Net investment income tax on final estate return

[DMICPA]

Preparing a first and final 1041 estate.

On a final return, everything gets distributed to beneficiary.

Form 1041 shows a NII tax of $700 based on the dividends earned by the Estate.

Is this correct? Why should there be any tax as the estate is distributed? What happens when the beneficiary gets the K-1 and may also have to report net investment income.

Seems like double taxation?

Every year on every simple Trust there could be this tax even though all is distributed?


Bob

[Roland Slugg]

See the instructions for F-8960, and for line 18b in particular. That's probably where the problem lies.

[TXEA]

It sounds like you need to tweak the software input some. The Net Investment Income Tax (NII) follows the income in an estate or trust (i.e. the tax is computed on the undistributed net investment income).

So, in the final year, I am sure you have all the income flowing to the beneficiaries, and the NII will follow that income. There should be a notation in box 14 (can not remember the letter) that details NII information for the beneficiary.

[DMICPA]

Hmmmmm

Yeah, I went back to the schedule and input the appropriate number and the tax disappeared. The tax software on 1041s is weak. When I go to the cross reference or line instructions, the software says you probably should override if you don't agree with the figure that is in there. Proseries.

It is very difficult to prepare an accurate return relying on the software. It seems you must check the logic and input figures to arrive at your estimate of what you think the number should be.

[mastertaxguy]

Nit-trust situations

1. Refer to TTB, Pp. 21-12/13
2. The two examples at the top of p. 21-13, left column state the correct result.