate or trust in a later A)—Payment of estimated tax to be

return. tax year but for the termination. Enter in credited to the beneficiary (section

box 11, using codes D and E, the 643(g)). Box 11, Code A—Excess unused carryover amounts. Deductions on Termination See the instructions for line 24b

If this is the final return of the estate or Box 12—AMT Items before you make an entry to

allocate any estimated tax trust, and there are excess deductions

CAUTION

!

Adjustment for minimum tax on termination (see the instructions for payments to a beneficiary. If the purposes (code A). Enter the

line 22), enter the beneficiary’s share of fiduciary does not make a valid beneficiary’s share of the adjustment the excess deductions in box 11, using election, then the IRS will disallow the for minimum tax purposes. code A. Figure the deductions on a estimated tax payment that is reported

separate sheet and attach it to the To figure the adjustment, subtract on Schedule K-1 and claimed on the

the beneficiary’s share of the income beneficiary’s return. return.

distribution deduction figured on • Credit for backup withholding (code Excess deductions on termination Schedule B, line 15, from the B). occur only during the last tax year of beneficiary’s share of the income • The low-income housing credit (code the trust or decedent’s estate when the distribution deduction on a minimum tax C). Attach a statement that shows the total deductions (excluding the basis figured on Schedule I (Form beneficiary’s share of the amount, if charitable deduction and exemption) 1041), line 44. The difference is the any, entered on line 6 of Form 8586 are greater than the gross income beneficiary’s share of the adjustment with instructions to report that amount during that tax year. for minimum tax purposes. on Form 8586, line 4 or Form 3800,

Generally, a deduction based on an Part III, line 1d, if the beneficiary’s only Note. Schedule B, line 15 equals the NOL carryover is not available to a source for the credit is a pass-through sum of all Schedule K-1s, box 1, 2a, 3, beneficiary as an excess deduction. entity. Also, show the beneficiary’s 4a, 5, 6, 7, and 8. However, if the last tax year of the share of the amount, if any, entered on

estate or trust is also the last year in AMT adjustment attributable to line 13 of Form 8586 with instructions

which an NOL carryover may be taken qualified dividends, net short-term to report that amount on Form 8586,

(see section 172(b)), the NOL carryover capital gains, or net long-term line 11 or Form 3800, Part III, line 1a if

-34- 2011 Instructions for Form 1041
the beneficiary’s only source for the the small agri-biodiesel credit, attach a to domestic production gross receipts

credit is a pass-through entity. statement that shows the beneficiary’s (DPGR) is more than the estate’s or

• Rehabilitation credit and energy share of the small agri-biodiesel credit, trust’s DPGR. If any of the QPAI is

credit (code D). Attach a statement that the number of gallons claimed for the oil-related QPAI, attach a statement

shows the beneficiary’s apportioned small agri-biodiesel credit, and the that shows the amount of oil-related

share of basis, expenditures, and other estate’s or trust’s productive capacity QPAI. See Form 8903, Domestic

information that is necessary for the for agri-biodiesel. Production Activities Deduction, and its

beneficiary to complete Form 3468, • Nonconventional source fuel credit instructions for more details.

Investment Credit, for the rehabilitation (code P). Form W-2 wages (code D). Use credit and the energy credit. See the • Credit to holders of tax credit bonds code D to report the beneficiary’s Instructions for Form 3468 for more (code Q). share, if any, of Form W-2 wages. Do information. • Agricultural chemicals security credit not enter more than 9% of the • Other qualifying investment credit (code R). beneficiary’s share, if any, of the (code E). Attach a statement that • Energy efficient appliance credit estate’s or trust’s QPAI. See Form 8903 shows the beneficiary’s apportioned (code S). and its instructions for more details. share of qualified investment and other • Credit for employer differential wage

information that is necessary for the payments (code T). Foreign trading gross receipts beneficiary to complete Form 3468 for • Recapture of credits (code U). On an (code G). Enter the beneficiary’s the qualifying advanced coal project attached statement to Schedule K-1, share, if any, of foreign trading gross credit, qualifying gasification project provide any information the beneficiary receipts. See Form 8873, credit, qualifying advanced energy will need to report recapture of credits. Extraterritorial Income Exclusion, for project credit, and qualifying therapeutic more information.

discovery project credit. See the Box 14—Other Information

Other information (code H). Instructions for Form 3468 for more Enter the dollar amounts and applicable information. codes for the items listed under Other • Work opportunity credit (code F). Income tax withheld on wages Information. • Credit for small employer health cannot be distributed to the

Foreign taxes (Code B). Enter the beneficiary. insurance premiums (code G).

CAUTION

!

• Alcohol and cellulosic biofuel fuels beneficiary’s allocable share of taxes

paid or accrued to a foreign country. List on a separate sheet the tax credit (code H). If the credit includes Attach a statement reporting the information the beneficiary will need to the small ethanol producer credit, beneficiary’s share of foreign tax (paid complete his or her return that is not attach a statement that shows the

or accrued) and income by category entered elsewhere on Schedule K-1. beneficiary’s share of the small ethanol

producer credit, the number of gallons including interest, dividends, rents and For example, if the estate or trust claimed by the estate or trust for the royalties, and other income. See Form participates in a transaction that must small ethanol producer credit, and the 1116 and Pub. 514 for more be disclosed on Form 8886 (see estate’s or trust’s productive capacity information. earlier), both the estate or trust and its for alcohol. Domestic production activities beneficiaries may be required to file • Credit for increasing research information. The estate or trust Form 8886. The estate or trust must activities (code I). allocates QPAI (whether positive or determine if any of its beneficiaries are • Renewable electricity, refined coal, negative) and Form W-2 wages based required to disclose the transaction and and Indian coal production credit (code on the relative proportion of the estate’s provide those beneficiaries with J). Attach a statement that shows the or trust’s DNI that is distributed or information they will need to file Form amount of the credit the beneficiary required to be distributed to the 8886. This determination is based on must report on line 9 and line 29 of beneficiary. If the estate or trust has no the category(ies) under which a Form 8835, in case the beneficiary is DNI for the tax year, QPAI and Form transaction qualified for disclosure. See required to file that form in addition to W-2 wages are allocated entirely to the the instructions for Form 8886 for Form 3800. estate or trust. details. • Empowerment zone and renewal

community employment credit (code K). Qualified production activities In addition, if the beneficiary is a

• Indian employment credit (code L). income (code C). Enter the “covered person” in connection with a

• Orphan drug credit (code M). beneficiary’s share, if any, of the foreign tax credit splitter arrangement

• Credit for employer provided child estate’s or trust’s QPAI from all under Section 909, attach a statement

care and facilities (code N). activities. The QPAI will be less than that identifies the arrangement

• Biodiesel and renewable diesel fuels zero if the cost of goods sold and including the foreign taxes paid or

credit (code O). If the credit includes deductions allocated and apportioned accrued.

2011 Instructions for Form 1041 -35-
Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal Revenue laws of the

United States. You are required to give us the information. We need it to ensure that you are complying with these laws and

to allow us to figure and collect the right amount of tax.

You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless

the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long

as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return

information are confidential, as required by Code section 6103.

The time needed to complete and file this form and related schedules will vary depending on individual circumstances. The

estimated average times are:

Form 1041 Schedule D Schedule I Schedule J Schedule K-1 Form 1041-V

Recordkeeping 38 hr., 58 min. 26 hr., 33 min. 17 hr., 42 min. 11 hr., 00 min. 6 hr., 27 min. 43 min.

Learning about the law 

or the form 16 hr., 11 min. 4 hr., 5 min. 4 hr., 22 min. 1 hr., 27 min. 35 min. - - - -

Preparing the form 30 hr., 34 min. 5 hr., 37 min. 4 hr., 51 min. 2 hr., 37 min. 43 min. - - - -

Copying, assembling, and sending

the form to the IRS 3 hr., 45 min. 51 min. - - - - 16 min. - - - - - - - -

If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related

schedules simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products

Coordinating Committee, SE:W:CAR:MP:T:M:S, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send

the tax form to this address. Instead, see Where To File, earlier.

-36- 2011 Instructions for Form 1041
Index

A E Income in respect of a decedent Qualified settlement

Accounting income ........... . 2 Electing small business (See IRD) funds .................... . 6

AGI ......................... . 22 trusts ................. . 13, 29 Inter vivos .................. . 2, 4 Split-interest trust .......... . 17

ESBT (S portion only) ..... . 15 Interest income .............. . 17 When to file ................ . 7 Alaska Native Settlement

S portion .................. . 13 Who must file .............. . 4 Trusts ..................... . 6 IRD .......................... . 3

Elections: Deduction Revocable Living Trusts: Allowable miscellaneous itemized ................. . 23

Section 643(e)(3) .......... . 26 Section 645 Election ....... . 17 deductions (AMID) ........ . 22

Section 643(g) .......... . 9, 24 Amended return ............. . 17 Section 645 ................ . 4 M

Amounts paid or permanently set Minimum taxable income S Special rule for qualified ..... . 23

aside ..................... . 25 Second tier distributions ..... . 27 revocable trusts .......... . 4 Assembly ................... . 11 Separate share rule ......... . 26 Treating contributions as paid in N Attachments ................ . 11 prior tax year Special filing instructions: ............ . 25 net operating loss ........... . 23 Bankruptcy estates ........ . 14 Electronic deposits ........... . 8 Nonexempt charitable Electing small business B ESBTs (See Electing small deduction ................. . 16 trusts ................... . 13 Bankruptcy estate ..... . 6, 13, 16 business trusts) Nonexempt charitable Grantor trusts ............. . 11

Bankruptcy information ...... . 13 Estate .................... . 4, 32 trust .................. . 16, 25 Pooled income funds ...... . 13

Beneficiary ................... . 3 Bankruptcy ............. . 6, 16 Nonqualified deferred Split-interest trust ............ . 16

Allocation of estimated tax Exemption for ............. . 23 compensation plans ....... . 16 Substitute forms ............. . 32 payment .............. . 9, 24 Foreign .................... . 4

Complex trust ............. . 32 Who must file .............. . 4

Estate .................... . 32 Estate tax deduction ......... . 23 P T

Simple trust ............... . 32 Estimated tax ......... . 8, 24, 25 Paid preparer ................ . 8 Tax rate schedule ........... . 27

Tax year for inclusion ...... . 32 Allocation of payments to Paid preparer authorization ... . 8 Taxable income ............. . 23

Withholding on foreign beneficiaries .......... . 8, 24 Penalties: Throwback years ............ . 30

person .................. . 26 Penalty ................... . 24 Estimated tax ............. . 24 Trusts ....................... . 3

Blind trust ................... . 17 Excess deductions .......... . 24 Failure to provide a required Alaska Native Settlement ... . 6

Exemption .................. . 23 TIN ..................... . 32 Blind ..................... . 17

Extraterritorial income Failure to provide information C Common trust fund ......... . 6 timely ................... . 9 exclusion ................. . 17 Complex .................. . 32 Cemetery perpetual care Late filing of return ......... . 9 Domestic .................. . 4 fund ...................... . 23 Late payment of tax ........ . 9 Exemption for ............. . 23 Charitable deduction ......... . 25 F Other ...................... . 9 Foreign ................... . 29 Charitable remainder Fiduciary ................ . 3, 4, 7 Trust fund recovery ......... . 9 Grantor .................... . 2 trusts ..................... . 17 Fiduciary accounting income (FAI) Underpaid estimated tax .... . 9 Inter vivos ............... . 2, 4

Common trust fund ........... . 6 (See Accounting income) Pooled income funds .... . 13, 16, Nonexempt charitable .... . 16, Final return .................. . 17 25, 26 25

D First tier distributions ......... . 26 Pre-need funeral trusts ....... . 16 Pre-need funeral .......... . 16

Foreign tax credit ............ . 28 Qualified disability ......... . 23 Decedent’s Estate ............ . 3

Form 1041-T .............. . 9, 24 Qualified revocable ......... . 4 Definitions: Q Simple .................... . 32 Accumulation Form 8855 ................... . 4 Qualified disability trust ...... . 23 Split-interest .............. . 16 distribution .............. . 30 Qualified revocable trust ...... . 4 Testamentary ............ . 2, 4 Beneficiary ................. . 3 G Qualified settlement funds ..... . 6 Who must file ........... . 4, 31 Complex trust ............. . 15 General business credit ...... . 28 Qualified small business Decedent’s Estate ....... . 3, 15 Grantor trusts ....... . 2, 4, 11, 15 stock ..................... . 26 DNI ........................ . 3 W Backup withholding ........ . 12 Qualified subchapter S trust Fiduciary ................... . 3 Where to file ................. . 7 Nonqualified deferred (QSST) ......... . 4, 11, 12, 16 Grantor trusts ............. . 15 Who must file: compensation plans ..... . 16 IRD ........................ . 3 Optional filing methods Bankruptcy estate ......... . 13 .... . 12 Outside income ........... . 30 Pre-need funeral trusts R Decedent’s estate .......... . 4 .... . 16 Pooled income fund ....... . 16 Special filing instructions Returns: Trust ...................... . 4 ... . 11 Revocable Living Trust ..... . 4

GST tax deduction Amended ................. . 17 Withholding on foreign Simple trust ........... . 23 ............... . 15 Common trust fund ......... . 6 person .................... . 26 Trust ...................... . 3 Electronic and magnetic Trusts ..................... . 4 I media ................... . 7 ■ Distributable net income (See Income distribution Final ...................... . 17

DNI) deduction ........... . 2, 23, 25 Nonexempt charitable

DNI ....................... . 3, 26 trust .................... . 16

-37-