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Posted by Stuart Bronstein on March 7, 2008, 2:09 pm
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I have a question concerning an irrevocable simple trust. That is to
say that it's an irrevocable, non-grantor trust that, by its terms,
necessarily distributes all its income each year. It is in fact the
"B" (decedent's) trust of an A-B trust. The surviving spouse is the
beneficiary.
Is the trust required to file an informational return, even though any
taxable income is deducted so that it has no tax due?
And if so, if a return was not filed, what is the penalty?
Thanks.
Stu
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Posted by Mark Bole on March 7, 2008, 2:31 pm
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Stuart Bronstein wrote:
> I have a question concerning an irrevocable simple trust. That is to
> say that it's an irrevocable, non-grantor trust that, by its terms,
> necessarily distributes all its income each year. It is in fact the
> "B" (decedent's) trust of an A-B trust. The surviving spouse is the
> beneficiary.
>
> Is the trust required to file an informational return, even though any
> taxable income is deducted so that it has no tax due?
>
> And if so, if a return was not filed, what is the penalty?
According to instructions for form 1041, if trust gross income (taxable
or not) is over $600, there is a requirement to file.
I would expect all the trust net income to be passed through to the
beneficiary via a schedule K-1, resulting in no direct taxation of the
trust. However if the trust is allowed any deductions, these should be
claimed to reduce the taxable amount to the beneficiaries.
The penalty for not filing is a percentage of the tax due, so if no tax
due, then no penalty. But, did the beneficiary actually report and pay
tax (if any) on the distributed taxable income? The trust should have
its own tax ID number, so any 1099-INT, -DIV, -B amounts need to show up
somewhere.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Stuart Bronstein on March 7, 2008, 2:57 pm
Please log in for more thread options > Stuart Bronstein wrote:
>> I have a question concerning an irrevocable simple trust. That
>> is to say that it's an irrevocable, non-grantor trust that, by
>> its terms, necessarily distributes all its income each year. It
>> is in fact the "B" (decedent's) trust of an A-B trust. The
>> surviving spouse is the beneficiary.
>>
>> Is the trust required to file an informational return, even
>> though any taxable income is deducted so that it has no tax due?
>>
>> And if so, if a return was not filed, what is the penalty?
>
> According to instructions for form 1041, if trust gross income
> (taxable or not) is over $600, there is a requirement to file.
Makes sense, thanks.
> The penalty for not filing is a percentage of the tax due, so if
> no tax due, then no penalty. But, did the beneficiary actually
> report and pay tax (if any) on the distributed taxable income?
> The trust should have its own tax ID number, so any 1099-INT,
> -DIV, -B amounts need to show up somewhere.
Yes, all tax has been paid. What happened was that when one spouse
died, the assets weren't divided into A and B trusts. What I'm trying
to figure out is what the damage is from failing to do that (in 2005).
Sounds like we can do it retroactively, file the required returns and
otherwise no damage. Is that about the size of it?
Stu
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Mark Bole on March 7, 2008, 3:45 pm
Please log in for more thread options Stuart Bronstein wrote:
[...]
>
> Sounds like we can do it retroactively, file the required returns and
> otherwise no damage. Is that about the size of it?
Is the trust income relatively straightforward in nature, such as
interest and dividends? If so, and there is only one beneficiary, and
the trust tax ID didn't exist for past years, it seems like it would be
a lot of busywork to file amended individual returns and K-1's and
nominee interest/dividend forms back and forth, when the result will not
change anything.
I have no direct experience with what the IRS wants in this situation,
so can't offer anything more.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Stuart Bronstein on March 7, 2008, 3:59 pm
Please log in for more thread options > Stuart Bronstein wrote:
>
>> Sounds like we can do it retroactively, file the required returns
>> and otherwise no damage. Is that about the size of it?
>
> Is the trust income relatively straightforward in nature, such as
> interest and dividends? If so, and there is only one beneficiary,
> and the trust tax ID didn't exist for past years, it seems like it
> would be a lot of busywork to file amended individual returns and
> K-1's and nominee interest/dividend forms back and forth, when the
> result will not change anything.
To me, too. Mostly I wanted to verify that, with no tax due there
would be no penalty. It may have been my fault, so I wanted to be
prepared if there were additional cost to getting it fixed.
> I have no direct experience with what the IRS wants in this
> situation, so can't offer anything more.
I'll have them consult their own accountant, or bring in one who knows
about trust returns, and let him decide what the best approach is.
Thanks again.
Stu
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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