Revocable Living Trust Agreement

[Brian EA]

Taxpayer's mother set up a living trust in 2007. The only asset was her primary residence and the only beneficiary is the tax payer. The mother passed on in 2015, however the house was sold in 2016.
The mother never applied for EIN; a Trust tax return was never filed. A few days ago, the taxpayer, through the advice of an attorney, applied for an EIN. The IRS is now requesting tax returns from 2007.
Would this be considered a Simple trust or a Grantor type trust? I am leaning towards a Grantor type trust based on my research. The tax returns from 2007 to 2015 will have no income or expenses, however the trust will have to pay the capital gain tax on the sales proceed when the 2016 return is filed.
Any advice would be much appreciated.

Thanks

Brian

[Rapid Robert]

Taxpayer's mother set up a living trust in 2007. The only asset was her primary residence and the only beneficiary is the tax payer. The mother passed on in 2015, however the house was sold in 2016.
The mother never applied for EIN; a Trust tax return was never filed. A few days ago, the taxpayer, through the advice of an attorney, applied for an EIN. The IRS is now requesting tax returns from 2007.

It was a mistake for the person applying for the EIN to use 2007 as the first year, they should have used 2015. I'm sure this problem has been discussed before, here or elsewhere, so you might want to search for it. I think your best bet is to just inform the IRS of the correct initial year associated with the EIN, but I don't know the best way to do that (by phone or in writing?)

[TAXNJ]

Have you consulted with the attorney involved with this? Maybe the attorney is handling the tax returns. Recommend a meeting with the client, attorney and you.

[Brian EA]

The attorney is a family friend who is involved in Real estate

[Lion]

Read the trust agreement.

Maybe, all activity was to be reported on mother's 1040 while she was alive. Maybe, trust became irrevocable upon her death -- thus the start date for the EIN. Maybe. Read the trust document.

[TAXNJ]

The attorney is a family friend who is involved in Real estate

"If The attorney is a family friend who is involved in Real estate", so why would this attorney get involved with tax issues? It is even more so why you may need to get in touch with the Attorney who set up the trust.

Sounds like you are getting involved "after the fact" with missing information and need to get in touch with the Attorney who set up the trust for information that may not be available to you.

If that attorney is no longer involved consult with one of the Tax Attorney's in your area with you and the client.

Also, see LION's post which raises some great points.

[Burke]

Assuming your title is correct and this WAS a Revocable Living Trust, then Lion is correct. It only became irrevocable on the death of the grantor, and the trust document controls what's in it. You MUST get the trust document. Perhaps it says the house is to be sold and the proceeds distributed. Perhaps it says the title to the house goes to the heirs, or to a particular heir.
Treat the trust like you would a will as to distribution of property, and that will tell you whether a tax return needs to be filed, and what type it is. If there are other assets in an estate it may be possible to combine both on one tax return. And I doubt if the IRS "is asking for tax returns since 2007." More likely that is simply indicated on the EIN letter based on what the taxpayer entered when he asked for it. And it should have been 2015 based on the info you have given. PS: The trust may not have to pay the capital gains tax (if any.) If it was inherited in 2015 and sold in 2016, there may not be any gain. There may be a loss due to expenses. And if the monies are distributed to the heirs, then any gain/loss passes through to them on a K-1.

[Brian EA]

Burke,
The trustee spoke to the IRS today and they told her that she should send a letter explaining the EIN filing. There should be no problem correcting it. The trust agreement says that the house goes to the trustee, and each of the 3 kids gets $10,000 for education.
The house was sold last month and the check was made payable to the trust. The trust will therefore file the 2016 return and report the capital gain/ loss that will pass through to the beneficiaries.
The trustee needs the EIN in order to deposit the check.
It is indicated on the EIN letter that the trustee should file returns from 2007..
Thanks
Brian

[Kram BergGold]

Not Required to File

Even if this Trust fell into a category for which returns are generally filed it would not be required to file as there was no income in the years 2007-15. .

[S T]

My understanding was that a Revocable Living Trust - 1) did not require an EIN # all would be reported under the "Grantor's Form 1040 using their SSN#

When the Grantor passes - and any assets at DOD , then apply for the EIN# as it is now an irrevocable trust, and income/expenses are represented appropriately from DOD to closure of the Trust and assets, income, deductions being disbursed and reported on form 1041 and any associated K-1 forms to benficiaries if required

Sandy

[TAXNJ]

LION and ST and BURKE posts summarize the issue best. Read, research and apply info in thier post and see if that resolves your tax questions.

[Burke]

When the 1041 return is filed, simply designate it as the Initial return and Final return. That solves the issue. You should hear nothing further. The info regarding beneficiaries is confusing -- (original post said TP is the only one but last post mentioned "3 kids.") But that does not change the procedure. Its no longer a Grantor Trust. It is either Simple or Complex depending on the terms (i.e, income only, or discretionary distributions).

[Brian EA]

LION and ST and BURKE posts summarize the issue best. Read, research and apply info in thier post and see if that resolves your tax questions.

I am in total agreement with you. They all hit the nail on the head.

Thanks all

Brian