1041 confusion

[Roberts]

I'm doing a final 1041 and they have distributed the assets which are around $150k. Income all distributed correctly.
Do I include the distribution of assets onto the 1041 or K-1s?

I've never done this on an estate for the final distribution of the assets, attorney is adamant that this information needs to be on the return.

Opinions?

[Maribeth]

On Page 2 of the 1041, Schedule B, is the income distribution deduction schedule. The asset distribution would go on Line 10, "Other amounts paid, credited or otherwise required to be distributed".

Also, since the assets are non-cash, it is wise to give a supporting schedule to the beneficiaries as to what their basis in each piece of property is.

hth

[Roberts]

Confusion, the distribution is 100% cash.

They sold everything and distributed all cash.

Some have suggested itemizing it on each K-1 as a Line 14 - code "I" for other information and then disclosing it is the payout for the estate.

[Burke]

No, Maribeth is correct. You have to put the distributions on the line she indicated (Page 2) of the tax return, so that it will calculate correctly the amount of income (if any) that is transferred to the individual K-1's. You put the total distributions to all beneficiaries on that line. Do NOT show it as a Line 14 item on the K-1. And it is always done this way on the 1041, for each year that distributions are made. Otherwise, the tax return will not be correct.

[Roberts]

I had seen this as a suggestion, 3 CPAs told me to ignore it.

I've never entered it before as it does nothing but list it on that line of the 1041. I broke down which beneficiary received how much and it doesn't even show up in the notes of the software. grrrrrrrrr

[Koss]

Distributions

At the risk of stating the obvious, distributions of principal are not taxable to the beneficiaries. So I don't think there is any requirement to report such distributions anywhere on Form 1040, or on Schedule K-1.

I concede that it may be possible, and even advisable, to report the figures somewhere, only for informational purposes, kind of like the infamous Box 14 on Form W-2.

Roberts wrote that the "attorney is adamant that this information needs to be on the return." From a tax perspective, I disagree. I don't think the IRS requires the reporting of this data. The attorney may be attempting to ensure that the executor of the estate complies with certain state law requirements for adequate disclosure to the beneficiaries.

BMK

[Roberts]

The personal rep (not the attorney) was given a full disclosure of the distributions.

Oh it's all coming through as non-taxable. The requirement is the argument I guess. Doesn't matter, included it and will in the future.

[Burke]

At the risk of stating the obvious, distributions of principal are not taxable to the beneficiaries. So I don't think there is any requirement to report such distributions anywhere on Form 1040, or on Schedule K-1.

I concede that it may be possible, and even advisable, to report the figures somewhere, only for informational purposes, kind of like the infamous Box 14 on Form W-2.

Roberts wrote that the "attorney is adamant that this information needs to be on the return." From a tax perspective, I disagree. I don't think the IRS requires the reporting of this data. The attorney may be attempting to ensure that the executor of the estate complies with certain state law requirements for adequate disclosure to the beneficiaries.
BMK

The total of all distributions are listed on Page 2, Line 10, as previously stated, for any estate or complex trust as required by the IRS. See Instructions for Form 1041. It has nothing to do with state law. If the estate/trust has any taxable income at all, and monies are distributed to the beneficiaries, then the IRS rule is that income is taxed first to the extent the estate/trust has taxable income. If you do not show those distributions on Line 10, then the trust has no DNI deduction and if it has net taxable income, it will be required to pay the tax at a much higher rate, usually. The instructions for Form 1041 state for Line 10 "Such amounts include.......mandatory and discretionary distributions of corpus, and distributions of property in kind." This figure is then used to determine the estate's DNI deduction, (see Line 15). That is carried to page 1 and shown on Line 18 as a deduction for the estate. To the extent there may be taxable income of the estate, it will pass through to the beneficiaries on the K-1 in their proportionate share. If there is no taxable income to report for the estate, then nothing will pass through to the K-1. On the final return, however, certain capital losses and administrative expenses may pass through and show up as deductions on the K-1. Since the benes do not get a copy of the 1041, they do not know what the total distribution amount is (at least from the tax return.) They only have their information on their part received consisting of taxable income and/or deductions to put on their return. If there is neither taxable income nor deductions to pass through, then a K-1 is not produced.

[appelman]

I agree with Koss.

Distributions of corpus do not generally appear at all on the 1041. Schedule B on p. 2 is the income distribution deduction. It cannot include items that are not income!

[Maribeth]

Instructions to Form 1041, Schedule B, Line 10:

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.

[Burke]

Distributions of corpus do not generally appear at all on the 1041. Schedule B on p. 2 is the income distribution deduction. It cannot include items that are not income!

Pls see the two previous posts. This line includes "...........mandatory and discretionary distributions of corpus,.........." The estate or beneficiary may not be taxed on this corpus, but the figure goes on that line so that the DNI is correctly calculated.

[appelman]

Tat does seem to be what it says.

Pls see the two previous posts. This line includes "...........mandatory and discretionary distributions of corpus,.........." The estate or beneficiary may not be taxed on this corpus, but the figure goes on that line so that the DNI is correctly calculated.

But it doesn't really affect anything. DNI is the sum of lines 1-6, and the distribution deduction cannot exceed DNI. It would only come into play if for some reason a trust was not distributing all its DNI, but was also distributing corpus. Mysterious!

[Roberts]

I included it, it didn't show up anywhere except that one line and the attorney didn't care when he picked it up!

I've determined I need to do some estate return education this offseason.

[DonB]

My software (Lacerte) doesn't seem to have a way to put corpus on line 10 without it becoming DNI and of course corpus is not income.