Cumulative Changes Userid: SD_Q7TMB DTD INSTR04 PAGER/SGML Page 1 of 37 Fileid: Leadpct: 0% Pt. size: 9.5 D:\users\q7tmb\documents\2009 Inst 1041\i1041_092409.sgm Instructions for Form 1041 and Schedules A, B, G, J, and K-1 ❏ Draft ❏ Ok to Print (Init. & date) 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Changes proofread on 9/25 by JPL and JK. References checked on 9/18 by JPL. 2009 Department of the Treasury Internal Revenue Service Instructions for Form 1041 and Schedules A, B, G, J, and K-1 U.S. Income Tax Return for Estates and Trusts Section references are to the Internal Revenue Code unless otherwise noted. Contents What’s New . . . . . . . . . . . . . . . Reminder . . . . . . . . . . . . . . . . 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 . . . . . . . . . . . . . Electronic Filing . . . . . . . . . . . . When To File . . . . . . . . . . . . . Period Covered . . . . . . . . . . . . Where To File . . . . . . . . . . . . . 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 . . . Special Reporting Instructions . . . . . . . . . . . . Grantor Type Trusts . . . . . . . Pooled Income Funds . . . . . Electing Small Business Trusts . . . . . . . . . . . . . . . . Bankruptcy Estates. . . . . . . . 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, etc. . . . . . . . . . . . . . Page . . . . .1 . . . . .1 . . . . .1 . . . . .1 . . . . .2 . . . . .2 . . . . .2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2 .2 .3 .3 .6 .6 .7 .7 .7 .8 .8 .8 .8 .8 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 J (Form 1041) — Accumulation Distribution for Certain Complex Trusts . . . . Schedule K-1 (Form 1041) — Beneficiary’s Share of Income, Deductions, Credits, etc. . . . . . . . . . . . . . . . . . . . Index . . . . . . . . . . . . . . . . . . . . . . . . . . . Page . . 17 . . 17 . . 18 . . 23 . . . . 24 . . . . 25 . . . . 27 . . . . 29 . . . . 32 . . . . 37 What’s New . . . . 15 . . . . 15 . . . . 15 Reminder . . . . 11 . . . . 11 . . . . 12 . . . . . . . . . . . . . . . . . . . . . . 12 . 13 . 14 . 14 . 14 . 14 . 15 . . . . 16 . . . . 16 • Review a copy of the trust instrument (including any amendments) or the will, if any, before preparing an estate’s or trust’s return. Cat. No. 11372D 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 . . . . 30 • For tax years beginning in 2009, the requirement to file a return for a bankruptcy estate applies only if gross income is at least $9,350. • For 2009, qualified disability trusts can claim an exemption of up to $3,650. A trust with modified adjusted gross income above $166,800 loses part of the exemption deduction. See the instructions for line 20 on page 23 d for more details. • Special allocation rules apply to prepaid mortgage insurance premiums allocable to periods after 2009. See the instructions for line 10 on page 20. • You can now pay the balance of taxes due on Form 1041 by credit or debit card. See the instructions for line 27 on page 24. . . . . .9 . . . . 10 . . . . 10 Photographs of Missing Children If you have attempted to deal with an IRS problem unsuccessfully, you should contact the Taxpayer Advocate. The Taxpayer Advocate independently 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: • An impartial and independent look at your 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 (EIN). Page 2 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. d • 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 supporting documentation (if applicable). You can contact a Taxpayer Advocate as follows: • Call the Taxpayer Advocate’s toll-free number: 1-877-777-4778. • Call, write, or fax the Taxpayer Advocate office in its area (see Pub. 1546, Taxpayer Advocate Service, Your Voice At The IRS, for addresses and phone numbers). • TTY/TDD help is available by calling 1-800-829-4059. • Visit the website at www.irs.gov/ advocate. 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. DVD for tax products. You can order Pub. 1796, IRS Tax Products DVD, and obtain: • Current-year forms, instructions, and publications. • Prior-year forms, instructions, and publications. • Tax Map: an electronic research tool and finding aid. • Tax Law frequently asked questions. • Tax Topics from the IRS telephone Para response system. • Internal Revenue Code - Title 26. • Fill-in, print, and save features for most tax forms. • Internal Revenue Bulletins. • Toll-free and email technical support. The DVD is released twice during the year. — The first release will ship the beginning of January 2010. — The final release will ship the beginning of March 2010. Purchase the DVD from National Technical Information Service at www.irs.gov/cdorders for $30 (no handling fee) or call 1-877-233-6767 toll free to buy the DVD for $30 (plus a $6 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. 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. General Instructions Abusive Trust Arrangements 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’ d Estates A trust or a decedent’s estate is a separate legal entity for federal tax purposes. A 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 11 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. -2- 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. 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 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, a relative, or a 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 Page 3 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 Defs now hd4 Beneficiary. A beneficiary includes an heir, a legatee, or a devisee. Decedent’s estate. The decedent’s estate is an entity that is formed at the time of an individual’s death and generally is charged with gathering the decedent’s assets, paying the decedent’s debts and expenses, and distributing the remaining assets. Generally, the estate consists of all the property, real or personal, tangible or intangible, wherever situated, that the decedent owned an interest in at death. 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. Income. When completing Form 1041, you must take into account any items that are income in respect of a decedent (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 had 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. • Interest deductible under section 163. • Taxes deductible under section 164. • Investment expenses described in section 212 (in excess of 2% of adjusted gross income (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. -3- 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 later for special filing instructions that apply to grantor type trusts. 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. 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 is from sources outside the United States that is not effectively connected with the conduct of a U.S. trade or business and 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. Page 4 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Two or more trusts are treated as Part of an Estate, must be filed by the one trust if such trusts have due date for Form 1041 for the first tax substantially the same grantor(s) and year of the related estate. This applies substantially the same primary even if the combined related estate and beneficiary(ies) and a principal purpose electing trust do not have sufficient of such trusts is avoidance of tax. This income to be required to file Form provision applies only to that portion of 1041. However, if the estate is granted the trust that is attributable to an extension of time to file Form 1041 contributions to corpus made after for its first tax year, the due date for March 1, 1984. Form 8855 is the extended due date. A trust is a domestic trust if: Once made, the election is • A U.S. court is able to exercise irrevocable. primary supervision over the Qualified revocable trusts. In administration of the trust (court test), general, a QRT is any trust (or part of a and trust) that, on the day the decedent • One or more U.S. persons have the died, was treated as owned by the authority to control all substantial decedent because the decedent held decisions of the trust (control test). the power to revoke the trust as See Regulations section 301.7701-7 described in section 676. An electing for more information on the court and trust is a QRT for which a section 645 control tests. election has been made. Also treated as a domestic trust is a Election period. The election period trust (other than a trust treated as is the period of time during which an wholly owned by the grantor) that: electing trust is treated as part of its • Was in existence on August 20, related estate. 1996, • Was treated as a domestic trust on The election period begins on the August 19, 1996, and date of the decedent’s death and • Elected to continue to be treated as a terminates on the earlier of: domestic trust. • The day on which the electing trust A trust that is not a domestic trust is and related estate, if any, distribute all treated as a foreign trust. If you are the of their assets, or trustee of a foreign trust, file Form • The day before the applicable date. 1040NR instead of Form 1041. Also, a To determine the applicable date, first foreign trust with a U.S. owner determine whether a Form 706, United generally must file Form 3520-A, States Estate (and Generation-Skipping Annual Information Return of Foreign Transfer) Tax Return, is required to be Trust With a U.S. Owner.Grantor trusts filed as a result of the decedent’s If a domestic trust becomes a foreign death. If no Form 706 is required to be trust, it is treated under section 684 as filed, the applicable date is 2 years after having transferred all of its assets to a the date of the decedent’s death. If foreign trust, except to the extent a Form 706 is required, the applicable grantor or another person is treated as date is the later of 2 years after the the owner of the trust when the trust date of the decedent’s death or 6 becomes a foreign trust. months after the final determination of liability for estate tax. For additional Grantor Type Trusts information, see Regulations section If all or any portion of a trust is a 1.645-1(f). grantor type trust, then that trust or portion of a trust must follow the special Taxpayer identification number (TIN). All QRTs must obtain a new TIN reporting requirements discussed on following the death of the decedent page 11. See Grantor Type Trust on whether or not a section 645 election is page 15 for more details on what made. (Use Form W-9, Request for makes a trust a grantor type trust. Taxpayer Identification Number and Certification, to notify payers of the new Special Rule for Certain TIN.) 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 Move the new QSST write-up from page 6 to here. Keep it as a Hd4. 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). Make this a head 3. -4- 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 to 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 25 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. 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 Page 5 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 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 -5- 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 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 electing trust’s election period and tax year terminate 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. Page 6 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. (QSSTs) QSSTs 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. Qualified subchapter S trusts. Qualified subchapter S trusts must follow the special reporting requirements for these trusts discussed on page 11. 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 $9,350 or more. See Bankruptcy Estates on page 13 for details. Charitable Remainder Trusts A section 664 charitable remainder trust (CRT) does not file Form 1041. Instead, a CRT files Form 5227, Split-Interest Trust Information Return. If the CRT has any unrelated business taxable income, it also must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code. 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. Electing Small Business Trusts Electing small business trusts file Form 1041. However, see page 12 for a discussion of the special reporting requirements for these trusts. Pooled Income Funds Pooled income funds file Form 1041. See page 12 for the special reporting requirements for these trusts. Additionally, pooled income funds must file Form 5227, Split-Interest Trust Information Return. Qualified Funeral Trusts Trustees of pre-need funeral trusts who elect treatment under section 685 file Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts. All other pre-need funeral trusts, see Grantor Type Trusts on page 11 for Form 1041 reporting requirements. 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, -6- • Address, • TIN, and • A statement that he or she will treat the qualified settlement fund as a grantor type trust. Widely Held Fixed Investment Trust (WHFITs) Trustees and middlemen of WHFITs do not file Form 1041. Instead, they report all items of gross income and proceeds on the appropriate Form 1099. For the definition of a WHFIT, see Regulations section 1.671-5(b)(22). A tax information statement that includes the information given to the IRS on Forms 1099, as well as additional information identified in Regulations section 1.671-5(e) must be given to trust interest holders. See the General Instructions for Certain Information Returns (Forms 1098, 1099, 3921, 3922, 5498, and W-2G) for more information. d 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 (PIN). See Form 8879-F, IRS e-file Signature Authorization for Form 1041, for details. If you do not sign the electronically filed 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, see Pub. 1437, Procedures for the Form 1041 e-file Program, U.S. Income Tax Returns For Estates and Trusts For Tax Year 2009 and Pub. 1438, File Specifications, Validation Criteria and Record Layouts for the Electronic Filing Program for Form 1041, U.S. Income Tax Return for Estates and Trusts for Tax Year 2009. 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, 2010. 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 June 30, 2010, must file Form 1041 by October 15, 2010. If the due date falls on a Saturday, Sunday, or legal holiday, file on the next business day. Page 7 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. d 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 Express (DHL) (available only to filers located outside the United States): DHL Same 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. Period Covered File the 2009 return for calendar year 2009 and fiscal years beginning in 2009 and ending in 2010. If the return is for a fiscal year or a short tax year (less than 12 months), fill in the tax year space at the top of the form. The 2009 Form 1041 may also be used for a tax year beginning in 2010 if: 1. The estate or trust has a tax year of less than 12 months that begins and ends in 2010, and 2. The 2010 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 2010 tax year on the 2009 Form 1041 and incorporate any tax law changes that are effective for tax years beginning after December 31, 2009. Extension of Time To File Who Must Sign If more time is needed to file the estate or trust return, use Form 7004 to apply for an automatic 5-month extension of time to file. Fiduciary The fiduciary, or an authorized representative, must sign Form 1041. If Where To File For all estates and trusts, including charitable and split-interest trusts (other than Charitable Remainder Trusts). 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, Georgia, Illinois, Indiana, Kentucky, Maine, Maryland, Massachusetts, Michigan, New Department of the Treasury Hampshire, New Internal Revenue Service Center Jersey, New York, Cincinnati, Ohio 45999-0048 North Carolina, Ohio, Pennsylvania, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Wisconsin Department of the Treasury Internal Revenue Service Center Cincinnati, Ohio 45999-0148 Alabama, Alaska, Arizona, Arkansas, California, Colorado, Florida, Hawaii, Idaho, Iowa, Kansas, Louisiana, Minnesota, Mississippi, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oklahoma, Oregon, South Dakota, 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 United States possession Internal Revenue Service Center P.O. Box 409101 Ogden, Utah 84409 Internal Revenue Service Center P.O. Box 409101 Ogden, Utah 84409 -7- 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 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 (TT&L) 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 2009 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 area 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 Page 8 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 2010 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. To change the accounting period of an estate, use 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 2010 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 2010 tax return, or 2. 100% of the tax shown on the 2009 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 2009 or 2010 is from farming or fishing). However, if a return was not filed for 2009 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 2010 (see the instructions on page 24 for line 24e), or • The estate or trust would be required to make estimated tax payments for 2010 even if it did not include household employment taxes when figuring estimated tax. Exceptions Estimated tax payments are not required from: 1. An estate of a domestic decedent or a domestic trust that had no tax liability for the full 12-month 2009 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. -8- Electronic Deposits A financial institution that maintains a 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 2010 if: • The total deposits of depository taxes (such as estimated, employment, or excise tax) in 2008 were more than $200,000, or • The fiduciary (on behalf of a trust) was required to use EFTPS in 2009. 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 one 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 (Form 1041) 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 24 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, Page 9 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 $135 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 on 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 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 Form 1041, line 26. 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, 944, 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 Form W-2, Wage and Tax Statement, and Form W-3, Transmittal of Wage and Tax Statements. Form 56, Notice Concerning Fiduciary Relationship. You must notify the IRS of the creation or termination of 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. -9- 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. Certain small employers must file Form 944, Employer’s ANNUAL Federal Tax Return, instead of Form 941. For more information, see the instructions for Form 944. 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. Form 1042, Annual Withholding Tax Return for U.S. Source Income of Foreign Persons, and Form 1042-S, Foreign Person’s U.S. Source Income Page 10 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Q, distributions from Coverdell ESAs; 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 8275, Disclosure Statement. File Form 8275 to disclose items or positions, except those contrary to a 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. Form 8288, U.S. Withholding Tax Return for Dispositions by Foreign Persons of U.S. Real Property Interests, and Form 8288-A, 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: 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. Form 8886, Reportable Transaction Disclosure Statement. Use Form 8886 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 -10- 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 listed transactions. • 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 protection). • 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. 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 under Regulations section 301.6111-3. For more information, see Form 8918 and its instructions. Additional Information The following publications may assist you in preparing Form 1041: • Pub. 550, Investment Income and Expenses, • Pub. 559, Survivors, Executors, and Administrators, and • Pub. 590, Individual Retirement Arrangements (IRAs). Assembly and Attachments Assemble any schedules, forms, and attachments behind Form 1041 in the following order: 1. Schedule I (Form 1041); 2. Schedule D (Form 1041); 3. Form 4952; 4. Schedule H (Form 1040); 5. Form 4136; 6. Form 8855; 7. All other schedules and forms; and Page 11 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing.Attachment. 8. 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. Special Reporting Instructions Grantor type trusts, the S portion of electing small business trusts (ESBTs), and bankruptcy estates all have reporting requirements that are significantly different than other Subchapter J trusts and decedent’s estates. Additionally, grantor type trusts have optional filing methods available. Pooled income funds have many similar reporting requirements that other Subchapter J trusts (other than grantor type trusts and electing small business trusts) have but there are some very important differences. These reporting differences and optional filing methods are discussed below by entity. Grantor Type Trusts income 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 15 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 !How to report. Initial cap. show 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 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. Unote: In 2010, let's discuss the sale of S corp stock. 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 Index this 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 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.Page 12 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 March 1, 2010 (March 31, 2010, 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: • 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 March 1, 2010 (March 31, 2010, 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. 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. See section 642 and the regulations thereunder for more information. 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, 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), then Form 5227 does not have to be filed. -12- Note. Form 1041-A is no longer filed by pooled income funds. Electing Small Business Trusts (ESBTs) Special rules apply when figuring the tax on the S portion of an 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: • 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 AMT; 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 Page 13 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 11. Bankruptcy Estates 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 $9,350 or more for tax years beginning in 2009. 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. The filing of a tax return for the bankruptcy estate does not CAUTION relieve the individual debtor of his, her, or their individual tax obligations. ! EIN 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. Income, Deductions, and Credits Under section 1398(c), the taxable income of the bankruptcy estate generally is figured in the same manner as that of 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) -13- 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. 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. Administrative expenses. The bankruptcy estate is allowed a deduction for any administrative 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 an NOL, 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 NOL deductions allowed for that year. An administrative expense loss is allowed only to the bankruptcy estate and cannot be Page 14 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. carried to any tax year of the individual debtor. Carryback of NOLs and credits. If the bankruptcy estate itself incurs an NOL (apart from losses carried forward to the estate from the individual debtor), it can carry back its NOLs 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 2009, a bankruptcy estate is allowed a personal exemption of $3,650. Standard deduction. For tax years beginning in 2009, a bankruptcy estate that does not itemize deductions is allowed a standard deduction of $5,700. 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. Tax Rate Schedule Figure the tax for the bankruptcy estate using the tax rate schedule below. Enter the tax on Form 1040, line 44. If taxable income is: Over — But not over — The tax is: $0 8,350 33,950 68,525 104,425 186,475 $8,350 33,950 68,525 104,425 186,475 ------ 10% $835.00 + 15% 4,675.00 + 25% 13,318.75 + 28% 23,370.75 + 33% 50,447.25 + 35% Of the amount over — $0 8,350 33,950 68,525 104,425 186,475 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 SSN, TIN, or EIN; (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. 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. Special Filing Instructions for Bankruptcy Estates 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. 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 petition was filed or the date of conversion to a chapter 7 or 11 case. Enter on Form 1041, line 23, the total tax from line 60 of Form 1040. Complete lines 24 through 29 of Form 1041, and sign and date it. 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 or 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, Form 1099, or other information return, (b) the portion of this income includible -14- Specific Instructions Name of Estate or Trust If a grantor type trust (discussed later), write the name, identification number, and address of the grantor(s) or other owner(s) in parentheses after the name of the trust. Name and Title of Fiduciary 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. Address 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. Page 15 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. See QSSTs on page 11. 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. Type of Entity 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. There are special reporting requirements for grantor type CAUTION trusts, pooled income funds, electing small business trusts, and bankruptcy estates. See Special Reporting Instructions on page 11. ! 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. Simple Trust 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. Complex Trust 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 item 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. ESBT (S Portion Only) The S portion of an 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 12 of the instructions for more information about an ESBT. Grantor Type Trust 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. 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 spouse after the creation of that power or interest. See Grantor Type Trusts on page 11 for more information. 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 QSSTs trusts. Qualified subchapter S trusts. For purposes of section 678(a), the beneficiary of a qualified subchapter S trust is treated as the owner of that portion of the trust which consists of stock in an S corporation for which an -15- election under section 1361(d)(2) has been made. 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 Bankruptcy Estates on page 13. 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. D. Date Entity Created Enter the date the trust was created, or, if a decedent’s estate, the date of the decedent’s death. (or if Form 990-EZ is filed instead of Form 990, you may check the box on Form 990EZ, line 43 and enter the tax-exempt interest received or accrued during the year on that line) Page 16 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. check the box on Form 990-PF, Part VII-A, line 15 and enter the tax-exempt interest received or accrued during the year on that line, 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 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 answer Statement 15 on Part VII-A of Form 990-PF, instead of filing Form 1041 to meet its section 6012 filing requirement for that tax year. 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. 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 Form 990, Return of Organization Exempt From Income Tax, or Form 990-EZ, Short Form Return of Organization enter the tax-exempt interest received or accrued during the year on Form 990, Part V, line 12b, Exempt from Income Tax, in addition to Form 1041, if the trust meets the filing requirements for either of those forms. 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 may answer lines 12a and 12b in Part V of Form 990 (or line 43 in Part V of Form 990-EZ) instead of filing Form 1041 to meet its section 6012 filing requirement for that tax year. Section 4947(a)(2) Trust 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 sections for personal holding companies, foreign personal holding companies, or estates or trusts (including a deduction for estate or gift tax purposes). Other returns that must be filed. The fiduciary of a split-interest trust must file Form 5227. However, see the Instructions for Form 5227 for the exception that applies to split-interest trusts other than section 664 charitable remainder trusts. 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 H (Form 1040). If you discover an error on a Schedule H that you previously filed with Form -16- "Yes," on Form 990, Part V, 1041, file an “Amended” Form 1041 and attach a corrected Schedule H. In the top margin of your corrected Schedule H, write “Amended,” (using red ink, if possible) and the date you discovered the error. Also, on an attachment explain the reason for your correction. If you owe tax, pay the tax in full with your amended Form 1041. If you overpaid tax on a previously filed Schedule H, depending on whether you choose the adjustment or claim for refund process to correct the error, you must either repay or reimburse the employee’s share of social security and Medicare tax or get the employee’s consent to the filing of a refund claim for their share. See Pub. 926, Household Employer’s Tax Guide, for more information. 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. Final Return 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 an NOL carryover, see the instructions for Schedule K-1, box 11, on page 34. 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. Page 17 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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, 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 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 Schedule B (Form 1040A or 1040), line 1 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. 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 Schedule B (Form 1040A or 1040), line 5 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. -17- 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 Page 18 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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). 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, see the separate instructions for Form 4972, Tax on Lump-Sum Distributions. Deductions Depreciation, Amortization 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 Unote: For 2010, see1.611-1(c)(4). Reviewer's Response to Amortization. The deduction for Tap Research Report amortization apportioned between an dated 10/14/2009 Depletion, and forestate or trustisand its beneficiaries changes to be made. 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 -18- 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. Page 19 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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). 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 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; -19- 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. Page 20 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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. 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 secondary 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 limitations on indebtedness. Qualified mortgage insurance premiums. Enter (on the worksheet below) the qualified mortgage insurance premiums paid under a mortgage insurance contract issued after December 31, 2006, in connection with qualified residence acquisition debt that was secured by a principal or secondary residence. See Prepaid mortgage insurance below if the estate or trust paid any premiums allocable after 2009. If at least one other person was liable for and paid the premiums in connection with the loan, and the premiums were reported on Form 1098, include the estate’s or trust’s share of the 2009 premiums on the worksheet below. The premiums are treated as paid in the year to which they are allocated. If the mortgage is satisfied before its term, no deduction is allowed for the unamortized balance. See Pub. 936 for details. These allocation rules do not apply to qualified mortgage insurance provided by the Department of Veterans Affairs or the Rural Housing Service. Limit on the amount that is deductible. The estate or trust cannot deduct mortgage insurance premiums if the estate’s or trust’s AGI is more than $109,000. If the estate’s or trust’s AGI is more than $100,000, its deduction is limited and you must use the worksheet below to figure the deduction. See How to figure AGI for estates and trusts on page 21 for information on figuring AGI. Line 11—Taxes Qualified mortgage insurance is mortgage insurance provided by the Department of Veterans Affairs, the Federal Housing Administration, or the Rural Housing Service, and private mortgage insurance (as defined in section 2 of the Homeowners Protection Act of 1998 as in effect on December 20, 2006). 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 2009 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 Mortgage insurance provided by the Department of Veterans Affairs and the Rural Housing Service is commonly known as a funding fee and guarantee fee, respectively. These fees can be deducted fully in 2009 if the mortgage insurance contract was issued in 2009. Contact the mortgage insurance issuer to determine the deductible amount if it is not included in box 4 of Form 1098. Prepaid mortgage insurance. If the estate or trust paid mortgage insurance premiums allocable to periods after 2009, such premiums must be allocated over the shorter of: • The stated term of the mortgage, or • 84 months, beginning with the month the insurance was obtained. the end of its tax year Qualified Mortgage Insurance Premiums Deduction Worksheet Keep for Your Records 1. Enter the total premiums the estate or trust paid in 2009 for qualified mortgage insurance for a contract issued after December 31, 2006 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. Enter the estate’s or trust’s AGI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2. 3. Enter $100,000 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3. 4. Is the amount on line 2 more than the amount on line 3? The deduction is not limited. Include the amount from line 1 above on Form No. 1041, line 10. Do not complete the rest of this worksheet. Yes. Subtract line 3 from line 2. If the result is not a multiple of $1,000, increase it to the next multiple of $1,000. For example, increase $425 to $1,000, increase $2,025 to $3,000, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. 5. Divide line 4 by $10,000. Enter the result as a decimal. If the result is 1.0 or more, enter 1.0 . . . . . . . . . . . . . 6. Multiply line 1 by line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Qualified mortgage insurance premiums deduction. Subtract line 6 from line 1. Enter the result here and include the amount on Form 1041, line 10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -20- 1. 5. 6. 7. . Page 21 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 instructions for Schedule G, line 2a, on page 28 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. If you made the election to amortize the premium, the basis in the taxable bond must be reduced by 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. In the case of a premium 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. 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 -21- 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. If you claim an NOLD for the estate or trust, figure the deduction on a separate sheet and attach it to this return. 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). Line 15b—Allowable Miscellaneous Itemized Deductions Subject to the 2% Floor Miscellaneous itemized deductions are deductible only to the extent that the aggregate amount of such deductions exceeds 2% of 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 Page 22 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. See Pooled Income Funds on page 12 for more information. 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 NOLD claimed on line 15a. 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. 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 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 2009. The trust instrument provides that capital gains are added to corpus. Fifty percent 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 Since the value of line 18 is not known because it is limited to the DNI, you are left with the following: Figuring AGI in this example, we get: AGI = 35,000 – 2,000 – DNI – 100 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. -22- 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 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 (Form 1041) 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 CAUTION qualified dividends or capital gains, you may have to adjust the amount on Form 1041, page 1, line ! Page 23 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. . The 2-year carryback period does not apply to the portion of an NOL attributable to an eligible loss; a farming loss; a qualified disaster, GO zone, recovery assistance, or disaster recovery assistance loss; or a specified liability loss. 2b(2), or Schedule D (Form 1041), 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 $3,650 exemption if the trust’s modified AGI is less than or equal to $166,800. If its modified AGI exceeds $166,800, 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 21, 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 item 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. NOL. 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, Application for Tentative Refund. Complete Schedule A of Form 1045 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 (Form 1041), box 11, codes D and E on page 34. 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 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 $166,800, enter $3,650 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. $166,800 4. Subtract line 3 from line 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4. Note: If line 4 is more than $122,500, enter $2,433 on line 9 below. Do not complete lines 5 through 8. 5. Divide line 4 by $2,500. If the result is not a whole number, increase it to the next higher whole number (for example, increase 0.0004 to 1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5. 6. Multiply line 5 by 2% (.02) and enter the result as a decimal . . . . . . . . . . . . . . . . . . . . . 6. 7. Multiply line 1 by line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. 8. Divide line 7 by 3 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. 9. Exemption. Subtract line 8 from line 1. Enter the result here and on Form 1041, line 20 . . . . . . . . . . . . . . . 9. *Figure the trust’s modified AGI in the same manner as AGI is figured in the line 15b instructions on page 21, except use zero when figuring the amount of the trust’s exemption. -23- $3,650 Page 24 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. by the estate or trust is included as an excess deduction. See the instructions for Schedule K-1 (Form 1041), box 11, code A on page 34. Line 24a—2009 Estimated Tax Payments and Amount Applied From 2008 Return Enter the amount of any estimated tax payment you made with Form 1041-ES for 2009 plus the amount of any overpayment from the 2008 return that was applied to the 2009 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 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 (Form 1041), 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 8, 2010, 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 2009 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 27—Tax Due You must pay the tax in full when the return is filed. You may pay by check or money order or by credit or debit card. To pay by check or money order. Make the check or money order payable to the “United States Treasury.” Write the EIN and “2009 Form 1041” on the payment. Enclose, but do not attach, the payment with Form 1041. To pay by credit or debit card. To pay by credit or debit card, call toll-free or visit the website of any of the service providers listed below and follow the instructions. A convenience fee will be charged for this service. Link2Gov Corporation 1-888-729-1040 www.pay1040.com RBS WorldPAY, Inc. 1-888-972-9829 www.payUSAtax.com Official Payments Corporation 1-888-872-9829 www.officialpayments.com/fed For more information on paying your taxes by credit or debit card, visit the IRS website at www.irs.gov and type “e-pay” in the search box. You may use EFTPS to pay the TIP tax due for a trust. See Electronic Deposits on page 8. Line 24f—Credit for Tax Paid on Undistributed Capital Gains Line 29a—Credited to 2010 Estimated Tax Attach Copy B of Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains. Enter the amount from line 28 that you want applied to the estate’s or trust’s 2010 estimated tax. 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 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 2009 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. -24- 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. 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, Page 25 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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. Specific Instructions Pooled income funds and charitable lead trusts also file Form 5227. See Form 5227 for information about any exceptions. 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. 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 8, 2010, from income earned in 2009 or prior, then the fiduciary can elect to treat the contribution as paid in 2009. 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. Line 1—Amounts Paid or Permanently Set Aside for Charitable Purposes From Gross Income 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 -25- 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 (Form 1041) 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 12 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 Page 26 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 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. -26- 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 30. 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. Page 27 of 37 12:20 - 25-SEP-2009 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 1,905.50 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 30 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. 2009 Tax Rate Schedule If taxable income is: 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 Over — But not over — $0 2,300 5,350 8,200 11,150 2. Expenses allocable to tax-exempt income. $2,300 5,350 8,200 11,150 ----- Its tax is: 15% $345.00 + 25% 1,107.50 + 28% 1,909.50 + 33% 2,879.00 + 35% Schedule D (Form 1041) and Schedule D Tax Worksheet. Use Part V of Schedule D (Form 1041) 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 (Form 1041) 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) deduction claimed on line 19 of Form 1041 if the estate or trust received qualified dividends that were IRD. 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 2009 tax rate schedule. For tax years beginning in 2009, figure the tax using the Tax Rate Schedule below and enter the tax on line 1a. However, see the Instructions for Schedule D (Form 1041) and the Qualified Dividends Tax Worksheet below. Qualified Dividends Tax Worksheet—Schedule G, line 1a Keep for Your Records Caution: Do not use this worksheet if the estate or trust must complete Schedule D (Form 1041). 1. Enter the amount from Form 1041, line 22 . . . . . . . . . . . . . . . . . . . 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 $2,300 . . . . . . . . . . . . 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. ....... 1. ....... ....... ....... 4. 5. 6. Yes. Skip lines 7 and 8; go to line 9 and check the ‘‘No’’ box. No. Enter the amount from line 5 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7. Subtract line 7 from line 6 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8. Are the amounts on lines 4 and 8 the same? Yes. Skip lines 9 through 12; go to line 13. No. Enter the smaller of line 1 or line 4 . . . . . . . . . . . . . . . . . . . . . . . . 9. Enter the amount from line 8 (if line 8 is blank, enter -0-) . . . . . . . . . . . . . . . . 10. Subtract line 10 from line 9 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11. Multiply line 11 by 15% (.15) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure the tax on the amount on line 5. Use the 2009 Tax Rate Schedule . . . . . . . . . . . . . . . Add lines 12 and 13 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Figure the tax on the amount on line 1. Use the 2009 Tax Rate Schedule . . . . . . . . . . . . . . . Tax on all taxable income. Enter the smaller of line 14 or line 15 here and on Sch. G, line 1a -27- Of the amount over — $0 2,300 5,350 8,200 11,150 . . . . . . . . . . . . . . . . . . . . 12. 13. 14. 15. 16. Page 28 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 Include the tax on line 5 and write "LIHCR" on The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. the dotted line to the left of the entry space. Include the tax on line 5 and write "ICR" on the dotted line to the left of the entry space. (Move this as indicated) Line 1c — AMT. Attach Schedule I (Form 1041) if: • The estate or trust must complete Schedule B. • The estate or trust claims a credit on line 2b, 2c, or 2d of Schedule G. • The estate’s or trust’s share of alternative minimum taxable income (line 29 of Schedule I (Form 1041)) exceeds $22,500. Enter the amount from line 56 of Schedule I (Form 1041) on line 1c. Line 2a—Foreign Tax Credit 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 2b—Other Nonbusiness Credits 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. 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. 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 35. 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 allowed for the current year from line 32 of Form 3800. The estate or trust must file Form 3800 to claim any of the general business credits. If the estate’s or trust’s only source of credits listed in Part I for Form 3800 is from pass-through entities, you may not be required to complete the source credit form. See the Instructions for Form 3800 for more information. The following general business credits appear in Part I of Form 3800. • Investment credit (Form 3468, Part II only). • Welfare-to-work credit (only from partnerships, S corporations, and estates and trusts). • Credit for increasing research activities (Form 6765). • Low-income housing credit (Form 8586, Part I). • Disabled access credit (Form 8826). • Qualified plug-in electric vehicle credit (Form 8834, Part I only). • Renewable electricity production credit (Form 8835, Part I only). d • 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). • 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). • Credits for affected Midwestern disaster area employers (Form 5884-A). • Mine rescue team training credit (Form 8923). • Agricultural chemicals security credit (Form 8931). • Credit for employer differential wage payments (Form 8932). • Carbon dioxide sequestration credit (Form 8933). • Qualified plug-in electric drive motor vehicle credit (Form 8936). • Credit for contributions to selected community development corporations (only from partnerships and S corporations). • General credits from an electing large partnership. Report these credits on Form 3800, line 1bb. The following general business credits have special tax liability limits. These limits are now figured in Part II of Form 3800. See the Instructions for Form 3800 for more information. • Empowerment zone and renewal community employment credit (Form 8844). • Investment credit (Form 3468, Part III only). • Work opportunity credit (Form 5884). • Alcohol and cellulosic biofuel fuels credit (Form 6478). • Renewable electricity, refined coal, and Indian coal production credit (Form 8835, Part II). • Credit for employer social security and Medicare taxes (Form 8846). • Qualified railroad track maintenance credit (Form 8900). • Low-income housing credit (Form 8586, Part II). Line 2d—Credit for Prior Year Minimum Tax An estate or trust that paid AMT in a previous year may be eligible for a minimum tax credit in 2009. See Form 8801, Credit for Prior Year Minimum Tax — Individuals, Estates, and Trusts. new clean renewable Line 3—Total Credits energy bond, Credit to holders of tax credit bonds. Complete and attach Form 8912, Credit to Holders of Tax Credit Bonds, if the estate or trust claims a credit for holding a qualified energy conservation bond, clean renewable energy bond, Gulf tax credit bond, Midwestern tax credit bond, qualified forestry conservation bond, or qualified zone academy bond. Include the credit on line 3. On the dotted line to the left of the entry, write “Form 8912” and the amount of the credit. Also, be sure to include 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 Regulations 1.30-1(b) 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 -28- , qualified school construction bond, or Build America bond Page 29 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 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. Recapture of the alternative motor vehicle credit. See section 30B(h)(8) for details. Include the tax on line 5 and write “AMVCR” on the dotted line to the left of the entry space. Recapture of the alternative fuel vehicle refueling property credit. See section 30C(e)(5) for details. Include the tax on line 5 and write “ARPCR” 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 $1,700 or more in 2009. 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 2009 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 2008 or 2009 to household employees. Note. See Amended Schedule H (Form 1040) under F. Initial Return, Amended Return, etc., earlier for information on filing an amended Schedule H (Form 1040) for a Form 1041. “From Form 5329” and the amount of the tax. Line 7—Total Tax Tax on 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 (ESBTs) on page 12 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) 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 -29- 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 Reporting Instructions on page 11. 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, Page 30 of 37 12:20 - 25-SEP-2009 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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/ f90221.pdf. If you checked “Yes” for Question 3, file Form TD F 90-22.1 by June 30, 2010, 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. 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 2009 Form 1041 the name, address, and TIN 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. 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 be distributed currently. To have an accumulation distribution, the distribution must exceed the accounting income of the trust. Specific Instructions Part I—Accumulation Distribution in 2009 Line 1—Distribution Under Section 661(a)(2) Enter the amount from Form 1041, Schedule B, line 10, for 2009. 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. -30- Line 2—DNI Enter the amount from Form 1041, Schedule B, line 7, for 2009. 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 Form 1041, Schedule B, line 9, for 2009. This is the amount of income for the current tax year required to be distributed currently. Line 5—Accumulation Distribution If line 11 of Form 1041, Schedule B, is more than line 8 of Form 1041, Schedule B, 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, 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. 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 – 2008 Amount from line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form 1041, Schedule C, line 5 . Form 1041, line 61 . Form 1041, line 60 . Form 1041, line 58 . Form 1041, Schedule B, line 9 . Form 1041, Schedule B, 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. Page 31 of 37 12:20 - 25-SEP-2009 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Line 7—Distributions Made During Earlier Years Line 16—Tax-Exempt Interest Included on Line 13 Enter the applicable amounts as follows: 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 – 1996 1997 – 2008 Amount from line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Form 1041, Schedule C, line 8 . Form 1041, line 64 . Form 1041, line 65 . Form 1041, line 64 . Form 1041, line 62 . Form 1041, Schedule B, line 13 . Form 1041, Schedule B, 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 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. Throwback year(s) 1969 – 1977 1978 – 1979 1980 . . . . 1981 – 1982 1983 – 2008 Schedule D, line 17, column (b) 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 – 2008 . . Amount from line . . . . . . . . . . . . . . . . Form 1041, Schedule C, line 2(a) . Form 1041, line 58(a) . Form 1041, line 57(a) . Form 1041, line 55(a) . Form 1041, Schedule B, 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 2008 is not an alternative tax for this purpose. Line 20—Trust’s Share of Net Long-Term Gain Enter the applicable amounts as follows: Throwback year(s) Amount from line 1969 – 1970 . . . . . . 50% of Schedule D, line 13(e) 1971 – 1977 . . . . . . 50% of Schedule D, line 17(e) 1978 . . . . . . . . . . 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) 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 – 2008 . . . . . . Line 18—Regular Tax Enter the applicable amounts as follows: Throwback year(s) 1969 – 1976 1977 . . . . 1978 – 1979 1980 – 1984 1985 – 1986 1987 . . . . 1988 – 2008 Amount from line . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Form 1041, Schedule G, line 1a Line 19—Trust’s Share of Net Short-Term Gain 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. Throwback year(s) 1969 – 1970 . . 1971 – 1978 . . 1979 . . . . . . 1980 – 1981 . . 1982 . . . . . . 1983 – 1996 . . Amount from line 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 -31- Line 22—Taxable Income Enter the applicable amounts as follows: Throwback year(s) 1969 – 1976 1977 . . . . 1978 – 1979 1980 – 1984 1985 – 1986 1987 . . . . 1988 – 1996 1997 . . . . 1998 – 2008 Amount from line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 . Form 1041, line 23 . Form 1041, line 22 Line 26—Tax on Income Other Than Long-Term Capital Gain Enter the applicable amounts as follows: Throwback year(s) 1969 . . . . 1970 . . . . 1971 . . . . 1972 – 1975 1976 – 1978 Amount from line . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 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 Page 32 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 Line 28—Trust’s Share of Taxable Income Less Section 1202 Deduction Enter the applicable amounts as follows: Throwback year(s) 1969 . . . . 1970 . . . . 1971 . . . . 1972 – 1975 1976 – 1978 . . . . . . . . . . . . . . . . . . . . . . . . . Amount from line . . . . . . . . . . . . . . . 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. Schedule K-1 (Form 1041)— Beneficiary’s Share of Income, Deductions, Credits, etc. General Instructions d 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 Grantor Type Trusts on page 11. 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 TINs upon request. You may use Form W-9 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. 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 -32- 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 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. Page 33 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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. 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 his or her income. See Depreciation, Depletion, and Amortization on page 18 and Rev. Rul. 74-530, 1974-2 C.B. 188. Beneficiary’s Tax Year and the beneficiary in Parts I and II (items A through H). 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). 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, a 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. 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 and Cellulosic Biofuels Fuel Credit — $500.00.” Enter the beneficiary’s share of the net short-term capital gain from Schedule D (Form 1041), line 13, column (1), 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 short- and long-term capital loss carryovers as a single item. See section 642(h) and related regulations for more information. Specific Instructions Boxes 4a through 4c—Net Long-Term Capital Gain Part I. Information About the Estate or Trust 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. 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. General Reporting Information 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. 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 each Schedule K-1, enter the information about the estate or trust Note. If this is the final K-1 for the beneficiary, check the “Final K-1” box at the top of Schedule K-1. Item D Item E If this is the final year of the estate or trust, you must check this box. -33- Enter the beneficiary’s share of the net long-term capital gain from Schedule D (Form 1041), lines 14a through 14c, column (1), 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 box 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 Page 34 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. 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 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 18 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 18 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 23), 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. -34- 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 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 in the Instructions for Schedule D (Form 1041) to figure the amount of capital loss carryover to be allocated to the beneficiary. Box 11, Codes D and E—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—AMT 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 Page 35 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 Rehabilitation credit and energy credit 12:20 - 25-SEP-2009 (code D). Attach a statement that shows Other qualifying investment credit ( code E). Attach a the beneficiary's apportioned share of statement that shows the beneficiary's apportioned The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. basis, expenditures, and other information share of qualified investment and other information that is necessary for the beneficiary to that is necessary for the beneficiary to complete complete Form 3468, Investment Credit for Form 3468 for the qualifying advanced coal project the rehabilitation credit and the energy credit, qualifying gasification project credit, and credit. See the Instructions for Form 3468 qualifying advanced energy project credit. See the for more information. Instructions for Form 3468 for more information. 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 (Form 1041), 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 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 (Form 1041), 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 24 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). Attach a statement that shows the beneficiary’s share of the amount, if any, entered on line 6 of Form 8586 with instructions to report that amount on line 4 of Form 8586 or line 1d of Form 3800 if the beneficiary’s only source for the credit is a pass-through entity. Also, show the beneficiary’s share of the amount, if any, entered on line 19 of Form 8586 with instructions to report that amount on line 11 of Form 8586. • Qualified rehabilitation expenditures (code D). Attach a statement that shows the dates, basis, and expenditures and their corresponding line on Form 3468 for reporting each item of information. • 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 qualifying advanced coal project credit, qualifying gasification project credit, and qualifying advanced energy project credit. If the statement shows an amount for line 11c, 11f, or 11i, then the information for the subsequent line on Form 3468 must be provided. d • Work opportunity credit (code F). • Welfare-to-work credit (code G). • Alcohol and cellulosic biofuel fuels 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 29 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). -35- • Credit to holders of tax credit bonds (code Q). • Agricultural chemicals security credit (code R). • Energy efficient appliance credit (code S). • Credit for employer differential wage payments (code T). • Recapture of credits (code U). 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 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 10), 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 the category(ies) under which a Page 36 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. transaction qualified for disclosure. See the instructions for Form 8886 for details. ! CAUTION Income tax withheld on wages cannot be distributed to the beneficiary. 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 I hr.,58 32 min. min. 3237hr., 1519hr., 52 min. hr., 17 min. 33hr., hr., 30 14 min. 32 min. 4 hr., 22 min. 17 hr., hr., 27 17 42 min. min. 4 hr., 22 min. 39 hr., 22 min. 30 7 min. 54 hr., 59 min. min. hr., 20 44 hr., 51 min. min. hr., 57 2 hr., 46 min. 50 16 min. min. 35hr., min. hr., 45 22 min. 4 hr., 28 min. ---- Schedule J 39 hr., 11 hr.,27 00min. min. 1 hr., 27 min. 1 hr., 17 min. hr.,59 37min. min. 12 hr., 16 min. ---- Schedule K-1 6 7hr., hr.,27 39min. min. 35 47 min. min. 43 57 min. min. ---- If you have comments concerning the accuracy of these time estimates or suggestions for making this form and related schedules simpler, we would be happy to hear from you. You can write to the Internal Revenue Service, Tax Products Coordinating Committee, SE:W:CAR:MP:T:T:SP, 1111 Constitution Ave. NW, IR-6526, Washington, DC 20224. Do not send the tax form to this address. Instead, see Where To File on page 7. -36- Page 37 of 37 Instructions for Form 1041 and Schedules A, B, G, J, and K-1 12:20 - 25-SEP-2009 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Index A Accounting income . . . . . . . . . . . . 2 AGI . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Alaska Native Settlement Trusts . . . . . . . . . . . . . . . . . . . . . . 6 Allowable miscellaneous itemized deductions (AMID) . . . . . 21, 22 Amended return . . . . . . . . . . . . . . 16 Amounts paid or permanently set aside . . . . . . . . . . . . . . . . . . . . . . 25 Assembly . . . . . . . . . . . . . . . . . . . . 10 Attachments . . . . . . . . . . . . . . . . . 11 B Bankruptcy estate . . . . . . 6, 13, 15 Bankruptcy information . . . . . . . 13 Beneficiary . . . . . . . . . . . . . . . . . . . . 3 Allocation of estimated tax payment . . . . . . . . . . . . . . . 8, 24 Complex trust . . . . . . . . . . . . . . 32 Estate . . . . . . . . . . . . . . . . . . . . . 32 Simple trust . . . . . . . . . . . . . . . . 32 Tax year for inclusion . . . . . . . 33 Withholding on foreign person . . . . . . . . . . . . . . . . . . . 26 Blind trust . . . . . . . . . . . . . . . . . . . . 17 C Cemetery perpetual care fund . . . . . . . . . . . . . . . . . . . . . . . 22 Charitable deduction . . . . . . . . . . 24 Charitable remainder trusts . . . . . . . . . . . . . . . . . . . . . . 16 Common trust fund . . . . . . . . . . . . 6 D Decedent’s Estate . . . . . . . . . . . . . 3 Definitions: Accumulation distribution . . . . . . . . . . . . . . . 30 Beneficiary . . . . . . . . . . . . . . . . . . 3 Complex trust . . . . . . . . . . . . . . 15 Decedent’s Estate . . . . . . . . 3, 15 DNI . . . . . . . . . . . . . . . . . . . . . . . . . 3 Fiduciary . . . . . . . . . . . . . . . . . . . . 3 Grantor trusts . . . . . . . . . . . . . . 15 IRD . . . . . . . . . . . . . . . . . . . . . . . . . 3 Outside income . . . . . . . . . . . . 31 Pooled income fund . . . . . . . . 15 Revocable Living Trust . . . . . . 3 Simple trust . . . . . . . . . . . . . . . . 15 Trust . . . . . . . . . . . . . . . . . . . . . . . 3 Trusts . . . . . . . . . . . . . . . . . . . . . . 3 Distributable net income (See DNI) DNI . . . . . . . . . . . . . . . . . . . . . . . . 3, 25 E Electing small business trusts . . . . . . . . . . . . . . . . . . 12, 29 ESBT (S portion only) . . . . . . 15 S portion . . . . . . . . . . . . . . . . . . . 12 Elections: Section 643(e)(3) . . . . . . . . . . . 26 Section 643(g) . . . . . . . . . . . 8, 24 Section 645 . . . . . . . . . . . . . . . . . 4 Special rule for qualified revocable trusts . . . . . . . . . . . 4 Treating contributions as paid in prior tax year . . . . . . . . . . . . . 25 Electronic deposits . . . . . . . . . . . . 8 ESBTs (See Electing small business trusts) Estate . . . . . . . . . . . . . . . . . . . . . 3, 32 Bankruptcy . . . . . . . . . . . . . . 6, 15 Exemption for . . . . . . . . . . . . . . 23 Foreign . . . . . . . . . . . . . . . . . . . . . 3 Who must file . . . . . . . . . . . . . . . 3 Estate tax deduction . . . . . . . . . . 22 Estimated tax . . . . . . . . . . . . . . 8, 24 Allocation of payments to beneficiaries . . . . . . . . . . . 8, 24 Penalty . . . . . . . . . . . . . . . . . . . . 24 Excess deductions . . . . . . . . . . . 23 Exemption . . . . . . . . . . . . . . . . . . . 23 Extraterritorial income exclusion . . . . . . . . . . . . . . . . . . 17 F Fiduciary . . . . . . . . . . . . . . . . . . . . 3, 7 Fiduciary accounting income (FAI) (See Accounting income) Final return . . . . . . . . . . . . . . . . . . . 16 First tier distributions . . . . . . . . . . 26 Foreign tax credit . . . . . . . . . . . . . 28 Form 1041-T . . . . . . . . . . . . . . . 8, 24 Form 8855 . . . . . . . . . . . . . . . . . . . . 4 G General business credit . . . . . . . 28 Grantor trusts . . . . . . . . . . 2, 11, 15 Backup withholding . . . . . . . . . 12 Nonqualified deferred compensation plans . . . . . . 15 Optional filing methods . . . . . 11 Pre-need funeral trusts . . . . . 15 Special filing instructions . . . . 11 GST tax deduction . . . . . . . . . . . . 23 I Income distribution deduction . . . . . . . . . . . . 2, 22, 25 Income in respect of a decedent (See IRD) Inter vivos . . . . . . . . . . . . . . . . . . . 2, 3 Interest income . . . . . . . . . . . . . . . 17 IRD . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Deduction . . . . . . . . . . . . . . . . . . 22 M Minimum taxable income . . . . . . 23 N net operating loss . . . . . . . . . . . . 23 Nonexempt charitable deduction . . . . . . . . . . . . . . . . . . 16 Nonexempt charitable trust . . . . . . . . . . . . . . . . . . . 16, 24 Nonqualified deferred compensation plans . . . . . . . . 15 P Paid preparer . . . . . . . . . . . . . . . . . 7 Paid preparer authorization . . . . 7 Penalties: Estimated tax . . . . . . . . . . . . . . 24 Failure to provide a required TIN . . . . . . . . . . . . . . . . . . . . . . 32 Failure to provide information timely . . . . . . . . . . . . . . . . . . . . 9 Late filing of return . . . . . . . . . . 9 Late payment of tax . . . . . . . . . 9 Other . . . . . . . . . . . . . . . . . . . . . . . 9 Trust fund recovery . . . . . . . . . . 9 Underpaid estimated tax . . . . . 9 Pooled income funds . . . . . 12, 15, 24, 25 Pre-need funeral trusts . . . . . . . . 15 Q Qualified disability trust . . . . . . . 23 Qualified revocable trust . . . . . . . 4 Qualified settlement funds . . . . . . 6 Qualified small business stock . . . . . . . . . . . . . . . . . . . . . . 26 Qualified subchapter S trust . . . . . . . . . . . . . . . . . 6, 11, 15 R Returns: Amended . . . . . . . . . . . . . . . . . . 16 Common trust fund . . . . . . . . . . 6 Electronic and magnetic media . . . . . . . . . . . . . . . . . . . . 6 Final . . . . . . . . . . . . . . . . . . . . . . . 16 Nonexempt charitable trust . . . . . . . . . . . . . . . . . . . . . 16 (QSST) -37- Qualified settlement funds . . . . . . . . . . . . . . . . . . . . . 6 Split-interest trust . . . . . . . . . . . 16 When to file . . . . . . . . . . . . . . . . . 6 Who must file . . . . . . . . . . . . . . . 3 Revocable Living Trusts: Section 645 Election . . . . . . . . 17 S Second tier distributions . . . . . . Separate share rule . . . . . . . . . . Special filing instructions: Bankruptcy estates . . . . . . . . . Electing small business trusts . . . . . . . . . . . . . . . . . . . . Grantor trusts . . . . . . . . . . . . . . Pooled income funds . . . . . . . Split-interest trust . . . . . . . . . . . . . Substitute forms . . . . . . . . . . . . . . 27 25 14 12 11 12 16 32 T Tax rate schedule . . . . . . . . . . . . 27 Taxable income . . . . . . . . . . . . . . 23 Throwback years . . . . . . . . . . . . . 31 Trusts . . . . . . . . . . . . . . . . . . . . . . . . 3 Alaska Native Settlement . . . . 6 Blind . . . . . . . . . . . . . . . . . . . . . . 17 Common trust fund . . . . . . . . . . 6 Complex . . . . . . . . . . . . . . . . . . . 32 Domestic . . . . . . . . . . . . . . . . . . . 4 Exemption for . . . . . . . . . . . . . . 23 Foreign . . . . . . . . . . . . . . . . . . . . 30 Grantor . . . . . . . . . . . . . . . . . . . . . 2 Inter vivos . . . . . . . . . . . . . . . . 2, 3 Nonexempt charitable . . . . . 16, 24 Pre-need funeral . . . . . . . . . . . 15 Qualified disability . . . . . . . . . . 23 Qualified revocable . . . . . . . . . . 4 Simple . . . . . . . . . . . . . . . . . . . . . 32 Split-interest . . . . . . . . . . . . . . . 16 Testamentary . . . . . . . . . . . . . 2, 3 Who must file . . . . . . . . . . . . 3, 32 W Where to file . . . . . . . . . . . . . . . . . . 7 Who must file: Bankruptcy estate . . . . . . . . . . 13 Decedent’s estate . . . . . . . . . . . 3 Trust . . . . . . . . . . . . . . . . . . . . . . . 3 Withholding on foreign person . . . . . . . . . . . . . . . . . . . . . 26 ■ QSSTs. A QSST follows the reporting rules discussed above for -11grantor type trusts. Income allocated to S corporation stock held by the trust is treated as owned by the income beneficiary of the portion of the trust that owns the stock. A QSST cannot elect any of the optional filing methods discussed below.
| File Type | application/pdf |
| File Title | Project File Checksheet.doc |
| Author | RMDFB |
| File Modified | 2009-11-14 |
| File Created | 2009-11-14 |