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Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-117:41
- 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
2007
Department of the Treasury
Internal Revenue Service
Instructions for Form 1041
and Schedules A, B, D, G, I,
J, and K-1
U.S. Income Tax Return for Estates and Trusts
Section references are to the Internal
Revenue Code unless otherwise noted.
Contents
What’s New . . . . . . . . . . . . . . .
Photographs of Missing
Children . . . . . . . . . . . . . . . .
Unresolved Tax Issues . . . . . .
How To Get Forms and
Publications . . . . . . . . . . . . .
General Instructions . . . . . . .
Purpose of Form . . . . . . . . . . .
Income Taxation of Trusts and
Decedents’ Estates . . . . . . .
Abusive Trust Arrangements . .
Definitions . . . . . . . . . . . . . . . .
Who Must File . . . . . . . . . . . . .
Special Filing Instructions for
Grantor Type Trusts, Pooled
Income Funds, and Electing
Small Business Trusts . . . . .
Electronic Filing . . . . . . . . . . . .
When To File . . . . . . . . . . . . .
Period Covered . . . . . . . . . . . .
Who Must Sign . . . . . . . . . . . .
Accounting Methods . . . . . . . .
Accounting Periods . . . . . . . . .
Rounding Off to Whole Dollars
Estimated Tax . . . . . . . . . . . . .
Interest and Penalties . . . . . . .
Other Forms That May Be
Required . . . . . . . . . . . . . . .
Additional Information . . . . . . .
Assembly and Attachments . . .
Of Special Interest to
Bankruptcy Trustees and
Debtors-in-Possession . . . . .
Specific Instructions . . . . . . .
Name of Estate or Trust . . . . . .
Name and Title of Fiduciary . . .
Address . . . . . . . . . . . . . . . . .
A. Type of Entity . . . . . . . . . . .
B. Number of Schedules K-1
Attached . . . . . . . . . . . . . . .
C. Employer Identification
Number . . . . . . . . . . . . . . . .
D. Date Entity Created . . . . . . .
E. Nonexempt Charitable and
Split-Interest Trusts . . . . . . .
F. Initial Return, Amended
Return, Final Return; or
Change in Fiduciary’s Name
or Address . . . . . . . . . . . . . .
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after "2/3," insert: "of the amount of the
reduction that would otherwise have
applied." Current presentation's
reference to the fractional amount is
Contents
G. Section 645 Election . . . . . .
Income . . . . . . . . . . . . . . . . . .
Deductions . . . . . . . . . . . . . . .
Tax and Payments . . . . . . . . .
Schedule A — Charitable
Deduction . . . . . . . . . . . . . .
Schedule B — Income
Distribution Deduction . . . . .
Schedule G — Tax
Computation . . . . . . . . . . . .
Other Information . . . . . . . . . .
Schedule I — Alternative
Minimum Tax . . . . . . . . . . . .
Schedule D (Form 1041) —
Capital Gains and Losses . . .
Schedule J (Form 1041) —
Accumulation Distribution for
Certain Complex Trusts . . . .
Schedule K-1 (Form 1041) —
Beneficiary’s Share of
Income, Deductions, Credits,
etc. . . . . . . . . . . . . . . . . . . .
Index . . . . . . . . . . . . . . . . . . .
Where To File . . . . . . . . . . . . .
What’s New
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Reminder
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Widely held fixed investment trusts
(WHFITs) are not required to file Form
1041 after December 31, 2006. A 2006
Form 1041 filed for a WHFIT should
have indicated that it was a final return.
Instead of filing Forms 1041, WHFITs
must now report under Regulations
section 1.671 – 5. However, generally use
penalties will not be imposed for failure Hyphen
not ndash
to comply with the WHFIT reporting
rules for 2007. If a WHFIT does file a
2007 Form 1041, instead of following
the regulations, be sure to:
• Write “BOUGHT” at the top of page 1
followed by the purchase date if a
pooled mortgage account was
purchased during the year and you still
have the pool at the end of the year.
• Write “SOLD” at the top of page 1
followed by the sale’s date if a pool was
sold during the year including a pool
that was purchased during the year.
29
. . . . 28
. . . . 36
. . . . 44
. . . . 46
. . . . 51
. . . . 52
• For tax years beginning in 2007, the
requirement to file a return for a
bankruptcy estate applies only if gross
income is at least $8,750.
• For tax years beginning in 2007,
electing small business trusts can
deduct interest expense on
indebtedness incurred to acquire stock
in an S corporation.
• For 2007, qualified disability trusts
can claim an exemption of up to
$3,400. A trust with modified adjusted
gross income above $156,400 loses
part of the exemption deduction. See
the instructions for line 20 on page 22
for more details. In addition, the
reduction of the phaseout of the
exemption for the qualified disability
trusts remains at 2/3 for 2007.
• Include farm rental income and
expenses based on crops or livestock
produced by a tenant on line 5 and not
on line 6 of Form 1041. Report the
income and expenses on Part I of
Schedule E (Form 1040).
Cat. No. 11372D
• A section 664 charitable reminder
trust (CRT) no longer files Form 1041 if
the CRT has any unrelated business
taxable income. Instead, the CRT files
Form 4720, Return of Certain Excise
Taxes Under Chapters 41 and 42 of the
Internal Revenue Code if the CRT has
any unrelated business taxable income.
Photographs of Missing
Children
The Internal Revenue Service is a
proud partner with the National Center
for Missing and Exploited Children.
Photographs of missing children
selected by the Center may appear in
instructions on pages that would
otherwise be blank. You can help bring
these children home by looking at the
photographs and calling
1-800-THE-LOST (1-800-843-5678) if
you recognize a child.
Unresolved Tax Issues
If you have attempted to deal with an
IRS problem unsuccessfully, you
should contact the Taxpayer Advocate.
The Taxpayer Advocate independently
Note: For tax year 2008, penalties will be imposed on
WHFITs that fail to comply with Regulations section
1.671-5.
Page 2 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
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represents the estate’s or trust’s
interests and concerns within the IRS
by protecting its rights and resolving
problems that have not been fixed
through normal channels.
While Taxpayer Advocates cannot
change the tax law or make a technical
tax decision, they can clear up
problems that resulted from previous
contacts and ensure that the estate’s or
trust’s case is given a complete and
impartial review.
The estate’s or trust’s assigned
personal advocate will listen to its point
of view and will work with the estate or
trust to address its concerns. The
estate or trust can expect the advocate
to provide:
• A “fresh look” at a new or ongoing
problem,
• Timely acknowledgment,
• The name and phone number of the
individual assigned to its case,
• Updates on progress,
• Timeframes for action,
• Speedy resolution, and
• Courteous service.
When contacting the Taxpayer
Advocate, you should provide the
following information.
• The estate’s or trust’s name,
address, and employer identification
number.
• The name and telephone number of
an authorized contact person and the
hours he or she can be reached.
• The type of tax return and year(s)
involved.
• A detailed description of the problem.
• Previous attempts to solve the
problem and the office that had been
contacted.
• A description of the hardship the
estate or trust is facing and verifying
documentation (if applicable).
The estate or trust may contact a
Taxpayer Advocate by calling
1-877-777-4778 (toll-free). Persons
who have access to TTY/TDD
equipment may call 1-800-829-4059
and ask for Taxpayer Advocate
assistance. If the estate or trust prefers,
it may call, write, or fax the Taxpayer
Advocate office in its area. See Pub.
1546, The Taxpayer Advocate Service
of the IRS, for a list of addresses and
fax numbers.
How To Get Forms and
Publications
Internet
You can access the IRS website 24
hours a day, 7 days a week at www.irs.
gov to:
• Download forms, instructions, and
publications;
• Order IRS products online;
• Research your tax questions online;
• Search publications online by topic or
keyword;
• View Internal Revenue Bulletins
(IRBs) published in the last few years;
and
• Sign up to receive local and national
tax news by email.
IRS Tax Products CD
You can order Publication 1796, IRS
Tax Products CD, and get:
• Current-year forms, instructions, and
publications.
• Prior-year forms, instructions, and
publications.
• Bonus: Historical Tax Products
DVD — Ships with the final release.
• Tax Map: an electronic research tool
and finding aid.
• Tax Law frequently asked questions
(FAQs).
• Tax Topics from the IRS telephone
response system.
• Fill-in, print, and save features for
most tax forms.
• Internal Revenue Bulletins.
• Toll-free and email technical support.
The CD is released twice during the
year. The first release will ship the
beginning of January and the final
release will ship the beginning of
March. Buy the CD from National
Technical Information Service at
www.irs.gov/cdorders for $35 (no
handling fee) or call 1-877-CDFORMS
(1-877-233-6767) toll-free to buy the
CD for $35 (plus a $5 handling fee).
By Phone and in Person
You can order forms and publications
by calling 1-800-TAX-FORM
(1-800-829-3676). You can also get
most forms and publications at your
local IRS office.
General Instructions
Purpose of Form
The fiduciary of a domestic decedent’s
estate, trust, or bankruptcy estate uses
Form 1041 to report:
• The income, deductions, gains,
losses, etc. of the estate or trust;
• The income that is either
accumulated or held for future
distribution or distributed currently to
the beneficiaries;
• Any income tax liability of the estate
or trust; and
• Employment taxes on wages paid to
household employees.
Income Taxation of
Trusts and Decedents’
Estates
A trust (except a grantor type trust) or a
decedent’s estate is a separate legal
entity for federal tax purposes. A
-2-
decedent’s estate comes into existence
at the time of death of an individual. A
trust may be created during an
individual’s life (inter vivos) or at the
time of his or her death under a will
(testamentary). If the trust instrument
contains certain provisions, then the
person creating the trust (the grantor) is
treated as the owner of the trust’s
assets. Such a trust is a grantor type
trust. See page 6 for special rules for
grantor trusts.
A trust or decedent’s estate figures
its gross income in much the same
manner as an individual. Most
deductions and credits allowed to
individuals are also allowed to estates
and trusts. However, there is one major
distinction. A trust or decedent’s estate
is allowed an income distribution
deduction for distributions to
beneficiaries. To figure this deduction,
the fiduciary must complete Schedule
B. The income distribution deduction
determines the amount of any
distributions taxed to the beneficiaries.
For this reason, a trust or decedent’s
estate sometimes is referred to as a
“pass-through” entity. The beneficiary,
and not the trust or decedent’s estate,
pays income tax on his or her
distributive share of income. Schedule
K-1 (Form 1041) is used to notify the
beneficiaries of the amounts to be
included on their income tax returns.
Before preparing Form 1041, the
fiduciary must figure the accounting
income of the estate or trust under the
will or trust instrument and applicable
local law to determine the amount, if
any, of income that is required to be
distributed, because the income
distribution deduction is based, in part,
on that amount.
Abusive Trust
Arrangements
Certain trust arrangements purport to
reduce or eliminate federal taxes in
ways that are not permitted under the
law. Abusive trust arrangements
typically are promoted by the promise
of tax benefits with no meaningful
change in the taxpayer’s control over or
benefit from the taxpayer’s income or
assets. The promised benefits may
include reduction or elimination of
income subject to tax; deductions for
personal expenses paid by the trust;
depreciation deductions of an owner’s
personal residence and furnishings; a
stepped-up basis for property
transferred to the trust; the reduction or
elimination of self-employment taxes;
and the reduction or elimination of gift
and estate taxes. These promised
benefits are inconsistent with the tax
rules applicable to trust arrangements.
Page 3 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
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Abusive trust arrangements often
use trusts to hide the true ownership of
assets and income or to disguise the
substance of transactions. These
arrangements frequently involve more
than one trust, each holding different
assets of the taxpayer (for example, the
taxpayer’s business, business
equipment, home, automobile, etc.).
Some trusts may hold interests in other
trusts, purport to involve charities, or
are foreign trusts. Funds may flow from
one trust to another trust by way of
rental agreements, fees for services,
purchase agreements, and
distributions.
Some of the abusive trust
arrangements that have been identified
include unincorporated business trusts
(or organizations), equipment or service
trusts, family residence trusts,
charitable trusts, and final trusts. In
each of these trusts, the original owner
of the assets that are nominally subject
to the trust effectively retains the
authority to cause financial benefits of
the trust to be directly or indirectly
returned or made available to the
owner. For example, the trustee may be
the promoter, or a relative or friend of
the owner who simply carries out the
directions of the owner whether or not
permitted by the terms of the trust.
When trusts are used for legitimate
business, family, or estate planning
purposes, either the trust, the
beneficiary, or the transferor to the trust
will pay the tax on income generated by
the trust property. Trusts cannot be
used to transform a taxpayer’s
personal, living, or educational
expenses into deductible items, and
cannot seek to avoid tax liability by
ignoring either the true ownership of
income and assets or the true
substance of transactions. Therefore,
the tax results promised by the
promoters of abusive trust
arrangements are not allowable under
the law, and the participants in and
promoters of these arrangements may
be subject to civil or criminal penalties
in appropriate cases.
For more details, including the legal
principles that control the proper tax
treatment of these abusive trust
arrangements, see Notice 97-24,
1997-1 C.B. 409.
For additional information about
abusive tax arrangements, visit the IRS
website at www.irs.gov and type in the
keyword “Scams” in the search box.
Definitions
Beneficiary
A beneficiary includes an heir, a
legatee, or a devisee.
Distributable Net Income
(DNI)
The income distribution deduction
allowable to estates and trusts for
amounts paid, credited, or required to
be distributed to beneficiaries is limited
to DNI. This amount, which is figured
on Schedule B, line 7, is also used to
determine how much of an amount
paid, credited, or required to be
distributed to a beneficiary will be
includible in his or her gross income.
Income, Deductions, and
Credits in Respect of a
Decedent (IRD)
Income. When completing Form 1041,
you must take into account any items
that are IRD.
In general, IRD is income that a
decedent was entitled to receive but
that was not properly includible in the
decedent’s final income tax return
under the decedent’s method of
accounting.
IRD includes:
• All accrued income of a decedent
who reported his or her income on the
cash method of accounting,
• Income accrued solely because of
the decedent’s death in the case of a
decedent who reported his or her
income on the accrual method of
accounting, and
• Income to which the decedent had a
contingent claim at the time of his or
her death.
Some examples of IRD for a
decedent who kept his or her books on
the cash method are:
• Deferred salary payments that are
payable to the decedent’s estate,
• Uncollected interest on U.S. savings
bonds,
• Proceeds from the completed sale of
farm produce, and
• The portion of a lump-sum
distribution to the beneficiary of a
decedent’s IRA that equals the balance
in the IRA at the time of the owner’s
death. This includes unrealized
appreciation and income accrued to
that date, less the aggregate amount of
the owner’s nondeductible contributions
to the IRA. Such amounts are included
in the beneficiary’s gross income in the
tax year that the distribution is received.
The IRD has the same character it
would have had if the decedent lived
and received such amount.
Deductions and credits. The
following deductions and credits, when
paid by the decedent’s estate, are
allowed on Form 1041 even though
they were not allowable on the
decedent’s final income tax return.
• Business expenses deductible under
section 162.
-3-
• Interest deductible under section
163.
• Taxes deductible under section 164.
• Investment expenses described in
section 212 (in excess of 2% of AGI).
• Percentage depletion allowed under
section 611.
• Foreign tax credit.
For more information, see section
691 or IRD in Pub. 559, Survivors,
Executors, and Administrators.
Income Required To Be
Distributed Currently
Income required to be distributed
currently is income that is required
under the terms of the governing
instrument and applicable local law to
be distributed in the year it is received.
The fiduciary must be under a duty to
distribute the income currently, even if
the actual distribution is not made until
after the close of the trust’s tax year.
See Regulations section 1.651(a)-2.
Fiduciary
A fiduciary is a trustee of a trust; or an
executor, executrix, administrator,
administratrix, personal representative,
or person in possession of property of a
decedent’s estate.
Note. Any reference in these
instructions to “you” means the fiduciary
of the estate or trust.
Trust
A trust is an arrangement created either
by a will or by an inter vivos declaration
by which trustees take title to property
for the purpose of protecting or
conserving it for the beneficiaries under
the ordinary rules applied in chancery
or probate courts.
Revocable Living Trust
A revocable living trust is an
arrangement created by a written
agreement or declaration during the life
of an individual and can be changed or
ended at any time during the
individual’s life. A revocable living trust
is generally created to manage and
distribute property. Many people use
this type of trust instead of (or in
addition to) a will.
Because this type of trust is
revocable, it is treated as a grantor type
trust for tax purposes. See Grantor
Type Trusts for special filing
instructions that apply to grantor type
trusts.
add "later"
Be sure to read Optional Filing
TIP Methods for Certain Grantor
Type Trusts. Generally, most
people that have revocable living trusts
will be able to use Optional Method 1.
This method is the easiest and least
burdensome way to meet your
obligations.
Page 4 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
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Who Must File
Decedent’s Estate
The fiduciary (or one of the joint
fiduciaries) must file Form 1041 for a
domestic estate that has:
1. Gross income for the tax year of
$600 or more, or
2. A beneficiary who is a
nonresident alien.
An estate is a domestic estate if it is
not a foreign estate. A foreign estate is
one the income of which, from sources
outside the United States that is not
effectively connected with the conduct
of a U.S. trade or business, is not
includible in gross income. If you are
the fiduciary of a foreign estate, file
Form 1040NR, U.S. Nonresident Alien
Income Tax Return, instead of Form
1041.
Trust
The fiduciary (or one of the joint
fiduciaries) must file Form 1041 for a
domestic trust taxable under section
641 that has:
1. Any taxable income for the tax
year,
2. Gross income of $600 or more
(regardless of taxable income), or
3. A beneficiary who is a
nonresident alien.
Two or more trusts are treated as
one trust if such trusts have
substantially the same grantor(s) and
substantially the same primary
beneficiary(ies) and a principal purpose
of such trusts is avoidance of tax. This
provision applies only to that portion of
the trust that is attributable to
contributions to corpus made after
March 1, 1984.
A trust is a domestic trust if:
• A U.S. court is able to exercise
primary supervision over the
administration of the trust (court test),
and
• One or more U.S. persons have the
authority to control all substantial
decisions of the trust (control test).
See Regulations section 301.7701-7
for more information on the court and
control tests.
Also treated as a domestic trust is a
trust (other than a trust treated as
wholly owned by the grantor) that:
• Was in existence on August 20,
1996,
• Was treated as a domestic trust on
August 19, 1996, and
• Elected to continue to be treated as a
domestic trust.
A trust that is not a domestic trust is
treated as a foreign trust. If you are the
trustee of a foreign trust, file Form
1040NR instead of Form 1041. Also, a
foreign trust with a U.S. owner
generally must file Form 3520-A,
Annual Information Return of Foreign
Trust With a U.S. Owner.
If a domestic trust becomes a foreign
trust, it is treated under section 684 as
having transferred all of its assets to a
foreign trust, except to the extent a
grantor or another person is treated as
the owner of the trust when the trust
becomes a foreign trust.
Special Rule for Certain
Revocable Trusts
Section 645 provides that if both the
executor (if any) of an estate (the
related estate) and the trustee of a
qualified revocable trust (QRT) elect the
treatment in section 645, the trust must
be treated and taxed as part of the
related estate during the election
period. This election may be made by a
QRT even if no executor is appointed
for the related estate.
In general, Form 8855, Election To
Treat a Qualified Revocable Trust as
Part of an Estate, must be filed by the
due date for Form 1041 for the first tax
year of the related estate. This applies
even if the combined related estate and
electing trust do not have sufficient
income to be required to file Form
1041. However, if the estate is granted
an extension of time to file Form 1041
for its first tax year, the due date for
Form 8855 is the extended due date.
Once made, the election is
irrevocable.
Qualified revocable trusts. In
general, a QRT is any trust (or part of a
trust) that, on the day the decedent
died, was treated as owned by the
decedent because the decedent held
the power to revoke the trust as
described in section 676. An electing
trust is a QRT for which a section 645
election has been made.
Election period. The election period
is the period of time during which an
electing trust is treated as part of its
related estate.
The election period begins on the
date of the decedent’s death and
terminates on the earlier of:
• The day on which the electing trust
and related estate, if any, distribute all
of their assets, or
• The day before the applicable date.
To determine the applicable date, first
determine whether a Form 706, United
States Estate (and Generation-Skipping
Transfer) Tax Return, is required to be
filed as a result of the decedent’s
death. If no Form 706 is required to be
filed, the applicable date is 2 years after
the date of the decedent’s death. If
Form 706 is required, the applicable
date is the later of 2 years after the
date of the decedent’s death or 6
-4-
months after the final determination of
liability for estate tax. For additional
information, see Regulations section
1.645-1(f).
Taxpayer identification number. All
QRTs must obtain a new taxpayer
identification number (TIN) following the
death of the decedent whether or not a
section 645 election is made. (Use
Form W-9, Request for Taxpayer
Identification Number and Certification,
to notify payers of the new TIN.)
An electing trust that continues after
the termination of the election period
does not need to obtain a new TIN
following the termination unless:
• An executor was appointed and
agreed to the election after the electing
trust made a valid section 645 election,
and the electing trust had filed a return
as an estate under the trust’s TIN, or
• No executor was appointed and the
QRT was the filing trust (as explained
later).
A related estate that continues after
the termination of the election period
does not need to obtain a new TIN.
For more information about TINs,
including trusts with multiple owners,
see Regulations sections 1.645-1 and
301.6109-1(a).
General procedures for completing
Form 1041 during the election
period.
If there is an executor. The
following rules apply to filing Form 1041
while the election is in effect.
• The executor of the related estate is
responsible for filing Form 1041 for the
estate and all electing trusts. The return
is filed under the name and TIN of the
related estate. Be sure and check the
Decedent’s estate box at the top of
Form 1041. The executor continues to
file Form 1041 during the election
period even if the estate distributes all
of its assets before the end of the
election period.
• The Form 1041 includes all items of
income, deduction, and credit for the
estate and all electing trusts.
• The executor must attach a
statement to Form 1041 providing the
following information for each electing
trust: (a) the name of the electing trust,
(b) the TIN of the electing trust, and (c)
the name and address of the trustee of
the electing trust.
• The related estate and the electing
trust are treated as separate shares for
purposes of computing DNI and
applying distribution provisions. Also,
each of those shares can contain two
or more separate shares. For more
information, see Separate share rule on
page 24 and Regulations section
1.645-1(e)(2)(iii).
• The executor is responsible for
insuring that the estate’s share of the
combined tax obligation is paid.
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For additional information, including
treatment of transfers between shares
and charitable contribution deductions,
see Regulations section 1.645-1(e).
If there is no executor. If no
executor has been appointed for the
related estate, the trustee of the
electing trust files Form 1041 as if it
was an estate. File using the TIN that
the QRT obtained after the death of the
decedent. The trustee can choose a
fiscal year as the trust’s tax year during
the election period. Be sure to check
the Decedent’s estate box at the top of
page 1 during the election period. The
electing trust is entitled to a single $600
personal exemption on returns filed for
the election period.
If there is more than one electing
trust, the trusts must appoint one
trustee as the filing trustee. Form 1041
is filed under the name and TIN of the
filing trustee’s trust. A statement
providing the same information
regarding the electing trusts (except the
filing trust) that is listed under If there is
an executor above must be attached to
these Forms 1041. All electing trusts
must choose the same tax year.
If there is more than one electing
trust, the filing trustee is responsible for
ensuring that the filing trust’s share of
the combined tax liability is paid.
For additional information on filing
requirements when there is no
executor, including application of the
separate share rule, see Regulations
section 1.645-1(e). For information on
the requirements when an executor is
appointed after an election is made and
the executor does not agree to the
election, see below.
Responsibilities of the trustee
when there is an executor (or there
is no executor and the trustee is not
the filing trustee). When there is an
executor (or there is no executor and
the trustee is not the filing trustee), the
trustee of an electing trust is
responsible for the following during the
election period.
• To timely provide the executor with
all the trust information necessary to
allow the executor to file a complete,
accurate, and timely Form 1041.
• To ensure that the electing trust’s
share of the combined tax liability is
paid.
The trustee does not file a Form
1041 during the election period (except
for a final return if the trust terminates
during the election period as explained
later).
Procedures for completing Form
1041 for the year in which the
election terminates.
If there is an executor. If there is
an executor, the Form 1041 filed under
the name and TIN of the related estate
for the tax year in which the election
terminates includes (a) the items of
income, deduction, and credit for the
related estate for its entire tax year, and
(b) the income, deductions, and credits
for the electing trust for the period that
ends with the last day of the election
period. If the estate will not continue
after the close of the tax year, indicate
that this Form 1041 is a final return.
At the end of the last day of the
election period, the combined entity is
deemed to distribute the share
comprising the electing trust to a new
trust. All items of income, including net
capital gains, that are attributable to the
share comprising the electing trust are
included in the calculation of DNI of the
electing trust and treated as distributed.
The distribution rules of sections 661
and 662 apply to this deemed
distribution. The combined entity is
entitled to an income distribution
deduction for this deemed distribution,
and the ‘‘new’’ trust must include its
share of the distribution in its income.
See Regulations sections
1.645-1(e)(2)(iii) and 1.645-1(h) for
more information.
If the electing trust continues in
existence after the termination of the
election period, the trustee must file
Form 1041 under the name and TIN of
the trust, using the calendar year as its
accounting period, if it is otherwise
required to file.
If there is no executor. If there is
no executor, the following rules apply to
filing Form 1041 for the tax year in
which the election period ends.
• The tax year of the electing trust
closes on the last day of the election
period, and the Form 1041 filed for that
tax year includes all items of income,
deduction, and credit for the electing
trust for the period beginning with the
first day of the tax year and ending with
the last day of the election period.
• The deemed distribution rules
discussed above apply.
• Check the box to indicate that this
Form 1041 is a final return.
• If the filing trust continues after the
termination of the election period, the
trustee must obtain a new TIN. If the
trust meets the filing requirements, the
trustee must file a Form 1041 under the
new TIN for the period beginning with
the day after the close of the election
period and, in general, ending
December 31 of that year.
Responsibilities of the trustee
when there is an executor (or there
is no executor and the trustee is not
the filing trustee). In addition to the
requirements listed above under this
same heading, the trustee is
responsible for the following.
• If the trust will not continue after the
close of the election period, the trustee
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must file a Form 1041 under the name
and TIN of the trust. Complete the
entity information and items A, C, D,
and F. Indicate in item F that this is a
final return. Do not report any items of
income, deduction, or credit.
• If the trust will continue after the
close of the election period, the trustee
must file a Form 1041 for the trust for
the tax year beginning the day after the
close of the election period and, in
general, ending December 31 of that
year. Use the TIN obtained after the
decedent’s death. Follow the general
rules for completing the return.
Special filing instructions.
When the election is not made by
the due date of the QRT’s Form 1041.
If the section 645 election has not been
made by the time the QRT’s first
income tax return would be due for the
tax year beginning with the decedent’s
death, but the trustee and executor (if
any) have decided to make a section
645 election, then the QRT is not
required to file a Form 1041 for the
short tax year beginning with the
decedent’s death and ending on
December 31 of that year. However, if
a valid election is not subsequently
made, the QRT may be subject to
penalties and interest for failure to file
and failure to pay.
If the QRT files a Form 1041 for this
short period, and a valid section 645
election is subsequently made, then the
trustee must file an amended Form
1041 for the electing trust, excluding all
items of income, deduction, and credit
of the electing trust. These amounts are
then included on the first Form 1041
filed by the executor for the related
estate (or the filing trustee for the
electing trust filing as an estate).
Later appointed executor. If an
executor for the related estate is not
appointed until after the trustee has
made a valid section 645 election, the
executor must agree to the trustee’s
election and they must file a revised
Form 8855 within 90 days of the
appointment of the executor. If the
executor does not agree to the election,
the election terminates as of the date of
appointment of the executor.
If the executor agrees to the
election, the trustee must amend any
Form 1041 filed under the name and
TIN of the electing trust for the period
beginning with the decedent’s death.
The amended returns are still filed
under the name and TIN of the electing
trust, and they must include the items
of income, deduction, and credit for the
related estate for the periods covered
by the returns. Also, attach a statement
to the amended Forms 1041 identifying
the name and TIN of the related estate,
and the name and address of the
executor. Check the Final return box on
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the amended return for the tax year that
ends with the appointment of the
executor. Except for this amended
return, all returns filed for the combined
entity after the appointment of the
executor must be filed under the name
and TIN of the related estate.
If the election terminates as the
result of a later appointed executor, the
executor of the related estate must file
Forms 1041 under the name and TIN of
the related estate for all tax years of the
related estate beginning with the
decedent’s death. The election period
and the tax year terminate with respect
to the electing trust the day before the
appointment of the executor. The
trustee is not required to amend any of
the returns filed by the electing trust for
the period prior to the appointment of
the executor. The trust must file a final
Form 1041 following the instructions
above for completing Form 1041 in the
year in which the election terminates
and there is no executor.
Termination of the trust during the
election period. If an electing trust
terminates during the election period,
the trustee of that trust must file a final
Form 1041 by completing the entity
information (using the trust’s EIN),
checking the Final return box, and
signing and dating the form. Do not
report items of income, deduction, and
credit. These items are reported on the
related estate’s return.
Alaska Native Settlement
Trusts
The trustee of an Alaska Native
Settlement Trust may elect the special
tax treatment for the trust and its
beneficiaries provided for in section
646. The election must be made by the
due date (including extensions) for filing
the trust’s tax return for its first tax year
ending after June 7, 2001. Do not use
Form 1041. Use Form 1041-N, U.S.
Income Tax Return for Electing Alaska
Native Settlement Trusts, to make the
election. Additionally, Form 1041-N is
the trust’s income tax return and
satisfies the section 6039H information
reporting requirement for the trust.
Bankruptcy Estate
The bankruptcy trustee or debtor-inpossession must file Form 1041 for the
estate of an individual involved in
bankruptcy proceedings under chapter
7 or 11 of title 11 of the United States
Code if the estate has gross income for
the tax year of $8,750 or more. See Of
Special Interest To Bankruptcy
Trustees and Debtors-in-Possession on
page 12 for details.
Common Trust Funds
Do not file Form 1041 for a common
trust fund maintained by a bank.
Instead, the fund may use Form 1065,
U.S. Return of Partnership Income, for
its return. For more details, see section
584 and Regulations section 1.6032-1.
Qualified Settlement Funds
The trustee of a designated or qualified
settlement fund (QSF) generally must
file Form 1120-SF, U.S. Income Tax
Return for Settlement Funds, instead of
Form 1041.
Special election. If a QSF has only
one transferor, the transferor may elect
to treat the QSF as a grantor type trust.
To make the grantor trust election,
the transferor must attach an election
statement to a timely filed Form 1041,
including extensions, that the
administrator files for the QSF for the
tax year in which the settlement fund is
established. If Form 1041 is not filed
because Optional Method 1 or 2 was
chosen, attach the election statement
to a timely filed income tax return,
including extensions, of the transferor
for the tax year in which the settlement
fund is established.
Transition rule. A transferor can
make a grantor trust election for a QSF
that was established by February 3,
2006, if the applicable period for filing
an amended return has not expired for
both the QSF’s first tax year and all
later tax years and the same tax years
of the transferor. A grantor trust
election under this paragraph requires
that the returns of the QSF and the
transferor for all affected tax years are
consistent with the grantor trust
election. This requirement may be
satisfied by timely filed original returns
or amended returns filed before the
applicable period of limitations expires.
For information about QSFs established
by the U.S. government by February 3,
2006, see Regulations section
1.468B-5(c)(3).
Election statement. The election
statement may be made separately or,
if filed with Form 1041, on the
attachment described under Grantor
Type Trusts. At the top of the election
statement, write “Section 1.468B-1(k)
Election” and include the transferor’s:
• Name,
• Address,
• Taxpayer identification number, and
• A statement that he or she will treat
the qualified settlement fund as a
grantor type trust.
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Special Filing
Instructions for Grantor
Type Trusts, Pooled
Income Funds, and
Electing Small Business
Trusts
Grantor Type Trusts
A trust is a grantor trust if the grantor
retains certain powers or ownership
benefits. This can also apply to only a
portion of a trust. See Grantor Type
Trust on page 14 for details on what
makes a trust a grantor trust.
In general, a grantor trust is ignored
for tax purposes and all of the income,
deductions, etc., are treated as
belonging directly to the grantor. This
also applies to any portion of a trust
that is treated as a grantor trust.
The following instructions apply
only to grantor type trusts that
CAUTION are not using an optional filing
method.
File Form 1041 for a grantor trust
unless you use an optional filing
method.
If the entire trust is a grantor trust, fill
in only the entity portion of Form 1041.
Do not show any dollar amounts on the
form itself; show dollar amounts only on
an attachment to the form. Do not use
Schedule K-1 (Form 1041) as the
attachment.
If only part of the trust is treated as a
grantor trust, report on Form 1041 only
the part of the income, deductions, etc.,
that is taxable to the trust. The amounts
that are taxable directly to the grantor
are shown only on an attachment to the
form. Do not use Schedule K-1 (Form
1041) as the attachment.
Also, the fiduciary must give the
grantor (owner) of the trust a copy of
the attachment.
On the attachment, report:
• The name, identifying number, and
address of the person(s) to whom the
income is taxable;
• The income of the trust that is
taxable to the grantor or another person
under sections 671 through 678. Report
the income in the same detail as it
would be reported on the grantor’s
return had it been received directly by
the grantor; and
• Any deductions or credits that apply
to this income. Report these deductions
and credits in the same detail as they
would be reported on the grantor’s
return had they been received directly
by the grantor.
The income taxable to the grantor or
another person under sections 671
!
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through 678 and the deductions and
credits that apply to that income must
be reported by that person on their own
income tax return.
Example. The John Doe Trust is a
grantor type trust. During the year, the
trust sold 100 shares of ABC stock for
$1,010 in which it had a basis of $10
and 200 shares of XYZ stock for $10 in
which it had a $1,020 basis.
The trust does not report these
transactions on Form 1041. Instead, a
schedule is attached to the Form 1041
showing each stock transaction
separately and in the same detail as
John Doe (grantor and owner) will need
to report these transactions on his
Schedule D (Form 1040). The trust may
not net the capital gains and losses, nor
may it issue John Doe a Schedule K-1
(Form 1041) showing a $10 long-term
capital loss.
Optional Filing Methods for
Certain Grantor Type Trusts
Generally, if a trust is treated as owned
by one grantor or other person, the
trustee may choose Optional Method 1
or Optional Method 2 as the trust’s
method of reporting instead of filing
Form 1041. A husband and wife will be
treated as one grantor for purposes of
these two optional methods if:
• All of the trust is treated as owned by
the husband and wife, and
• The husband and wife file their
income tax return jointly for that tax
year.
Generally, if a trust is treated as
owned by two or more grantors or other
persons, the trustee may choose
Optional Method 3 as the trust’s
method of reporting instead of filing
Form 1041.
Once you choose the trust’s filing
method, you must follow the rules
under Changing filing methods if you
want to change to another method.
Exceptions. The following trusts
cannot report using the optional filing
methods.
• A common trust fund (as defined in
section 584(a)).
• A foreign trust or a trust that has any
of its assets located outside the United
States.
• A qualified subchapter S trust (as
defined in section 1361(d)(3)).
• A trust all of which is treated as
owned by one grantor or one other
person whose tax year is other than a
calendar year.
• A trust all of which is treated as
owned by one or more grantors or other
persons, one of which is not a U.S.
person.
• A trust all of which is treated as
owned by one or more grantors or other
persons if at least one grantor or other
person is an exempt recipient for
information reporting purposes, unless
at least one grantor or other person is
not an exempt recipient and the trustee
reports without treating any of the
grantors or other persons as exempt
recipients.
Optional Method 1. For a trust
treated as owned by one grantor or by
one other person, the trustee must give
all payers of income during the tax year
the name and taxpayer identification
number (TIN) of the grantor or other
person treated as the owner of the trust
and the address of the trust. This
method may be used only if the owner
of the trust provides the trustee with a
signed Form W-9, Request for
Taxpayer Identification Number and
Certification. In addition, unless the
grantor or other person treated as
owner of the trust is the trustee or a
co-trustee of the trust, the trustee must
give the grantor or other person treated
as owner of the trust a statement that:
• Shows all items of income,
deduction, and credit of the trust;
• Identifies the payer of each item of
income;
• Explains how the grantor or other
person treated as owner of the trust
takes those items into account when
figuring the grantor’s or other person’s
taxable income or tax; and
• Informs the grantor or other person
treated as the owner of the trust that
those items must be included when
figuring taxable income and credits on
his or her income tax return.
Grantor trusts that have not
TIP applied for an EIN and are
going to file under Optional
Method 1 do not need an EIN for the
trust as long as they continue to report
under that method.
Optional Method 2. For a trust
treated as owned by one grantor or by
one other person, the trustee must give
all payers of income during the tax year
the name, address, and TIN of the
trust. The trustee also must file with the
IRS the appropriate Forms 1099 to
report the income or gross proceeds
paid to the trust during the tax year that
shows the trust as the payer and the
grantor, or other person treated as
owner, as the payee. The trustee must
report each type of income in the
aggregate and each item of gross
proceeds separately. The due date for
any Forms 1099 required to be filed
with the IRS by a trustee under this
method is February 28, 2008 (March
31, 2008, if filed electronically).
In addition, unless the grantor, or
other person treated as owner of the
trust, is the trustee or a co-trustee of
the trust, the trustee must give the
grantor or other person treated as
owner of the trust a statement that:
-7-
• Shows all items of income,
deduction, and credit of the trust;
• Explains how the grantor or other
person treated as owner of the trust
takes those items into account when
figuring the grantor’s or other person’s
taxable income or tax; and
• Informs the grantor or other person
treated as the owner of the trust that
those items must be included when
figuring taxable income and credits on
his or her income tax return. This
statement satisfies the requirement to
give the recipient copies of the Forms
1099 filed by the trustee.
Optional Method 3. For a trust
treated as owned by two or more
grantors or other persons, the trustee
must give all payers of income during
the tax year the name, address, and
TIN of the trust. The trustee also must
file with the IRS the appropriate Forms
1099 to report the income or gross
proceeds paid to the trust by all payers
during the tax year attributable to the
part of the trust treated as owned by
each grantor, or other person, showing
the trust as the payer and each grantor,
or other person treated as owner of the
trust, as the payee. The trustee must
report each type of income in the
aggregate and each item of gross
proceeds separately. The due date for
any Forms 1099 required to be filed
with the IRS by a trustee under this
method is February 28, 2008 (March
31, 2008, if filed electronically).
In addition, the trustee must give
each grantor or other person treated as
owner of the trust a statement that:
• Shows all items of income,
deduction, and credit of the trust
attributable to the part of the trust
treated as owned by the grantor or
other person;
• Explains how the grantor or other
person treated as owner of the trust
takes those items into account when
figuring the grantor’s or other person’s
taxable income or tax; and
• Informs the grantor or other person
treated as the owner of the trust that
those items must be included when
figuring taxable income and credits on
his or her income tax return. This
statement satisfies the requirement to
give the recipient copies of the Forms
1099 filed by the trustee.
Changing filing methods. A trustee
who previously had filed Form 1041 can
change to one of the optional methods
by filing a final Form 1041 for the tax
year that immediately precedes the first
tax year for which the trustee elects to
report under one of the optional
methods. On the front of the final Form
1041, the trustee must write “Pursuant
to section 1.671-4(g), this is the final
Form 1041 for this grantor trust,” and
check the “Final return” box in item F.
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For more details on changing
reporting methods, including changes
from one optional method to another,
see Regulations section 1.671-4(g).
Backup withholding. The following
grantor trusts are treated as payors for
purposes of backup withholding.
1. A trust established after 1995, all
of which is owned by two or more
grantors (treating spouses filing a joint
return as one grantor).
2. A trust with 10 or more grantors
established after 1983 but before
1996.
The trustee must withhold 28% of
reportable payments made to any
grantor who is subject to backup
withholding.
For more information, see section
3406 and its regulations.
Pooled Income Funds
If you are filing for a pooled income
fund, attach a statement to support the
following:
• The calculation of the yearly rate of
return,
• The computation of the deduction for
distributions to the beneficiaries, and
• The computation of any charitable
deduction.
You do not have to complete
Schedules A or B of Form 1041.
Also, you must file Form 5227,
Split-Interest Trust Information Return,
for the pooled income fund. However, if
all amounts were transferred in trust
before May 27, 1969, and no section
642(c) deductions were claimed, then
Form 5227 does not have to be filed.
Note: Form 1041-A is no longer filed
by pooled income funds.
Electing Small Business
Trusts
Special rules apply when figuring the
tax on the S portion of an electing small
business trust (ESBT). The S portion
of an ESBT is the portion of the trust
that consists of stock in one or more S
corporations and is not treated as a
grantor type trust. The tax on the S
portion:
• Must be figured separately from the
tax on the remainder of the ESBT (if
any) and attached to the return,
• Is entered to the left of the Schedule
G, line 7, entry space preceded by
“Sec. 641(c),” and
• Is included in the total tax on
Schedule G, line 7.
The tax on the remainder (non-S
portion) of the ESBT is figured in the
normal manner on Form 1041.
Tax computation attachment. Attach
to the return the tax computation for the
S portion of the ESBT.
To compute the tax on the S portion:
or if an amount was transferred to the trust
after May 26, 1969, for which no deduction
was allowed under any of the sections listed
under section 4947(a)(2)
• Treat that portion of the ESBT as if it
were a separate trust;
• Include only the income, losses,
deductions, and credits allocated to the
ESBT as an S corporation shareholder
and gain or loss from the disposition of
S corporation stock;
• Aggregate items of income, losses,
deductions, and credits allocated to the
ESBT as an S corporation shareholder
if the S portion of the ESBT has stock
in more than one S corporation;
• Deduct state and local income taxes
and administrative expenses directly
related to the S portion or allocated to
the S portion if the allocation is
reasonable in light of all the
circumstances;
• Deduct interest expense paid or
accrued on indebtedness incurred to
acquire stock in an S corporation;
• Do not claim a deduction for capital
losses in excess of capital gains;
• Do not claim an income distribution
deduction or an exemption amount;
• Do not claim an exemption amount in
figuring the alternative minimum tax;
and
• Do not use the tax rate schedule to
figure the tax. The tax is 35% of the S
portion’s taxable income except in
figuring the maximum tax on qualified
dividends and capital gains.
For additional information, see
Regulations section 1.641(c)-1.
Other information. When figuring the
tax and DNI on the remaining (non-S)
portion of the trust, disregard the S
corporation items.
Do not apportion to the beneficiaries
any of the S corporation items.
If the ESBT consists entirely of stock
in one or more S corporations, do not
make any entries on lines 1 – 22 of page
1. Instead:
• Complete the entity portion;
• Follow the instructions above for
figuring the tax on the S corporation
items;
• Carry the tax from line 7 of Schedule
G to line 23 on page 1; and
• Complete the rest of the return.
The grantor portion (if any) of an
ESBT will follow the rules discussed
under Grantor Type Trusts on page 6.
Electronic Filing
Qualified fiduciaries or transmitters may
be able to file Form 1041 and related
schedules electronically. If you wish to
do this, you must file Form 8633,
Application to Participate in the IRS
e-file Program. If you file Form 1041
electronically, you may now sign the
return electronically by using a personal
identification number. See Form
8879-F, IRS e-file Signature
Authorization for Form 1041 for details.
If you do not sign the electronically filed
-8-
return by using a PIN, you must file
Form 8453-F, U.S. Estate or Trust
Income Tax Declaration and Signature
for Electronic Filing.
For more details, get Pub. 1437,
Procedures for the 1041 e-file Program,
and Pub. 1438, File Specifications,
Validation Criteria, and Record Layouts
for the Form 1041, e-file Program, U.S.
Income Tax Return for Estates and
Trusts for Tax Year 2007. If Form 1041
is e-filed and there is a balance due,
the fiduciary may authorize an
electronic funds withdrawal with the
return.
When To File
For calendar year estates and trusts,
file Form 1041 and Schedule(s) K-1 on
or before April 15, 2008. For fiscal year
estates and trusts, file Form 1041 by
the 15th day of the 4th month following
the close of the tax year. For example,
an estate that has a tax year that ends
on April 30, 2008, must file Form 1041
by August 15, 2008. If the due date falls
on a Saturday, Sunday, or legal
holiday, file on the next business day.
Private Delivery Services
You can use certain private delivery
services designated by the IRS to meet
the “timely mailing as timely filing/
paying” rule for tax returns and
payments. These private delivery
services include only the following.
• DHL Worldwide Express (DHL): DHL
Same Day Service, DHL Next Day
10:30 am, DHL Next Day 12:00 pm,
DHL Next Day 3:00 pm, and DHL 2nd
Day Service.
• Federal Express (FedEx): FedEx
Priority Overnight, FedEx Standard
Overnight, FedEx 2Day, FedEx
International Priority, and FedEx
International First.
• United Parcel Service (UPS): UPS
Next Day Air, UPS Next Day Air Saver,
UPS 2nd Day Air, UPS 2nd Day Air
A.M., UPS Worldwide Express Plus,
and UPS Worldwide Express.
The private delivery service can tell
you how to get written proof of the
mailing date.
Extension of Time To File
If more time is needed to file the estate
or trust return, use Form 7004,
Application for Automatic 6-Month
Extension of Time To File Certain
Business Income Tax, Information, and
Other Returns, to apply for an
automatic 6-month extension of time to
file.
Period Covered
File the 2007 return for calendar year
2007 and fiscal years beginning in 2007
and ending in 2008. If the return is for a
fiscal year or a short tax year (less than
insert comma
after title
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12 months), fill in the tax year space at
the top of the form.
The 2007 Form 1041 may also be
used for a tax year beginning in 2008 if:
1. The estate or trust has a tax year
of less than 12 months that begins and
ends in 2008, and
2. The 2008 Form 1041 is not
available by the time the estate or trust
is required to file its tax return.
However, the estate or trust must show
its 2008 tax year on the 2007 Form
1041 and incorporate any tax law
changes that are effective for tax years
beginning after December 31, 2007.
Who Must Sign
Fiduciary
The fiduciary, or an authorized
representative, must sign Form 1041. If
there are joint fiduciaries, only one is
required to sign the return.
A financial institution that submitted
estimated tax payments for trusts for
which it is the trustee must enter its
employer identification number (EIN) in
the space provided for the EIN of the
fiduciary. Do not enter the EIN of the
trust. For this purpose, a financial
institution is one that maintains a
Treasury Tax and Loan account. If you
are an attorney or other individual
functioning in a fiduciary capacity, leave
this space blank. Do not enter your
individual social security number (SSN).
If you, as fiduciary, fill in Form 1041,
leave the Paid Preparer’s space blank.
If someone prepares this return and
does not charge you, that person
should not sign the return.
Paid Preparer
Generally, anyone who is paid to
prepare a tax return must sign the
return and fill in the other blanks in the
Paid Preparer’s Use Only area of the
return.
The person required to sign the
return must:
• Complete the required preparer
information,
• Sign it in the space provided for the
preparer’s signature (a facsimile
signature is acceptable), and
• Give you a copy of the return for your
records.
Paid Preparer Authorization
If the fiduciary wants to allow the IRS to
discuss the estate’s or trust’s 2007 tax
return with the paid preparer who
signed it, check the “Yes” box in the
signature area of the return. This
authorization applies only to the
individual whose signature appears in
the “Paid Preparer’s Use Only” section
of the estate’s or trust’s return. It does
not apply to the firm, if any, shown in
that section.
If the “Yes” box is checked, the
fiduciary is authorizing the IRS to call
the paid preparer to answer any
questions that may arise during the
processing of the estate’s or trust’s
return. The fiduciary is also authorizing
the paid preparer to:
• Give the IRS any information that is
missing from the estate’s or trust’s
return,
• Call the IRS for information about the
processing of the estate’s or trust’s
return or the status of its refund or
payment(s), and
• Respond to certain IRS notices that
the fiduciary has shared with the
preparer about math errors, offsets, and
return preparation. The notices will not
be sent to the preparer.
The fiduciary is not authorizing the
paid preparer to receive any refund
check, bind the estate or trust to
anything (including any additional tax
liability), or otherwise represent the
estate or trust before the IRS.
The authorization will automatically
end no later than the due date (without
regard to extensions) for filing the
estate’s or trust’s 2008 tax return. If the
fiduciary wants to expand the paid
preparer’s authorization or revoke the
authorization before it ends, see Pub.
947, Practice Before the IRS and
Power of Attorney.
Accounting Methods
Figure taxable income using the
method of accounting regularly used in
keeping the estate’s or trust’s books
and records. Generally, permissible
methods include the cash method, the
accrual method, or any other method
authorized by the Internal Revenue
Code. In all cases, the method used
must clearly reflect income.
Generally, the estate or trust may
change its accounting method (for
income as a whole or for any material
item) only by getting consent on Form
3115, Application for Change in
Accounting Method. For more
information, see Pub. 538, Accounting
Periods and Methods.
Accounting Periods
For a decedent’s estate, the moment of
death determines the end of the
decedent’s tax year and the beginning
of the estate’s tax year. As executor or
administrator, you choose the estate’s
tax period when you file its first income
tax return. The estate’s first tax year
may be any period of 12 months or less
that ends on the last day of a month. If
you select the last day of any month
other than December, you are adopting
a fiscal tax year.
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To change the accounting period of
an estate, get Form 1128, Application
To Adopt, Change, or Retain a Tax
Year.
Generally, a trust must adopt a
calendar year. The following trusts are
exempt from this requirement:
• A trust that is exempt from tax under
section 501(a);
• A charitable trust described in section
4947(a)(1); and
• A trust that is treated as wholly
owned by a grantor under the rules of
sections 671 through 679.
Rounding Off to Whole
Dollars
You may round off cents to whole
dollars on the estate’s or trust’s return
and schedules. If you do round to
whole dollars, you must round all
amounts. To round, drop amounts
under 50 cents and increase amounts
from 50 to 99 cents to the next dollar.
For example, $1.39 becomes $1 and
$2.50 becomes $3.
If you have to add two or more
amounts to figure the amount to enter
on a line, include cents when adding
the amounts and round off only the
total.
Estimated Tax
Generally, an estate or trust must pay
estimated income tax for 2008 if it
expects to owe, after subtracting any
withholding and credits, at least $1,000
in tax, and it expects the withholding
and credits to be less than the smaller
of:
1. 90% of the tax shown on the
2008 tax return, or
2. 100% of the tax shown on the
2007 tax return (110% of that amount if
the estate’s or trust’s adjusted gross
income on that return is more than
$150,000, and less than 2/3 of gross
income for 2007 or 2008 is from
farming or fishing).
However, if a return was not filed for
2007 or that return did not cover a full
12 months, item 2 does not apply.
For this purpose, include household
employment taxes in the tax shown on
the tax return, but only if either of the
following is true:
• The estate or trust will have federal
income tax withheld for 2008 (see the
instructions on page 23 for line 24e), or
• The estate or trust would be required
to make estimated tax payments for
2008 even if it did not include
household employment taxes when
figuring estimated tax.
Exceptions
Estimated tax payments are not
required from:
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1. An estate of a domestic decedent
or a domestic trust that had no tax
liability for the full 12-month 2007 tax
year;
2. A decedent’s estate for any tax
year ending before the date that is 2
years after the decedent’s death; or
3. A trust that was treated as owned
by the decedent if the trust will receive
the residue of the decedent’s estate
under the will (or if no will is admitted to
probate, the trust primarily responsible
for paying debts, taxes, and expenses
of administration) for any tax year
ending before the date that is 2 years
after the decedent’s death.
For more information, see Form
1041-ES, Estimated Income Tax for
Estates and Trusts.
Electronic Deposits
A financial institution that maintains a
Treasury Tax and Loan (TT&L)
account, and acts as a fiduciary for at
least 200 taxable trusts that are
required to pay estimated tax, may be
required to deposit the estimated tax
payments electronically using the
Electronic Federal Tax Payment
System (EFTPS). The electronic
deposit requirement applies in 2008 if:
• The total deposits of depository taxes
(such as estimated, employment, or
excise tax) in 2006 were more than
$200,000, or
• The fiduciary (on behalf of a trust)
was required to use EFTPS in 2007.
If the fiduciary is required to use
EFTPS on behalf of a trust and fails to
do so, it may be subject to a 10%
penalty.
A fiduciary that is not required to
make electronic deposits of estimated
tax on behalf of a trust may either use
the payment vouchers (see Form
1041-ES) or voluntarily participate in
EFTPS. To enroll in or get more
information about EFTPS, call
1-800-555-4477.
Depositing on time. For deposits
made by EFTPS to be on time, the
fiduciary must initiate the transaction at
least 1 business day before the date
the deposit is due.
Section 643(g) Election
Fiduciaries of trusts that pay estimated
tax may elect under section 643(g) to
have any portion of their estimated tax
payments allocated to any of the
beneficiaries.
The fiduciary of a decedent’s estate
may make a section 643(g) election
only for the final year of the estate.
You make the election by filing
Form 1041-T, Allocation of Estimated
Tax Payments to Beneficiaries, by the
65th day after the close of the estate’s
or trust’s tax year. Then, you include
that amount on the Schedule K-1 for
the beneficiary(ies) for whom you
elected it.
Failure to make a timely election will
result in the estimated tax payments
not being transferred to the
beneficiary(ies) even if you entered the
amount you wanted transferred on
Schedule K-1.
See the instructions for line 24b on
page 22 for more details.
Interest and Penalties
Interest
Interest is charged on taxes not paid by
the due date, even if an extension of
time to file is granted.
Interest is also charged on penalties
imposed for failure to file, negligence,
fraud, substantial valuation
misstatements, substantial
understatements of tax, and reportable
transaction understatements. Interest is
charged on the penalty from the due
date of the return (including
extensions). The interest charge is
figured at a rate determined under
section 6621.
Late Filing of Return
The law provides a penalty of 5% of the
tax due for each month, or part of a
month, for which a return is not filed up
to a maximum of 25% of the tax due
(15% for each month, or part of a
month, up to a maximum of 75% if the
failure to file is fraudulent). If the return
is more than 60 days late, the minimum
penalty is the smaller of $100 or the tax
due. The penalty will not be imposed if
you can show that the failure to file on
time was due to reasonable cause. If
the failure is due to reasonable cause,
attach an explanation to the return.
Late Payment of Tax
Generally, the penalty for not paying
tax when due is 1/2 of 1% of the unpaid
amount for each month or part of a
month it remains unpaid. The maximum
penalty is 25% of the unpaid amount.
The penalty applies to any unpaid tax
on the return. Any penalty is in addition
to interest charges on late payments.
If you include interest or either
TIP of these penalties with your
payment, identify and enter
these amounts in the bottom margin of
Form 1041, page 1. Do not include the
interest or penalty amount in the
balance of tax due on line 27.
Failure To Provide
Information Timely
You must provide Schedule K-1 (Form
1041), on or before the day you are
required to file Form 1041, to each
beneficiary who receives a distribution
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of property or an allocation of an item of
the estate.
For each failure to provide Schedule
K-1 to a beneficiary when due and each
failure to include on Schedule K-1 all
the information required to be shown
(or the inclusion of incorrect
information), a $50 penalty may be
imposed with regard to each Schedule
K-1 for which a failure occurs. The
maximum penalty is $100,000 for all
such failures during a calendar year. If
the requirement to report information is
intentionally disregarded, each $50
penalty is increased to $100 or, if
greater, 10% of the aggregate amount
of items required to be reported, and
the $100,000 maximum does not apply.
The penalty will not be imposed if
the fiduciary can show that not
providing information timely was due to
reasonable cause and not due to willful
neglect.
Underpaid Estimated Tax
If the fiduciary underpaid estimated tax,
use Form 2210, Underpayment of
Estimated Tax by Individuals, Estates,
and Trusts, to figure any penalty. Enter
the amount of any penalty on line 26,
Form 1041.
Trust Fund Recovery Penalty
This penalty may apply if certain excise,
income, social security, and Medicare
taxes that must be collected or withheld
are not collected or withheld, or these
taxes are not paid. These taxes are
generally reported on Forms 720, 941,
943, or 945. The trust fund recovery
penalty may be imposed on all persons
who are determined by the IRS to have
been responsible for collecting,
accounting for, or paying over these
taxes, and who acted willfully in not
doing so. The penalty is equal to the
unpaid trust fund tax. See the
instructions for Form 720, Pub. 15
(Circular E), Employer’s Tax Guide, or
Pub. 51 (Circular A), Agricultural
Employer’s Tax Guide, for more details,
including the definition of responsible
persons.
Other Penalties
Other penalties can be imposed for
negligence, substantial understatement
of tax, and fraud. See Pub. 17, Your
Federal Income Tax, for details on
these penalties.
Other Forms That May
Be Required
Forms W-2 and W-3, Wage and Tax
Statement; and Transmittal of Wage
and Tax Statements.
Form 56, Notice Concerning
Fiduciary Relationship. You must notify
the IRS of the creation or termination of
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a fiduciary relationship. You may use
Form 56 to provide this notice to the
IRS.
Form 706, United States Estate (and
Generation-Skipping Transfer) Tax
Return; or Form 706-NA, United States
Estate (and Generation-Skipping
Transfer) Tax Return, Estate of
nonresident not a citizen of the United
States.
Form 706-GS(D),
Generation-Skipping Transfer Tax
Return for Distributions.
Form 706-GS(D-1), Notification of
Distribution From a
Generation-Skipping Trust.
Form 706-GS(T),
Generation-Skipping Transfer Tax
Return for Terminations.
Form 709, United States Gift (and
Generation-Skipping Transfer) Tax
Return.
Form 720, Quarterly Federal Excise
Tax Return. Use Form 720 to report
environmental excise taxes,
communications and air transportation
taxes, fuel taxes, luxury tax on
passenger vehicles, manufacturers’
taxes, ship passenger tax, and certain
other excise taxes.
Caution: See Trust Fund Recovery
Penalty earlier.
Form 926, Return by a U.S.
Transferor of Property to a Foreign
Corporation. Use this form to report
certain information required under
section 6038B.
Form 940, Employer’s Annual
Federal Unemployment (FUTA) Tax
Return. The estate or trust may be
liable for FUTA tax and may have to file
Form 940 if it paid wages of $1,500 or
more in any calendar quarter during the
calendar year (or the preceding
calendar year) or one or more
employees worked for the estate or
trust for some part of a day in any 20
different weeks during the calendar
year (or the preceding calendar year).
Form 941, Employer’s Quarterly
Federal Tax Return. Employers must
file this form quarterly to report income
tax withheld on wages and employer
and employee social security and
Medicare taxes. Agricultural employers
must file Form 943, Employer’s Annual
Federal Tax Return for Agricultural
Employees, instead of Form 941, to
report income tax withheld and
employer and employee social security
and Medicare taxes on farmworkers.
Caution: See Trust Fund Recovery
Penalty earlier.
Form 945, Annual Return of
Withheld Federal Income Tax. Use this
form to report income tax withheld from
nonpayroll payments, including
pensions, annuities, IRAs, gambling
winnings, and backup withholding.
Caution: See Trust Fund Recovery
Penalty earlier.
Form 1040, U.S. Individual Income
Tax Return.
Form 1040NR, U.S. Nonresident
Alien Income Tax Return.
Form 1041-A, U.S. Information
Return — Trust Accumulation of
Charitable Amounts.
Forms 1042 and 1042-S, Annual
Withholding Tax Return for U.S. Source
Income of Foreign Persons; and
Foreign Person’s U.S. Source Income
Subject to Withholding. Use these
forms to report and transmit withheld
tax on payments or distributions made
to nonresident alien individuals, foreign
partnerships, or foreign corporations to
the extent such payments or
distributions constitute gross income
from sources within the United States
that is not effectively connected with a
U.S. trade or business. For more
information, see sections 1441 and
1442, and Pub. 515, Withholding of Tax
on Nonresident Aliens and Foreign
Entities.
Forms 1099-A, B, INT, LTC, MISC,
OID, R, S, and SA. You may have to
file these information returns to report
acquisitions or abandonments of
secured property; proceeds from broker
and barter exchange transactions;
interest payments; payments of
long-term care and accelerated death
benefits; miscellaneous income
payments; original issue discount;
distributions from pensions, annuities,
retirement or profit-sharing plans, IRAs
(including SEPs, SIMPLEs, Roth IRAs,
Roth Conversions, and IRA
recharacterizations), Coverdell ESAs,
insurance contracts, etc.; proceeds
from real estate transactions; and
distributions from an HSA, Archer MSA,
or Medicare Advantage MSA.
Also, use certain of these returns to
report amounts received as a nominee
on behalf of another person, except
amounts reported to beneficiaries on
Schedule K-1 (Form 1041).
Form 8918, Material Advisor
Disclosure Statement. Material advisors
who provide material aid, assistance, or
advice on organizing, managing,
promoting, selling, implementing,
insuring, or carrying out any reportable
transaction, and who directly or
indirectly receive or expect to receive a
minimum fee, must use Form 8918 to
disclose any reportable transaction in
under
accordance with Regulations section
301.6111 – 3. For more information, see
Form 8918 and instructions.
Form 8275, Disclosure Statement.
File Form 8275 to disclose items or
positions, except those contrary to a
hyphen
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its
regulation, that are not otherwise
adequately disclosed on a tax return.
The disclosure is made to avoid parts
of the accuracy-related penalty
imposed for disregard of rules or
substantial understatement of tax. Form
8275 is also used for disclosures
relating to preparer penalties for
understatements due to unrealistic
positions or disregard of rules.
Form 8275-R, Regulation Disclosure
Statement, is used to disclose any item
on a tax return for which a position has
been taken that is contrary to Treasury
regulations.
Forms 8288 and 8288-A, U.S.
Withholding Tax Return for Dispositions
by Foreign Persons of U.S. Real
Property Interests; and Statement of
Withholding on Dispositions by Foreign
Persons of U.S. Real Property
Interests. Use these forms to report and
transmit withheld tax on the sale of U.S.
real property by a foreign person. Also,
use these forms to report and transmit
tax withheld from amounts distributed to
a foreign beneficiary from a “U.S. real
property interest account” that a
domestic estate or trust is required to
establish under Regulations section
1.1445-5(c)(1)(iii).
Form 8300, Report of Cash
Payments Over $10,000 Received in a
Trade or Business. Generally, this form
is used to report the receipt of more
than $10,000 in cash or foreign
currency in one transaction (or a series
of related transactions).
Form 8855, Election To Treat a
Qualified Revocable Trust as Part of an
Estate. This election allows a qualified
revocable trust to be treated and taxed
(for income tax purposes) as part of its
related estate during the election
period.
Form 8865, Return of U.S. Persons
With Respect to Certain Foreign
Partnerships. The estate or trust may
have to file Form 8865 if it:
1. Controlled a foreign partnership
(that is, owned more than a 50% direct
or indirect interest in a foreign
partnership);
2. Owned at least a 10% direct or
indirect interest in a foreign partnership
while U.S. persons controlled that
partnership;
3. Had an acquisition, disposition, or
change in proportional interest in a
foreign partnership that:
a. Increased its direct interest to at
least 10%;
b. Reduced its direct interest of at
least 10% to less than 10%; or
c. Changed its direct interest by at
least a 10% interest.
4. Contributed property to a foreign
partnership in exchange for a
partnership interest if: move text to next page
just above Additional
Information
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a. Immediately after the
contribution, the estate or trust owned,
directly or indirectly, at least a 10%
interest in the foreign partnership or
b. The fair market value (FMV) of
the property the estate or trust
contributed to the foreign partnership,
for a partnership interest, when added
to other contributions of property made
to the foreign partnership during the
preceding 12-month period, exceeds
$100,000.
Also, the estate or trust may have to
file Form 8865 to report certain
dispositions by a foreign partnership of
property it previously contributed to that
foreign partnership if it was a partner at
the time of the disposition.
For more details, including penalties
for failing to file Form 8865, see Form
8865 and its separate instructions.
Tax shelter disclosure statement.
Use Form 8886, Reportable
Transaction Disclosure Statement, to
disclose information for each reportable
transaction in which the trust
participated, directly or indirectly. Form
8886 must be filed for each tax year
that the federal income tax liability of
the estate or trust is affected by its
participation in the transaction. The
estate or trust may have to pay a
penalty if it has a requirement to file
Form 8886 but you fail to file it. The
following are reportable transactions.
• Any transaction that is the same as
or substantially similar to tax avoidance
transactions identified by the IRS as a
listed transaction.
• Any transaction offered under
conditions of confidentiality and for
which the estate or trust paid a
minimum fee (confidential transaction).
• Any transaction for which the estate
or trust or a related party has
contractual protection against
disallowance of the tax benefits
(transaction with contractual
Delete s
protections).
• Any transaction resulting in a loss of
at least $2 million in any single year or
$4 million in any combination of years
($50,000 in any single year if the loss is
generated by a section 988 transaction)
(loss transactions).
• Any transaction substantially similar
to one of the types of transactions
identified by the IRS as a transaction of
interest.
See the Instructions for Form 8886
for more details and exceptions.
Additional Information
The following publications may assist
you in preparing Form 1041:
• Pub. 550, Investment Income and
Expenses, and
• Pub. 559, Survivors, Executors, and
Administrators.
Insert 8918 from prior page
Assembly and
Attachments
Assemble any schedules, forms, and
attachments behind Form 1041 in the
following order:
1. Schedule D (Form 1041);
2. Form 4952;
3. Schedule H (Form 1040);
4. Form 4136;
5. Form 8855;
6. All other schedules and
forms; and
7. All attachments.
Attachments
If you need more space on the forms or
schedules, attach separate sheets. Use
the same size and format as on the
printed forms. But show the totals on
the printed forms.
Attach these separate sheets after
all the schedules and forms. Enter the
estate’s or trust’s EIN on each sheet.
Do not file a copy of the decedent’s
will or the trust instrument unless the
IRS requests it.
Of Special Interest to
Bankruptcy Trustees
and
Debtors-in-Possession
Taxation of Bankruptcy
Estates of an Individual
The bankruptcy estate that is created
when an individual debtor files a
petition under either chapter 7 or 11 of
title 11 of the U.S. Code is treated as a
separate taxable entity. The bankruptcy
estate is administered by a trustee or a
debtor-in-possession. If the case is later
dismissed by the bankruptcy court, the
individual debtor is treated as if the
bankruptcy petition had never been
filed.
A separate taxable entity is not
created if a partnership or corporation
files a petition under any chapter of title
11 of the U.S. Code.
Who Must File
Every trustee (or debtor-in-possession)
for an individual’s bankruptcy estate
under chapter 7 or 11 of title 11 of the
U.S. Code must file a return if the
bankruptcy estate has gross income of
$8,750 or more for tax years beginning
in 2007.
Failure to do so may result in an
estimated Request for Administrative
Expenses being filed by the IRS in the
bankruptcy proceeding or a motion to
compel filing of the return.
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The filing of a tax return for the
bankruptcy estate does not
CAUTION relieve the individual debtor of
his or her (or their) individual tax
obligations.
!
Employer Identification
Number
Every bankruptcy estate of an individual
required to file a return must have its
own EIN. The SSN of the individual
debtor cannot be used as the EIN for
the bankruptcy estate.
Accounting Period
A bankruptcy estate is allowed to have
a fiscal year. The period can be no
longer than 12 months.
When To File
File Form 1041 on or before the 15th
day of the 4th month following the close
of the tax year. Use Form 7004 to apply
for an extension of time to file.
Disclosure of Return
Information
Under section 6103(e)(5), tax returns of
individual debtors who have filed for
bankruptcy under chapters 7 or 11 of
title 11 are, upon written request, open
to inspection by or disclosure to the
trustee.
The returns subject to disclosure to
the trustee are those for the year the
bankruptcy begins and prior years. Use
Form 4506, Request for Copy of Tax
Return, to request copies of the
individual debtor’s tax returns.
If the bankruptcy case was not
voluntary, disclosure cannot be made
before the bankruptcy court has
entered an order for relief, unless the
court rules that the disclosure is
needed for determining whether relief
should be ordered.
Transfer of Tax Attributes
From the Individual Debtor to
the Bankruptcy Estate
The bankruptcy estate succeeds to the
following tax attributes of the individual
debtor:
1. Net operating loss (NOL)
carryovers;
2. Charitable contributions
carryovers;
3. Recovery of tax benefit items;
4. Credit carryovers;
5. Capital loss carryovers;
6. Basis, holding period, and
character of assets;
7. Method of accounting;
8. Unused passive activity losses;
9. Unused passive activity credits;
and
10. Unused section 465 losses.
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Income, Deductions, and
Credits
Under section 1398(c), the taxable
income of the bankruptcy estate
generally is figured in the same manner
as an individual. The gross income of
the bankruptcy estate includes any
income included in property of the
estate as defined in title 11 sections
541 and 1115. Section 1115 was added
to title 11 of the U.S. Code by the
Bankruptcy Abuse Prevention and
Consumer Protection Act of 2005.
Section 1115 of title 11 of the U.S.
Code expands the definition of property
of the estate in chapter 11 cases filed
by individuals after October 16, 2005,
and in chapter 11 cases begun by
creditors against an individual debtor
(involuntary cases) after that date.
Under section 1115 of title 11 of the
U.S. Code, property of the bankruptcy
estate includes (a) earnings from
services performed by the debtor after
the beginning of the case (both wages
and self-employment income) and
before the case is closed, dismissed, or
converted to a case under a different
chapter and (b) property described in
section 541 of title 11 of the U.S. Code
and income earned therefrom that the
debtor acquires after the beginning of
the case and before the case is closed,
dismissed, or converted. If section 1115
of title 11 of the U.S. Code applies, the
bankruptcy estate’s gross income
includes, as described above, (a) the
debtor’s earnings from services
performed after the beginning of the
case and (b) the income from property
acquired after the beginning of the
case.
The income from property owned by
the debtor when the case began is also
included in the bankruptcy estate’s
gross income. However, if this property
is exempted from the bankruptcy estate
or is abandoned by the trustee or
debtor-in-possession, the income from
the property is not included in the
bankruptcy estate’s gross income. Also
included in income is gain from the sale
of the bankruptcy estate’s property. To
figure gain, the trustee or
debtor-in-possession must determine
the correct basis of the property.
expense allowed under section 503 of
title 11 of the U.S. Code, and any fee or
charge assessed under chapter 123 of
title 28 of the U.S. Code, to the extent
not disallowed under an Internal
Revenue Code provision (for example,
section 263, 265, or 275).
Administrative expense loss. When
figuring a net operating loss,
nonbusiness deductions (including
administrative expenses) are limited
under section 172(d)(4) to the
bankruptcy estate’s nonbusiness
income. The excess nonbusiness
deductions are an administrative
expense loss that may be carried back
to each of the 3 preceding tax years
and forward to each of the 7
succeeding tax years of the bankruptcy
estate. The amount of an administrative
expense loss that may be carried to
any tax year is determined after the net
operating loss deductions allowed for
that year. An administrative expense
loss is allowed only to the bankruptcy
estate and cannot be carried to any tax
year of the individual debtor.
Carryback of net operating losses
and credits. If the bankruptcy estate
itself incurs a net operating loss (apart
from losses carried forward to the
estate from the individual debtor), it can
carry back its net operating losses not
only to previous tax years of the
bankruptcy estate, but also to tax years
of the individual debtor prior to the year
in which the bankruptcy proceedings
began. Excess credits, such as the
foreign tax credit, also may be carried
back to pre-bankruptcy years of the
individual debtor.
Exemption. For tax years beginning in
2007, a bankruptcy estate is allowed a
personal exemption of $3,400.
Standard deduction. For tax years
beginning in 2007, a bankruptcy estate
that does not itemize deductions is
allowed a standard deduction of
$5,350.
Discharge of indebtedness. In a title
11 case, gross income does not include
amounts that normally would be
included in gross income resulting from
the discharge of indebtedness.
However, any amounts excluded from
gross income must be applied to
reduce certain tax attributes in a certain
order. Attach Form 982, Reduction of
Tax Attributes Due to Discharge of
Indebtedness (and Section 1082 Basis
Adjustment), to show the reduction of
tax attributes.
To determine whether any amount
paid or incurred by the bankruptcy
estate is allowable as a deduction or
credit, or is treated as wages for
employment tax purposes, treat the
amount as if it were paid or incurred by
the individual debtor in the same trade
or business or other activity the debtor
engaged in before the bankruptcy
proceedings began.
Tax Rate Schedule
Administrative expenses. The
bankruptcy estate is allowed a
deduction for any administrative
Figure the tax for the bankruptcy estate
using the tax rate schedule below.
Enter the tax on Form 1040, line 44.
-13-
If taxable income is:
Over —
But not
over —
The tax is:
$0
7,825
31,850
64,250
97,925
174,850
$7,825
31,850
64,250
97,925
174,850
------
10%
$782.50 + 15%
4,386.25 + 25%
12,486.25 + 28%
21,915.25 + 33%
47,300.50 + 35%
Of the
amount
over —
$0
7,825
64,250
64,250
97,925
174,850
Prompt Determination of Tax
Liability
To request a prompt determination of
the tax liability of the bankruptcy estate,
the trustee or debtor-in-possession
must file a written request for the
determination with the IRS. The request
must be submitted in duplicate and
executed under penalties of perjury.
The request must include a statement
indicating that it is a request for prompt
determination of tax liability and: (a) the
return type, and all the tax periods for
which prompt determination is sought;
(b) the name and location of the office
where the return was filed; (c) the
debtor’s name; (d) the debtor’s social
security number, taxpayer identification
number, or employer identification
number; (e) the type of bankruptcy
estate; (f) the bankruptcy case number;
and (g) the court where the bankruptcy
is pending. Send the request to the
Centralized Insolvency Operation, P.O.
Box 21126, Philadelphia, PA 19114
(marked “Request for Prompt
Determination”).
The IRS will notify the trustee or
debtor-in-possession within 60 days
from receipt of the request if the return
filed by the trustee or
debtor-in-possession has been selected
for examination or has been accepted
as filed. If the return is selected for
examination, it will be examined as
soon as possible. The IRS will notify
the trustee or debtor-in-possession of
any tax due within 180 days from
receipt of the request or within any
additional time permitted by the
bankruptcy court.
See Rev. Proc. 2006-24, 2006-22
I.R.B. 943, available at www.irs.gov/irb/
2006 – 22_IRB/ar12.html.
use a hyphen
Special Filing Instructions
for Bankruptcy Estates
Use Form 1041 only as a transmittal for
Form 1040. In the top margin of Form
1040 write “Attachment to Form 1041.
DO NOT DETACH.” Attach Form 1040
to Form 1041. Complete only the
identification area at the top of Form
1041. Enter the name of the individual
debtor in the following format: “John Q.
Public Bankruptcy Estate.” Beneath,
enter the name of the trustee in the
following format: “Avery Snow,
Trustee.” In item D, enter the date the
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petition was filed or the date of
conversion to a chapter 7 or 11 case.
or other owner(s) in parentheses after
the name of the trust.
Enter on Form 1041, line 23, the
total tax from line 63 of Form 1040.
Complete lines 24 through 29 of Form
1041, and sign and date it.
Name and Title of
Fiduciary
In a chapter 11 case filed after
October 16, 2005, the bankruptcy
estate’s gross income may be affected
by section 1115 of title 11 of the U.S.
Code. See Income, Deductions, and
Credits earlier. The debtor may receive
a Form W-2, 1099-INT, 1099-DIV, or
1099-MISC or other information return
reporting wages or other income to the
debtor for the entire year, even though
some or all of this income is includible
in the bankruptcy estate’s gross income
under section 1115 of title 11 of the
U.S. Code. If this happens, the income
reported to the debtor on the Form
W-2, 1099, or other information return
(and the withheld income tax shown on
these forms) must be reasonably
allocated between the debtor and the
bankruptcy estate. The
debtor-in-possession (or the chapter 11
trustee, if one was appointed) must
attach a schedule that shows (a) all the
income reported on the Form W-2,
1099, or other information return, (b)
the portion of this income includible in
the bankruptcy estate’s gross income,
and (c) all the withheld income tax, if
any, and the portion of withheld tax
reasonably allocated to the bankruptcy
estate. Also, the debtor-in-possesion
(or the chapter 11 trustee, if one was
appointed) must attach a copy of the
Form W-2, if any, issued to the debtor
for the tax year if the Form W-2 reports
wages to the debtor and some or all of
the wages are includible in the
bankruptcy estate’s gross income
because of section 1115 of title 11 of
the U.S. Code. For more details,
including acceptable allocation
methods, see Notice 2006-83, 2006-40
I.R.B. 596, available at www.irs.gov/irb/
2006-40_IRB/ar12.html.
Specific Instructions
Name of Estate or Trust
Copy the exact name of the estate or
trust from the Form SS-4, Application
for Employer Identification Number, that
you used to apply for the EIN. If the
name of the trust was changed during
the tax year for which you are filing,
enter the trust’s new name and check
the Change in trust’s name box in item
F.
If a grantor type trust (discussed
below), write the name, identification
number, and address of the grantor(s)
Simple Trust
Enter the name and title of the
fiduciary. If the name entered is
different than the name on the prior
year’s return, see Change in Fiduciary’s
Name and Change in Fiduciary on
page 16.
A trust may qualify as a simple trust if:
1. The trust instrument requires that
all income must be distributed currently;
2. The trust instrument does not
provide that any amounts are to be
paid, permanently set aside, or used for
charitable purposes; and
3. The trust does not distribute
amounts allocated to the corpus of the
trust.
Address
Complex Trust
Include the suite, room, or other unit
number after the street address. If the
post office does not deliver mail to the
street address and the fiduciary has a
P.O. box, show the box number
instead.
If you want a third party (such as an
accountant or an attorney) to receive
mail for the estate or trust, enter on the
street address line “C/O” followed by
the third party’s name and street
address or P.O. box.
If the estate or trust has had a
change of address (including a change
to an “in care of” name and address)
and did not file Form 8822, Change of
Address, check the Change in
fiduciary’s address box in item F.
If the estate or trust has a change of
mailing address (including a new ‘‘in
care of’’ name and address) after filing
its return, file Form 8822 to notify the
IRS of the change.
A complex trust is any trust that does
not qualify as a simple trust as
explained above.
Qualified Disability Trust
A qualified disability trust is any
nongrantor trust:
1. Described in 42 U.S.C.
1396p(c)(2)(B)(iv) and established
solely for the benefit of an individual
under 65 years of age who is disabled,
and
2. All the beneficiaries of which are
determined by the Commissioner of
Social Security to have been disabled
for some part of the tax year within the
meaning of 42 U.S.C. 1382c(a)(3).
A trust will not fail to meet 2 above
just because the trust’s corpus may
revert to a person who is not disabled
after the trust ceases to have any
disabled beneficiaries.
A. Type of Entity
ESBT (S Portion Only)
Check the appropriate box that
describes the entity for which you are
filing the return.
If only a portion of a trust is a grantor
type trust or if only a portion of an
electing small business trust is the S
portion, then more than one box can be
checked.
The S portion of an electing small
business trust (ESBT) is the portion of
the trust that consists of S corporation
stock and that is not treated as owned
by the grantor or another person. See
page 8 of the instructions for more
information about an ESBT.
There are special filing
requirements for grantor type
CAUTION trusts, pooled income funds,
electing small business trusts, and
bankruptcy estates. See Special Filing
Instructions for Grantor Type Trusts,
Pooled Income Funds, and Electing
Small Business Trusts on page 6, or Of
Special Interest to Bankruptcy Trustees
and Debtors-in-Possession on page 12.
A grantor type trust is a legal trust
under applicable state law that is not
recognized as a separate taxable entity
for income tax purposes because the
grantor or other substantial owners
have not relinquished complete
dominion and control over the trust.
!
Decedent’s Estate
An estate of a deceased person is a
taxable entity separate from the
decedent. It generally continues to exist
until the final distribution of the assets
of the estate is made to the heirs and
other beneficiaries. The income earned
from the property of the estate during
the period of administration or
settlement must be accounted for and
reported by the estate.
-14-
Grantor Type Trust
Generally, for transfers made in trust
after March 1, 1986, the grantor is
treated as the owner of any portion of a
trust in which he or she has a
reversionary interest in either the
income or corpus therefrom, if, as of
the inception of that portion of the trust,
the value of the reversionary interest is
more than 5% of the value of that
portion. Also, the grantor is treated as
holding any power or interest that was
held by either the grantor’s spouse at
the time that the power or interest was
created or who became the grantor’s
Page 15 of 52
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17:41 - 29-OCT-2007
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spouse after the creation of that power
or interest.
D
Mortgage pools. The trustee of a
mortgage pools collects principal and
interest payments on each mortgage
and makes distributions to the
certificate holders. For 2007 tax returns,
certificate holders should receive
Form(s) 1099. The information on the
Form(s) 1099 represents the
individual’s share of interest income
(and other items) from the mortgage
pool and is reported on their individual
tax returns. For pre-2007 tax returns
s
and for 2007 returns of WHFIT that do
not follow Regulations section 1.671-5
add
each pool is considered a grantor type
comma trust, and each certificate holder is
after
treated as the owner of an undivided
cite
interest in the entire trust. Certificate
holders must report their proportionate
share of the mortgage interest and
other items of income on their individual
tax returns.
Pre-need funeral trusts. The
purchasers of pre-need funeral services
are the grantors and the owners of
pre-need funeral trusts established
under state laws. See Rev. Rul.
87-127, 1987-2 C.B. 156. However, the
trustees of pre-need funeral trusts can
elect to file the return and pay the tax
for qualified funeral trusts. For more
information, see Form 1041-QFT, U.S.
Income Tax Return for Qualified
Funeral Trusts.
Nonqualified deferred compensation
plans. Taxpayers may adopt and
maintain grantor trusts in connection
with nonqualified deferred
compensation plans (sometimes
referred to as “rabbi trusts”). Rev. Proc.
92-64, 1992-2 C.B. 422, provides a
“model grantor trust” for use in rabbi
trust arrangements. The procedure also
provides guidance for requesting
rulings on the plans that use these
trusts.
Bankruptcy Estate
A chapter 7 or 11 bankruptcy estate is
a separate and distinct taxable entity
from the individual debtor for federal
income tax purposes. See Of Special
Interest to Bankruptcy Trustees and
Debtors-in-Possession on page 12.
For more information, see section
1398 and Pub. 908, Bankruptcy Tax
Guide.
Pooled Income Fund
A pooled income fund is a split-interest
trust with a remainder interest for a
public charity and a life income interest
retained by the donor or for another
person. The property is held in a pool
with other pooled income fund property
and does not include any tax-exempt
securities. The income for a retained
life interest is figured using the yearly
rate of return earned by the trust. See
section 642(c) and the related
regulations for more information.
B. Number of Schedules
K-1 Attached
Every trust or decedent’s estate
claiming an income distribution
deduction on page 1, line 18, must
enter the number of Schedules K-1
(Form 1041) that are attached to Form
1041.
C. Employer
Identification Number
Every estate or trust that is required to
file Form 1041 must have an EIN. An
EIN may be applied for:
• Online by clicking on the EIN link at
www.irs.gov/businesses/small. The EIN
is issued immediately once the
application information is validated.
• By telephone at 1-800-829-4933 from
7:00 a.m. to 10:00 p.m. in the
fiduciary’s local time zone. Assistance
provided to callers from Alaska and
Hawaii will be based on the hours of
operation in the Pacific time zone.
• By mailing or faxing Form SS-4,
Application for Employer Identification
Number.
If the estate or trust has not received its
EIN by the time the return is due, write
“Applied for” in the space for the EIN.
For more details, see Pub. 583,
Starting a Business and Keeping
Records.
If you are filing a return for a
mortgage pool, such as one created
under the mortgage-backed security
programs administered by the Federal
National Mortgage Association (“Fannie
Mae”) or the Government National
Mortgage Association (“Ginnie Mae”),
the EIN stays with the pool if that pool
is traded from one financial institution to
another.
D. Date Entity Created
Enter the date the trust was created, or,
if a decedent’s estate, the date of the
decedent’s death.
E. Nonexempt Charitable
and Split-Interest Trusts
Section 4947(a)(1) Trust
Check this box if the trust is a
nonexempt charitable trust within the
meaning of section 4947(a)(1).
A nonexempt charitable trust is a
trust:
• That is not exempt from tax under
section 501(a);
• In which all of the unexpired interests
are devoted to one or more charitable
-15-
purposes described in section
170(c)(2)(B); and
• For which a deduction was allowed
under section 170 (for individual
taxpayers) or similar Code section for
personal holding companies, foreign
personal holding companies, or estates
or trusts (including a deduction for
estate or gift tax purposes).
Nonexempt charitable trust treated
as a private foundation. If a
nonexempt charitable trust is treated as
though it were a private foundation
under section 509, then the fiduciary
must file Form 990-PF, Return of
Private Foundation, in addition to Form
1041.
If a nonexempt charitable trust is
treated as though it were a private
foundation, and it has no taxable
income under Subtitle A, it may file
Form 990-PF instead of Form 1041 to
meet its section 6012 filing requirement.
But, be sure to answer Statement 13,
on Part VII-A of Form 990-PF.
Excise taxes. If a nonexempt
charitable trust is treated as a private
foundation, then it is subject to the
same excise taxes under chapters 41
and 42 that a private foundation is
subject to. If the nonexempt charitable
trust is liable for any of these taxes
(except the section 4940 tax), then it
reports these taxes on Form 4720,
Return of Certain Excise Taxes Under
Chapters 41 and 42 of the Internal
Revenue Code. Taxes paid by the trust
on Form 4720 or on Form 990-PF (the
section 4940 tax) cannot be taken as a
deduction on Form 1041.
Not a Private Foundation
Check this box if the nonexempt
charitable trust (section 4947(a)(1)) is
not treated as a private foundation
under section 509. For more
information, see Regulations section
53.4947-1.
D
Other returns that must be filed. If a
nonexempt charitable trust is not
treated as though it were a private
foundation, the fiduciary must file, in
addition to Form 1041, Form 990 (or
Form 990-EZ), Return of Organization
Exempt From Income Tax, and
Schedule A (Form 990 or 990-EZ),
Organization Exempt Under Section
501(c)(3), if the trust’s gross receipts
are normally more than $25,000.
If a nonexempt charitable trust is not
treated as though it were a private
foundation, and it has no taxable
income under Subtitle A, it can file
either Form 990 or Form 990-EZ
instead of Form 1041 to meet its
section 6012 filing requirement.
Page 16 of 52
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17:41 - 29-OCT-2007
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Section 4947(a)(2) Trust
Final Return
Check this box if the trust is a
split-interest trust described in section
4947(a)(2).
A split-interest trust is a trust that:
• Is not exempt from tax under section
501(a);
• Has some unexpired interests that
are devoted to purposes other than
religious, charitable, or similar purposes
described in section 170(c)(2)(B); and
• Has amounts transferred in trust after
May 26, 1969, for which a deduction
was allowed under section 170 (for
individual taxpayers) or similar Code
section for personal holding companies,
foreign personal holding companies, or
estates or trusts (including a deduction D
for estate or gift tax purposes).
Other returns that must be filed.
The fiduciary of a split-interest trust
must file Form 5227 .except for amounts
However,
seeinthe
Instructions
for 27,
Form
transferred
trust
before May
1969,forand
the trust’s
governing
5227
theifexception
that
applies to splitinstrument
thatsection
all of the
interest
trustsrequired
other than
664trust’s
income be
distributed
currently.
charitable
remainder
trusts.
If a section 664 charitable remainder
trust (a type of split-interest trust) has
any unrelated business taxable income,
it must file Form 4720, to report its
unrelated business taxable income and
to pay the tax due.
Check this box if this is a final return
because the estate or trust has
terminated. Also, check the “Final K-1”
box at the top of Schedule K-1.
If, on the final return, there are
excess deductions, an unused capital
loss carryover, or a net operating loss
carryover, see the instructions for
Schedule K-1, box 11, on page 48.
F. Initial Return,
Amended Return, etc.
Amended Return
If you are filing an amended Form
1041:
• Check the “Amended return” box,
• Complete the entire return,
• Correct the appropriate lines with the
new information, and
• Refigure the estate’s or trust’s tax
liability.
If the total tax on line 23 is larger on
the amended return than on the original
return, you generally should pay the
difference with the amended return.
However, you should adjust this
amount if there is any increase or
decrease in the total payments shown
on line 25.
Attach a sheet that explains the
reason for the amendments and
identifies the lines and amounts being
changed on the amended return.
Amended Schedule K-1 (Form 1041).
If the amended return results in a
change to income, or a change in
distribution of any income or other
information provided to a beneficiary,
an amended Schedule K-1 (Form 1041)
must also be filed with the amended
Form 1041 and given to each
beneficiary. Check the “Amended K-1”
box at the top of the amended
Schedule K-1.
nouns in title should
begin with capital
letter.
Change in Trust’s Name
If the name of the trust has changed
from the name shown on the prior
year’s return (or Form SS-4 if this is the
first return being filed), be sure to check
this box.
Change in Fiduciary
If a different fiduciary enters his or her
name on the line for Name and title of
fiduciary than was shown on the prior
year’s return (or Form SS-4 if this is the
first return being filed) and you did not
file a Form 8822, be sure to check this
box. If there is a change in the fiduciary
whose address is used as the mailing
address for the estate or trust after the
return is filed, use Form 8822 to notify
the IRS.
Change in Fiduciary’s Name
If the fiduciary changed his or her name
from the name that he or she entered
on the prior year’s return (or Form SS-4
if this is the first return being filed), be
sure to check this box.
Change in Fiduciary’s
Address
If the same fiduciary who filed the prior
year’s return (or Form SS-4 if this is the
first return being filed) files the current
year’s return and changed the address
on the return (including a change to an
‘‘in care of’’ name and address) and did
not report the change on Form 8822,
check this box.
If the address shown on Form 1041
changes after you file the form
(including a change to an ‘‘in care of’’
name and address) file Form 8822 to
notify the IRS of the change.
G. Section 645 Election
If a section 645 election was made by
filing Form 8855, Election To Treat a
Qualified Revocable Trust as part of an
estate, check the box in item G. See
Special Rule for Certain Revocable
Trusts under Who Must File and Form
8855 for more information about this
election.
Income
Special Rule for Blind Trust
If you are reporting income from a
qualified blind trust (under the Ethics in
-16-
Government Act of 1978), do not
identify the payer of any income to the
trust but complete the rest of the return
as provided in the instructions. Also
write “Blind Trust” at the top of page 1.
Extraterritorial Income
Exclusion
The extraterritorial income exclusion is
not allowed for transactions after 2006.
However, income from certain
long-term sales and leases may still
qualify for the exclusion. For details and
to figure the amount of the exclusion,
see Form 8873, Extraterritorial Income
Exclusion, and its separate instructions.
The estate or trust must report the
extraterritorial income exclusion on line
15a of Form 1041, page 1.
Although the extraterritorial income
exclusion is entered on line 15a, it is an
exclusion from income and should be
treated as tax-exempt income when
completing other parts of the return.
Line 1—Interest Income
Report the estate’s or trust’s share of
all taxable interest income that was
received during the tax year. Examples
of taxable interest include interest from:
• Accounts (including certificates of
deposit and money market accounts)
with banks, credit unions, and thrift
institutions;
• Notes, loans, and mortgages;
• U.S. Treasury bills, notes, and
bonds;
• U.S. savings bonds;
• Original issue discount; and
• Income received as a regular interest
holder of a real estate mortgage
investment conduit (REMIC).
For taxable bonds acquired after
1987, amortizable bond premium is
treated as an offset to the interest
income instead of as a separate
interest deduction. See Pub. 550.
For the year of the decedent’s death,
Forms 1099-INT issued in the
decedent’s name may include interest
income earned after the date of death
that should be reported on the income
tax return of the decedent’s estate.
When preparing the decedent’s final
income tax return, report on line 1 of
Schedule B (Form 1040) or Schedule 1
(Form 1040A) the total interest shown
on Form 1099-INT. Under the last entry
on line 1, subtotal all the interest
reported on line 1. Below the subtotal,
write “Form 1041” and the name and
address shown on Form 1041 for the
decedent’s estate. Also, show the part
of the interest reported on Form 1041
and subtract it from the subtotal.
Page 17 of 52
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Line 2a—Total Ordinary
Dividends
Report the estate’s or trust’s share of
all ordinary dividends received during
the tax year.
For the year of the decedent’s death,
Forms 1099-DIV issued in the
decedent’s name may include
dividends earned after the date of
death that should be reported on the
income tax return of the decedent’s
estate. When preparing the decedent’s
final income tax return, report on line 5
of Schedule B (Form 1040) or Schedule
1 (Form 1040A) the ordinary dividends
shown on Form 1099-DIV. Under the
last entry on line 5, subtotal all the
dividends reported on line 5. Below the
subtotal, write “Form 1041” and the
name and address shown on Form
1041 for the decedent’s estate. Also,
show the part of the ordinary dividends
reported on Form 1041 and subtract it
from the subtotal.
Report capital gain distributions
TIP on Schedule D (Form 1041),
line 9.
Line 2b—Qualified
Dividends
Enter the beneficiary’s allocable share
of qualified dividends on line 2b(1) and
enter the estate’s or trust’s allocable
share on line 2b(2).
If the estate or trust received
qualified dividends that were derived
from IRD, you must reduce the amount
on line 2b(2) by the portion of the
estate tax deduction claimed on Form
1041, page 1, line 19, that is
attributable to those qualified dividends.
Do not reduce the amounts on line 2b
by any other allocable expenses.
Note. The beneficiary’s share (as
figured above) may differ from the
amount entered on line 2b of Schedule
K-1 (Form 1041).
Qualified dividends. Qualified
dividends are eligible for a lower tax
rate than other ordinary income.
Generally, these dividends are reported
to the estate or trust in box 1b of
Form(s) 1099-DIV. See Pub. 550 for
the definition of qualified dividends if
the estate or trust received dividends
not reported on Form 1099-DIV.
Exception. Some dividends may
be reported to the estate or trust as in
box 1b of Form 1099-DIV but are not
qualified dividends. These include:
• Dividends received on any share of
stock that the estate or trust held for
less than 61 days during the 121-day
period that began 60 days before the
ex-dividend date. The ex-dividend date
is the first date following the declaration
of a dividend on which the purchaser of
a stock is not entitled to receive the
next dividend payment. When counting
the number of days the stock was held,
include the day the estate or trust
disposed of the stock but not the day it
acquired the stock. However, you
cannot count certain days during which
the estate’s or trust’s risk of loss was
diminished. See Pub. 550 for more
details.
• Dividends attributable to periods
totaling more than 366 days that the
estate or trust received on any share of
preferred stock held for less than 91
days during the 181-day period that
began 90 days before the ex-dividend
date. When counting the number of
days the stock was held, include the
day the estate or trust disposed of the
stock but not the day it acquired the
stock. However, you cannot count
certain days during which the estate’s
or trust’s risk of loss was diminished.
See Pub. 550 for more details.
Preferred dividends attributable to
periods totaling less than 367 days are
subject to the 61-day holding period
rule above.
• Dividends on any share of stock to
the extent that the estate or trust is
under an obligation (including a short
sale) to make related payments with
respect to positions in substantially
similar or related property.
• Payments in lieu of dividends, but
only if you know or have reason to
know that the payments are not
qualified dividends.
If you have an entry on line
TIP 2b(2), be sure you use
Schedule D (Form 1041), the
Schedule D Tax Worksheet, or the
Qualified Dividends Tax Worksheet,
whichever applies, to figure the estate’s
or trust’s tax. Figuring the estate’s or
trust’s tax liability in this manner will
usually result in a lower tax.
Line 3—Business Income or
(Loss)
If the estate operated a business,
report the income and expenses on
Schedule C (Form 1040), Profit or Loss
From Business (or Schedule C-EZ
(Form 1040), Net Profit From
Business). Enter the net profit or (loss)
from Schedule C (or Schedule C-EZ)
on line 3.
Line 4—Capital Gain or
(Loss)
Enter the gain from Schedule D (Form
1041), Part III, line 15, column (3); or
the loss from Part IV, line 16.
!
CAUTION
Do not substitute Schedule D
(Form 1040) for Schedule D
(Form 1041).
-17-
Line 5—Rents, Royalties,
Partnerships, Other Estates
and Trusts, etc.
Use Schedule E (Form 1040),
Supplemental Income and Loss, to
report the estate’s or trust’s share of
income or (losses) from rents, royalties,
partnerships, S corporations, other
estates and trusts, and REMICs. Also
use Schedule E (Form 1040) to report
farm rental income and expenses
based on crops or livestock produced
by a tenant. Enter the net profit or (loss)
from Schedule E on line 5. See the
instructions for Schedule E (Form 1040)
for reporting requirements.
If the estate or trust received a
Schedule K-1 from a partnership, S
corporation, or other flow-through
entity, use the corresponding lines on
Form 1041 to report the interest,
dividends, capital gains, etc., from the
flow-through entity.
Line 6—Farm Income or
(Loss)
If the estate or trust operated a farm,
use Schedule F (Form 1040), Profit or
Loss From Farming, to report farm
income and expenses. Enter the net
profit or (loss) from Schedule F on line
6.
If an estate or trust has farm
rental income and expenses
CAUTION based on crops or livestock
produced by a tenant, report the
income and expenses on Schedule E
(Form 1040). Do not use Form 4835 or
Schedule F (Form 1040) to report such
income and expenses and do not
include the net profit or (loss) from such
income and expenses on line 6.
!
Line 7—Ordinary Gain or
(Loss)
Enter from line 17, Form 4797, Sales of
Business Property, the ordinary gain or
loss from the sale or exchange of
property other than capital assets and
also from involuntary conversions
(other than casualty or theft).
Line 8—Other Income
Enter other items of income not
included on lines 1, 2a, and 3 through
7. List the type and amount on an
attached schedule if the estate or trust
has more than one item.
Items to be reported on line 8
include:
• Unpaid compensation received by
the decedent’s estate that is IRD, and
• Any part of a total distribution shown
on Form 1099-R, Distributions From
Pensions, Annuities, Retirement or
Profit-Sharing Plans, IRAs, Insurance
Contracts, etc., that is treated as
ordinary income. For more information,
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see the separate instructions for Form
4972, Tax on Lump-Sum Distributions.
Deductions
Depreciation, Depletion, and
Amortization
A trust or decedent’s estate is allowed
a deduction for depreciation, depletion,
and amortization only to the extent the
deductions are not apportioned to the
beneficiaries. An estate or trust is not
allowed to make an election under
section 179 to expense certain tangible
property.
The estate’s or trust’s share of
depreciation, depletion, and
amortization should be reported on the
appropriate lines of Schedule C (or
C-EZ), E, or F (Form 1040), the net
income or loss from which is shown on
line 3, 5, or 6 of Form 1041. If the
deduction is not related to a specific
business or activity, then report it on
line 15a.
Depreciation. For a decedent’s
estate, the depreciation deduction is
apportioned between the estate and the
heirs, legatees, and devisees on the
basis of the estate’s income allocable
to each.
For a trust, the depreciation
deduction is apportioned between the
income beneficiaries and the trust on
the basis of the trust income allocable
to each, unless the governing
instrument (or local law) requires or
permits the trustee to maintain a
depreciation reserve. If the trustee is
required to maintain a reserve, the
deduction is first allocated to the trust,
up to the amount of the reserve. Any
excess is allocated among the
beneficiaries and the trust in the same
manner as the trust’s accounting
income. See Regulations section
1.167(h)-1(b).
Depletion. For mineral or timber
property held by a decedent’s estate,
the depletion deduction is apportioned
between the estate and the heirs,
legatees, and devisees on the basis of
the estate’s income from such property
allocable to each.
For mineral or timber property held
in trust, the depletion deduction is
apportioned between the income
beneficiaries and the trust based on the
trust income from such property
allocable to each, unless the governing
instrument (or local law) requires or
permits the trustee to maintain a
reserve for depletion. If the trustee is
required to maintain a reserve, the
deduction is first allocated to the trust,
up to the amount of the reserve. Any
excess is allocated among the
beneficiaries and the trust in the same
manner as the trust’s accounting
income. See Regulations section
1.611-1(c)(4).
Amortization. The deduction for
amortization is apportioned between an
estate or trust and its beneficiaries
under the same principles for
apportioning the deductions for
depreciation and depletion.
The deduction for the amortization of
reforestation expenditures under
section 194 is allowed only to an
estate.
Allocation of Deductions for
Tax-Exempt Income
Generally, no deduction that would
otherwise be allowable is allowed for
any expense (whether for business or
for the production of income) that is
allocable to tax-exempt income.
Examples of tax-exempt income
include:
• Certain death benefits (section 101),
• Interest on state or local bonds
(section 103),
• Compensation for injuries or sickness
(section 104), and
• Income from discharge of
indebtedness in a title 11 case (section
108).
Exception. State income taxes and
business expenses that are allocable to
tax-exempt interest are deductible.
Expenses that are directly allocable
to tax-exempt income are allocated only
to tax-exempt income. A reasonable
proportion of expenses indirectly
allocable to both tax-exempt income
and other income must be allocated to
each class of income.
Deductions That May Be
Allowable for Estate Tax
Purposes
Administration expenses and casualty
and theft losses deductible on Form
706 may be deducted, to the extent
otherwise deductible for income tax
purposes, on Form 1041 if the fiduciary
files a statement waiving the right to
deduct the expenses and losses on
Form 706. The statement must be filed
before the expiration of the statutory
period of limitations for the tax year the
deduction is claimed. See Pub. 559 for
more information.
Accrued Expenses
Generally, an accrual basis taxpayer
can deduct accrued expenses in the tax
year that: (a) all events have occurred
that determine the liability; and (b) the
amount of the liability can be figured
with reasonable accuracy. However, all
the events that establish liability are
treated as occurring only when
economic performance takes place.
There are exceptions for recurring
items. See section 461(h).
-18-
Limitations on
Deductions
At-Risk Loss Limitations
Generally, the amount the estate or
trust has “at-risk” limits the loss it can
deduct for any tax year. Use Form
6198, At-Risk Limitations, to figure the
deductible loss for the year and file it
with Form 1041. For more information,
see Pub. 925, Passive Activity and
At-Risk Rules.
Passive Activity Loss and
Credit Limitations
In general. Section 469 and the
regulations thereunder generally limit
losses from passive activities to the
amount of income derived from all
passive activities. Similarly, credits from
passive activities are generally limited
to the tax attributable to such activities.
These limitations are first applied at the
estate or trust level.
Generally, an activity is a passive
activity if it involves the conduct of any
trade or business, and the taxpayer
does not materially participate in the
activity. Passive activities do not
include working interests in oil and gas
properties. See section 469(c)(3).
Note. Material participation standards
for estates and trusts have not been
established by regulations.
For a grantor trust, material
participation is determined at the
grantor level.
If the estate or trust distributes an
interest in a passive activity, the basis
of the property immediately before the
distribution is increased by the passive
activity losses allocable to the interest,
and such losses cannot be deducted.
See section 469(j)(12).
Losses from passive activities
TIP are first subject to the at-risk
rules. When the losses are
deductible under the at-risk rules, the
passive activity rules then apply.
Rental activities. Generally, rental
activities are passive activities, whether
or not the taxpayer materially
participates. However, certain
taxpayers who materially participate in
real property trades or businesses are
not subject to the passive activity
limitations on losses from rental real
estate activities in which they materially
participate. For more details, see
section 469(c)(7).
For tax years of an estate ending
less than 2 years after the decedent’s
date of death, up to $25,000 of
deductions and deduction equivalents
of credits from rental real estate
activities in which the decedent actively
participated are allowed. Any excess
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losses or credits are suspended for the
year and carried forward.
Portfolio income. Portfolio income is
not treated as income from a passive
activity, and passive losses and credits
generally may not be applied to offset
it. Portfolio income generally includes
interest, dividends, royalties, and
income from annuities. Portfolio income
of an estate or trust must be accounted
for separately.
Forms to file. See Form 8582,
Passive Activity Loss Limitations, to
figure the amount of losses allowed
from passive activities. See Form
8582-CR, Passive Activity Credit
Limitations, to figure the amount of
credit allowed for the current year.
Transactions Between
Related Taxpayers
Under section 267, a trust that uses the
accrual method of accounting may only
deduct business expenses and interest
owed to a related party in the year the
payment is included in the income of
the related party. For this purpose, a
related party includes:
1. A grantor and a fiduciary of any
trust;
2. A fiduciary of a trust and a
fiduciary of another trust, if the same
person is a grantor of both trusts;
3. A fiduciary of a trust and a
beneficiary of such trust;
4. A fiduciary of a trust and a
beneficiary of another trust, if the same
person is a grantor of both trusts;
5. A fiduciary of a trust and a
corporation more than 50% in value of
the outstanding stock of which is
owned, directly or indirectly, by or for
the trust or by or for a person who is a
grantor of the trust; and
6. An executor of an estate and a
beneficiary of that estate, except for a
sale or exchange to satisfy a pecuniary
bequest (that is a bequest of a sum of
money).
Line 10—Interest
Enter the amount of interest (subject to
limitations) paid or incurred by the
estate or trust on amounts borrowed by
the estate or trust, or on debt acquired
by the estate or trust (for example,
outstanding obligations from the
decedent) that is not claimed elsewhere
on the return.
If the proceeds of a loan were used
for more than one purpose (for
example, to purchase a portfolio
investment and to acquire an interest in
a passive activity), the fiduciary must
make an interest allocation according to
the rules in Temporary Regulations
section 1.163-8T.
Do not include interest paid on
indebtedness incurred or continued to
purchase or carry obligations on which
the interest is wholly exempt from
income tax.
Personal interest is not deductible.
Examples of personal interest include
interest paid on:
• Revolving charge accounts used to
purchase personal use property;
• Personal notes for money borrowed
from a bank, credit union, or other
person;
• Installment loans on personal use
property; and
• Underpayments of federal, state, or
local income taxes.
Interest that is paid or incurred on
indebtedness allocable to a trade or
business (including a rental activity)
should be deducted on the appropriate
line of Schedule C (or C-EZ), E, or F
(Form 1040), the net income or loss
from which is shown on line 3, 5, or 6 of
Form 1041.
Types of interest to include on line
10 are:
1. Any investment interest (subject
to limitations — see below);
2. Any qualified residence interest
(see later); and
3. Any interest payable under
section 6601 on any unpaid portion of
the estate tax attributable to the value
of a reversionary or remainder interest
in property for the period during which
an extension of time for payment of
such tax is in effect.
Investment interest. Generally,
investment interest is interest (including
amortizable bond premium on taxable
bonds acquired after October 22, 1986,
but before January 1, 1988) that is paid
or incurred on indebtedness that is
properly allocable to property held for
investment. Investment interest does
not include any qualified residence
interest, or interest that is taken into
account under section 469 in figuring
income or loss from a passive activity.
Generally, net investment income is
the excess of investment income over
investment expenses. Investment
expenses are those expenses (other
than interest) allowable after application
of the 2% floor on miscellaneous
itemized deductions.
The amount of the investment
interest deduction may be limited. Use
Form 4952, Investment Interest
Expense Deduction, to figure the
allowable investment interest
deduction.
If you must complete Form 4952,
check the box on line 10 of Form 1041
and attach Form 4952. Then, add the
deductible investment interest to the
other types of deductible interest and
enter the total on line 10.
-19-
Qualified residence interest. Interest
paid or incurred by an estate or trust on
indebtedness secured by a qualified
residence of a beneficiary of an estate
or trust is treated as qualified residence
interest if the residence would be a
qualified residence (that is, the principal
residence or the second residence
selected by the beneficiary) if owned by
the beneficiary. The beneficiary must
have a present interest in the estate or
trust or an interest in the residuary of
the estate or trust. See Pub. 936, Home
Mortgage Interest Deduction, for an
explanation of the general rules for
deducting home mortgage interest.
See section 163(h)(3) for a definition
of qualified residence interest and for
INSERT
limitations on indebtedness.
Line 11—Taxes
A FROM
PAGE
19A.
Enter any deductible taxes paid or
incurred during the tax year that are not
deductible elsewhere on Form 1041.
Deductible taxes include the following.
• State and local income taxes. You
can deduct state and local income
taxes unless you elect to deduct state
and local general sales taxes. You
cannot deduct both.
• State and local general sales taxes.
You can elect to deduct state and local
general sales taxes instead of state and
local income taxes. Generally, you can
elect to deduct the actual state and
local general sales taxes (including
compensating use taxes) you paid in
2007 if the tax rate was the same as
the general sales tax rate. However,
sales taxes on food, clothing, medical
supplies, and motor vehicles are
deductible as a general sales tax even
if the tax rate was less than the general
sales tax rate. Sales taxes on motor
vehicles are also deductible as a
general sales tax if the tax rate was
more than the general sales tax rate,
but the tax is deductible only up to the
amount of tax that would have been
imposed at the general sales tax rate.
Motor vehicles include cars,
motorcycles, motor homes, recreational
vehicles, sport utility vehicles, trucks,
vans, and off-road vehicles. Also
include any state and local general
sales taxes paid for a leased motor
vehicle. Do not include sales taxes paid
on items used in a trade or business.
An estate or trust cannot use the
Optional Sales Tax Tables for
individuals in Pub. 600, State and Local
General Sales Taxes, to figure its
deduction.
• State, local, and foreign real property
taxes.
• State and local personal property
taxes.
• Foreign or U.S. possession income
taxes. You may want to take a credit for
the tax instead of a deduction. See the
Note:
For the future, Worksheets should appear on the same page as or
on the page following the instructions for the Worksheet. Do not
place the Worksheet on a page that precedes the instructions.
"INSERT A" FOR PAGE 19; adjust
references accordingly (like the one for
"below."
PAGE 19A
Page 20 of 52
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17:41 - 29-OCT-2007
If you made the election to amortize the premium,
the
basis
the rule
taxable
bond
must
by
The
typeinand
above
prints
onbe
allreduced
proofs including
departmental reproduction proofs. MUST be removed before printing.
the amount of amortization.
For tax-exempt bonds, you cannot deduct the
premium that is amortized. Although the premium
cannot be deducted, you must amortize the
premium and reduce the estate's or trust's basis in
the tax-exempt bond by the amount of premium
amortized.
instructions for Schedule G, line 2a, on
page 26 for more details.
• The generation-skipping transfer
(GST) tax imposed on income
distributions.
Do not deduct:
• Federal income taxes;
• Estate, inheritance, legacy,
succession, and gift taxes; or
• Federal duties and excise taxes.
Line 12—Fiduciary Fees
Enter the deductible fees paid or
incurred to the fiduciary for
administering the estate or trust during
the tax year.
Fiduciary fees deducted on
TIP Form 706 cannot be deducted
on Form 1041.
Line 15a—Other Deductions
Not Subject to the 2% Floor
Attach your own schedule, listing by
type and amount all allowable
deductions that are not deductible
elsewhere on Form 1041.
Do not include any losses on
worthless bonds and similar obligations
and nonbusiness bad debts. Report
these losses on Schedule D (Form
1041).
Do not deduct medical or funeral
expenses on Form 1041. Medical
expenses of the decedent paid by the
estate may be deductible on the
decedent’s income tax return for the
year incurred. See section 213(c).
Funeral expenses are deductible only
on Form 706.
The following are examples of
deductions that are reported on line
15a.
Bond premium(s). For taxable bonds
acquired before October 23, 1986, if
the fiduciary elected to amortize the
premium, report the amortization on this
line. You cannot deduct the
amortization for tax-exempt bonds. In
the casewith
of atext
premium
Replace
above on a tax-exempt
bond, or if the fiduciary has made an
election to amortize the premium on a
taxable bond, the basis in the bond
must be reduced by the amount of
amortization.
For more information, see section
171 and Pub. 550.
If you claim a bond premium
deduction for the estate or trust, figure
the deduction on a separate sheet and
attach it to Form 1041.
Casualty and theft losses. Use Form
4684, Casualties and Thefts, to figure
any deductible casualty and theft
losses.
Domestic production activities
deduction. The estate or trust may be
able to deduct up to 6% of its share of
qualified production activities income
(QPAI) from the following activities.
1. Construction performed in the
United States.
2. Engineering or architectural
services performed in the United States
for construction projects in the United
States.
3. Any lease, rental, license, sale,
exchange, or other disposition of:
a. Tangible personal property,
computer software, and sound
recordings that the estate or trust
manufactured, produced, grew, or
extracted in whole or in significant part
within the United States;
b. Any qualified film the estate or
trust produced; or
c. Electricity, natural gas, or potable
water the estate or trust produced in
the United States.
Line 15b—Allowable
Miscellaneous Itemized
Deductions Subject to the
2% Floor
If you claim an NOLD for the estate
or trust, figure the deduction on a
separate sheet and attach it to this
return.
Miscellaneous itemized deductions are
deductible only to the extent that the
aggregate amount of such deductions
exceeds 2% of adjusted gross income
(AGI).
Among the miscellaneous itemized
deductions that must be included on
line 15b are expenses for the
production or collection of income
under section 212, such as investment
advisory fees, subscriptions to
investment advisory publications, and
the cost of safe deposit boxes.
Miscellaneous itemized deductions
do not include deductions for:
• Interest under section 163,
• Taxes under section 164,
• The amortization of bond premium
under section 171,
• Estate taxes attributable to IRD
under section 691(c), or
• Expenses paid or incurred in
connection with the administration of
the estate or trust that would not have
been incurred if the property were not
held in the estate or trust.
For other exceptions, see section
67(b).
How to figure AGI for estates and
trusts. You figure AGI by subtracting
the following from total income on line 9
of page 1:
1. The administration costs of the
estate or trust (the total of lines 12, 14,
and 15a to the extent they are costs
incurred in the administration of the
estate or trust) that would not have
been incurred if the property were not
held by the estate or trust;
2. The income distribution deduction
(line 18);
3. The amount of the exemption
(line 20);
4. The domestic production
activities deduction claimed on line 15a;
and
5. The net operating loss deduction
claimed on line 15a.
Estate’s or trust’s share of
amortization, depreciation, and
depletion not claimed elsewhere. If
you cannot deduct the amortization,
depreciation, and depletion as rent or
royalty expenses on Schedule E (Form
1040), or as business or farm expenses
on Schedule C, C-EZ, or F (Form
1040), itemize the fiduciary’s share of
the deductions on an attached sheet
and include them on line 15a. Itemize
each beneficiary’s share of the
deductions and report them in the
appropriate box of Schedule K-1 (Form
1041).
For those estates and trusts whose
income distribution deduction is limited
to the actual distribution, and not the
DNI (that is, the income distribution is
less than the DNI), when computing the
AGI, use the amount of the actual
distribution.
For those estates and trusts whose
income distribution deduction is limited
to the DNI (that is, the actual
distribution exceeds the DNI), the DNI
must be figured taking into account the
allowable miscellaneous itemized
deductions (AMID) after application of
the 2% floor. In this situation there are
In certain cases, the United States
includes the Commonwealth of Puerto
Rico.
The deduction does not apply to
income derived from:
• The sale of food and beverages the
estate or trust prepared at a retail
establishment;
• Property the estate or trust leased,
licensed, or rented for use by any
related person; or
• The transmission or distribution of
electricity, natural gas, or potable water.
The deduction cannot exceed 6% of
modified AGI or 50% of certain Form
W-2 wages. QPAI, as well as Form W-2
wages, must be apportioned between
the trust or estate and its beneficiaries.
For more details, see Form 8903,
Domestic Production Activities
Deduction, and its separate
instructions.
Net operating loss deduction
(NOLD). An estate or trust is allowed
the NOLD under section 172.
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two unknown amounts: (a) the AMID;
and (b) the DNI.
Computing line 15b. To compute line
15b, use the equation below:
AMID = Total miscellaneous
itemized deductions – (.02(AGI))
The following example illustrates
how algebraic equations can be used to
solve for these unknown amounts.
Example. The Malcolm Smith
Trust, a complex trust, earned $20,000
of dividend income, $20,000 of capital
gains, and a fully deductible $5,000
loss from XYZ partnership (chargeable
to corpus) in 2007. The trust instrument
provides that capital gains are added to
corpus. 50% of the fiduciary fees are
allocated to income and 50% to corpus.
The trust claimed a $2,000 deduction
on line 12 of Form 1041. The trust
incurred $1,500 of miscellaneous
itemized deductions (chargeable to
income), which are subject to the 2%
floor. There are no other deductions.
The trustee made a discretionary
distribution of the accounting income of
$17,500 to the trust’s sole beneficiary.
Because the actual distribution can
reasonably be expected to exceed the
DNI, the trust must figure the DNI,
taking into account the allowable
miscellaneous itemized deductions, to
determine the amount to enter on line
15b.
The trust also claims an exemption
of $100 on line 20.
Using the facts in this example:
AMID = 1,500 – (.02(AGI))
In all situations, use the following
equation to compute the AGI:
AGI = (line 9) – (the total of lines 12,
14, and 15a to the extent they are costs
incurred in the administration of the
estate or trust that would not have been
incurred if the property were not held by
the estate or trust) – (line 18) – (line
20).
Note. There are no other deductions
claimed by the trust on line 15a that are
deductible in arriving at AGI.
Figuring AGI in this example, we get:
AGI = 35,000 – 2,000 – DNI – 100
Since the value of line 18 is not
known because it is limited to the DNI,
you are left with the following:
AGI = 32,900 – DNI
Substitute the value of AGI in the
equation:
AMID = 1,500 – (.02(32,900 – DNI))
The equation cannot be solved until
the value of DNI is known. The DNI can
be expressed in terms of the AMID. To
do this, compute the DNI using the
known values. In this example, the DNI
is equal to the total income of the trust
(less any capital gains allocated to
corpus; or plus any capital loss from
line 4); less total deductions from line
16 (excluding any miscellaneous
itemized deductions); less the AMID.
Thus, DNI = (line 9) – (line 15,
column (2) of Schedule D (Form 1041))
– (line 16) – (AMID)
Substitute the known values:
DNI = 35,000 – 20,000 – 2,000 –
AMID
DNI = 13,000 – AMID
Substitute the value of DNI in the
equation to solve for AMID:
AMID = 1,500 – (.02(32,900 –
(13,000 – AMID)))
AMID = 1,500 – (.02(32,900 –
13,000 + AMID))
AMID = 1,500 – (658 – 260 +
.02AMID)
AMID = 1,102 – .02AMID
1.02AMID = 1,102
AMID = 1,080
DNI = 11,920 (i.e., 13,000 – 1,080)
AGI = 20,980 (i.e., 32,900 – 11,920)
Note. The income distribution
deduction is equal to the smaller of the
distribution ($17,500) or the DNI
($11,920).
Enter the value of AMID on line 15b
(the DNI should equal line 7 of
Schedule B) and complete the rest of
Form 1041 according to the
instructions.
If the 2% floor is more than the
deductions subject to the 2% floor, no
deductions are allowed.
Line 18—Income
Distribution Deduction
If the estate or trust was required to
distribute income currently or if it paid,
credited, or was required to distribute
any other amounts to beneficiaries
during the tax year, complete Schedule
B to determine the estate’s or trust’s
income distribution deduction.
However, if you are filing for a pooled
Exemption Worksheet for Qualified Disability Trusts
Only—Line 20
Keep for Your Records
Note: If the trust’s modified AGI* is less than or equal to $156,400, enter $3,400 on Form 1041, line 20.
Otherwise, complete the worksheet below to figure the trust’s exemption.
1. Maximum exemption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter the trust’s modified AGI* . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
3. Threshold amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
$156,400
4. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
Note: If line 4 is more than $122,500, enter $1,133 on line 9 below. Do not complete lines 5
through 8.
5. Divide line 4 by $2,500. If the result is not a whole number, increase it to the next higher
whole number (for example, increase 0.0004 to 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Multiply line 5 by 2% (.02) and enter the result as a decimal . . . . . . . . . . . . . . . . . . . . . 6.
7. Multiply line 1 by line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
8. Divide line 7 by 1.5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Exemption. Subtract line 8 from line 1. Enter the result here and on Form 1041, line 20 . . . . . . . . . . . . . . . 9.
*Figure the trust’s modified AGI in the same manner as AGI is figured in the line 15b instructions on page 20,
except use zero when figuring the amount of the trust’s exemption.
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$3,400
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on page 21
income fund, do not complete Schedule
B. Instead, attach a statement to
support the computation of the income
distribution deduction.
If the estate or trust claims an
income distribution deduction, complete
and attach:
• Part I (through line 26) and Part II of
Schedule I to refigure the deduction on
a minimum tax basis, and
• Schedule K-1 (Form 1041) for each
beneficiary to which a distribution was
made or required to be made.
Cemetery perpetual care fund. On
line 18, deduct the amount, not more
than $5 per gravesite, paid for
maintenance of cemetery property. To
the right of the entry space for line 18,
enter the number of gravesites. Also
write “Section 642(i) trust” in
parentheses after the trust’s name at
the top of Form 1041. You do not have
to complete Schedules B of Form 1041
and K-1 (Form 1041).
Do not enter less than zero on line
18.
Line 19—Estate Tax
Deduction (Including Certain
Generation-Skipping
Transfer Taxes)
If the estate or trust includes IRD in its
gross income, and such amount was
included in the decedent’s gross estate
for estate tax purposes, the estate or
trust is allowed to deduct in the same
tax year that the income is included that
portion of the estate tax imposed on the
decedent’s estate that is attributable to
the inclusion of the IRD in the
decedent’s estate. For an example of
the computation, see Regulations
section 1.691(c)-1 and Pub. 559.
If any amount properly paid,
credited, or required to be distributed
by an estate or trust to a beneficiary
consists of IRD received by the estate
or trust, do not include such amounts in
determining the estate tax deduction for
the estate or trust. Figure the deduction
on a separate sheet. Attach the sheet
to your return.
If you claim a deduction for
estate tax attributable to or
CAUTION capital gains, you may have to
adjust the amount on Form 1041, page
1, line 2b(2), or Schedule D, line 18.
Also, a deduction is allowed for the
GST tax imposed as a result of a
taxable termination or a direct skip
occurring as a result of the death of the
transferor. See section 691(c)(3). Enter
the estate’s or trust’s share of these
deductions on line 19.
!
Line 20—Exemption
Decedents’ estates. A decedent’s
estate is allowed a $600 exemption.
Trusts required to distribute all
income currently. A trust whose
governing instrument requires that all
income be distributed currently is
allowed a $300 exemption, even if it
distributed amounts other than income
during the tax year.
Qualified disability trusts. A qualified
disability trust is allowed a $3,400
exemption if the trust’s modified AGI is
less than or equal to $156,400. If its
modified AGI exceeds $156,400,
complete the worksheet below to figure
the amount of the trust’s exemption. To
figure modified AGI, follow the
instructions for figuring AGI for line 15b
on page 20, except use zero as the
amount of the trust’s exemption when
figuring AGI.
A qualified disability trust is any trust:
1. Described in 42 U.S.C.
1396p(c)(2)(B)(iv) and established
solely for the benefit of an individual
under 65 years of age who is disabled,
and
2. All of the beneficiaries of which
are determined by the Commissioner of
Social Security to have been disabled
for some part of the tax year within the
meaning of 42 U.S.C. 1382c(a)(3).
A trust will not fail to meet 2 above
just because the trust’s corpus may
revert to a person who is not disabled
after the trust ceases to have any
disabled beneficiaries.
All other trusts. A trust not described
above is allowed a $100 exemption.
Tax and Payments
Line 22—Taxable Income
Minimum taxable income. Line 22
cannot be less than the larger of:
• The inversion gain of the estate or
trust, as figured under section 7874, if
the estate or trust is an expatriated
entity or a partner in an expatriated
entity, or
• The sum of the excess inclusions of
the estate or trust from Schedule Q
(Form 1066), line 2c.
Net operating loss. If line 22 (figured
without regard to the minimum taxable
income rule stated above) is a loss, the
estate or trust may have an NOL. Do
not include the deductions claimed on
lines 13, 18, and 20 when figuring the
amount of the NOL.
Generally, an NOL may be carried
back to the prior 2 tax years (3 years to
the extent the loss is an eligible loss; 5
years to the extent the loss is a farming
loss; 10 years to the extent the loss is a
specified liability loss). An estate or
trust may also elect to carry an NOL
forward only, instead of first carrying it
back. For more information, see the
Instructions for Form 1045.
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Complete Schedule A of Form 1045,
Application for Tentative Refund, to
figure the amount of the NOL that is
available for carryback or carryover.
Use Form 1045 or file an amended
return to apply for a refund based on an
NOL carryback. For more details, see
Pub. 536, Net Operating Losses
(NOLs) for Individuals, Estates, and
Trusts.
On the termination of the estate or
trust, any unused NOL carryover that
would be allowable to the estate or trust
in a later tax year, but for the
termination, is allowed to the
beneficiaries succeeding to the property
of the estate or trust. See the
instructions for Schedule K-1, box 11,
codes D and E.
Excess deductions on termination.
If the estate or trust has for its final year
deductions (excluding the charitable
deduction and exemption) in excess of
its gross income, the excess is allowed
as an itemized deduction to the
beneficiaries succeeding to the property
of the estate or trust.
In general, an unused NOL
carryover that is allowed to
beneficiaries (as explained above)
cannot also be treated as an excess
deduction. However, if the final year of
the estate or trust is also the last year
of the NOL carryover period, the NOL
carryover not absorbed in that tax year
by the estate or trust is included as an
excess deduction. See the instructions
for Schedule K-1, box 11, code A.
Line 24a—2007 Estimated
Tax Payments and Amount
Applied From 2006 Return
Enter the amount of any estimated tax
payment you made with Form 1041-ES
for 2007 plus the amount of any
overpayment from the 2006 return that
was applied to the 2007 estimated tax.
If the estate or trust is the beneficiary
of another trust and received a
payment of estimated tax that was
credited to the trust (as reflected on the
Schedule K-1 issued to the trust), then
report this amount separately with the
notation “section 643(g)” in the space
next to line 24a and include this amount
in the amount entered on line 24a.
Do not include on Form 1041
estimated tax paid by an
CAUTION individual before death. Instead,
include those payments on the
decedent’s final income tax return.
!
Line 24b—Estimated Tax
Payments Allocated to
Beneficiaries
The trustee (or executor, for the final
year of the estate) may elect under
section 643(g) to have any portion of its
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estimated tax treated as a payment of
estimated tax made by a beneficiary or
beneficiaries. The election is made on
Form 1041-T, Allocation of Estimated
Tax Payments to Beneficiaries, which
must be filed by the 65th day after the
close of the trust’s tax year. Form
1041-T shows the amounts to be
allocated to each beneficiary. This
amount is reported on the beneficiary’s
Schedule K-1, box 13, using code A.
Attach Form 1041-T to your return
only if you have not yet filed it;
however, attaching Form 1041-T to
Form 1041 does not extend the due
date for filing Form 1041-T. If you have
already filed Form 1041-T, do not
attach a copy to your return.
Failure to file Form 1041-T by
the due date (March 5, 2008, for
CAUTION calendar year estates and
trusts) will result in an invalid election.
An invalid election will require the filing
of amended Schedules K-1 for each
beneficiary who was allocated a
payment of estimated tax.
!
Line 24d—Tax Paid With
Form 7004
If you filed Form 7004 to request an
extension of time to file Form 1041,
enter the amount that you paid with the
extension request.
Line 24e—Federal Income
Tax Withheld
Use line 24e to claim a credit for any
federal income tax withheld (and not
repaid) by: (a) an employer on wages
and salaries of a decedent received by
the decedent’s estate; (b) a payer of
certain gambling winnings (for example,
state lottery winnings); or (c) a payer of
distributions from pensions, annuities,
retirement or profit-sharing plans, IRAs,
insurance contracts, etc., received by a
decedent’s estate or trust. Attach a
copy of Form W-2, Form W-2G, or
Form 1099-R to the front of the return.
Except for backup withholding
(as explained below), withheld
CAUTION income tax may not be passed
through to beneficiaries on either
Schedule K-1 or Form 1041-T.
!
Backup withholding. If the estate or
trust received a 2007 Form 1099
showing federal income tax withheld
(that is, backup withholding) on interest
income, dividends, or other income,
check the box and include the amount
withheld on income retained by the
estate or trust in the total for line 24e.
Report on Schedule K-1 (Form
1041), box 13, using code B, any credit
for backup withholding on income
distributed to the beneficiary.
Line 24f—Credit for Tax Paid
on Undistributed Capital
Gains
Attach Copy B of Form 2439, Notice to
Shareholder of Undistributed
Long-Term Capital Gains.
Line 24g—Credit for Federal
Tax on Fuels
Enter any credit for federal excise taxes
paid on fuels that are ultimately used
for nontaxable purposes (for example,
an off-highway business use). Attach
Form 4136, Credit for Federal Tax Paid
on Fuels. See Pub. 510, Excise Taxes
for 2007, for more information.
Line 26—Estimated Tax
Penalty
If line 27 is at least $1,000 and more
than 10% of the tax shown on Form
1041, or the estate or trust underpaid
its 2007 estimated tax liability for any
payment period, it may owe a penalty.
See Form 2210 to determine whether
the estate or trust owes a penalty and
to figure the amount of the penalty.
Note. The penalty may be waived
under certain conditions. See Pub. 505,
Tax Withholding and Estimated Tax, for
details.
Line 27—Tax Due
You must pay the tax in full when the
return is filed. Make the check or
money order payable to the “United
States Treasury.” Write the EIN and
“2007 Form 1041” on the payment.
Enclose, but do not attach, the payment
with Form 1041.
You may use EFTPS to pay the
TIP tax due for a trust. See
Electronic Deposits on page 10.
Line 29a—Credited to 2008
Estimated Tax
Enter the amount from line 28 that you
want applied to the estate’s or trust’s
2008 estimated tax.
Schedule A—Charitable
Deduction
General Instructions
Generally, any part of the gross income
of an estate or trust (other than a
simple trust) that, under the terms of
the will or governing instrument, is paid
(or treated as paid) during the tax year
for a charitable purpose specified in
section 170(c) is allowed as a
deduction to the estate or trust. It is not
necessary that the charitable
organization be created or organized in
the United States.
-23-
A pooled income fund or a section
4947(a)(1) nonexempt charitable trust
treated as a private foundation must
attach a separate sheet to Form 1041
instead of using Schedule A of Form
1041 to figure the charitable deduction.
Additional return to be filed by
trusts. Trusts, other than split-interest
trusts or nonexempt charitable trusts,
that claim a charitable deduction also
file Form 1041-A unless the trust is
required to distribute currently to the
beneficiaries all the income for the year
determined under section 643(b) and
related regulations.
Pooled income funds and charitable
lead trusts also file Form 5227. See
Form 5227 for information about any
exceptions.
Election to treat contributions as
paid in the prior tax year. The
fiduciary of an estate or trust may elect
to treat as paid during the tax year any
amount of gross income received
during that tax year or any prior tax
year that was paid in the next tax year
for a charitable purpose.
For example, if a calendar year
estate or trust makes a qualified
charitable contribution on February 7,
2008, from income earned in 2007 or
prior, then the fiduciary can elect to
treat the contribution as paid in 2007.
To make the election, the fiduciary
must file a statement with Form 1041
for the tax year in which the
contribution is treated as paid. This
statement must include:
1. The name and address of the
fiduciary;
2. The name of the estate or trust;
3. An indication that the fiduciary is
making an election under section
642(c)(1) for contributions treated as
paid during such tax year;
4. The name and address of each
organization to which any such
contribution is paid; and
5. The amount of each contribution
and date of actual payment or, if
applicable, the total amount of
contributions paid to each organization
during the next tax year, to be treated
as paid in the prior tax year.
The election must be filed by the due
date (including extensions) for Form
1041 for the next tax year. If the original
return was filed on time, you may make
the election on an amended return filed
no later than 6 months after the due
date of the return (excluding
extensions). Write “Filed pursuant to
section 301.9100-2” at the top of the
amended return and file it at the same
address you used for your original
return.
For more information about the
charitable deduction, see section 642(c)
and related regulations.
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Specific Instructions
Line 1—Amounts Paid or
Permanently Set Aside for
Charitable Purposes From
Gross Income
Enter amounts that were paid for a
charitable purpose out of the estate’s or
trust’s gross income, including any
capital gains that are attributable to
income under the governing instrument
or local law. Include amounts paid
during the tax year from gross income
received in a prior tax year, but only if
no deduction was allowed for any prior
tax year for these amounts.
Estates, and certain trusts, may
claim a deduction for amounts
permanently set aside for a charitable
purpose from gross income. Such
amounts must be permanently set
aside during the tax year to be used
exclusively for religious, charitable,
scientific, literary, or educational
purposes, or for the prevention of
cruelty to children or animals, or for the
establishment, acquisition,
maintenance, or operation of a public
cemetery not operated for profit.
For a trust to qualify, the trust may
not be a simple trust, and the set aside
amounts must be required by the terms
of a trust instrument that was created
on or before October 9, 1969.
Further, the trust instrument must
provide for an irrevocable remainder
interest to be transferred to or for the
use of an organization described in
section 170(c); or the trust must have
been created by a grantor who was at
all times after October 9, 1969, under a
mental disability to change the terms of
the trust.
Also, certain testamentary trusts that
were established by a will that was
executed on or before October 9, 1969,
may qualify. See Regulations section
1.642(c)-2(b).
Do not include any capital gains for
the tax year allocated to corpus and
paid or permanently set aside for
charitable purposes. Instead, enter
these amounts on line 4.
Line 2—Tax-Exempt Income
Allocable to Charitable
Contributions
Any estate or trust that pays or sets
aside any part of its income for a
charitable purpose must reduce the
deduction by the portion allocable to
any tax-exempt income. If the
governing instrument specifically
provides as to the source from which
amounts are paid, permanently set
aside, or to be used for charitable
purposes, the specific provisions
control. In all other cases, determine
the amount of tax-exempt income
allocable to charitable contributions by
multiplying line 1 by a fraction, the
numerator of which is the total
tax-exempt income of the estate or
trust, and the denominator of which is
the gross income of the estate or trust.
Do not include in the denominator any
losses allocated to corpus.
Line 4—Capital Gains for the
Tax Year Allocated to Corpus
and Paid or Permanently Set
Aside for Charitable Purposes
Enter the total of all capital gains for the
tax year that are:
• Allocated to corpus, and
• Paid or permanently set aside for
charitable purposes.
Line 6—Section 1202 Exclusion
Allocable to Capital Gains Paid
or Permanently Set Aside for
Charitable Purposes
If the exclusion of gain from the sale or
exchange of qualified small business
(QSB) stock was claimed, enter the part
of the gain included on Schedule A,
lines 1 and 4, that was excluded under
section 1202.
Schedule B—Income
Distribution Deduction
General Instructions
If the estate or trust was required to
distribute income currently or if it paid,
credited, or was required to distribute
any other amounts to beneficiaries
during the tax year, complete Schedule
B to determine the estate’s or trust’s
income distribution deduction.
Note. Use Schedule I to compute the
DNI and income distribution deduction
on a minimum tax basis.
Pooled income funds. Do not
complete Schedule B for these funds.
Instead, attach a separate statement to
support the computation of the income
distribution deduction. See Pooled
Income Funds on page 8 for more
information.
Separate share rule. If a single trust
or an estate has more than one
beneficiary, and if different beneficiaries
have substantially separate and
independent shares, their shares are
treated as separate trusts or estates for
the sole purpose of determining the
DNI allocable to the respective
beneficiaries.
If the separate share rule applies,
figure the DNI allocable to each
beneficiary on a separate sheet and
attach the sheet to this return. Any
deduction or loss that is applicable
solely to one separate share of the trust
-24-
or estate is not available to any other
share of the same trust or estate.
For more information, see section
663(c) and related regulations.
Withholding of tax on foreign
persons. The fiduciary may be liable
for withholding tax on distributions to
beneficiaries who are foreign persons.
For more information, see Pub. 515,
Withholding of Tax on Nonresident
Aliens and Foreign Entities, and Forms
1042 and 1042-S.
Specific Instructions
Line 1—Adjusted Total Income
Generally, enter on line 1, Schedule B,
the amount from line 17 on page 1 of
Form 1041. However, if both line 4 and
line 17 on page 1 of Form 1041 are
losses, enter on line 1, Schedule B, the
smaller of those losses. If line 4 is zero
or a gain and line 17 is a loss, enter
zero on line 1, Schedule B.
If you are filing for a simple trust,
subtract from adjusted total income any
extraordinary dividends or taxable stock
dividends included on page 1, line 2,
and determined under the governing
instrument and applicable local law to
be allocable to corpus.
Line 2—Adjusted Tax-Exempt
Interest
To figure the adjusted tax-exempt
interest:
Step 1. Add tax-exempt interest
income on line 2 of Schedule A, any
expenses allowable under section 212
allocable to tax-exempt interest, and
any interest expense allocable to
tax-exempt interest.
Step 2. Subtract the Step 1 total
from the amount of tax-exempt interest
(including exempt-interest dividends)
received.
Section 212 expenses that are
directly allocable to tax-exempt interest
are allocated only to tax-exempt
interest. A reasonable proportion of
section 212 expenses that are indirectly
allocable to both tax-exempt interest
and other income must be allocated to
each class of income.
Figure the interest expense allocable
to tax-exempt interest according to the
guidelines in Rev. Proc. 72-18, 1972-1
C.B. 740.
See Regulations sections 1.643(a)-5
and 1.265-1 for more information.
Line 3
Include all capital gains, whether or not
distributed, that are attributable to
income under the governing instrument
or local law. For example, if the trustee
distributed 50% of the current year’s
capital gains to the income
beneficiaries (and reflects this amount
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in column (1), line 15 of Schedule D
(Form 1041)), but under the governing
instrument all capital gains are
attributable to income, then include
100% of the capital gains on line 3. If
the amount on Schedule D (Form
1041), line 15, column (1) is a net loss,
enter zero.
If the exclusion of gain from the sale
or exchange of QSB stock was
claimed, do not reduce the gain on line
3 by any amount excluded under
section 1202.
Line 5
In figuring the amount of long-term and
short-term capital gain for the tax year
included on Schedule A, line 1, the
specific provisions of the governing
instrument control if the instrument
specifically provides as to the source
from which amounts are paid,
permanently set aside, or to be used for
charitable purposes.
In all other cases, determine the
amount to enter by multiplying line 1 of
Schedule A by a fraction, the numerator
of which is the amount of net capital
gains that are included in the
accounting income of the estate or trust
(that is, not allocated to corpus) and are
distributed to charities, and the
denominator of which is all items of
income (including the amount of such
net capital gains) included in the DNI.
Reduce the amount on line 5 by any
allocable section 1202 exclusion.
Line 8—Accounting Income
If you are filing for a decedent’s estate
or a simple trust, skip this line. If you
are filing for a complex trust, enter the
income for the tax year determined
under the terms of the governing
instrument and applicable local law. Do
not include extraordinary dividends or
taxable stock dividends determined
under the governing instrument and
applicable local law to be allocable to
corpus.
Lines 9 and 10
Do not include any:
• Amounts deducted on prior year’s
return that were required to be
distributed in the prior year;
• Amount that is properly paid or
credited as a gift or bequest of a
specific amount of money or specific
property. (To qualify as a gift or
bequest, the amount must be paid in
three or fewer installments.) An amount
that can be paid or credited only from
income is not considered a gift or
bequest; or
• Amount paid or permanently set
aside for charitable purposes or
otherwise qualifying for the charitable
deduction.
Line 9—Income Required To Be
Distributed Currently
Line 9 is to be completed by all simple
trusts as well as complex trusts and
decedent’s estates that are required to
distribute income currently, whether it is
distributed or not. The determination of
whether trust income is required to be
distributed currently depends on the
terms of the governing instrument and
the applicable local law.
The line 9 distributions are referred
to as first tier distributions and are
deductible by the estate or trust to the
extent of the DNI. The beneficiary
includes such amounts in his or her
income to the extent of his or her
proportionate share of the DNI.
Line 10—Other Amounts Paid,
Credited, or Otherwise
Required To Be Distributed
Line 10 is to be completed only by a
decedent’s estate or complex trust.
These distributions consist of any other
amounts paid, credited, or required to
be distributed and are referred to as
second tier distributions. Such amounts
include annuities to the extent not paid
out of income, mandatory and
discretionary distributions of corpus,
and distributions of property in kind.
If Form 1041-T was timely filed to
elect to treat estimated tax payments
as made by a beneficiary, the
payments are treated as paid or
credited to the beneficiary on the last
day of the tax year and must be
included on line 10.
Unless a section 643(e)(3) election
is made, the value of all noncash
property actually paid, credited, or
required to be distributed to any
beneficiaries is the smaller of:
1. The estate’s or trust’s adjusted
basis in the property immediately
before distribution, plus any gain or
minus any loss recognized by the
estate or trust on the distribution (basis
of beneficiary), or
2. The FMV of such property.
If a section 643(e)(3) election is
made by the fiduciary, then the amount
entered on line 10 will be the FMV of
the property.
A fiduciary of a complex trust or a
decedent’s estate may elect to treat
any amount paid or credited to a
beneficiary within 65 days following the
close of the tax year as being paid or
credited on the last day of that tax year.
To make this election, see the
instructions for Question 6 on page 28.
The beneficiary includes the
amounts on line 10 in his or her income
only to the extent of his or her
proportionate share of the DNI.
-25-
Complex trusts. If the second tier
distributions exceed the DNI allocable
to the second tier, the trust may have
an accumulation distribution. See the
line 11 instructions below.
Line 11—Total Distributions
If line 11 is more than line 8, and you
are filing for a complex trust that has
previously accumulated income, see
the instructions on page 44 to see if
you must complete Schedule J (Form
1041).
Line 12—Adjustment for
Tax-Exempt Income
In figuring the income distribution
deduction, the estate or trust is not
allowed a deduction for any item of the
DNI that is not included in the gross
income of the estate or trust. Thus, for
purposes of figuring the allowable
income distribution deduction, the DNI
(line 7) is figured without regard to any
tax-exempt interest.
If tax-exempt interest is the only
tax-exempt income included in the total
distributions (line 11), and the DNI (line
7) is less than or equal to line 11, then
enter on line 12 the amount from line 2.
If tax-exempt interest is the only
tax-exempt income included in the total
distributions (line 11), and the DNI is
more than line 11 (that is, the estate or
trust made a distribution that is less
than the DNI), then figure the
adjustment by multiplying line 2 by a
fraction, the numerator of which is the
total distributions (line 11), and the
denominator of which is the DNI (line
7). Enter the result on line 12.
If line 11 includes tax-exempt
income other than tax-exempt interest,
figure line 12 by subtracting the total of
the following from tax-exempt income
included on line 11:
1. The charitable contribution
deduction allocable to such tax-exempt
income, and
2. Expenses allocable to tax-exempt
income.
Expenses that are directly allocable
to tax-exempt income are allocated only
to tax-exempt income. A reasonable
proportion of expenses indirectly
allocable to both tax-exempt income
and other income must be allocated to
each class of income.
Schedule G—Tax
Computation
Line 1a
2007 tax rate schedule. For tax years
beginning in 2007, figure the tax using
the Tax Rate Schedule below and enter
the tax on line 1a. However, see the
Page 26 of 52
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Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
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instructions for Schedule D and the
Qualified Dividends Tax Worksheet
below.
Line 2a—Foreign Tax Credit
2007 Tax Rate Schedule
If taxable
income
is:
Over —
$0
2,150
5,000
7,650
10,450
But not
over —
$2,150
5,000
7,650
10,450
-----
Its tax is:
15%
$322.50 + 25%
1,035.00 + 28%
1,777.00 + 33%
2,701.00 + 35%
Alternative fuel vehicle refueling
property credit. Complete and attach
Form 8911, Alternative Fuel Vehicle
Refueling Property Credit, if the estate
claims a credit for alternative fuel
vehicle refueling property. Include the
credit for nondepreciable property on
line 2b.
deduction claimed on line 19 of Form
1041 if the estate or trust received
qualified dividends that were IRD.
Of the
amount
over —
$0
2,150
5,000
7,650
10,450
Schedule D and Schedule D Tax
Worksheet. Use Part V of Schedule D
or the Schedule D Tax Worksheet,
whichever is applicable, to figure the
estate’s or trust’s tax if the estate or
trust files Schedule D and has:
• A net capital gain and any taxable
income, or
• Qualified dividends on line 2b(2) of
Form 1041 and any taxable income.
Qualified Dividends Tax Worksheet.
If you do not have to complete Part I or
Part II of Schedule D and the estate or
trust has an amount entered on line
2b(2) of Form 1041 and any taxable
income (line 22), then figure the
estate’s or trust’s tax using the
worksheet below and enter the tax on
line 1a.
Note. You must reduce the amount
you enter on line 2b(2) of Form 1041 by
the portion of the section 691(c)
Attach Form 1116, Foreign Tax Credit
(Individual, Estate, or Trust), if you elect
to claim credit for income or profits
taxes paid or accrued to a foreign
country or a U.S. possession. The
estate or trust may claim credit for that
part of the foreign taxes not allocable to
the beneficiaries (including charitable
beneficiaries). Enter the estate’s or
trust’s share of the credit on line 2a.
See Pub. 514, Foreign Tax Credit for
Individuals, for details.
Line 2c—General Business
Credit
Do not include any amounts that
are allocated to a beneficiary.
CAUTION Credits that are allocated
between the estate or trust and the
beneficiaries are listed in the
instructions for Schedule K-1, box 13,
on page 49. Generally, these credits
are apportioned on the basis of the
income allocable to the estate or trust
and the beneficiaries.
Enter on line 2c the estate’s or
trust’s total general business credit.
If the estate or trust is filing Form
8844, Empowerment Zone and
Renewal Community Employment
Credit; Form 6478, Credit for Alcohol
Used as Fuel; Form 5884, Work
Opportunity Credit; Form 8846, Credit
for Employer Social Security and
Medicare Taxes Paid on Certain
Employee Tips; or Form 8835,
Renewable Electricity, Refined Coal,
and Indian Coal Production Credit that
has a credit from Section B, check the
“Forms” box, enter the form number in
the space provided, and include the
allowable credit on line 2c.
!
Line 2b—Other Nonbusiness
Credits
Qualified electric vehicle credit. This
credit does not apply to vehicles placed
in service after 2006. However, if the
estate or trust receives a 2006
Schedule K-1 from a partnership or an
S corporation that is reportable in 2007
or has an unallowed passive activity
credit from a prior year, it may be able
to take the credit. If the credit is
reported on Form 1041, compete and
attach Form 8834, Qualified Electric
Vehicle Credit.
Alternative motor vehicle credit.
Complete and attach Form 8910,
Alternative Motor Vehicle Credit, if the
estate claims a credit for alternative
motor vehicles. Include the credit for
nondepreciable property on line 2b.
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.
1. Enter the amount from Form 1041, line 22 . . . . . . . . . . . . . . . . . . .
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 -03.
4. Subtract line 3 from line 2. If zero or less, enter -0- . . . . . . . . . . . . .
5. Subtract line 4 from line 1. If zero or less, enter -0- . . . . . . . . . . . . .
6. Enter the smaller of the amount on line 1 or $2,150 . . . . . . . . . . . .
7. Is the amount on line 5 equal to or more than the amount on line 6?
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
.......
1.
.......
.......
.......
4.
5.
6.
Yes. Skip lines 7 through 9; go to line 10 and check the ‘‘No’’ box.
No. Enter the amount from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.
Subtract line 7 from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
Multiply line 8 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Are the amounts on lines 4 and 8 the same?
Yes. Skip lines 10 through 13; go to line 14.
No. Enter the smaller of line 1 or line 4 . . . . . . . . . . . . . . . . . . . . . . . . 10.
Enter the amount from line 8 (if line 8 is blank, enter -0-) . . . . . . . . . . . . . . . . 11.
Subtract line 11 from line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
Multiply line 12 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Figure the tax on the amount on line 5. Use the 2007 Tax Rate Schedule . . . . . . . . . . . . . . .
Add lines 9, 13, and 14 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Figure the tax on the amount on line 1. Use the 2007 Tax Rate Schedule . . . . . . . . . . . . . . .
Tax on all taxable income. Enter the smaller of line 15 or line 16 here and on Sch. G, line 1a
-26-
....
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
9.
13.
14.
15.
16.
17.
Page 27 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
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D
D
D
The estate or trust must file Form
3800, General Business Credit, to claim
any of the following general business
credits listed on that form. If the estate
or trust claims any of these credits,
check the “Form 3800” box and include
the allowable credit on line 2c. Do not
enter on line 2c any of the source credit
form numbers listed below for any
credit claimed on Form 3800.
• Investment credit (Form 3468).
• Welfare-to-work credit (Form 8861).
• Credit for increasing research
activities (Form 6765).
• Low-income housing credit (Form
8586).
• Disabled access credit (Form 8826).
• Renewable electricity, refined coal,
and Indian coal production credit (Form
8835, Section A only).
• Indian employment credit (Form
8845).
• Orphan drug credit (Form 8820).
• New markets credit (Form 8874).
• Credit for small employer pension
plan startup costs (Form 8881).
• Credit for employer-provided child
care facilities and services (Form
8882).
• Qualified railroad track maintenance
credit (Form 8900).
• Biodiesel and renewable diesel fuels
credit (Form 8864).
• Low sulfur diesel fuel production
credit (Form 8896).
• Distilled spirits credit (Form 8906).
• Nonconventional source fuel credit
(Form 8907).
• Energy efficient home credit (Form
8908).
• Energy efficient appliance credit
(Form 8909).
• Alternative motor vehicle credit (Form
8910).
• Alternative fuel vehicle refueling
property credit (Form 8911).
• Mine rescue team training credit
(Form 8923).
• Credit for contributions to selected
community development corporations
(Form 8847).
• General credits from an electing
large partnership. Report these credits
on Form 3800, line 1x.
• Hurricane Katrina housing credits.
Report on Form 3800, line 1u.
Line 2d—Credit for Prior
Year Minimum Tax
An estate or trust that paid alternative
minimum tax in a previous year may be
eligible for a minimum tax credit in
2007. See Form 8801, Credit for Prior
Year Minimum Tax — Individuals,
Estates, and Trusts.
Line 3—Total Credits
Qualified zone academy bond credit.
If the estate or trust received a qualified
zone academy bond credit as a
shareholder in an S corporation, include
the credit in the line 3 total. To figure
the amount of the allowable credit, the
estate or trust must complete Form
8860, Qualified Zone Academy Bond
Credit. On the dotted line to the left of
the entry, write “QZAB” and the amount
of the credit.
Clean renewable energy bond
(CREB) and Gulf tax credit bond
(GTCB) credits. Complete and attach
Form 8912, Credit for Clean Renewable
Energy and Gulf Tax Credit Bonds, if
the estate or trust claims a credit for
holding a CREB or GTCB. Include the
credit on line 3. On the dotted line to
the left of the entry, write “CREB” or
“GTCB” and the amount of the credit.
Also, see the instructions for Form 8912
to determine if the estate or trust must
include the amount of the credit in
interest income.
Line 5—Recapture Taxes
Recapture of investment credit. If
the estate or trust disposed of
investment credit property or changed
its use before the end of the recapture
period, see Form 4255, Recapture of
Investment Credit, to figure the
recapture tax allocable to the estate or
trust.
Recapture of low-income housing
credit. If the estate or trust disposed
of property (or there was a reduction in
the qualified basis of the property) on
which the low-income housing credit
was claimed, see Form 8611,
Recapture of Low-Income Housing
Credit, to figure any recapture tax
allocable to the estate or trust.
Recapture of qualified electric
vehicle credit. If the estate or trust
claimed the qualified electric vehicle
credit in a prior tax year for a vehicle
that ceased to qualify for the credit, part
or all of the credit may have to be
recaptured. See Pub. 535 for details. If
the estate or trust owes any recapture
tax, include it on line 5 and write
“QEVCR” on the dotted line to the left
of the entry space.
Recapture of the Indian employment
credit. Generally, if the estate or trust
terminates a qualified employee less
than 1 year after the date of initial
employment, any Indian employment
credit allowed for a prior tax year by
reason of wages paid or incurred to that
employee must be recaptured. See
Form 8845 for details. If the estate or
trust owes any recapture tax, include it
on line 5 and write “IECR” on the dotted
line to the left of the entry space.
Recapture of the new markets credit.
If the estate or trust owes any new
markets recapture tax, include it on line
5 and write “NMCR” on the dotted line
to the left of the entry space. For more
-27-
information, including how to figure the
recapture amount, see section 45D(g).
Recapture of the credit for
employer-provided child care
facilities. If the facility ceased to
operate as a qualified child care facility
or there was a change in ownership,
part or all of the credit may have to be
recaptured. See Form 8882 for details.
If the estate or trust owes any recapture
tax, include it on line 5 and write
“ECCFR” on the dotted line to the left of
the entry space.
Line 6—Household
Employment Taxes
If any of the following apply, get
Schedule H (Form 1040), Household
Employment Taxes, and its instructions,
to see if the estate or trust owes these
taxes.
1. The estate or trust paid any one
household employee cash wages of
$1,500 or more in 2007. Cash wages
include wages paid by checks, money
orders, etc. When figuring the amount
of cash wages paid, combine cash
wages paid by the estate or trust with
cash wages paid to the household
employee in the same calendar year by
the household of the decedent or
beneficiary for whom the administrator,
executor, or trustee of the estate or
trust is acting.
2. The estate or trust withheld
federal income tax during 2007 at the
request of any household employee.
3. The estate or trust paid total cash
wages of $1,000 or more in any
calendar quarter of 2006 or 2007 to
household employees.
Line 7—Total Tax
Tax on electing small business
trusts (ESBTs). Attach the tax
computation to the return. To the left of
the line 7 entry space, write “Sec.
641(c)” and the amount of tax on the S
corporation items. Include this amount
in the total tax on line 7.
See Electing Small Business Trusts
on page 8 for the special tax
computation rules that apply to the
portion of an ESBT consisting of stock
in one or more S corporations.
Interest on deferred tax attributable
to installment sales of certain
timeshares and residential lots and
certain nondealer real property
installment obligations. If an
obligation arising from the disposition of
real property to which section 453(l) or
453A applies is outstanding at the close
of the year, the estate or trust must
include the interest due under section
453(l)(3)(B) or 453A(c), whichever is
applicable, in the amount to be entered
on line 7 of Schedule G, Form 1041,
with the notation “Section 453(l)
Page 28 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
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interest” or “Section 453A(c) interest,”
whichever is applicable. Attach a
schedule showing the computation.
Form 4970, Tax on Accumulation
Distribution of Trusts. Include on this
line any tax due on an accumulation
distribution from a trust. To the left of
the entry space, write “From Form
4970” and the amount of the tax.
Form 8697, Interest Computation
Under the Look-Back Method for
Completed Long-Term Contracts.
Include the interest due under the
look-back method of section 460(b)(2).
To the left of the entry space, write
“From Form 8697” and the amount of
interest due.
Form 8866, Interest Computation
Under the Look-Back Method for
Property Depreciated Under the
Income Forecast Method. Include
the interest due under the look-back
method of section 167(g)(2). To the left
of the entry space, write “From Form
8866” and the amount of interest due.
Interest on deferral of gain from
certain constructive ownership
transactions. Include the interest due
under section 1260(b) on any deferral
of gain from certain constructive
ownership transactions. To the left of
the entry space, write “1260(b)” and the
amount of interest due.
Form 5329, Additional Taxes on
Qualified Plans (Including IRAs) and
Other Tax-Favored Accounts. If the
estate or trust fails to receive the
minimum distribution under section
4974, use Form 5329 to pay the excise
tax. To the left of the entry space, write
“From Form 5329” and the amount of
the tax.
Other Information
Question 1
If the estate or trust received
tax-exempt income, figure the allocation
of expenses between tax-exempt and
taxable income on a separate sheet
and attach it to the return. Enter only
the deductible amounts on the return.
Do not figure the allocation on the
return itself. For more information, see
the instructions for Allocation of
Deductions for Tax-Exempt Income on
page 18.
Report the amount of tax-exempt
interest income received or accrued in
the space provided below Question 1.
Also, include any exempt-interest
dividends the estate or trust received
as a shareholder in a mutual fund or
other regulated investment company.
Question 2
All salaries, wages, and other
compensation for personal services
must be included on the return of the
person who earned the income, even if
the income was irrevocably assigned to
a trust by a contract assignment or
similar arrangement.
The grantor or person creating the
trust is considered the owner if he or
she keeps “beneficial enjoyment” of or
substantial control over the trust
property. The trust’s income,
deductions, and credits are allocable to
the owner.
If you checked “Yes” for Question 2,
see Special Filing Instructions for
Grantor Type Trusts, Pooled Income
Funds, and Electing Small Business
Trusts on page 6.
Question 3
Check the “Yes” box and enter the
name of the foreign country if either 1
or 2 below applies.
1. The estate or trust owns more
than 50% of the stock in any
corporation that owns one or more
foreign bank accounts.
2. At any time during the year the
estate or trust had an interest in or
signature or other authority over a
bank, securities, or other financial
account in a foreign country.
Exception. Check “No” if either of the
following applies to the estate or trust:
• The combined value of the accounts
was $10,000 or less during the whole
year, or
• The accounts were with a U.S.
military banking facility operated by a
U.S. financial institution.
Get Form TD F 90-22.1, Report of
Foreign Bank and Financial Accounts,
to see if the estate or trust is
considered to have an interest in or
signature or other authority over a
bank, securities, or other financial
account in a foreign country. You can
get Form TD F 90-22.1 from the IRS
website at www.irs.gov/pub/irs-pdf/
f9022-1.pdf. 2008
If you checked “Yes” for Question 3,
file Form TD F 90-22.1 by June 30,
2007, with the Department of the
Treasury at the address shown on the
form. Form TD F 90-22.1 is not a tax
return, so do not file it with Form 1041.
If you are required to file Form
TD F 90-22.1 but do not, you
CAUTION may have to pay a penalty of up
to $10,000 (more in some cases).
!
Question 4
The estate or trust may be required to
file Form 3520, Annual Return To
Report Transactions With Foreign
Trusts and Receipt of Certain Foreign
Gifts, if:
• It directly or indirectly transferred
property or money to a foreign trust.
-28-
For this purpose, any U.S. person who
created a foreign trust is considered a
transferor;
• It is treated as the owner of any part
of the assets of a foreign trust under
the grantor trust rules; or
• It received a distribution from a
foreign trust.
An owner of a foreign trust must
TIP ensure that the trust files an
annual information return on
Form 3520-A, Annual Information
Return of Foreign Trust With a U.S.
Owner.
Question 5
An estate or trust claiming an interest
deduction for qualified residence
interest (as defined in section
163(h)(3)) on seller-provided financing
must include on an attachment to the
2007 Form 1041 the name, address,
and taxpayer identifying number of the
person to whom the interest was paid
or accrued (that is, the seller).
If the estate or trust received or
accrued such interest, it must provide
identical information on the person
liable for such interest (that is, the
buyer). This information does not need
to be reported if it duplicates
information already reported on Form
1098.
Question 6
To make the section 663(b) election to
treat any amount paid or credited to a
beneficiary within 65 days following the
close of the tax year as being paid or
credited on the last day of that tax year,
check the box. This election can be
made by the fiduciary of a complex
trust or the executor of a decedent’s
estate. For the election to be valid, you
must file Form 1041 by the due date
(including extensions). Once made, the
election is irrevocable.
Question 7
To make the section 643(e)(3) election
to recognize gain on property
distributed in kind, check the box and
see the instructions for Schedule D
(Form 1041).
Question 9
Generally, a beneficiary is a skip
person if the beneficiary is in a
generation that is two or more
generations below the generation of the
transferor to the trust.
To determine if a beneficiary that is a
trust is a skip person, and for
exceptions to the general rules, see the
definition of a skip person in the
instructions for Schedule R of Form
706.
Page 29 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
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Schedule I—Alternative
Minimum Tax
General Instructions
Use Schedule I to compute:
1. The estate’s or trust’s alternative
minimum taxable income;
2. The income distribution deduction
on a minimum tax basis; and
3. The estate’s or trust’s alternative
minimum tax (AMT).
Who Must Complete
• Complete Schedule I, Parts I and II, if
the estate or trust is required to
complete Schedule B.
• Complete Schedule I if the estate’s or
trust’s share of alternative minimum
taxable income (Part I, line 29) exceeds
$22,500.
• Complete Schedule I if the estate or
trust claims a credit on line 2b, 2c, or
2d of Schedule G.
Recordkeeping
Schedule I contains adjustments and
tax preference items that are treated
differently for regular tax and AMT
purposes. If you, as fiduciary for the
estate or trust, completed a form to
figure an item for regular tax purposes,
you may have to complete it a second
time for AMT purposes. Generally, the
difference between the amounts on the
two forms is the AMT adjustment or tax
preference item to enter on Schedule I.
Except for Form 1116, any additional
form completed for AMT purposes does
not have to be filed with Form 1041.
For regular tax purposes, some
deductions and credits may result in
carrybacks or carryforwards to other tax
years. Examples are: investment
interest expense; a net operating loss
deduction; a capital loss; and the
foreign tax credit. Because these items
may be refigured for the AMT, the
carryback or carryforward amount may
be different for regular and AMT
purposes. Therefore, you should keep
records of these different carryforward
and carryback amounts for the AMT
and regular tax. The AMT carryforward
will be important in completing
2008
Schedule I for 2007.
Credit for Prior Year Minimum
Tax
Estates and trusts that paid alternative
minimum tax in 2006, or had a
minimum tax credit carryforward from
the 2006 Form 8801, may be eligible
for a minimum tax credit in 2007. See
Form 8801.
Partners and Shareholders
An estate or trust that is a partner in a
partnership or a shareholder in an S
corporation must take into account its
share of items of income and
deductions that enter into the
computation of its adjustments and tax
preference items.
Allocation of Deductions to
Beneficiaries
The distributable net alternative
minimum taxable income (DNAMTI) of
the estate or trust does not include
amounts of depreciation, depletion, and
amortization that are allocated to the
beneficiaries, just as the DNI of the
estate or trust does not include these
items for regular tax purposes.
Report separately in box 12 of
Schedule K-1 (Form 1041) any
adjustments or tax preference items
attributable to depreciation (code G),
depletion (code H), and amortization
(code I) that were allocated to the
beneficiaries.
Optional Write-Off for Certain
Expenditures
There is no AMT adjustment for the
following items if the estate or trust
elects to deduct them ratably over the
period of time shown for the regular tax.
• Circulation expenditures — 3 years
(section 173).
• Research and experimental
expenditures — 10 years (section 174).
• Intangible drilling costs — 60 months
(section 263(c)).
• Mining exploration and development
costs — 10 years (sections 616(a) and
617(a)).
The election must be made in the
year the expenditure was made and
may be revoked only with IRS consent.
See section 59(e) and Regulations
section 1.59-1 for more details.
Specific Instructions
Part I—Estate’s or Trust’s
Share of Alternative Minimum
Taxable Income
Line 2—Interest
In determining the alternative minimum
taxable income, qualified residence
interest (other than qualified housing
interest defined in section 56(e)) is not
allowed.
If you completed Form 4952 for
regular tax purposes, you may have an
adjustment on this line. Refigure your
investment interest expense on a
separate AMT Form 4952 as follows.
Step 1. On line 1 of the AMT Form
4952, follow the instructions for that
line, but also include the following
amounts.
• Any qualified residence interest
(other than qualified housing interest)
that was paid or accrued on a loan or
part of a loan that is allocable to
-29-
property held for investment as defined
in section 163(d)(5) (for example,
interest on a home equity loan whose
proceeds were invested in stocks or
bonds).
• Any interest that would have been
deductible if interest on specified
private activity bonds had been
included in income. See the instructions
for line 8 for the definition of specified
private activity bonds.
Step 2. On line 2, enter the AMT
disallowed investment interest expense
from 2006.
Step 3. When completing Part II of the
AMT Form 4952, refigure gross income
from property held for investment, any
net gain from the disposition of property
held for investment, net capital gain
from the disposition of property held for
investment, and any investment
expenses, taking into account all AMT
adjustments and tax preference items
that apply. Include any interest income
and investment expenses from private
activity bonds issued after August 7,
1986.
When completing line 4g of the AMT
Form 4952, enter the smaller of:
• The amount from line 4g of the
regular tax Form 4952, or
• The total of lines 4b and 4e of the
AMT Form 4952.
Step 4. Complete Part III.
Enter on Schedule I, line 2, the
difference between line 8 of the AMT
Form 4952 and line 8 of the regular tax
Form 4952. If the AMT deduction is
greater, enter the difference as a
negative amount.
Line 3—Taxes
Enter any state, local, or foreign real
property taxes; state or local personal
property taxes; state, local, or foreign
income taxes; and any state and local
general sales taxes that were included
on line 11 of page 1.
Line 5—Refund of Taxes
Enter any refunds received in 2007 of
taxes described for line 3 above and
included in income.
Line 6—Depletion
Refigure the depletion deduction for
AMT purposes by using only the
income and deductions allowed for the
AMT when refiguring the limit based on
taxable income from the property under
section 613(a) and the limit based on
taxable income, with certain
adjustments, under section 613A(d)(1).
Also, the depletion deduction for mines,
wells, and other natural deposits under
section 611 is limited to the property’s
adjusted basis at the end of the year,
as refigured for the AMT, unless the
estate or trust is an independent
producer or royalty owner claiming
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percentage depletion for oil and gas
wells. Figure this limit separately for
each property. When refiguring the
property’s adjusted basis, take into
account any AMT adjustments made
this year or in previous years that affect
basis (other than the current year’s
depletion).
Enter on line 6 the difference
between the regular tax and AMT
deduction. If the AMT deduction is
more than the regular tax deduction,
enter the difference as a negative
amount.
Line 7—Net Operating Loss
Deduction
Enter any net operating loss deduction
(NOLD) from line 15a of page 1 as a
positive amount.
Line 8—Interest From Specified
Private Activity Bonds Exempt
From the Regular Tax
Enter the interest earned from specified
private activity bonds reduced (but not
below zero) by any deduction that
would have been allowable if the
interest were includible in gross income
for regular tax purposes. Each payer of
this type of interest may send a Form
1099-INT to the estate or trust showing
the amount of this interest in box 9.
Specified private activity bonds are any
qualified bonds (as defined in section
141) issued after August 7, 1986. See
section 57(a)(5) for more information.
Do not include interest on qualified
Gulf Opportunity Zone bonds described
in section 1400N(a). Exempt-interest
dividends paid by a regulated
investment company are treated as
interest from specified private activity
bonds to the extent the dividends are
attributable to interest received by the
company on the bonds, minus an
allocable share of the expenses paid or
incurred by the company in earning the
interest. This amount may also be
reported to the estate or trust on Form
1099-INT in box 9.
Line 9—Qualified Small
Business Stock
If the estate or trust claimed the
exclusion under section 1202 for gain
on QSB stock held more than 5 years,
multiply the excluded gain (as shown
on Schedule D (Form 1041)) by 7%
(.07). Enter the result on line 9 as a
positive amount.
Line 10—Exercise of Incentive
Stock Options
For regular tax purposes, no income is
recognized when an incentive stock
option (as defined in section 422(b)) is
exercised. However, this rule does not
apply for AMT purposes. Instead, the
estate or trust must generally include
on line 10 the excess, if any, of:
1. The FMV of the stock acquired
through exercise of the option
(determined without regard to any lapse
restriction) when its rights in the
acquired stock first become
transferable or when these rights are
no longer subject to a substantial risk of
forfeiture, over
2. The amount paid for the stock,
including any amount paid for the
option used to acquire the stock.
Even if the estate’s or trust’s
TIP rights in the stock are not
transferable and are subject to a
substantial risk of forfeiture, you may
elect to include in AMT income the
excess of the stock’s FMV (determined
without regard to any lapse restriction)
over the exercise price upon the
transfer to the estate or trust of the
stock acquired through exercise of the
option. See section 83(b) for more
details. The election must be made no
later than 30 days after the date of
transfer.
If the estate or trust acquired stock
by exercising an option and it disposed
of that stock in the same year, the tax
treatment under the regular tax and the
AMT is the same, and no adjustment is
required.
Increase the AMT basis of any stock
acquired through the exercise of an
incentive stock option by the amount of
the adjustment.
Line 11—Other Estates and
Trusts
If the estate or trust is the beneficiary of
another estate or trust, enter the
adjustment for minimum tax purposes
from box 12, code A, Schedule K-1
(Form 1041).
Line 12—Electing Large
Partnerships
If the estate or trust is a partner in an
electing large partnership, enter on line
12 the amount from Schedule K-1
(Form 1065-B), box 6. Take into
account any amount from Schedule K-1
(Form 1065-B), box 5, when figuring the
amount to enter on line 15.
Line 13—Disposition of
Property
Use this line to report any AMT
adjustment related to the disposition of
property resulting from refiguring:
1. Gain or loss from the sale,
exchange, or involuntary conversion of
property reported on Form 4797, Sales
of Business Property;
2. Casualty gain or loss to business
or income-producing property reported
on Form 4684, Casualties and Thefts;
3. Ordinary income from the
disposition of property not taken into
account in 1 or 2 above or on any other
-30-
line on Schedule I, such as a
disqualifying disposition of stock
acquired in a prior year by exercising
an incentive stock option; and
4. Capital gain or loss (including any
carryover that is different for the AMT)
reported on Schedule D (Form 1041).
!
CAUTION
The $3,000 capital loss
limitation for the regular tax
applies separately for the AMT.
First, figure any ordinary income
adjustment related to 3 above. Then,
refigure Form 4684, Form 4797, and
Schedule D for the AMT, if applicable,
by taking into account any adjustments
you made this year or in previous years
that affect the estate’s or trust’s basis
or otherwise result in a different amount
for AMT. If the estate or trust has a
capital loss after refiguring Schedule D
for the AMT, apply the $3,000 capital
loss limitation separately to the AMT
loss. For each of the four items listed
above, figure the difference between
the amount included in taxable income
for the regular tax and the amount
included in income for the AMT. Treat
the difference as a negative amount if
(a) both the AMT and regular tax
amounts are zero or more and the AMT
amount is less than the regular tax
amount or (b) the AMT amount is a
loss, and the regular tax amount is a
smaller loss, or zero or more.
Enter on line 13 the combined
adjustments for the four items earlier.
Line 14—Depreciation of
Assets Placed in Service After
1986
This section describes when
depreciation must be refigured for the
AMT and how to figure the amount to
enter on line 14.
Do not include on this line any
depreciation adjustment from:
• An activity for which the estate or
trust is not at risk or income or loss
from a partnership or an S corporation
if the basis limitations under section
704(d) or 1366(d) apply. Take this
adjustment into account on line 16;
• A tax shelter farm activity. Take this
adjustment into account on line 23; or
• A passive activity. Take this
adjustment into account on line 15.
What depreciation must be refigured
for the AMT? Generally, you must
refigure depreciation for the AMT,
including depreciation allocable to
inventory costs, for:
• Property placed in service after 1998
that is depreciated for the regular tax
using the 200% declining balance
method (generally 3-, 5-, 7-, or 10-year
property under the modified cost
recovery system (MACRS)),
• Section 1250 property placed in
service after 1998 that is not
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depreciated for the regular tax using
the straight line method, and
• Tangible property placed in service
after 1986 and before 1999. If the
transitional election was made under
section 203(a)(1)(B) of the Tax Reform
Act of 1986, this rule applies to property
placed in service after July 31, 1986.
What depreciation is not refigured
for the AMT? Do not refigure
depreciation for the AMT for the
following items.
• Residential rental property placed in
service after 1998.
• Nonresidential real property with a
class life of 27.5 years or more placed
in service after 1998 that is depreciated
for the regular tax using the straight line
method.
• Other section 1250 property placed
in service after 1998 that is depreciated
for the regular tax using the straight line
method.
• Property (other than section 1250
property) placed in service after 1998
that is depreciated for the regular tax
using the 150% declining balance
method or the straight line method.
• Property for which you elected to use
the alternative depreciation system
(ADS) of section 168(g) for the regular
tax.
• Qualified property that is or was
eligible for the special depreciation
allowance under section 168(k), 168(l)
(in the case of qualified cellulosic
biomass ethanol plant property),
1400L(b) (in the case of qualified New
York Liberty Zone property), or
1400N(d) (in the case of qualified Gulf
Opportunity Zone property) if the
depreciable basis of the property for the
AMT is the same as for the regular tax.
The special allowance is deductible for
the AMT, and there also is no
adjustment required for any
depreciation figured on the remaining
basis of the qualified property if the
depreciable basis of the property for the
AMT is the same as for the regular tax.
Property for which an election is in
effect to not have the special allowance
apply is not qualified property. See
section 168(k) for the definition of
qualified property, 168(l) for the
definition of qualified cellulosic biomass
ethanol plan property, 1400L(b)(2) for
the definition of qualified New York
Liberty Zone property, and 1400N(d)(2)
for the definition of qualified Gulf
Opportunity Zone property.
• Motion picture films, videotapes, or
sound recordings.
• Property depreciated under the
unit-of-production method or any other
method not expressed in a term of
years.
• Qualified Indian reservation property.
• Qualified revitalization expenditures
for a building for which you elected to
claim the commercial revitalization
deduction under section 1400I.
• A natural gas gathering line placed in
service after April 11, 2005.
How is depreciation refigured for the
AMT?
Property placed in service before
1999. Refigure depreciation for the
AMT using ADS with the same
convention used for the regular tax.
See the table below for the method and
recovery period to use.
Property Placed in Service Before 1999
IF the property is... THEN use the...
Section 1250
property.
Straight line method
over 40 years.
Tangible property
(other than section
1250 property)
depreciated using
straight line for the
regular tax.
Straight line method
over the property’s
AMT class life.
Any other tangible
property.
150% declining
balance method,
switching to straight
line the first tax year
it gives a larger
deduction, over the
property’s AMT
class life.
Property placed in service after
1998. Use the same convention and
recovery period used for the regular
tax. For property other than section
1250 property, use the 150% declining
balance method, switching to straight
line the first tax year it gives a larger
deduction. For section 1250 property,
use the straight line method.
How is the AMT class life
determined? The class life used for
the AMT is not necessarily the same as
the recovery period used for the regular
tax. The class lives for the AMT are
listed in Rev. Proc. 87-56, 1987-2 C.B.
674, and in Pub. 946, How To
Depreciate Property. Use 12 years for
any tangible personal property
not assigned a class life.
See Pub. 946 for optional tables
TIP that can be used to figure AMT
depreciation. Rev. Proc. 89-15,
1989-1 C.B. 816, has special rules for
short tax years and for property
disposed of before the end of the
recovery period.
How is the line 14 adjustment
figured? Subtract the AMT deduction
for depreciation from the regular tax
deduction and enter the result. If the
AMT deduction is more than the regular
tax deduction, enter the difference as a
negative amount.
In addition to the AMT adjustment to
your deduction for depreciation, you
-31-
must also adjust the amount of
depreciation that was capitalized, if any,
to account for the difference between
the rules for the regular tax and the
AMT. Include on this line the current
year adjustment to taxable income, if
any, resulting from the difference.
Line 15—Passive Activities
Do not enter again elsewhere
on this schedule any AMT
CAUTION adjustment or tax preference
item included on this line.
!
For AMT purposes, the rules
described in section 469 apply, except
that in applying the limitations,
minimum tax rules apply.
Refigure passive activity gains and
losses on an AMT basis. Refigure a
passive activity gain or loss by taking
into account all AMT adjustments or tax
preference items that pertain to that
activity.
You may complete a second Form
8582 to determine the passive activity
losses allowed for AMT purposes, but
do not send this AMT Form 8582 to the
IRS.
Enter the difference between the
loss reported on page 1 and the AMT
loss, if any.
The amount of any passive
TIP activity loss that is not
deductible (and is therefore
carried forward) for AMT purposes is
likely to differ from the amount (if any)
that is carried forward for regular tax
purposes. Therefore, it is essential that
you retain adequate records for both
AMT and regular tax purposes.
Publicly traded partnerships (PTPs).
If the estate or trust had a loss from a
PTP, refigure the loss using any AMT
adjustments, tax preference items, and
any AMT prior year unallowed loss.
Line 16—Loss Limitations
If the loss is from a passive
activity, use line 15 instead. If
CAUTION the loss is from a tax shelter
farm activity (that is not passive), use
line 23.
!
Refigure your allowable losses for
AMT purposes from activities for which
you are not at risk and basis limitations
applicable to interests in partnerships
and stock in S corporations by taking
into account your AMT adjustments and
tax preference items. See sections
59(h), 465, 704(d), and 1366(d).
Enter the difference between the
loss reported for regular tax purposes
and the AMT loss. If the AMT loss is
more than the loss reported for regular
tax purposes, enter the adjustment as a
negative amount.
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Line 17—Circulation Costs
Do not make this adjustment for
expenditures for which you
CAUTION elected the optional 3-year
write-off period for regular tax
purposes.
Circulation expenditures deducted
under section 173(a) for regular tax
purposes must be amortized for AMT
purposes over 3 years beginning with
the year the expenditures were paid or
incurred.
Enter the difference between the
regular tax and AMT deduction. If the
AMT deduction is greater, enter the
difference as a negative amount.
If the estate or trust had a loss on
property for which circulation
expenditures have not been fully
amortized for the AMT, the AMT
deduction is the smaller of (a) the
amount of the loss allowable for the
expenditures had they remained
capitalized or (b) the remaining
expenditures to be amortized for the
AMT.
!
Line 18—Long-Term Contracts
For AMT purposes, the percentage of
completion method of accounting
described in section 460(b) generally
must be used. However, this rule does
not apply to any home construction
contract (as defined in section
460(e)(6)).
Note. Contracts described in section
460(e)(1) are subject to the simplified
method of cost allocation of section
460(b)(4).
Enter the difference between the
AMT and regular tax income. If the
AMT income is smaller, enter the
difference as a negative amount.
Line 19—Mining Costs
Do not make this adjustment for
costs for which you elected the
CAUTION optional 10-year write-off period
under section 59(e) for regular tax
purposes.
Expenditures for the development or
exploration of a mine or certain other
mineral deposits (other than an oil, gas,
or geothermal well) deducted under
sections 616(a) and 617(a) for regular
tax purposes must be amortized for
AMT purposes over 10 years beginning
with the year the expenditures were
paid or incurred.
Enter the difference between the
amount allowed for AMT purposes and
the amount allowed for regular tax
purposes. If the amount allowed for
AMT purposes exceeds the amount
deducted for regular tax purposes,
enter the difference as a negative
amount.
!
If the estate or trust had a loss on
property for which mining expenditures
have not been fully amortized for the
AMT, the AMT deduction is the smaller
of (a) the amount of the loss allowable
for the expenditures had they remained
capitalized or (b) the remaining
expenditures to be amortized for the
AMT.
Line 20—Research and
Experimental Costs
Do not make this adjustment for
costs paid or incurred in
CAUTION connection with an activity in
which the estate or trust materially
participated under the passive activity
rules or for costs for which you elected
the optional 10-year write-off for
research and experimental
expenditures under section 59(e) for
regular tax purposes.
!
Research and experimental
expenditures deducted under section
174(a) for regular tax purposes
generally must be amortized for AMT
purposes over 10 years beginning with
the year the expenditures were paid or
incurred.
Enter the difference between the
amount allowed for AMT purposes and
the amount allowed for regular tax
purposes. If the amount for AMT
purposes exceeds the amount allowed
for regular tax purposes, enter the
difference as a negative amount.
If the estate or trust had a loss on
property for which research and
experimental costs have not been fully
amortized for the AMT, the AMT
deduction is the smaller of (a) the loss
allowable for the costs had they
remained capitalized or (b) the
remaining costs to be amortized for the
AMT.
Line 21—Income From Certain
Installment Sales Before
January 1, 1987
The installment method does not apply
for AMT purposes to any nondealer
disposition of property that occurred
after August 16, 1986, but before the
first day of your tax year that began in
1987, if an installment obligation to
which the proportionate disallowance
rule applied arose from the disposition.
Enter on line 21 the amount of
installment sale income that was
reported for regular tax purposes.
Line 22—Intangible Drilling
Costs Preference (IDCs)
Do not make this adjustment for
costs for which you elected the
CAUTION optional 60-month write-off
under section 59(e) for regular tax
purposes.
!
-32-
IDCs from oil, gas, and geothermal
wells are a preference to the extent that
the excess IDCs exceed 65% of the net
income from the wells. Figure the
preference for all oil and gas properties
separately from the preference for all
geothermal properties.
Figure excess IDCs as follows:
1. Determine the amount of the
estate’s or trust’s IDCs allowed for the
regular tax under section 263(c), but do
not include any section 263(c)
deduction for nonproductive wells, then
2. Subtract the amount that would
have been allowed had you amortized
these IDCs over a 120-month period
starting with the month the well was
placed in production.
Cost depletion can be
substituted for the amount
CAUTION allowed using amortization over
120 months.
!
Net income. Determine net income by
reducing the gross income that the
estate or trust received or accrued
during the tax year from all oil, gas, and
geothermal wells by the deductions
allocable to those wells (reduced by the
excess IDCs). When refiguring net
income, use only income and
deductions allowed for the AMT.
Exception. The preference for IDCs
from oil and gas wells does not apply to
taxpayers who are independent
producers (that is, not integrated oil
companies as defined in section
291(b)(4)). However, this benefit may
be limited. First, figure the IDC
preference as if this exception did not
apply. For purposes of this exception,
complete and combine lines 1 through
23 of Schedule I, including the IDC
preference. If the amount of the IDC
preference exceeds 40% of the total of
lines 1 through 23, enter the excess on
line 22 (the benefit of this exception is
limited). Otherwise, do not enter an
amount on line 22 (the estate’s or
trust’s benefit from this exception is not
limited).
Line 23—Other Adjustments
Enter on line 23 the total of any other
adjustments that apply including the
following.
• Depreciation figured using
pre-1987 rules. For AMT purposes,
use the straight line method to figure
depreciation on real property. Use a
recovery period of 19 years for 19-year
real property and 15 years for
low-income housing. Enter the excess
of depreciation claimed for regular tax
purposes over depreciation refigured
using the straight line method. Figure
this amount separately for each
property and include on line 23 only
positive amounts.
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For leased personal property other
than recovery property, enter the
amount by which the regular tax
depreciation using the pre-1987 rules
exceeds the depreciation allowable
using the straight line method. For
leased 10-year recovery property and
leased 15-year public utility property,
enter the amount by which the
depreciation deduction determined for
regular tax purposes is more than the
deduction allowable using the straight
line method with a half-year convention,
no salvage value, and a recovery
period of 15 years (22 years for 15-year
public utility property). Figure this
amount separately for each property
and include on line 23 only positive
amounts.
• Patron’s adjustment. Distributions
the estate or trust received from a
cooperative may be includible in
income. Unless the distributions are
nontaxable, include on line 23 the total
AMT patronage dividend adjustment
reported to the estate or trust from the
cooperative.
• Amortization of pollution control
facilities. The amortization deduction
under section 169 must be refigured for
the AMT. For facilities placed in service
after 1986 and before 1999, figure the
amortization deduction for the AMT
using the ADS described in section
168(g). For facilities placed in service
after 1998, figure the AMT deduction
under MACRS using the straight line
method. Enter the difference between
the regular tax and AMT deduction. If
the AMT amount is greater, enter the
difference as a negative amount.
• Tax shelter farm activities. Figure
this adjustment only if the tax shelter
farm activity (as defined in section
58(a)(2)) is not a passive activity. If the
activity is passive, include it with any
other passive activities on line 15.
Refigure all gains and losses
reported for the regular tax from tax
shelter farm activities by taking into
account any AMT adjustments and
preferences. Determine tax shelter farm
activity gain or loss for the AMT using
the same rules used for the regular tax
with the following modifications. No
refigured loss is allowed, except to the
extent an estate or trust is insolvent
(see section 58(c)(1)). A refigured loss
may not be used in the current tax year
to offset gains from other tax shelter
farm activities. Instead, any refigured
loss must be suspended and carried
forward indefinitely until (a) the estate
or trust has a gain in a subsequent tax
year from the same activity or (b) the
activity is disposed of.
The AMT amount of any tax shelter
farm activity loss that is not deductible
and is carried forward is likely to differ
from the regular tax amount. Keep
adequate records for both the AMT and
regular tax.
Enter the difference between the
amount that would be reported for the
activity on Schedule E or F for the AMT
and the regular tax amount. If (a) the
AMT loss is more than the regular tax
loss, (b) the AMT gain is less than the
regular tax gain, or (c) there is an AMT
loss and a regular tax gain, then enter
the adjustment as a negative amount.
Enter any adjustment for amounts
reported on Schedule D, Form 4684, or
Form 4797 for the activity on line 13
instead.
• Alcohol fuel credit or biodiesel
and renewable diesel fuels credit. If
the adjusted total income (line 17, of
page 1) includes the amount of the
alcohol fuel credit or the biodiesel and
renewable diesel fuels credit under
section 87, include that amount as a
negative amount on line 23.
• Related adjustments. AMT
adjustments and tax preference items
may affect deductions that are based
on an income limit other than AGI or
modified AGI (for example, farm
conservation expenses). Refigure these
deductions using the income limit as
modified for the AMT. Include the
difference between the regular tax and
AMT deduction on line 23. If the AMT
deduction is more than the regular tax
deduction, include the difference as a
negative amount.
Do not make an adjustment on
line 23 for an item you refigured
CAUTION on another line of Schedule I
(for example, line 6).
!
Line 24—Alternative Tax Net
Operating Loss Deduction
(ATNOLD)
The ATNOLD is the sum of the
alternative tax net operating loss
(ATNOL) carryovers and carrybacks to
the tax year, subject to the limitation
explained below.
The NOL under section 172(c) is
modified for alternative tax purposes by
(a) taking into account the adjustments
made under sections 56 and 58 and (b)
reducing the NOL by any item of tax
preference under section 57. For an
estate or trust that held a residual
interest in a real estate mortgage
investment conduit (REMIC), figure the
ATNOLD without regard to any excess
inclusion.
If this estate or trust is the
beneficiary of another estate or trust
that terminated in 2007, include any
ATNOL carryover that was reported in
box 11, code E of Schedule K-1 (Form
1041).
The estate’s or trust’s ATNOLD may
be limited. To figure the ATNOLD
limitation, first figure AMTI without
-33-
regard to the ATNOLD and any
domestic production activities
deduction. For this purpose, figure a
tentative amount for line 6 of Schedule I
by treating line 24 as if it were zero.
Then, figure a tentative total by
combining lines 1 – 23 of Schedule I
using the line 6 tentative amount. Add
any domestic production activities
deduction to this tentative total. The
ATNOLD limitation is 90% of the result.
However, if an ATNOL that is carried
back or carried forward to the tax year
is attributable to qualified Gulf
Opportunity Zone losses as defined in
section 1400N(k)(2), the ATNOLD for
the tax year is limited to the sum of:
1. The smaller of:
a. The sum of the ATNOL
carrybacks and carryforwards to the tax
year attributable to net operating losses
other than qualified Gulf Opportunity
Zone losses, or
b. Ninety percent of AMTI for the tax
year (figured without regard to the
ATNOLD and any domestic production
activities deduction, as discussed
earlier), plus
2. The smaller of:
a. The sum of the ATNOL
carrybacks and carryforwards to the tax
year attributable to qualified Gulf
Opportunity Zone losses, or
b. AMTI for the tax year (figured
without regard to the ATNOLD and any
domestic production activities
deduction, as discussed earlier)
reduced by the amount determined
under (1), above.
Enter on line 27 the smaller of the
ATNOLD or the ATNOLD limitation.
Any ATNOL not used may be carried
back 2 years or forward up to 20 years
(15 years for loss years beginning
before 1998). In some cases, the
carryback period is longer than 2 years;
see section 172(b) and 1400N(k) for
details.
The treatment of ATNOLs does not
affect your regular tax NOL.
If you elected under section
TIP 172(b)(3) to forego the
carryback period for regular tax
purposes, the election will also apply for
the AMT.
Line 29—Estate’s or Trust’s
Share of Alternative Minimum
Taxable Income
For an estate or trust that held a
residual interest in a REMIC, line 29
may not be less than the estate’s or
trust’s share of the amount on
Schedule E (Form 1040), line 38,
column (c). If that amount is larger than
the amount you would otherwise enter
on line 29, enter that amount instead
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and write “Sch. Q” on the dotted line
next to line 29.
Part II—Income Distribution
Deduction on a Minimum Tax
Basis
Line 30—Adjusted Alternative
Minimum Taxable Income
Generally, enter on line 30, Schedule I,
the amount from line 25, Schedule I.
However, if both line 4 on page 1 and
line 25, Schedule I, are losses, enter on
line 30, Schedule I, the smaller of those
losses. If line 4 is zero or a gain and
line 25 is a loss, enter zero on line 30,
Schedule I.
Line 31—Adjusted Tax-Exempt
Interest
To figure the adjusted tax-exempt
interest (including exempt-interest
dividends received as a shareholder in
a mutual fund or other regulated
investment company), subtract the total
of any:
1. Tax-exempt interest from line 2 of
Schedule A of Form 1041 figured for
AMT purposes, and
2. Section 212 expenses allowable
for AMT purposes allocable to
tax-exempt interest, from the amount of
tax-exempt interest received.
Do not subtract any deductions
reported on lines 2 through 4.
Section 212 expenses that are
directly allocable to tax-exempt interest
are allocated only to tax-exempt
interest. A reasonable proportion of
section 212 expenses that are indirectly
allocable to both tax-exempt interest
and other income must be allocated to
each class of income.
Line 33
Reduce the amount on line 33 by any
allocable section 1202 exclusion (as
refigured for AMT purposes).
Line 34
Enter any capital gains that were paid
or permanently set aside for charitable
purposes from the current year’s
income included on line 1 of Schedule
A. Reduce the amount on line 34 by
any allocable section 1202 exclusion
(as refigured for AMT purposes).
Lines 35 and 36
Capital gains and losses must take into
account any basis adjustments from
line 13, Part I.
Line 41—Adjustment for
Tax-Exempt Income
In figuring the income distribution
deduction on a minimum tax basis, the
estate or trust is not allowed a
deduction for any item of DNAMTI (line
37) that is not included in the gross
income of the estate or trust figured on
an AMT basis. Thus, for purposes of
figuring the allowable income
distribution deduction on a minimum tax
basis, the DNAMTI is figured without
regard to any tax-exempt interest
(except for amounts from line 8).
If tax-exempt interest is the only
tax-exempt income included in the total
distributions (line 40), and the DNAMTI
(line 37) is less than or equal to line 40,
then enter on line 41 the amount from
line 31.
If tax-exempt interest is the only
tax-exempt income included in the total
distributions (line 40), and the DNAMTI
is more than line 40 (that is, the estate
or trust made a distribution that is less
than the DNAMTI), then figure the
adjustment by multiplying line 31 by a
fraction, the numerator of which is the
total distributions (line 40), and the
denominator of which is the DNAMTI
(line 37). Enter the result on line 41.
If line 40 includes tax-exempt
income other than tax-exempt interest
(except for amounts from line 8), figure
line 41 by subtracting the total
expenses allocable to tax-exempt
income that are allowable for AMT
purposes from tax-exempt income
included on line 40.
Expenses that are directly allocable
to tax-exempt income are allocated only
to tax-exempt income. A reasonable
proportion of expenses indirectly
allocable to both tax-exempt income
and other income must be allocated to
each class of income.
Line 44—Income Distribution
Deduction on a Minimum Tax
Basis
Allocate the income distribution
deduction figured on a minimum tax
basis among the beneficiaries in the
same manner as income was allocated
for regular tax purposes. You need the
allocated income distribution deduction
figured on a minimum tax basis to
figure the beneficiary’s adjustment for
minimum tax purposes, as explained
under the instructions for box 12, code
A on page 48.
Part III—Alternative
Minimum Tax Computation
Line 53—Alternative Minimum
Foreign Tax Credit
To see if you need to figure the
TIP estate’s or trust’s AMT foreign
tax credit, fill in line 55 of
Schedule I as instructed. If the amount
on line 55 is greater than or equal to
the amount on line 52, the estate or
trust does not owe the AMT. Enter zero
on line 56 and see Who Must Complete
on page 29 to find out if you must file
-34-
Schedule I with Form 1041. However,
even if the estate or trust does not owe
AMT, you may need to complete line 53
to see if you have an AMT foreign tax
credit carryback or carryforward to
other tax years.
To figure the AMT foreign tax credit,
follow the steps discussed below.
Step 1. Complete and attach a
separate AMT Form 1116, with the
notation at the top “Alt Min Tax” for
each separate limitation category
specified at the top of Form 1116.
Note. When applying the separate
limitation categories, use the applicable
AMT rate instead of the regular tax rate
to determine if any income is
“high-taxed.”
Step 2. If you (on behalf of the estate
or trust) previously made or are making
the Simplified limitation election (see
page 35), skip Part I and enter on the
AMT Form 1116, line 16, the same
amount you entered on that line for the
regular tax. If you did not complete
Form 1116 for the regular tax and you
previously made or are making the
simplified limitation election (on behalf
of the estate or trust), complete Part I
and lines 14 through 16 of the AMT
Form 1116 using regular tax amounts.
If the election does not apply,
complete Part I, using only income and
deductions allowed for the AMT that
are attributable to sources outside the
United States. If the estate or trust has
any foreign source qualified dividends
or foreign source capital gains or
losses, use the instructions under Step
3 to determine whether you must make
adjustments to those amounts before
you include the amounts on line 1 or
line 5 of the AMT Form 1116.
Step 3. Follow the instructions later, if
applicable, to determine the amount of
foreign source qualified dividends and
foreign source capital gains and losses
to include on line 1 and line 5 of the
AMT Form 1116.
Foreign qualified dividends. You
must adjust the estate’s or trust’s
foreign source qualified dividends
before you include those amounts on
line 1 of the AMT Form 1116 if:
• Schedule I, line 62 is greater than
zero,
• Schedule I, line 74 is smaller than
Schedule I, line 75, and
• The Exception for foreign qualified
dividends below does not apply.
To adjust foreign source qualified
dividends, multiply the estate’s or trust’s
foreign source qualified dividends in
each separate category by 0.5357.
Include the results on line 1 of the AMT
Form 1116.
Note. Use the estate’s or trust’s
capital gains and losses as refigured for
the AMT to determine whether your
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total amounts are less than the $20,000
threshold under the adjustment
exception.
Do not adjust the amount of any
foreign source qualified
CAUTION dividends you elected to include
on line 4g of the AMT Form 4952.
Exception for foreign qualified
dividends. You do not need to make
any adjustments if both of the following
apply.
• The estate or trust qualifies for the
Adjustment exception discussed under
Qualified Dividends Tax Worksheet
(Estates and Trusts) or the Adjustments
to foreign qualified dividends discussed
under Schedule D Filers (both
discussions are in the Instructions for
Form 1116) when you completed a
Form 1116 for the regular tax (or you
would have qualified for that adjustment
exception if you had completed a Form
1116 for the regular tax), and
• Schedule I, line 62 is $175,000 or
less.
Foreign capital gains or losses. If
any capital gain or loss from U.S. or
foreign sources is different for the AMT,
use the refigured amounts to complete
this step.
To figure the adjustment for the
estate’s or trust’s foreign source capital
gains or losses, you must first
determine whether you can use
Worksheet A or Worksheet B in the
Instructions for Form 1116. Otherwise,
you must use the instructions for
Capital Gains and Losses in Pub. 514
to figure the adjustments you must
make to the estate’s or trust’s foreign
source capital gains and losses.
Use Worksheet A if the estate or
trust has foreign source capital gains or
losses in no more than two separate
categories, and any of the following
apply.
• Schedule D, line 14a, column (2) or
line 15, column (2), as refigured for the
AMT if necessary, is zero or a loss.
• Schedule D, line 18, as refigured for
the AMT if necessary, minus the
amount on Form 4952, line 4e that you
elected to include on Form 4952, line
4g is zero.
• The amount on line 9 of the Schedule
D Tax Worksheet, as refigured for the
AMT if necessary, minus the amount on
Form 4952, line 4e that you elected to
include on Form 4952, line 4g, is zero
or less.
• You were not required to make
adjustments to the estate’s or trust’s
foreign source under the rules
described earlier (or if the estate or
trust had foreign source qualified
dividends, you would not have been
required to make those adjustments).
Use Worksheet B if you:
• Cannot use Worksheet A,
!
• Have foreign source capital gains
and losses in no more than two
separate categories, and
• Did not have any item of
unrecaptured section 1250 gain or any
item of 28% rate gain or loss for either
regular tax or AMT.
Instructions for Worksheets A and
B. When you complete Worksheet A
or B, use foreign source capital gains
and losses as refigured for the AMT, if
necessary, and do not use any foreign
source capital gains that you elected to
include on line 4g of the AMT Form
4952. Use 0.5357 instead of 0.4286 to
complete lines 11, 13, and 15 of
Worksheet B and to complete Steps 4
and 5 of the Line 15 Worksheet for
Worksheet B.
Step 4. Complete Part II and lines 9
through 13 of the AMT Form 1116. Use
the estate’s or trust’s AMT foreign tax
credit carryover, if any, on line 10.
Step 5. If the simplified limitation
election does not apply, complete lines
14 through 16 of the AMT Form 1116.
Step 6. If you did not complete Part IV
of Schedule I, enter the amount from
Schedule I, line 29 on line 17 of the
AMT Form 1116 and go to Step 7 later.
Complete an AMT Worksheet for
Line 17 in the Instructions for Form
1116 to figure the amount to enter on
Form 1116, line 17 if:
• Schedule I, line 62 is greater than
zero,
• Schedule I, line 74 is smaller than
Schedule I, line 75, and
• The Exception for the line 17
worksheet below does not apply.
If you do not have to complete an AMT
Worksheet for Line 17, enter the
amount from Schedule I, line 29 on line
17 of the AMT Form 1116.
Exception for the line 17
worksheet. You do not have to
complete an AMT Worksheet for Line
17 in the Instructions for Form 1116 if:
• The estate or trust qualifies for the
Adjustment exception discussed under
Qualified Dividends Tax Worksheet
(Estates and Trusts) or the Adjustments
to foreign qualified dividends discussed
under Schedule D Filers (both
discussions are in the Instructions for
Form 1116) when you completed a
Form 1116 for the regular tax (or you
would have qualified for that adjustment
exception if you had completed a Form
1116 for the regular tax), and
• Schedule I, line 62 is $175,000 or
less.
Note. Use the estate’s or trust’s
capital gains and losses as refigured for
the AMT to determine whether your
total amounts are less than the $20,000
threshold under the adjustment
exception
-35-
Instructions for completing an
AMT Worksheet for Line 17. To
complete an AMT Worksheet for Line
17 in the Instructions for Form 1116,
follow these instructions.
1. Enter the amount from Schedule
I, line 29 on line 1 of the worksheet.
2. Skip lines 2 and 3 of the
worksheet.
3. Enter the amount from Schedule
I, line 72 on line 4 of the worksheet.
4. Multiply line 4 of the worksheet
by 0.1071 (instead of 0.2857) and enter
the results on line 5 of the worksheet.
5. Enter the amount from Schedule
I, line 70 on line 6 of the worksheet.
6. Multiply line 6 of the worksheet
by 0.4643 (instead of 0.5714) and enter
the result on line 7 of the worksheet.
7. Complete lines 8 and 9 of the
worksheet as instructed on the
worksheet.
Step 7. Enter the amount from
Schedule I, line 52 on the AMT Form
1116, line 19. Complete lines 18, 20,
and 21 of the AMT Form 1116.
Step 8. Complete Part IV of the first
AMT Form 1116 only.
Enter on line 53 of Schedule I of
Form 1041 the amount from line 33 of
the first AMT Form 1116.
Attach to the estate’s or trust’s return
all AMT Forms 1116 you used to figure
your AMT Foreign Tax Credit.
AMT foreign tax credit carryback and
carryforward. If the AMT foreign tax
credit is limited, any unused amount
can be carried back or forward in
accordance with sections 59(a)(2)(B)
and 904(c). The election to forego the
carryback period for regular tax
purposes also applies for the AMT.
Simplified limitation election. The
estate or trust may elect to use a
simplified section 904 limitation to figure
its AMT foreign tax credit. To do so,
use the estate’s or trust’s regular tax
income for Form 1116, Part I, instead of
refiguring the estate’s or trust’s foreign
source income for the AMT, as
described in Step 2 on page 34. The
estate or trust must make the election
for the first tax year after 1997 for which
it claims an AMT foreign tax credit. If it
does not make the election for that
year, it may not make it for a later year.
Once made, the election applies to all
later tax years and may be revoked
only with IRS consent.
Part IV—Line 52
Computation Using
Maximum Capital Gains
Rates
Lines 58, 59, and 60
If you used Schedule D, the Schedule
D Tax Worksheet, or the Qualified
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Dividend Tax Worksheet, you generally
may enter the amounts as instructed on
Schedule I, lines 58, 59, and 60. But do
not use those amounts if either of the
following applies.
1. Any gain or loss on Schedule D is
different for the AMT (for example,
because the AMT basis was different
due to depreciation adjustments or an
incentive stock option adjustment or the
AMT capital loss carryover from 2006
was different).
2. You did not complete Part V of
Schedule D, the Schedule D Tax
Worksheet, or the Qualified Dividends
Tax Worksheet because Form 1041,
line 22, was zero or less.
3. The estate or trust received a
Schedule K-1 (Form 1041) that shows
an amount in box 12 with code B, C, D,
E, or F. If this applies, see If the estate
or trust is a beneficiary of another
estate or trust.
If 1 or 3 above applies, complete
Parts I through IV of an AMT Schedule
D by refiguring the amounts of your
gains and losses for the AMT. Next, if
1, 2, or 3 above applies, complete the
following lines of the applicable
schedule or worksheet:
• Lines 18 through 22 of an AMT
Schedule D,
• Lines 2 through 13 of an AMT
Schedule D Tax Worksheet, or
• Lines 2 through 4 of a Qualified
DividendsTax Worksheet.
insert
space
If you were required to complete an
between AMT Form 4952, use it to figure the
words
amount to enter on line 21 of the AMT
Schedule D, lines 3 and 4 of the AMT
Schedule D Tax Worksheet, and line 3
of the Tax Worksheet. Use amounts
from the AMT Schedule D, AMT
Schedule D Tax Worksheet, or
Qualified Dividends Tax Worksheet to
complete Schedule I, lines 58, 59, and
60. Keep the AMT Schedule D and
worksheet for your records. Do not
attach the AMT Schedule D to Form
1041.
!
CAUTION
Do not decrease the estate’s or
trust’s section 1202 exclusion by
the amount, if any, included on
line 9.
If the estate or trust is a beneficiary
of another estate or trust. If the
estate or trust received a Schedule K-1
(Form 1041) from another estate or
trust that shows an amount in box 12
with code B, C, D, E, or F, follow the
instructions in the table below.
IF the code in box
12 is...
THEN include that
amount in the total
on...
B
line 2 of an AMT
Qualified Dividends
Tax Worksheet; line
19 of an AMT
Schedule D (Form
1041); or line 2 of an
AMT Schedule D
Tax Worksheet,
whichever applies.
C
line 3, column (f), of
an AMT Schedule D.
D
line 8, column (f), of
an AMT Schedule D.
E
line 11 of an AMT
Unrecaptured
Section 1250 Gain
Worksheet.
F
line 4 of an AMT
28% Rate Gain
Worksheet.
Details of each transaction must be
reported on Schedule D. If there are
more transactions than spaces on lines
1a or 6a, you can report the additional
transactions on Schedule D-1. Instead
of reporting the estate’s or trust’s
transactions on Schedule D and D-1,
you can report the transactions on an
attached statement containing all the
same information as Schedule D and
D-1 using a similar format. Use as
many Schedule D-1s or attachments as
necessary. Enter on Schedule D, lines
1b and 6b, as appropriate, the totals
from all Schedules D-1, or attached
statements.
If property is involuntarily converted
because of a casualty or theft, use
Form 4684.
Section 1256 contracts and
straddles are reported on Form 6781,
Gains and Losses From Section 1256
Contracts and Straddles.
Capital Asset
Schedule D (Form
1041)— Capital Gains
and Losses
What’s New
• New for 2007, Schedule D-1,
Continuation Sheet for Schedule D
(Form 1041) may be used to report
gains and losses from the sale or
exchange of capital assets if there are
more transactions to report than spaces
on lines 1a or 6a of Schedule D (Form
1041).
• If the estate or trust sold or
exchanged a qualified community asset
acquired after December 31, 2001, and
held for more than 5 years, it may be
able to exclude any qualified capital
gain. See Pub. 954
• The trust can elect to treat musical
compositions and copyrights in musical
works as capital assets if it sold or
exchanged them in 2007, and acquired
the assets under circumstances
entitling it to the basis of the person
who created the property or for whom it
was prepared or produced.
General Instructions
Purpose of Form
Use Schedule D (Form 1041) to report
gains and losses from the sale or
exchange of capital assets by an estate
or trust.
To report the sale or exchange of
property used in a trade or business,
involuntary conversions (other than
casualties and thefts), and certain
ordinary gains and losses, see Form
4797 and related instructions.
-36-
add comma after title
Each item of property held by the
estate or trust (whether or not
connected with its trade or business) is
a capital asset except the following.
• Inventoriable assets or property held
primarily for sale to customers.
• Depreciable or real property used in
a trade or business, even if it is fully
depreciated.
• Copyrights; literary, musical or artistic
compositions; letters or memoranda; or
similar property (a) prepared or
produced for the estate or trust (in the
case of letters, memoranda, or similar
property); or (b) that the trust received
from someone who created them or for
whom they were created in a way (such
as by gift) that entitled the trust to the
basis of the previous owner. However,
the trust can elect to treat musical
compositions and copyrights in musical
works as capital assets if it sold or
exchanged them in a tax year
beginning after May 17, 2006, and
acquired the assets under
circumstances entitling it to the basis of
the person who created the property or
for whom it was prepared or produced.
• Accounts or notes receivable
acquired in the ordinary course of a
trade or business for services rendered
or from the sale of inventoriable assets
or property held primarily for sale to
customers.
• Certain U.S. Government
publications not purchased at the public
sale price.
• Certain “commodities derivative
financial instruments” held by a dealer
(see section 1221(a)(6)).
• Certain hedging transactions entered
into in the normal course of a trade or
business (see section 1221(a)(7)).
• Supplies regularly used in a trade or
business.
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You may find additional helpful
information in the following publications.
• Pub. 544, Sales and Other
Dispositions of Assets.
• Pub. 551, Basis of Assets.
Short-Term or Long-Term
Separate the capital gains and losses
according to how long the estate or
trust held or owned the property. The
holding period for short-term capital
gains and losses is 1 year or less. The
holding period for long-term capital
gains and losses is more than 1 year.
Property acquired from a decedent is
considered as held for more than 1
year.
When you figure the length of the
period the estate or trust held property,
begin counting on the day after the
estate or trust acquired the property
and include the day the estate or trust
disposed of it. Use the trade dates for
the date of acquisition and sale of
stocks and bonds traded on an
exchange or over-the-counter market.
Section 643(e)(3) Election
For noncash property distributions, a
fiduciary may elect to have the estate
or trust recognize gain or loss in the
same manner as if the distributed
property had been sold to the
beneficiary at its FMV. The distribution
deduction is the property’s FMV. This
election applies to all distributions made
by the estate or trust during the tax
year and, once made, may be revoked
only with IRS consent.
Note that section 267 does not allow
a trust or a decedent’s estate to claim a
deduction for any loss on property to
which a section 643(e)(3) election
applies. In addition, when a trust or a
decedent’s estate distributes
depreciable property, section 1239
applies to deny capital gains treatment
for any gain on property to which a
section 643(e)(3) election applies.
Related Persons
A trust cannot deduct a loss from the
sale or exchange of property directly or
indirectly between any of the following:
• A grantor and a fiduciary of a trust,
• A fiduciary and a fiduciary or
beneficiary of another trust created by
the same grantor,
• A fiduciary and a beneficiary of the
same trust,
• A trust fiduciary and a corporation of
which more than 50% in value of the
outstanding stock is owned directly or
indirectly by or for the trust or by or for
the grantor of the trust, or
• An executor of an estate and a
beneficiary of that estate, except when
the sale or exchange is to satisfy a
pecuniary bequest (that is, a bequest of
a sum of money).
Items for Special Treatment
• Bonds and other debt instruments.
See Pub. 550.
• Wash sales of stock or securities
(including contracts or options to
acquire or sell stock or securities)
(section 1091).
• Gain or loss on options to buy or sell.
See Pub. 550.
• Certain real estate subdivided for
sale that may be considered a capital
asset (section 1237).
• Gain on disposition of stock in an
interest charge domestic international
sales corporation (section 995(c)).
• Gain on the sale or exchange of
stock in certain foreign corporations
(section 1248).
• Sales of stock received under a
qualified public utility dividend
reinvestment plan. See Pub. 550 for
details.
• Transfer of appreciated property to a
political organization (section 84).
• Amounts received by shareholders in
corporate liquidations. See Pub. 550.
• Cash received in lieu of fractional
shares of stock as a result of a stock
split or stock dividend. See Pub. 550.
• Load charges to acquire stock in a
regulated investment company
(including a mutual fund), which may
not be taken into account in
determining gain or loss on certain
dispositions of the stock if reinvestment
rights were exercised. See Pub. 564.
• The sale or exchange of S
corporation stock or an interest in a
trust held for more than 1 year, which
may result in collectibles gain (28% rate
gain). See the instructions for line 14c
beginning on page 42.
• Gain or loss on the disposition of
securities futures contracts. See Pub.
550.
• Gains from certain constructive
ownership transactions. Gain in excess
of the gain the estate or trust would
have recognized if the estate or trust
had held a financial asset directly
during the term of a derivative contract
must be treated as ordinary income.
See section 1260 for details.
• The sale of qualified empowerment
zone assets acquired after December
21, 2000, that the estate or trust held
for more than 1 year, if you elect to
postpone gain by purchasing other
qualified empowerment zone assets
during the 60-day period that began on
the date of the sale. See Pub. 550 and
Pub. 954.
• If the estate or trust sold or
exchanged a District of Columbia
Enterprise Zone (DC Zone) asset that it
held for more than 5 years, it can
exclude the amount of “qualified capital
gain” from gross income. See Pub. 954.
• If the estate or trust sold or
exchanged a qualified community asset
held for more than 5 years, it can
-37-
exclude the amount of any qualified
capital gain from gross income. This
exclusion applies to an interest in, or
property of, certain businesses
operating in a renewal community. See
Pub. 954.
• If qualified dividends include
extraordinary dividends, any loss on the
sale or exchange of the stock is a
long-term capital loss to the extent of
the extraordinary dividends. An
extraordinary dividend is a dividend that
is at least 10% (5% in the case of
preferred stock) of the basis in the
stock.
• The sale of publicly traded securities,
if the estate or trust elects to postpone
gain by purchasing common stock or a
partnership interest in a specialized
small business investment company
during the 60-day period that began on
the date of the sale. See Pub. 550.
Constructive Sales Treatment
for Certain Appreciated
Positions
Generally, the estate or trust must
recognize gain (but not loss) on the
date it enters into a constructive sale of
any appreciated position in stock, a
partnership interest, or certain debt
instruments as if the position were
disposed of at FMV on that date.
The estate or trust is treated as
making a constructive sale of an
appreciated position when it (or a
related person, in some cases) does
one of the following:
• Enters into a short sale of the same
or substantially identical property (that
is, a “short sale against the box”),
• Enters into an offsetting notional
principal contract relating to the same
or substantially identical property,
• Enters into a futures or forward
contract to deliver the same or
substantially identical property, or
• Acquires the same or substantially
identical property (if the appreciated
position is a short sale, offsetting
notional principal contract, or a futures
or forward contract).
Exception. Generally, constructive
sale treatment does not apply if:
• The estate or trust closed the
transaction before the end of the 30th
day after the end of the year in which it
was entered into,
• The estate or trust held the
appreciated position to which the
transaction relates throughout the
60-day period starting on the date the
transaction was closed, and
• At no time during that 60-day period
was the estate’s or trust’s risk of loss
reduced by holding certain other
positions.
For details and other exceptions to
these rules, see Pub. 550.
Page 38 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Exclusion of Gain on Qualified
Small Business Stock (Section
1202)
Section 1202 provides for an exclusion
of 50% of the gain on the sale or
exchange of QSB stock. The section
1202 exclusion applies only to QSB
stock held for more than 5 years. To be
QSB stock, the stock must meet all of
the following tests.
• It must be stock in a C corporation
(that is, not S corporation stock).
• It must have been originally issued
after August 10, 1993.
• As of the date the stock was issued,
the corporation was a QSB. A QSB is a
domestic C corporation with total gross
assets of $50 million or less (a) at all
times after August 9, 1993, and before
the stock was issued, and (b)
immediately after the stock was issued.
Gross assets include those of any
predecessor of the corporation. All
corporations that are members of the
same parent-subsidiary controlled
group are treated as one corporation.
• The estate or trust acquired the stock
at its original issue (either directly or
through an underwriter), either in
exchange for money or other property
or as pay for services (other than as an
underwriter) to the corporation. In
certain cases, the estate or trust may
meet the test if it acquired the stock
from another person who met this test
(such as by gift or at death) or through
a conversion or exchange of QSB stock
the estate or trust held.
• During substantially all the time the
estate or trust held the stock:
1. The corporation was a C
corporation,
2. At least 80% of the value of the
corporation’s assets were used in the
active conduct of one or more qualified
businesses (defined below), and
3. The corporation was not a foreign
corporation, DISC, former DISC,
corporation that has made (or that has
a subsidiary that has made) a section
936 election, regulated investment
company, real estate investment trust,
REMIC, FASIT, or cooperative.
Note. A specialized small business
investment company is treated as
having met test 2 above.
Qualified business. A qualified
business is any business other than the
following:
• One involving services performed in
the fields of health, law, engineering,
architecture, accounting, actuarial
science, performing arts, consulting,
athletics, financial services, or
brokerage services;
• One whose principal asset is the
reputation or skill of one or more
employees;
• Any banking, insurance, financing,
leasing, investing, or similar business;
• Any farming business (including the
raising or harvesting of trees);
• Any business involving the
production of products for which
percentage depletion can be claimed;
or
• Any business of operating a hotel,
motel, restaurant, or similar business.
For more details about limits and
additional requirements that may apply,
see section 1202.
Empowerment zone business stock.
Generally, the estate or trust can
exclude up to 60% of its gain on certain
QSB stock if it meets the following
additional requirements.
1. The stock sold or exchanged was
stock in a corporation that qualified as
an empowerment zone business during
substantially all of the time the estate or
trust held the stock.
2. The estate or trust acquired the
stock after December 21, 2000.
Requirement 1 will still be met if the
corporation ceased to qualify after the
5-year period that began on the date
the estate or trust acquired the stock.
However, the gain that qualifies for the
60% exclusion cannot be more than the
gain the estate or trust would have had
if it had sold the stock on the date the
corporation ceased to qualify.
For more information about
empowerment zone businesses, see
Pub. 954.
Pass-through entities. If the estate or
trust held an interest in a pass-through
entity (a partnership, S corporation,
mutual fund, or other regulated
investment company) that sold QSB
stock, the estate or trust generally must
have held the interest on the date the
pass-through entity acquired the QSB
stock and at all times thereafter until
the stock was sold to qualify for the
exclusion.
How to report. Report in column (f) of
line 6a the entire gain realized on the
sale of QSB stock. Complete all other
columns as indicated. Directly below
the line on which you reported the gain,
enter in column (a) “Section 1202
exclusion,” and enter as a (loss) in
column (f) the amount of the allowable
exclusion. On line 2 of the 28% Rate
Gain Worksheet, include an amount
equal to the 50% exclusion (2/3 of the
exclusion if you claimed a 60%
exclusion). Also, see the instructions for
Schedule I, line 9, for information on
the amount of the exclusion to include
on Schedule I.
Gain from Form 1099-DIV. If the
estate or trust received a Form
1099-DIV with a gain in box 2c, part or
all of that gain (which is also included in
box 2a) may be eligible for the section
-38-
1202 exclusion. In column (a) of line
6a, enter the name of the corporation
whose stock was sold. In column (f),
enter the amount of the allowable
exclusion as a (loss). Also, include the
amount of the 50% exclusion as a gain
on line 2 of the 28% Rate Gain
Worksheet (include 2/3 of the exclusion
if you claimed a 60% exclusion).
Gain from Form 2439. If the estate
or trust received a Form 2439, Notice to
Shareholder of Undistributed
Long-Term Capital Gains, with a gain in
box 1c, part or all of that gain (which is
also included in box 1a) may be eligible
for the section 1202 exclusion. In
column (a) of line 6a, enter the name of
the corporation whose stock was sold.
In column (f), enter the amount of the
allowable exclusion as a (loss). Also,
include the amount of the 50%
exclusion as a gain on line 2 of the 28%
Rate Gain Worksheet (include 2/3 of the
exclusion if you claimed a 60%
exclusion).
Gain from an installment sale of
QSB stock. If all payments are not
received in the year of sale, a sale of
QSB stock that is not traded on an
established securities market generally
is treated as an installment sale and is
reported on Form 6252. Part or all of
any gain from the sale that is reported
on Form 6252 for the current year may
be eligible for the section 1202
exclusion. In column (a) of line 6a,
enter the name of the corporation
whose stock was sold. In column (f),
enter the amount of the allowable
exclusion as a loss. Also, include the
amount of the 50% exclusion as a gain
on line 2 of the 28% Rate Gain
Worksheet (include 2/3 of the exclusion
if you claimed a 60% exclusion).
Alternative minimum tax. You
must enter 7% of the estate’s or trust’s
allowable exclusion for the year on line
9 of Schedule I.
Rollover of gain from QSB stock. If
the estate or trust held QSB stock (as
defined above) for more than 6 months,
it may elect to postpone gain if it
purchased other QSB stock during the
60-day period that began on the date of
the sale.
The estate or trust must recognize
gain to the extent the sale proceeds
exceed the cost of the replacement
stock. Reduce the basis of the
replacement stock by any postponed
gain.
The estate or trust must make the
election no later than the due date
(including extensions) for filing Form
1041 for the tax year in which the stock
was sold. If the original Form 1041 was
filed on time, the election may be made
on an amended return filed no later
than 6 months after the due date of the
original return (excluding extensions).
Page 39 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Write “Filed pursuant to section
301.9100-2” at the top of the amended
return, and file it at the same address
used for the original Form 1041.
To make the election, report the
entire gain realized on the sale on line
1a or 6a. Directly below the line on
which you reported the gain, enter in
column (a) “Section 1045 Rollover” and
enter as a (loss) in column (f) the
amount of the postponed gain.
Exclusion of gain from DC Zone
assets or Qualified Community
assets. If the estate or trust sold or
exchanged a District of Columbia
Enterprise Zone asset or a Qualified
Community Zone asset that it held for
more than 5 years, it may be able to
exclude the amount of qualified capital
gain that it would otherwise include on
Schedule D. The exclusion of gain from
DC zone assets applies to an interest
in, or property of, certain businesses
operating in the District of Columbia.
See Pub. 954, Tax Incentive for
Distressed Communities, and section
1400B for more details on this
exclusion. The exclusion of gain from
qualified community assets applies to
an interest in, or property of, certain
renewal community businesses. See
Pub. 954 and section 1400F for more
details on this exclusion.
How to report. Report the entire gain
realized from the sale or exchange as
you otherwise would without regard to
either exclusion. On Schedule D, line
6a, enter “DC Zone asset” or “Qualified
Community Asset” (whichever is
appropriate) in column (a), and enter as
a loss in column (f) the amount of the
allowable exclusion. If you are reporting
the sale directly on Schedule D, line 6a,
use the line directly below the line on
which you are reporting the sale.
Specific Instructions
Lines 1a and 6a
Short-term and long-term capital
gains and losses. Enter all sales of
stocks, bonds, etc.
Redemption of stock to pay death
taxes. If stock is redeemed under the
provisions of section 303, list and
identify it on line 6a and give the name
of the decedent and the IRS office
where the estate tax or
generation-skipping transfer tax return
was filed.
If you are reporting capital gain from
a lump-sum distribution, see the
instructions for Form 4972 for
information about the federal estate tax.
Column (d)—Sales Price
Enter either the gross sales price or the
net sales price from the sale. On sales
of stocks and bonds, report the gross
amount as reported to the estate or
trust on Form 1099-B or similar
statement. However, if the estate or
trust was advised that gross proceeds
less commissions and option premiums
were reported to the IRS, enter that net
amount in column (d).
Column (e)—Cost or Other
Basis
Basis of trust property. Generally,
the basis of property acquired by gift is
the same as the basis in the hands of
the donor. If the FMV of the property at
the time it was transferred to the trust is
less than the transferor’s basis, then
the FMV is used for determining any
loss on disposition.
If the property was transferred to the
trust after 1976, and a gift tax was paid
under Chapter 12, then increase the
donor’s basis as follows:
Multiply the amount of the gift tax
paid by a fraction, the numerator of
which is the net appreciation in value of
the gift (defined below), and the
denominator of which is the amount of
the gift. For this purpose, the net
appreciation in value of the gift is the
amount by which the FMV of the gift
exceeds the donor’s adjusted basis.
Basis of decedent’s estate property.
Generally, the basis of property
acquired by a decedent’s estate is the
FMV of the property at the date of the
decedent’s death, or the alternate
valuation date if the executor elected to
use an alternate valuation under
section 2032.
See Pub. 551 for a discussion of the
valuation of qualified real property
under section 2032A.
Basis of assets held on January 1,
2001, where an election to recognize
gain was made. If you elected on
behalf of an estate or trust to recognize
gain on an asset held on January 1,
2001, the basis in the asset is its
closing market price or FMV, whichever
applies, on the date of the deemed sale
and reacquisition, whether the deemed
sale resulted in a gain or an unallowed
loss.
Adjustments to basis. Before figuring
any gain or loss on the sale, exchange,
or other disposition of property owned
by the estate or trust, adjustments to
the property’s basis may be required.
Some items that may increase the
basis include:
1. Broker’s fees and commissions,
2. Reinvested dividends that were
previously reported as income,
3. Reinvested capital gains that
were previously reported as income,
4. Costs that were capitalized, and
5. Original issue discount that has
been previously included in income.
-39-
Some items that may decrease the
basis include:
1. Nontaxable distributions that
consist of return of capital,
2. Deductions previously allowed or
allowable for depreciation, and
3. Casualty or theft loss deductions.
See Pub. 551 for additional
information.
See section 852(f) for treatment of
load charges incurred in acquiring stock
in a regulated investment company.
Carryover basis. Carryover basis
determined under repealed section
1023 applies to property acquired from
a decedent who died after December
31, 1976, and before November 7,
1978, only if the executor elected it on
a Form 5970-A, Election of Carryover
Basis, that was filed on time.
Column (f)—Gain or (Loss)
Make a separate entry in this column
for each transaction reported on lines
1a and 6a and any other lines that
apply to the estate or trust. For lines 1a
and 6a, subtract the amount in column
(e) from the amount in column (d).
Enter negative amounts in parentheses.
Lines 2 and 7
Undistributed capital gains. Include
on line 7, column (f), the amount from
box 1a of Form 2439. This represents
the estate’s or trust’s share of the
undistributed long-term capital gains of
the regulated investment company
(mutual fund) or real estate investment
trust.
If there is an amount in box 1b of
Form 2439, include that amount on line
11 of the Unrecaptured Section 1250
Gain Worksheet later if you are
required to complete line 14b, column
(2) of Schedule D. If there is an amount
in box 1c of Form 2439, see Exclusion
of Gain on Qualified Small Business
Stock (Section 1202) on page 37. If 38
there is an amount in box 1d of Form
2439, include that amount on line 4 of
the 28% Rate Gain Worksheet.
Enter on Form 1041, line 24g the tax
paid as shown in box 2 of Form 2439.
Add to the basis of your stock the
excess of the amount included in
income over the amount of the credit
for tax paid. See Pub. 550 for more
details.
!
CAUTION
The instructions above assume
the estate or trust is a cash
basis calendar year taxpayer.
Installment sales. If the estate or
trust sold property (other than publicly
traded stocks or securities) at a gain
during the tax year and will receive a
payment in a later tax year, you
generally report the sale on the
installment method and file Form 6252,
Page 40 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Installment Sale Income, unless you
elect not to do so.
Also, use Form 6252 to report any
payment received in 2007 from a sale
made in an earlier tax year that was
reported on the installment method.
To elect out of the installment
method, report the full amount of the
gain on a timely filed return (including
extensions). If the original return was
filed on time, the election may be made
on an amended return filed no later
than 6 months after the due date of the
original return (excluding extensions).
Write “Filed pursuant to section
301.9100-2” at the top of the amended
return, and file it at the same address
used for the original Form 1041.
Exchange of “like-kind” property.
Generally, no gain or loss is recognized
when property held for productive use
in a trade or business or for investment
is exchanged solely for property of a
like kind to be held either for productive
use in a trade or business or for
investment. However, if a trust
exchanges like-kind property with a
related person (see Related Persons on
page 37), and before 2 years after the
date of the last transfer that was part of
38
the exchange, the related person
disposes of the property, or the trust
disposes of the property received in
exchange from the related person, then
the original exchange will not qualify for
nonrecognition. See section 1031(f) for
exceptions.
Complete and attach Form 8824,
Like-Kind Exchanges, to Form 1041 for
each exchange.
Line 9—Capital Gain
Distributions
Enter as a long-term capital gain on line
9, column (f), the total capital gain
distributions paid during the year,
regardless of how long the estate or
trust held its investment. This amount is
shown in box 2a of Form 1099-DIV. If
there is an amount in box 2b, include
that amount on line 11 of the
Unrecaptured Section 1250 Gain Worksheet—Line 14b
Unrecaptured Section 1250 Gain
Worksheet later if you are required to
complete the worksheet. If there is an
amount in box 2c, see Exclusion of
Gain on Qualified Small Business Stock
on page 37. If there is an amount in box
2d of Form 1099-DIV, include the
amount on line 4 of the 28% Rate Gain
Worksheet.
!
CAUTION
The instructions above assume
the estate or trust is a cash
basis calendar year taxpayer.
Line 13, Column (1)—
Beneficiaries’ Net Short-Term
Capital Gain or Loss
Enter the amount of net short-term
capital gain or loss allocable to the
beneficiary or beneficiaries. Include
only those short-term capital losses that
are taken into account in determining
the amount of gain from the sale or
exchange of capital assets that is paid,
credited, or required to be distributed to
any beneficiary during the tax year. See
Keep for Your Records
If the estate or trust is not reporting a gain on Form 4797, line 7, skip lines 1 through 9 and go to line
10.
1. If the estate or trust has a section 1250 property in Part III of Form 4797 for which you made an entry in
Part I of Form 4797 (but not on Form 6252), enter the smaller of line 22 or line 24 of Form 4797 for that
property. If the estate or trust did not have any such property, go to line 4. If it had more than one such
property, see instructions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.
2. Enter the amount from Form 4797, line 26g, for the property for which you made an entry on line 1 . . . . 2.
3. Subtract line 2 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
4. Enter the total unrecaptured section 1250 gain included on line 26 or line 37 of Form(s) 6252 from
installment sales of trade or business property held more than 1 year (see instructions) . . . . . . . . . . . . 4.
5. Enter the total of any amounts reported to the estate or trust on a Schedule K-1 from a partnership or an
S corporation as “unrecaptured section 1250 gain” . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
6. Add lines 3 through 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
7. Enter the smaller of line 6 or the gain from Form 4797, line 7 . . . . . . . . . . . . . . . . 7.
8. Enter the amount, if any, from Form 4797, line 8 . . . . . . . . . . . . . . . . . . . . . . . . . 8.
9. Subtract line 8 from line 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
10. Enter the amount of any gain from the sale or exchange of an interest in a partnership attributable to
unrecaptured section 1250 gain (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
11. Enter the total of any amounts reported to the estate or trust on a Schedule K-1, Form 1099-DIV, or
Form 2439 as “unrecaptured section 1250 gain” from an estate, trust, real estate investment trust, or
mutual fund (or other regulated investment company) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
12. Enter the total of any unrecaptured section 1250 gain from sales (including installment sales) or other
dispositions of section 1250 property held more than 1 year for which you did not make an entry in Part I
of Form 4797 for the year of sale (see instructions) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
13. Add lines 9 through 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
14. If the estate or trust had any section 1202 gain or collectibles gain or (loss), enter
the total of lines 1 through 4 of the 28% Rate Gain Worksheet on page 41.
Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
15. Enter the (loss), if any, from Schedule D, line 5. If Schedule D, line 5, is zero or a
gain, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15. (
)
16. Enter the estate’s or trust’s long-term capital loss carryovers from Schedule D, line
11, and from Schedule K-1 (Form 1041), box 11, code C, from another estate or
trust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16. (
)
17. Combine lines 14 through 16. If the result is a (loss), enter it as a positive amount. If the result is zero or
a gain, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
18. Unrecaptured section 1250 gain. Subtract line 17 from line 13. If zero or less, enter -0-. Enter the result
here and in the appropriate columns of Schedule D, line 14b . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
-40-
Page 41 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Regulations section 1.643(a)-3 for more
information about allocation of capital
gains and losses.
• The estate or trust received
Line 13, Column (3)—Total
installment payments during the tax
year for section 1250 property held
more than 1 year for which it is
reporting gain on the installment
method.
• The estate or trust received a
Schedule K-1 from an estate or trust,
partnership, or S corporation that
shows “unrecaptured section 1250
gain” reportable for the tax year.
• The estate or trust received a Form
1099-DIV or Form 2439 from a real
estate investment trust or regulated
investment company (including a
mutual fund) that reports “unrecaptured
section 1250 gain” for the tax year.
• The estate or trust reported a
long-term capital gain from the sale or
exchange of an interest in a partnership
that owned section 1250 property.
Enter the total of the amounts entered
in columns (1) and (2). The amount in
column (3) should be the same as the
amount on line 5.
Instructions for the
Unrecaptured Section 1250
Gain Worksheet
If the losses from the sale or
exchange of capital assets are more
than the gains, the net loss must be
allocated to the estate or trust and not
to the beneficiaries.
Line 13, Column (2)—Estate’s
or Trust’s Net Short-Term
Capital Gain or Loss
Enter the amount of the net short-term
capital gain or loss allocable to the
estate or trust. Include any capital gain
paid or permanently set aside for a
charitable purpose specified in section
642(c).
Line 14a—Net Long-Term
Capital Gain or Loss
Allocate the net long-term capital gain
or loss on line 14a in the same manner
as the net short-term capital gain or
loss on line 13. However, do not take
the section 1202 exclusion on gain from
the sale or exchange of qualified small
business stock into account when
figuring net long-term capital gain or
loss allocable to the beneficiaries.
Line 14b—Unrecaptured
Section 1250 Gain
Complete the worksheet on page 40 if
any of the following apply.
• During the tax year, the estate or
trust sold or otherwise disposed of
section 1250 property (generally, real
property that was depreciated) held
more than 1 year.
Lines 1 through 3. If the estate or
trust had more than one property
described on line 1, complete lines 1
through 3 for each property on a
separate worksheet. Enter the total of
the line 3 amounts for all properties on
line 3 and go to line 4.
Line 4. To figure the amount to enter
on line 4, follow the steps below for
each installment sale of trade or
business property held more than 1
year.
Step 1. Figure the smaller of (a) the
depreciation allowed or allowable or (b)
the total gain for the sale. This is the
smaller of line 22 or line 24 of the 2007
Form 4797 (or the comparable lines of
Form 4797 for the year of sale) for that
property.
Step 2. Reduce the amount figured
in step 1 by any section 1250 ordinary
income recapture for the sale. This is
28% Rate Gain Worksheet—Line 14c
the amount from line 26g of the 2007
Form 4797 (or the comparable line of
Form 4797 for the year of sale) for that
property. The result is the total
unrecaptured section 1250 gain that
must be allocated to the installment
payments received from the sale.
Step 3. Generally, the amount of
section 1231 gain on each installment
payment is treated as unrecaptured
section 1250 gain until the total
unrecaptured section 1250 gain figured
in step 2 has been used in full. Figure
the amount of gain treated as
unrecaptured section 1250 gain for
installment payments received during
the tax year, as the smaller of (a) the
amount from line 26 or line 37 of the
2007 Form 6252, whichever applies, or
(b) the amount of unrecaptured section
1250 gain remaining to be reported.
This amount is generally the total
unrecaptured section 1250 gain for the
sale reduced by all gain reported in
prior years (excluding section 1250
ordinary income recapture). However, if
you chose not to treat all of the gain
from payments received after May 6,
1997, and before August 24, 1999, as
unrecaptured section 1250 gain, use
only the amount you chose to treat as
unrecaptured section 1250 gain for
those payments to reduce the total
unrecaptured section 1250 gain
remaining to be reported for the sale.
Include this amount on line 4.
Line 10. Include on line 10 the
estate’s or trust’s share of the
partnership’s unrecaptured section
1250 gain that would result if the
partnership had transferred all of its
section 1250 property in a fully taxable
transaction immediately before the
estate or trust sold or exchanged its
interest in that partnership. If the estate
or trust recognized less than all of the
realized gain, the partnership will be
Keep for Your Records
1. Enter the total of all collectibles gain or (loss) from items reported on line 6a, column (f), of Schedules D
and D-1. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2. Enter as a positive number the amount of any section 1202 exclusion reported on line 6a, column (f), of
Schedules D and D-1 for which you excluded 50% of the gain, plus 2/3 of any section 1202 exclusion
reported on line 6a, column (f), of Schedule D and D-1 for which you excluded 60% of the gain . . . . . .
3. Enter the total of all collectibles gain or (loss) from Form 4684, line 4 (but only if Form 4684, line 15 is
more than zero); Form 6252; Form 6781, Part II; and Form 8824 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
4. Enter the total of any collectibles gain reported to the estate or trust on:
• Form 1099-DIV, box 2d;
.............
• Form 2439, box 1d; and
• Schedule K-1 from a partnership, S corporation, estate, or trust.
5. Enter the estate’s or trust’s long-term capital loss carryovers from Schedule D, line 11, and from box 11,
code C of Schedule K-1 (Form 1041) from another estate or trust . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6. If Schedule D, line 5 is a (loss), enter that (loss) here. Otherwise, enter -0- . . . . . . . . . . . . . . . . . . . . .
7. Combine lines 1 through 6. If zero or less, enter -0-. If more than zero, also enter this amount in the
appropriate columns of Schedule D, line 14c . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
}
-41-
1.
2.
3.
4.
5. (
)
6. (
)
7.
Page 42 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Capital Loss Carryover Worksheet
Keep for Your Records
Use this worksheet to figure the estate’s or trust’s capital loss carryovers from 2007 to 2008 if Schedule D, line 16
is a loss and (a) the loss on Schedule D, line 15, col. (3) is more than $3,000 or (b) Form 1041, page 1, line 22 is a
loss.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
Enter taxable income or (loss) from Form 1041, line 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1.
Enter the loss from line 16 of Schedule D as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2.
Enter amount from Form 1041, line 20 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3.
Adjusted taxable income. Combine lines 1, 2, and 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . .
4.
Enter the smaller of line 2 or line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
5.
Note: If line 5 of Schedule D is a loss, go to line 6; otherwise, enter -0- on line 6 and go to line 10.
Enter loss from Schedule D, line 5 as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
6.
Enter gain, if any, from Schedule D, line 12. If that line is blank or shows a loss,
enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7.
Add lines 5 and 7 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8.
Short-term capital loss carryover to 2008. Subtract line 8 from line 6. If zero or less, enter -0-. If this is
the final return of the estate or trust, also enter on Schedule K-1 (Form 1041), box 11, using code B . . .
9.
Note: If line 12 of Schedule D is a loss, go to line 10; otherwise, skip lines 10 through 14.
Enter loss from Schedule D, line 12, as a positive amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
Enter gain, if any, from Schedule D, line 5. If that line is blank or shows a loss,
enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
Subtract line 6 from line 5. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . 12.
Add lines 11 and 12 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
Long-term capital loss carryover to 2008. Subtract line 13 from line 10. If zero or less, enter -0-. If this
is the final return of the estate or trust, also enter on Schedule K-1 (Form 1041), box 11, using code C
14.
treated as having transferred only a
proportionate amount of each section
1250 property.
Line 12. An example of an amount to
include on line 12 is unrecaptured
section 1250 gain from the sale of a
vacation home previously used as a
rental property but converted to
personal use prior to the sale. To figure
the amount to enter on line 12, follow
the applicable instructions below.
Installment sales. To figure the
amount to include on line 12, follow the
steps below for each installment sale of
property held more than 1 year for
which you did not make an entry in Part
I of Form 4797 for the year of sale.
Step 1. Figure the smaller of (a) the
depreciation allowed or allowable or (b)
the total gain for the sale. This is the
smaller of line 22 or line 24 of the 2007
Form 4797 (or comparable lines of
Form 4797 for the year of sale) for that
property.
Step 2. Reduce the amount figured
in step 1 by any section 1250 ordinary
income recapture for the sale. This is
the amount from line 26g of the 2007
Form 4797 (or the comparable line of
Form 4797 for the year of sale) for that
property. The result is the total
unrecaptured section 1250 gain that
must be allocated to the installment
payments received from the sale
Step 3. Generally, the amount of
capital gain on each installment
payment is treated as unrecaptured
section 1250 gain until the total
unrecaptured section 1250 gain figured
in step 2 has been used in full. Figure
the amount of gain treated as
unrecaptured section 1250 gain for
installment payments received during
the tax year, as the smaller of (a) the
amount from line 26 or line 37 of the
2007 Form 6252, whichever applies, or
(b) the amount of unrecaptured section
1250 gain remaining to be reported.
This amount is generally the total
unrecaptured section 1250 gain for the
sale reduced by all gain reported in
prior years (excluding section 1250
ordinary income recapture). However, if
you chose not to treat all of the gain
from payments received after May 6,
1997, and before August 24, 1999, as
unrecaptured section 1250 gain, use
only the amount you chose to treat as
unrecaptured section 1250 gain for
those payments to reduce the total
unrecaptured section 1250 gain
remaining to be reported for the sale.
Include this amount on line 12.
Other sales or dispositions of
section 1250 property. For each sale
of property held more than 1 year (for
which an entry was not made in Part I
of Form 4797), figure the smaller of (a)
the depreciation allowed or allowable or
(b) the total gain for the sale. This is the
smaller of line 22 or line 24 of Form
4797 for that property. Next, reduce
that amount by any section 1250
ordinary income recapture for the sale.
This is the amount from line 26g of
Form 4797 for that property. The result
is the total unrecaptured section 1250
gain for the sale. Include this amount
on line 12.
-42-
Line 14c—28% Rate Gain
Complete the 28% Rate Gain
Worksheet if lines 14a and 15 for
column (3) are both greater than zero
and at least one of the following apply:
• The estate or trust reports in Part II,
column (f), a section 1202 exclusion
from the eligible gain on QSB stock
38
(see page 37), or
• The estate or trust reports in Part II,
column (f), a collectibles gain or (loss).
A collectibles gain or loss is any
long-term gain or deductible long-term
loss from the sale or exchange of a
collectible that is a capital asset.
Collectibles includes works of art,
rugs, antiques, metals (such as gold,
silver, and platinum bullion), gems,
stamps, coins, alcoholic beverages,
and certain other tangible property.
Also include gain (but not loss) from
the sale or exchange of an interest in a
partnership, S corporation, or trust held
for more than 1 year and attributable to
unrealized appreciation of collectibles.
For details, see Regulations section
1.1(h)-1. Also attach the statement
required under Regulations section
1.1(h)-1(e).
Part IV—Capital Loss
Limitation
If the sum of all the capital losses is
more than the sum of all the capital
gains, then these capital losses are
allowed as a deduction only to the
extent of the smaller of the net loss or
$3,000.
Page 43 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Restructure first bullet which is awkward. Change
"or" to "on" and rephrase: "On Schedule D, line
14b, column (2), or line 14c, column (2), is more..."
Keep same bolding.
Schedule D Tax Worksheet
Keep for Your Records
Complete this worksheet only if:
• Line 14b, column (2), or line 14c, column (2), or Schedule D is more than zero, or
• Both line 2b(1) of Form 1041 and line 4g of Form 4952 are more than zero.
Exception: Do not use this worksheet to figure the estate’s or trust’s tax if line 14a, column (2), or line 15, column (2), of Schedule D or Form
1041, line 22 is zero or less; instead, see the Instructions for Schedule G, line 1a of Form 1041.
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
21.
22.
23.
24.
25.
26.
27.
28.
29.
30.
31.
32.
33.
34.
35.
36.
37.
Enter the estate’s or trust’s taxable income from Form 1041, line 22 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enter qualified dividends, if any, from Form 1041, line 2b(2) . . . . . . . . . . . 2.
Enter the amount from Form 4952, line 4g . . . . . . . . . . . . . 3.
Enter the amount from Form 4952, line 4e* . . . . . . . . . . . . . 4.
Subtract line 4 from line 3. If zero or less, enter -0- . . . . . . . . . . . . . . . . . 5.
Subtract line 5 from line 2. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
Enter the smaller of line 14a, col. (2) or line 15, col. (2) from Sch. D . . . . . 7.
Enter the smaller of line 3 or line 4 . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
Subtract line 8 from line 7. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
Add lines 6 and 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
Add lines 14b, column (2) and 14c, column (2) from Schedule D . . . . . . . . . . . . . . . . . . . . 11.
Enter the smaller of line 9 or line 11 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
Subtract line 12 from line 10. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Subtract line 13 from line 1. If zero or less, enter -0-. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Enter the smaller of line 1 or $2,150 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
Enter the smaller of line 14 or line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
Subtract line 10 from line 1. If zero or less, enter -0- . . . . . . . . . . . . . . . . 17.
Enter the larger of line 16 or line 17 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 䊳 18.
If lines 15 and 16 are the same, skip lines 19 and 20 and go to line 21. Otherwise,
go to line 19.
Subtract line 16 from line 15 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 䊳 19.
Multiply line 19 by 5% (.05) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
If lines 1 and 15 are the same, skip lines 21 through 33 and go to line 34. Otherwise, go to line 21.
Enter the smaller of line 1 or line 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.
Enter the amount from line 19 (if line 19 is blank, enter -0-) . . . . . . . . . . . . . . . . . . . . . . . 22.
Subtract line 22 from line 21. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 䊳 23.
Multiply line 23 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
If Schedule D, line 14b, column (2) is zero or blank, skip lines 25 through 30 and go to line 31. Otherwise, go to
line 25.
Enter the smaller of line 9 (above) or line 14b, col. (2) (from Schedule D) . . . . . . . . . . . . . 25.
Add lines 10 and 18 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.
Enter the amount from line 1 above . . . . . . . . . . . . . . . . . . . . . . . . . . . 27.
Subtract line 27 from line 26. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.
Subtract line 28 from line 25. If zero or less, enter -0- . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 䊳 29.
Multiply line 29 by 25% (.25) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
If Schedule D, line 14c, column (2) is zero or blank, skip lines 31 through 33 and go to line 34. Otherwise, go to
line 31.
Add lines 18, 19, 23, and 29 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.
Subtract line 31 from line 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.
Multiply line 32 by 28% (.28) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Figure the tax on the amount on line 18. Use the 2007 Tax Rate Schedule on page 26 . . . . . . . . . . . . . . . . . . . . . . .
Add lines 20, 24, 30, 33, and 34 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Figure the tax on the amount on line 1. Use the 2007 Tax Rate Schedule on page 26 . . . . . . . . . . . . . . . . . . . . . . .
Tax on all taxable income (including capital gains and qualified dividends). Enter the smaller of line 35 or line 36
here and on line 1a of Sch. G, Form 1041 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
*If applicable, enter instead the smaller amount entered on the dotted line next to line 4e of Form 4952.
-43-
. . 1.
. . 13.
. . 14.
. . 20.
. . 24.
. . 30.
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33
34.
35.
36.
. . 37.
Page 44 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
For any year (including the final
be distributed currently. To have an
year) in which capital losses exceed
accumulation distribution, the
capital gains, the estate or trust may
distribution must exceed the accounting
have a capital loss carryover. Use the
income of the trust.
Capital Loss Carryover Worksheet on page 42
(above) to figure any capital loss
Specific Instructions
carryover. A capital loss carryover may
be carried forward indefinitely. Capital
Part I—Accumulation
losses keep their character as either
Distribution in 2007
short-term or long-term when carried
over to the following year.
Line 1—Distribution Under
Part V—Tax Computation
Using Maximum Capital
Gains Rates
Line 22
If the estate or trust received qualified
dividends or capital gains that were
derived from IRD and a section 691(c)
deduction was claimed, you must
reduce the amount on Form 1041, page
1, line 2b(2), or Schedule D, line 18,
(line 7 or the Schedule D Tax
Worksheet, if applicable) by the portion
of the section 691(c) deduction claimed
on Form 1041, page 1, line 19 that is
attributable to the estate’s or trust’s
portion of qualified dividends or capital
gains.
Line 35
If the tax using the maximum capital
gains rates is less than the regular tax,
enter the amount from line 35 on line
1a of Schedule G, Form 1041.
Schedule D Tax Worksheet
If you completed the Schedule D Tax
Worksheet instead of Part V of
Schedule D, be sure to enter the
amount from line 37 of the worksheet
on line 1a of Schedule G, Form 1041.
Schedule J (Form 1041)
— Accumulation
Distribution for Certain
Complex Trusts
General Instructions
Use Schedule J (Form 1041) to report
an accumulation distribution for a
domestic complex trust that was:
• Previously treated at any time as a
foreign trust (unless an exception is
provided in future regulations), or
• Created before March 1, 1984,
unless that trust would not be
aggregated with other trusts under the
rules of section 643(f) if that section
applied to the trust.
An accumulation distribution is the
excess of amounts properly paid,
credited, or required to be distributed
(other than income required to be
distributed currently) over the DNI of
the trust reduced by income required to
Section 661(a)(2)
Enter the amount from Schedule B of
Form 1041, line 10, for 2007. This is
the amount properly paid, credited, or
required to be distributed other than the
amount of income for the current tax
year required to be distributed currently.
Line 2—Distributable Net
Income
Enter the amount from Schedule B of
Form 1041, line 7, for 2007. This is the
amount of DNI for the current tax year
determined under section 643(a).
Line 3—Distribution Under
Section 661(a)(1)
Enter the amount from Schedule B of
Form 1041, line 9, for 2007. This is the
amount of income for the current tax
year required to be distributed currently.
Line 5—Accumulation
Distribution
If line 11, Schedule B of Form 1041 is
more than line 8, Schedule B of Form
1041, complete the rest of Schedule J
and file it with Form 1041, unless the
trust has no previously accumulated
income.
Generally, amounts accumulated
before a beneficiary reaches age 21
may be excluded by the beneficiary.
See sections 665 and 667(c) for
exceptions relating to multiple trusts.
The trustee reports to the IRS the total
amount of the accumulation distribution
before any reduction for income
accumulated before the beneficiary
reaches age 21. If the multiple trust
rules do not apply, the beneficiary
claims the exclusion when filing Form
4970, Tax on Accumulation Distribution
of Trusts, as you may not be aware that
the beneficiary may be a beneficiary of
other trusts with other trustees.
For examples of accumulation
distributions that include payments from
one trust to another trust, and amounts
distributed for a dependent’s support,
see Regulations section 1.665(b)-1A(b).
Part II—Ordinary Income
Accumulation Distribution
Enter the applicable year at the top of
each column for each throwback year.
-44-
Line 6—DNI for Earlier Years
Enter the applicable amounts as
follows:
Throwback
year(s)
1969 – 1977
1978 – 1979
1980 . . . .
1981 – 1982
1983 – 1996
1997 – 2006
Amount from line
.
.
.
.
.
.
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.
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.
. Schedule C, Form 1041, line 5
.
Form 1041, line 61
.
Form 1041, line 60
.
Form 1041, line 58
. Schedule B, Form 1041, line 9
. Schedule B, Form 1041, line 7
For information about throwback
years, see the instructions for line 13.
For purposes of line 6, in figuring the
DNI of the trust for a throwback year,
subtract any estate tax deduction for
IRD if the income is includible in
figuring the DNI of the trust for that
year.
Line 7—Distributions Made
During Earlier Years
Enter the applicable amounts as
follows:
Throwback
year(s)
1969 – 1977
1978 . . . .
1979 . . . .
1980 . . . .
1981 – 1982
1983 – 1996
1997 – 2006
Amount from line
.
.
.
.
.
.
.
.
.
.
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.
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.
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.
.
.
.
. Schedule C, Form 1041, line 8
.
Form 1041, line 64
.
Form 1041, line 65
.
Form 1041, line 64
.
Form 1041, line 62
. Schedule B, Form 1041, line 13
. Schedule B, Form 1041, line 11
Line 11—Prior Accumulation
Distribution Thrown Back to
Any Throwback Year
Enter the amount of prior accumulation
distributions thrown back to the
throwback years. Do not enter
distributions excluded under section
663(a)(1) for gifts, bequests, etc.
Line 13—Throwback Years
Allocate the amount on line 5 that is an
accumulation distribution to the earliest
applicable year first, but do not allocate
more than the amount on line 12 for
any throwback year. An accumulation
distribution is thrown back first to the
earliest preceding tax year in which
there is undistributed net income (UNI).
Then, it is thrown back beginning with
the next earliest year to any remaining
preceding tax years of the trust. The
portion of the accumulation distribution
allocated to the earliest preceding tax
year is the amount of the UNI for that
year. The portion of the accumulation
distribution allocated to any remaining
preceding tax year is the amount by
which the accumulation distribution is
larger than the total of the UNI for all
earlier preceding tax years.
A tax year of a trust during which the
trust was a simple trust for the entire
year is not a preceding tax year unless
(a) during that year the trust received
outside income, or (b) the trustee did
not distribute all of the trust’s income
Page 45 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Add missing dot leaders for this line and the 5 lines below
where they are missing
that was required to be distributed
currently for that year. In this case, UNI
for that year must not be more than the
greater of the outside income or income
not distributed during that year.
The term “outside income” means
amounts that are included in the DNI of
the trust for that year but that are not
“income” of the trust as defined in
Regulations section 1.643(b)-1. Some
examples of outside income are: (a)
income taxable to the trust under
section 691; (b) unrealized accounts
receivable that were assigned to the
trust; and (c) distributions from another
trust that include the DNI or UNI of the
other trust.
Line 16—Tax-Exempt Interest
Included on Line 13
For each throwback year, divide line 15
by line 6 and multiply the result by the
following:
Throwback
year(s)
1969 – 1977
1978 – 1979
1980 . . . .
1981 – 1982
1983 – 2006
1997 . . . . . . . . . . . .
1998 – 2006 . . . . . . . .
For each throwback year, enter the
smaller of the capital gain from the two
lines indicated. If there is a capital loss
or a zero on either or both of the two
lines indicated, enter zero on line 19.
Line 26—Tax on Income Other
Than Long-Term Capital Gain
Throwback
year(s)
Amount from line
1969 – 1970
Schedule D, line 10, column 2, or
Schedule D, line 12, column 2
Schedule D, line 14, column 2, or
Schedule D, line 16, column 2
Schedule D, line 18, column (b), or
Schedule D, line 20, column (b)
Schedule D, line 14, column (b), or
Schedule D, line 16, column (b)
Schedule D, line 16, column (b), or
Schedule D, line 18, column (b)
Schedule D, line 15, column (b), or
Schedule D, line 17, column (b)
1971 – 1978
1979 . . . . .
1980 – 1981
1982 . . . . .
1983 – 1996
1997 – 2002
Schedule D, line 14, column (2), or
Schedule D, line 16, column (2)
Schedule D, line 14a, column (2), or
Schedule D, line 16a, column (2)
Schedule D, line 13, column (2), or
Schedule D, line 15, column (2)
2003 . . . . .
2004 – 2006
Amount from line
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.
. Schedule C, Form 1041, line 2(a)
.
Form 1041, line 58(a)
.
Form 1041, line 57(a)
.
Form 1041, line 55(a)
.
Schedule B, Form 1041, line 2
Part III—Taxes Imposed on
Undistributed Net Income
For the regular tax computation, if there
is a capital gain, complete lines 18
through 25 for each throwback year. If
the trustee elected the alternative tax
on capital gains, complete lines 26
through 31 instead of lines 18 through
25 for each applicable year. If there is
no capital gain for any year, or there is
a capital loss for every year, enter on
line 9 the amount of the tax for each
year identified in the instruction for line
18 and do not complete Part III. If the
trust received an accumulation
distribution from another trust, see
Regulations section 1.665(b)-1A.
Note. The alternative tax on capital
gains was repealed for tax years
beginning after December 31, 1978.
The maximum rate on net capital gain
for 1981, 1987, and 1991 through 2006
is not an alternative tax for this
purpose.
Line 18—Regular Tax
Enter the applicable amounts as
follows:
Throwback
year(s)
1969 – 1976
1977 . . . .
1978 – 1979
1980 – 1984
1985 – 1986
1987 . . . .
1988 – 2006
Line 19—Trust’s Share of Net
Short-Term Gain
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Line 20—Trust’s Share of Net
Long-Term Gain
Form 1041, line 23
Form 1041, line 22
Enter the applicable amounts as
follows:
Throwback
year(s)
1969 . . . .
1970 . . . .
1971 . . . .
1972 – 1975
1976 – 1978
Amount from line
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Schedule D, line 20
Schedule D, line 19
Schedule D, line 50
Schedule D, line 48
Schedule D, line 27
Line 27—Trust’s Share of Net
Short-Term Gain
If there is a loss on any of the following
lines, enter zero on line 27 for the
applicable throwback year. Otherwise,
enter the applicable amounts as
follows:
Throwback
year(s)
Amount from line
1969 – 1970 . . . .
1971 – 1978 . . . .
Schedule D, line 10, column 2
Schedule D, line 14, column 2
Enter the applicable amounts as
follows:
Line 28—Trust’s Share of
Taxable Income Less Section
1202 Deduction
Throwback
year(s)
Enter the applicable amounts as
follows:
Amount from line
1969 – 1970 . . . . . .
50% of Schedule D, line 13(e)
1971 – 1977 . . . . . .
50% of Schedule D, line 17(e)
Throwback year(s)
Schedule D, line 17(e), or line
31, whichever is applicable,
less Form 1041, line 23
Schedule D, line 25 or line 27,
whichever is applicable, less
Form 1041, line 23
Schedule D, line 21, less
Schedule D, line 22
Schedule D, line 23, less
Schedule D, line 24
Schedule D, line 22, less
Schedule D, line 23
Schedule D, the smaller
of any gain on line 16
or line 17, column (b)
1969 . . . .
1970 . . . .
1971 . . . .
1972 – 1975
1976 – 1978
1978 . . . . . . . . . .
1979 . . . . . . . . . .
1980 – 1981 . . . . . .
1982 . . . . . . . . . .
1983 – 1986 . . . . . .
1987 – 1996 . . . . . .
1997 – 2001 . . . . . .
Schedule D, the smaller
of any gain on line 15c or
line 16, column (2)
2002 . . . . . . . . . .
Schedule D, the smaller
of any gain on line 15a or
line 16, column (2)
2003 . . . . . . . . . .
Schedule D, the smaller
of any gain on line 15a or
line 16a, column (2)
Schedule D, the smaller
of any gain on line 14a
or line 15, column (2)
2004 – 2006 . . . . . .
Line 22—Taxable Income
Enter the applicable amounts as
follows:
Amount from line
Throwback
year(s)
Form 1041, page 1, line 24
Form 1041, page 1, line 26
Form 1041, line 27
Form 1041, line 26c
Form 1041, line 25c
Form 1041, line 22c
Schedule G, Form 1041, line 1a
1969 – 1976
1977 . . . .
1978 – 1979
1980 – 1984
1985 – 1986
1987 . . . .
1988 – 1996
Amount from line
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. Form 1041, page 1, line 23
. Form 1041, page 1, line 25
.
Form 1041, line 26
.
Form 1041, line 25
.
Form 1041, line 24
.
Form 1041, line 21
.
Form 1041, line 22
-45-
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Amount from line
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Schedule D, line 19
Schedule D, line 18
Schedule D, line 38
Schedule D, line 39
Schedule D, line 21
Part IV—Allocation to
Beneficiary
Complete Part IV for each beneficiary.
If the accumulation distribution is
allocated to more than one beneficiary,
attach an additional copy of Schedule J
with Part IV completed for each
additional beneficiary. Give each
beneficiary a copy of his or her
respective Part IV information. If more
than 5 throwback years are involved,
use another Schedule J, completing
Parts II and III for each additional
throwback year.
If the beneficiary is a nonresident
alien individual or a foreign corporation,
see section 667(e) about retaining the
character of the amounts distributed to
determine the amount of the U.S.
withholding tax.
The beneficiary uses Form 4970 to
figure the tax on the distribution. The
beneficiary also uses Form 4970 for the
section 667(b)(6) tax adjustment if an
accumulation distribution is subject to
estate or generation-skipping transfer
tax. This is because the trustee may
not be the estate or generation-skipping
transfer tax return filer.
Page 46 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Schedule K-1 (Form
1041)— Beneficiary’s
Share of Income,
Deductions, Credits, etc.
What’s New
For 2007, boxes F and G on Part I of
the 2006 Schedule K-1 (Form 1041)
were removed and the subsequent
boxes were relettered. You no longer
have to enter the estate’s or trust’s tax
shelter registration number (box F in
2006). Also, Form 8271, Investor
Reporting of Tax Shelter Registration
Number, which was required to be
attached, if applicable, (box G in 2006)
has been obsoleted. For more
information, see T.D. 9350, 2007-38
I.R.B. 607.
General Instructions
Use Schedule K-1 (Form 1041) to
report the beneficiary’s share of
income, deductions, and credits from a
trust or a decedent’s estate.
Grantor type trusts do not use
Schedule K-1 (Form 1041) to
CAUTION report the income, deductions,
or credits of the grantor (or other
person treated as owner). See Special
Filing Instructions for Grantor Type
Trusts, Pooled Income Funds, and
Electing Small Business Trusts on page
6.
!
Who Must File
The fiduciary (or one of the joint
fiduciaries) must file Schedule K-1. A
copy of each beneficiary’s Schedule
K-1 is attached to the Form 1041 filed
with the IRS, and each beneficiary is
given a copy of his or her respective
Schedule K-1. One copy of each
Schedule K-1 must be retained for the
fiduciary’s records.
Beneficiary’s Identifying
Number
As a payer of income, you are required
to request and provide a proper
identifying number for each recipient of
income. Enter the beneficiary’s number
on the respective Schedule K-1 when
you file Form 1041. Individuals and
business recipients are responsible for
giving you their TIN upon request. You
may use Form W-9, Request for
Taxpayer Identification Number and
Certification, to request the
beneficiary’s identifying number.
Penalty. You may be charged a $50
penalty for each failure to provide a
required TIN, unless reasonable cause
is established for not providing it.
Explain any reasonable cause in a
signed affidavit and attach it to this
return.
D
Substitute Forms
You do not need IRS approval to use a
substitute Schedule K-1 if it is an exact
copy of the IRS schedule. The boxes
must use the same numbers and titles
and must be in the same order and
format as on the comparable IRS
Schedule K-1. The substitute schedule
must include the OMB number and the
6-digit form ID code in the upper
right-hand corner of the schedule.
You must provide each beneficiary
with the Instructions for Beneficiary
Filing Form 1040 or other prepared
specific instructions for each item
reported on the beneficiary’s Schedule
K-1.
Inclusion of Amounts in
Beneficiaries’ Income
Simple trust. The beneficiary of a
simple trust must include in his or her
gross income the amount of the income
required to be distributed currently,
whether or not distributed, or if the
income required to be distributed
currently to all beneficiaries exceeds
the DNI, his or her proportionate share
of the DNI. The determination of
whether trust income is required to be
distributed currently depends on the
terms of the trust instrument and
applicable local law. See Regulations
section 1.652(c)-4 for a comprehensive
example.
Estates and complex trusts. The
beneficiary of a decedent’s estate or
complex trust must include in his or her
gross income the sum of:
1. The amount of the income
required to be distributed currently, or if
the income required to be distributed
currently to all beneficiaries exceeds
the DNI (figured without taking into
account the charitable deduction), his
or her proportionate share of the DNI
(as so figured), and
2. All other amounts properly paid,
credited, or required to be distributed,
or if the sum of the income required to
be distributed currently and other
amounts properly paid, credited, or
required to be distributed to all
beneficiaries exceeds the DNI, his or
her proportionate share of the excess
of DNI over the income required to be
distributed currently.
See Regulations section 1.662(c)-4
for a comprehensive example.
For complex trusts that have more
than one beneficiary, and if different
beneficiaries have substantially
separate and independent shares, their
shares are treated as separate trusts
for the sole purpose of determining the
amount of DNI allocable to the
respective beneficiaries. A similar rule
applies to treat substantially separate
and independent shares of different
-46-
beneficiaries of an estate as separate
estates. For examples of the application
of the separate share rule, see the
regulations under section 663(c).
Gifts and bequests. Do not include in
the beneficiary’s income any gifts or
bequests of a specific sum of money or
of specific property under the terms of
the governing instrument that are paid
or credited in three installments or less.
Amounts that can be paid or credited
only from income of the estate or trust
do not qualify as a gift or bequest of a
specific sum of money.
Past years. Do not include in the
beneficiary’s income any amounts
deducted on Form 1041 for an earlier
year that were credited or required to
be distributed in that earlier year.
Character of income. The
beneficiary’s income is considered to
have the same proportion of each class
of items entering into the computation
of DNI that the total of each class has
to the DNI (for example, half dividends
and half interest if the income of the
estate or trust is half dividends and half
interest).
Allocation of deductions.
Generally, items of deduction that enter
into the computation of DNI are
allocated among the items of income to
the extent such allocation is not
inconsistent with the rules set out in
section 469 and its regulations, relating
to passive activity loss limitations, in the
following order.
First, all deductions directly
attributable to a specific class of income
are deducted from that income. For
example, rental expenses, to the extent
allowable, are deducted from rental
income.
Second, deductions that are not
directly attributable to a specific class of
income generally may be allocated to
any class of income, as long as a
reasonable portion is allocated to any
tax-exempt income. Deductions
considered not directly attributable to a
specific class of income under this rule
include fiduciary fees, safe deposit box
rental charges, and state income and
personal property taxes. The charitable
deduction, however, must be ratably
apportioned among each class of
income included in DNI.
Finally, any excess deductions that
are directly attributable to a class of
income may be allocated to another
class of income. However, in no case
can excess deductions from a passive
activity be allocated to income from a
nonpassive activity, or to portfolio
income earned by the estate or trust.
Excess deductions attributable to
tax-exempt income cannot offset any
other class of income.
Page 47 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
In no case can deductions be
allocated to an item of income that is
not included in the computation of DNI,
or attributable to corpus.
You cannot show any negative
amounts for any class of income shown
in boxes 1 through 8 of Schedule K-1.
However, for the final year of the estate
or trust, certain deductions or losses
can be passed through to the
beneficiary(ies). See the instructions for
box 11 for more information on these
deductions and losses. Also, the
beneficiary’s share of depreciation and
depletion is apportioned separately.
These deductions may be allocated to
the beneficiary(ies) in amounts greater
than their income. See Depreciation,
Depletion, and Amortization on page 17
and Rev. Rul. 74-530, 1974-2 C.B. 188.
Beneficiary’s Tax Year
The beneficiary’s income from the
estate or trust must be included in the
beneficiary’s tax year during which the
tax year of the estate or trust ends. See
Pub. 559 for more information,
including the effect of the death of a
beneficiary during the tax year of the
estate or trust.
General Reporting
Information
If the return is for a fiscal year or a
short tax year, fill in the tax year space
at the top of each Schedule K-1. On D
each Schedule K-1, enter the
information about the estate or trust
and the beneficiary in Parts I and II
(items A through I). In Part III, enter the
beneficiary’s share of each item of
income, deduction, credit, and any
other information the beneficiary needs
to file his or her income tax return.
Codes. In box 9 and boxes 11 through
14, identify each item by entering a
code in the column to the left of the
entry space for the dollar amount.
These codes are identified in these
instructions and on the back of the
Schedule K-1.
Attached statements. Enter an
asterisk (*) after the code, if any, in the
column to the left of the dollar amount
entry space for each item for which you
have attached a statement providing
additional information. For those
informational items that cannot be
reported as a single dollar amount,
enter the code and asterisk in the
left-hand column and enter “STMT” in
the entry space to the right to indicate
that the information is provided on an
attached statement. More than one
attached statement can be placed on
the same sheet of paper and should be
identified in alphanumeric order by box
number followed by the letter code (if
any). For example: “Box 9, Code A —
Depreciation” (followed by the
information the beneficiary needs).
Box 3—Net Short-Term Capital
Gain
Too few entry spaces on Schedule
K-1? If the estate or trust has more
coded items than the number of spaces
in box 9 or boxes 11 through 14, do not
enter a code or dollar amount in the last
entry space of the box. In the last entry
space, enter an asterisk in the left
column and enter “STMT” in the entry
space to the right. Report the additional
items on an attached statement and
provide the box number, code,
description, and dollar amount or
information for each additional item. For
example: “Box 13, Code H — Alcohol
Fuel Credit — $500.00.”
Enter the beneficiary’s share of the net
short-term capital gain from line 13,
column (1), Schedule D (Form 1041),
minus allocable deductions. Do not
enter a loss on line 3. If, for the final
year of the estate or trust, there is a
capital loss carryover, enter in box 11,
using code B, the beneficiary’s share of
short-term capital loss carryover.
However, if the beneficiary is a
corporation, enter in box 11, using code
B, the beneficiary’s share of all shortand long-term capital loss carryovers as
a single item. See section 642(h) and
related regulations for more
information.
Specific Instructions
18
Part I. Information About the
Estate or Trust
On each Schedule K-1, enter the name,
address, and identifying number of the
estate or trust. Also, enter the name
and address of the fiduciary.
Item D
If the fiduciary of a trust or decedent’s
estate filed Form 1041-T, you must
check this box and enter the date it was
filed.
Item E
If this is the final year of the estate or
trust, you must check this box.
Note. If this is the final K-1 for the
beneficiary, check the “Final K-1” box at
the top of Schedule K-1.
Part II. Information About the
Beneficiary
Complete a Schedule K-1 for each
beneficiary. On each Schedule K-1,
enter the beneficiary’s name, address,
and identifying number.
Item H
Check the foreign beneficiary box if the
beneficiary is a nonresident alien
individual, foreign corporation, or a
foreign estate or trust. Otherwise, check
the domestic beneficiary box.
Part III. Beneficiary’s Share
of Current Year Income,
Deductions, Credits, and
Other Items
Box 1—Interest
Enter the beneficiary’s share of the
taxable interest income minus allocable
deductions.
Box 2a—Total Ordinary
Dividends
Enter the beneficiary’s share of ordinary
dividends minus allocable deductions.
-47-
Boxes 4a through 4c—Net
Long-Term Capital Gain
Enter the beneficiary’s share of the net
long-term capital gain from lines 14a
through 14c, column (1), Schedule D
(Form 1041) minus allocable
deductions.
Do not enter a loss in boxes 4a
through 4c. If, for the final year of the
estate or trust, there is a capital loss
carryover, enter in box 11, using code
C, the beneficiary’s share of the
long-term capital loss carryover. (If the
beneficiary is a corporation, see the
instructions for line 3.) See section
642(h) and related regulations for more
information.
Gains or losses from the complete or
partial disposition of a rental, rental real
estate, or trade or business activity that
is a passive activity must be shown on
an attachment to Schedule K-1.
Box 5—Other Portfolio and
Nonbusiness Income
Enter the beneficiary’s share of
annuities, royalties, or any other
income, minus allocable deductions
(other than directly apportionable
deductions), that is not subject to any
passive activity loss limitation rules at
the beneficiary level. Use boxes 6
through 8 to report income items
subject to the passive activity rules at
the beneficiary’s level.
Boxes 6 through 8—Ordinary
Business Income, Rental Real
Estate, and Other Rental
Income
Enter the beneficiary’s share of trade or
business, rental real estate, and other
rental income, minus allocable
deductions (other than directly
apportionable deductions). To assist
the beneficiary in figuring any
applicable passive activity loss
limitations, also attach a separate
schedule showing the beneficiary’s
share of income derived from each
Page 48 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
trade or business, rental real estate,
and other rental activity.
Box 9—Directly Apportioned
Deductions
The limitations on passive
activity losses and credits under
CAUTION section 469 apply to estates and
trusts. Estates and trusts that distribute
income to beneficiaries are allowed to
apportion depreciation, depletion, and
amortization deductions to the
beneficiaries. These deductions are
referred to as “directly apportionable
deductions.”
!
Rules for treating a beneficiary’s
income and directly apportionable
deductions from an estate or trust and
other rules for applying the passive loss
and credit limitations to beneficiaries of
estates and trusts have not yet been
issued.
Any directly apportionable deduction,
such as depreciation, is treated by the
beneficiary as having been incurred in
the same activity as incurred by the
estate or trust. However, the character
of such deduction may be determined
as if the beneficiary incurred the
deduction directly.
To assist the beneficiary in figuring
any applicable passive activity loss
limitations, also attach a separate
schedule showing the beneficiary’s
share of directly apportionable
deductions derived from each trade or
business, rental real estate, and other
rental activity.
Enter the beneficiary’s share of
directly apportioned deductions using
codes A through C.
Depreciation (code A). Enter the
beneficiary’s share of the depreciation
deductions directly apportioned to each
activity reported in boxes 5 through 8.
See the instructions on page 17 for a
discussion of how the depreciation
deduction is apportioned between the
beneficiaries and the estate or trust.
Report any AMT adjustment or tax
preference item attributable to
depreciation separately in box 12, using
code G.
Note. An estate or trust cannot make
an election under section 179 to
expense certain tangible property.
Depletion (code B). Enter the
beneficiary’s share of the depletion
deduction under section 611 directly
apportioned to each activity reported in
boxes 5 through 8. See the instructions
on page 17 for a discussion of how the
depletion deduction is apportioned
between the beneficiaries and the
estate or trust. Report any tax
preference item attributable to depletion
separately in box 12, using code H.
Amortization (code C). Itemize the
beneficiary’s share of the amortization
deductions directly apportioned to each
activity reported in boxes 5 through 8.
Apportion the amortization deductions
between the estate or trust and the
beneficiaries in the same way that the
depreciation and depletion deductions
are divided. Report any AMT
adjustment attributable to amortization
separately in box 12, using code I.
Box 10—Estate Tax Deduction
(Including Certain
Generation-Skipping Transfer
Taxes)
If the distribution deduction consists of
any IRD, and the estate or trust was
allowed a deduction under section
691(c) for the estate tax paid
attributable to such income (see the
line 19 instructions on page 22), then
the beneficiary is allowed an estate tax
deduction in proportion to his or her
share of the distribution that consists of
such income. For an example of the
computation, see Regulations section
1.691(c)-2. Figure the computation on a
separate sheet and attach it to the
return.
Box 11, Code A—Excess
Deductions on Termination
If this is the final return of the estate or
trust, and there are excess deductions
on termination (see the instructions for
line 22 on page 22), enter the
beneficiary’s share of the excess
deductions in box 11, using code A.
Figure the deductions on a separate
sheet and attach it to the return.
Excess deductions on termination
occur only during the last tax year of
the trust or decedent’s estate when the
total deductions (excluding the
charitable deduction and exemption)
are greater than the gross income
during that tax year.
Generally, a deduction based on an
NOL carryover is not available to a
beneficiary as an excess deduction.
However, if the last tax year of the
estate or trust is also the last year in
which an NOL carryover may be taken
(see section 172(b)), the NOL carryover
is considered an excess deduction on
the termination of the estate or trust to
the extent it is not absorbed by the
estate or trust during its final tax year.
For more information, see Regulations
section 1.642(h)-4 for a discussion of
the allocation of the carryover among
the beneficiaries.
Only the beneficiary of an estate or
trust that succeeds to its property is
allowed to deduct that entity’s excess
deductions on termination. A
beneficiary who does not have enough
income in that year to absorb the entire
deduction may not carry the balance
-48-
over to any succeeding year. An
individual beneficiary must be able to
itemize deductions in order to claim the
excess deductions in determining
taxable income.
Box 11, Codes B and C—
Unused Capital Loss Carryover
Upon termination of the trust or
decedent’s estate, the beneficiary
succeeding to the property is allowed
as a deduction any unused capital loss
carryover under section 1212. If the
estate or trust incurs capital losses in
the final year, use the Capital Loss
Carryover Worksheet on page 42 to
figure the amount of capital loss
carryover to be allocated to the
beneficiary.
Box 11, Codes D and E—Net
Operating Loss (NOL)
Carryover
Upon termination of a trust or
decedent’s estate, a beneficiary
succeeding to its property is allowed to
deduct any unused NOL (and any
ATNOL) carryover for regular and AMT
purposes if the carryover would be
allowable to the estate or trust in a later
tax year but for the termination. Enter in
box 11, using codes D and E, the
unused carryover amounts.
Box 12—Alternative Minimum
Tax Items
Adjustment for minimum tax
purposes (code A). Enter the
beneficiary’s share of the adjustment
for minimum tax purposes.
To figure the adjustment, subtract
the beneficiary’s share of the income
distribution deduction figured on
Schedule B, line 15, from the
beneficiary’s share of the income
distribution deduction on a minimum tax
basis figured on Schedule I, line 44.
The difference is the beneficiary’s share
of the adjustment for minimum tax
purposes.
Note. Schedule B, line 15 equals the
sum of all Schedule K-1s, box 1, 2a, 3,
4a, 5, 6, 7, and 8.
AMT adjustment attributable to
qualified dividends, net short-term
capital gains, or net long-term
capital gains (codes B through D). If
any part of the amount reported in box
12, code A, is attributable to qualified
dividends (code B), net short-term
capital gain (code C), or net long-term
capital gain (code D), enter that part
using the applicable code.
AMT adjustment attributable to
unrecaptured section 1250 gain or
28% rate gain (codes E and F). Enter
the beneficiary’s distributive share of
any AMT adjustments to the
unrecaptured section 1250 gain (code
Page 49 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
E) or 28% rate gain (code F),
whichever is applicable, in box 12.
Accelerated depreciation, depletion,
and amortization (codes G through
I). Enter any adjustments or tax
preference items attributable to
depreciation, depletion, or amortization
that were directly apportioned to the
beneficiary. For property placed in
service before 1987, report separately
the accelerated depreciation of real and
leased personal property.
Exclusion Items (code J). Enter the
beneficiary’s share of the adjustment
for minimum tax purposes from
Schedule K-1, box 12, code A, that is
attributable to exclusion items
(Schedule I, lines 2 through 6 and 8).
Box 13—Credits and Credit
Recapture
Enter each beneficiary’s share of the
credits and credit recapture using the
applicable codes. Listed below are the
credits that can be allocated to the
beneficiary(ies). Attach a statement if
additional information must be provided
to the beneficiary as explained below.
• Credit for estimated taxes (code A) —
Payment of estimated tax to be credited
to the beneficiary (section 643(g)).
See the instructions for line 24b
on page 22 before you make an
CAUTION entry to allocate any estimated
tax payments to a beneficiary. If the
fiduciary does not make a valid
election, then the IRS will disallow the
estimated tax payment that is reported
on Schedule K-1 and claimed on the
beneficiary’s return.
• Credit for backup withholding (code
B).
• The low-income housing credit
(code C).
• Qualified rehabilitation expenditures
(code D). Attach a statement that
shows the amount and corresponding
line on Form 3468 for reporting each
type of expenditure.
• Basis of other investment credit
property (code E). Attach a statement
that shows the basis of and
corresponding lines for reporting
property qualifying for the energy credit,
qualifying advanced coal project credit,
and qualifying gasification project
credit. If the statement shows an
amount for line 2c, it must also include
an amount to enter on line 2d, and if it
shows an amount for line 2f, it must
!
also include an amount to enter on line
2g.
• Work opportunity credit (code F).
• Welfare-to-work credit (code G).
• Alcohol fuel credit (code H). If the
credit includes the small ethanol
producer credit, attach a statement that
shows the beneficiary’s share of the
small ethanol producer credit, the
number of gallons claimed for the small
ethanol producer credit, and the
estate’s or trust’s productive capacity
for alcohol.
• Credit for increasing research
activities (code I).
• Renewable electricity, refined coal,
and Indian coal production credit (code
J). Attach a statement that shows the
amount of the credit the beneficiary
must report on line 9 and line 23 of
Form 8835, in case the beneficiary is
required to file that form in addition to
Form 3800.
• Empowerment zone and renewal
community employment credit (code K).
• Indian employment credit (code L).
• Orphan drug credit (code M).
• Credit for employer provided child
care and facilities (code N).
• Biodiesel and renewable diesel fuels
credit (code O). If the credit includes
the small agri-biodiesel credit, attach a
statement that shows the beneficiary’s
share of the small agri-biodiesel credit,
the number of gallons claimed for the
small agri-biodiesel credit, and the
estate’s or trust’s productive capacity
for agri-biodiesel.
• Nonconventional source fuel credit
(code P).
• Clean renewable energy bond and
Gulf tax credit bond credits (code Q).
Attach a statement that shows the
amount of the credit the beneficiary
must report on line 3 and line 9 of Form
8912.
• Hurricane Katrina housing credit
(code R).
• Energy efficient appliance credit
(code S).
• Recapture of credits (code T). On an
attached statement to Schedule K-1,
provide any information the beneficiary
will need to report recapture of credits.
Box 14—Other Information
Enter the dollar amounts and applicable
codes for the items listed under Other
Information.
Domestic production activities
information. The estate or trust
allocates qualified production activity
-49-
income (QPAI) (whether positive or
negative) and Form W-2 wages based
on the relative proportion of the trust’s
or estate’s DNI that is distributed or
required to be distributed to the
beneficiary. If the estate or trust has no
DNI for the tax year, QPAI and Form
W-2 wages are allocated entirely to the
estate or trust.
Qualified production activities
income (code C). Enter the
beneficiary’s share, if any, of the
estate’s or trust’s QPAI. The QPAI will
be less than zero if the cost of goods
sold and deductions allocated and
apportioned to domestic production
gross receipts (DPGR) is more than the
estate’s or trust’s DPGR. See Form
8903, Domestic Production Activities
Deduction, and its instructions for more
details.
Form W-2 wages (code D). Use
code D to report the beneficiary’s
share, if any, of Form W-2 wages. Do
not enter more than 6% of the
beneficiary’s share, if any, of the
estate’s or trust’s QPAI. See Form 8903
and its instructions for more details.
Foreign trading gross receipts
(code G). Enter the beneficiary’s
share, if any, of foreign trading gross
receipts. See Form 8873,
Extraterritorial Income Exclusion, for
more information.
Other Information (code H). List on a
separate sheet the tax information the
beneficiary will need to complete his or
her return that is not entered elsewhere
on Schedule K-1.
For example, if the estate or trust
participates in a transaction that must
be disclosed on Form 8886 (see page
12), both the estate or trust and its
beneficiaries may be required to file
Form 8886. The estate or trust must
determine if any of its beneficiaries are
required to disclose the transaction and
provide those beneficiaries with
information they will need to file Form
8886. This determination is based on
ies
the category(s) under which a
transaction qualified for disclosures.
See the instructions for Form 8886 for
details.
!
CAUTION
Income tax withheld on wages
cannot be distributed to the
beneficiary.
Page 50 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Privacy Act and Paperwork Reduction Act Notice. We ask for the information on this form to carry out the Internal
Revenue laws of the United States. You are required to give us the information. We need it to ensure that you are complying
with these laws and to allow us to figure and collect the right amount of tax. Section 6109 requires return preparers to provide
their identifying numbers on the return.
You are not required to provide the information requested on a form that is subject to the Paperwork Reduction Act unless
the form displays a valid OMB control number. Books or records relating to a form or its instructions must be retained as long
as their contents may become material in the administration of any Internal Revenue law. Generally, tax returns and return
information are confidential, as required by Code section 6103.
The time needed to complete and file this form and related schedules will vary depending on individual circumstances. The
estimated average times are:
Form 1041
Recordkeeping
Learning about the law
or the form
Preparing the form
Copying, assembling, and sending the
form to the IRS
Schedule D
Schedule D Tax
Worksheet
Schedule J
Schedule K-1
52 hr., 49 min.
23 hr., 54 min.
12 hr., 12 min.
39 hr., 27 min.
7 hr., 10 min.
20 hr., 39 min.
38 hr., 14 min.
2 hr., 29 min.
3 hr., 18 min.
---12 min.
1 hr., 17 min.
1 hr., 59 min.
1 hr., 57 min.
3 hr., 5 min.
4 hr., 34 min.
----
----
----
16 min.
If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related
schedules simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products
Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send
the tax form to this address. Instead, see Where To File on page 52.
-50-
Page 51 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Index
A
Accounting income . . . . . . . . . . . . 2
AGI . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Alaska Native Settlement
Trusts . . . . . . . . . . . . . . . . . . . . . . 6
Allowable miscellaneous itemized
deductions (AMID) . . . . . . . . . 20
Alternative minimum tax . . . . . . 29
Amended return . . . . . . . . . . . . . . 16
Amounts paid or permanently set
aside . . . . . . . . . . . . . . . . . . . . . . 24
Assembly . . . . . . . . . . . . . . . . . . . . 12
Attachments . . . . . . . . . . . . . . . . . 12
B
Bankruptcy estate . . . . . . . . . . 6, 15
Bankruptcy information . . . . . . . 12
Basis . . . . . . . . . . . . . . . . . . . . . . . . 39
Beneficiary . . . . . . . . . . . . . . . . . . . . 3
Allocation of estimated tax
payment . . . . . . . . . . . . . 10, 22
Complex trust . . . . . . . . . . . . . . 46
Estate . . . . . . . . . . . . . . . . . . . . . 46
Simple trust . . . . . . . . . . . . . . . . 46
Tax year for inclusion . . . . . . . 47
Withholding on foreign
person . . . . . . . . . . . . . . . . . . . 24
Blind trust . . . . . . . . . . . . . . . . . . . . 16
C
Capital asset . . . . . . . . . . . . . . . . . 36
Capital loss limitation . . . . . . . . . 42
Cemetery perpetual care
fund . . . . . . . . . . . . . . . . . . . . . . . 22
Charitable deduction . . . . . . . . . . 23
Collectibles . . . . . . . . . . . . . . . . . . 42
Common trust fund . . . . . . . . . . . . 6
D
Definitions:
Accumulation
distribution . . . . . . . . . . . . . . . 44
Beneficiary . . . . . . . . . . . . . . . . . . 3
Complex trust . . . . . . . . . . . . . . 14
Decedent’s estate . . . . . . . . . . 14
DNI . . . . . . . . . . . . . . . . . . . . . . . . . 3
Fiduciary . . . . . . . . . . . . . . . . . . . . 3
Grantor trusts . . . . . . . . . . . . . . 14
IRD . . . . . . . . . . . . . . . . . . . . . . . . . 3
Outside income . . . . . . . . . . . . 45
Pooled income fund . . . . . . . . 15
Revocable Living Trust . . . . . . 3
Simple trust . . . . . . . . . . . . . . . . 14
Trust . . . . . . . . . . . . . . . . . . . . . . . 3
Trusts . . . . . . . . . . . . . . . . . . . . . . 3
Distributable net income (See
DNI)
DNI . . . . . . . . . . . . . . . . . . . . . . . . 3, 24
E
Electing small business
trusts . . . . . . . . . . . . . . . . . . . . 8, 27
ESBT (S portion only) . . . . . . 14
S portion . . . . . . . . . . . . . . . . . . . . 8
Elections:
Out of installment
method . . . . . . . . . . . . . . . . . . 40
Rollover of gain from qualified
small business stock . . . . . 38
Section 643(e)(3) . . . . . . . 25, 37
Section 643(g) . . . . . . . . . 10, 22
Section 645 . . . . . . . . . . . . . . . . . 4
Special rule for qualified
revocable trusts . . . . . . . . . . . 4
Treating contributions as paid in
prior tax year . . . . . . . . . . . . . 23
Electronic deposits . . . . . . . . . . . 10
ESBTs (See Electing small
business trusts)
Estate . . . . . . . . . . . . . . . . . . . . . 4, 46
Bankruptcy . . . . . . . . . . . . . . 6, 15
Exemption for . . . . . . . . . . . . . . 22
Foreign . . . . . . . . . . . . . . . . . . . . . 4
Who must file . . . . . . . . . . . . . . . 4
Estate tax deduction . . . . . . . . . . 22
Estimated tax . . . . . . . . . . 9, 22, 23
Allocation of payments to
beneficiaries . . . . . . . . . . . 9, 22
Penalty . . . . . . . . . . . . . . . . . . . . 23
Excess deductions . . . . . . . . . . . 22
Exemption . . . . . . . . . . . . . . . . . . . 22
Extraterritorial income
exclusion . . . . . . . . . . . . . . . . . . 16
F
Fiduciary . . . . . . . . . . . . . . . . . 3, 4, 9
Fiduciary accounting income (FAI)
(See Accounting income)
Final return . . . . . . . . . . . . . . . . . . . 16
First tier distributions . . . . . . . . . . 25
Foreign tax credit . . . . . . . . . . . . . 26
Form 1041-T . . . . . . . . . . . . . 10, 22
Form 8855 . . . . . . . . . . . . . . . . . . . . 4
G
General business credit . . . . . . . 26
Grantor trusts . . . . . . . . . . . 2, 6, 14
Backup withholding . . . . . . . . . . 8
Mortgage pools . . . . . . . . . . . . 15
Nonqualified deferred
compensation plans . . . . . . 15
Optional filing methods . . . . . . 7
Pre-need funeral trusts . . . . . 15
Special filing instructions . . . . . 6
GST tax deduction . . . . . . . . . . . . 22
I
Income distribution
deduction . . . . . . . . . . . . 2, 21, 24
Income in respect of a decedent
(See IRD)
Installment sales . . . . . . . . . . . . . 39
Elect out of . . . . . . . . . . . . . . . . 39
Inter vivos . . . . . . . . . . . . . . . . . . . 2, 3
Interest income . . . . . . . . . . . . . . . 16
IRD . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Deduction . . . . . . . . . . . . . . . . . . 22
L
Like-kind exchange . . . . . . . . . . . 40
M
Minimum taxable income . . . . . . 22
Mortgage pools . . . . . . . . . . . . . . . 15
Employer Identification
number . . . . . . . . . . . . . . . . . . 15
N
Net operating loss . . . . . . . . . . . . 22
Nonexempt charitable
deduction . . . . . . . . . . . . . . . . . . 15
Nonexempt charitable
trust . . . . . . . . . . . . . . . . . . . 15, 23
Nonqualified deferred
compensation plans . . . . . . . . 15
P
Paid preparer . . . . . . . . . . . . . . . . . 9
Paid preparer authorization . . . . 9
Penalties:
Estimated tax . . . . . . . . . . . . . . 23
Failure to provide a required
TIN . . . . . . . . . . . . . . . . . . . . . . 46
Failure to provide information
timely . . . . . . . . . . . . . . . . . . . 10
Late filing of return . . . . . . . . . 10
Late payment of tax . . . . . . . . 10
Other . . . . . . . . . . . . . . . . . . . . . . 10
Trust fund recovery . . . . . . . . . 10
Underpaid estimated tax . . . . 10
Pooled income funds . . . . . . 8, 15,
23, 24
Pre-need funeral trusts . . . . . . . . 15
Q
Qualified disability trust . . . . . . . 22
Qualified revocable trust . . . . . . . 4
Qualified settlement funds . . . . . . 6
Qualified small business
stock . . . . . . . . . . . . . . . . . . 25, 38
R
Returns:
Amended . . . . . . . . . . . . . . . . . . 16
Common trust fund . . . . . . . . . . 6
Electronic and magnetic
media . . . . . . . . . . . . . . . . . . . . 8
Final . . . . . . . . . . . . . . . . . . . . . . . 16
Nonexempt charitable
trust . . . . . . . . . . . . . . . . . . . . . 15
-51-
Qualified settlement
funds . . . . . . . . . . . . . . . . . . . . . 6
Split-interest trust . . . . . . . . . . . 16
When to file . . . . . . . . . . . . . . . . . 8
Who must file . . . . . . . . . . . . . . . 4
Revocable Living Trusts:
Section 645 Election . . . . . . . . 16
S
Second tier distributions . . . . . . 25
Separate share rule . . . . . . . . . . 24
Special filing instructions:
Bankruptcy estates . . . . . . . . . 13
Electing small business
trusts . . . . . . . . . . . . . . . . . . . . . 8
Grantor trusts . . . . . . . . . . . . . . . 6
Pooled income funds . . . . . . . . 8
Split-interest trust . . . . . . . . . . . . . 16
Substitute forms . . . . . . . . . . . . . . 46
T
Taxable income . . . . . . . . . . . . . . 22
Throwback years . . . . . . . . . . . . . 44
Trusts . . . . . . . . . . . . . . . . . . . . . . . . 3
Alaska Native Settlement . . . . 6
Blind . . . . . . . . . . . . . . . . . . . . . . 16
Common trust fund . . . . . . . . . . 6
Complex . . . . . . . . . . . . . . . . . . . 46
Domestic . . . . . . . . . . . . . . . . . . . 4
Exemption for . . . . . . . . . . . . . . 22
Foreign . . . . . . . . . . . . . . . . . . . . 28
Grantor . . . . . . . . . . . . . . . . . . . . . 2
Inter vivos . . . . . . . . . . . . . . . . 2, 3
Nonexempt charitable . . . . . 15,
23
Pre-need funeral . . . . . . . . . . . 15
Qualified disability . . . . . . . . . . 22
Qualified revocable . . . . . . . . . . 4
Simple . . . . . . . . . . . . . . . . . . . . . 46
Split-interest . . . . . . . . . . . . . . . 16
Testamentary . . . . . . . . . . . . . 2, 3
Who must file . . . . . . . . . . . . 4, 46
U
Undistributed capital gains . . . . 39
Unrecaptured section 1250
gain . . . . . . . . . . . . . . . . . . . . . . . 41
W
Who must file:
Bankruptcy estate . . . . . . . . . . 12
Decedent’s estate . . . . . . . . . . . 4
Trust . . . . . . . . . . . . . . . . . . . . . . . 4
Widely held fixed investment
trusts . . . . . . . . . . . . . . . . . . . . . . 15
Withholding on foreign
person . . . . . . . . . . . . . . . . . . . . . 24
■
Page 52 of 52
Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1
17:41 - 29-OCT-2007
The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.
Where to File
For all estates and trusts, including charitable and split-interest trusts and pooled income funds:
THEN use this address if you:
IF you are located in ...
Are not enclosing a check or
money order ...
Are enclosing a check or money
order ...
Connecticut, Delaware, District of Columbia, Illinois,
Indiana, Kentucky, Maine, Maryland, Massachusetts,
Michigan, New Hampshire, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, Rhode Island, South
Carolina, Vermont, Virginia, West Virginia, Wisconsin
Department of the Treasury
Internal Revenue Service Center
Cincinnati, Ohio 45999-0048
Department of the Treasury
Internal Revenue Service Center
Cincinnati, Ohio 45999-0148
Alabama, Alaska, Arizona, Arkansas, California,
Colorado, Florida, Georgia, Hawaii, Idaho, Iowa, Kansas,
Louisiana, Minnesota, Mississippi, Missouri, Montana,
Nebraska, Nevada, New Mexico, North Dakota,
Oklahoma, Oregon, South Dakota, Tennessee, Texas,
Utah, Washington, Wyoming
Department of the Treasury
Internal Revenue Service Center
Ogden, Utah 84201-0048
Department of the Treasury
Internal Revenue Service Center
Ogden, Utah 84201-0148
A foreign country or a United States possession
Department of the Treasury
Internal Revenue Service Center
Ogden, Utah 84201 – 0210
Department of the Treasury
Internal Revenue Service Center
Ogden, Utah 84201 – 0222
use hyphens
-52-
| File Type | application/pdf |
| File Title | Major Changes to the 2007 Instructions for Form 1041 |
| Author | pswjb |
| File Modified | 2007-11-20 |
| File Created | 2007-10-30 |