Crazy 1041 Rules

[jasdlm]

Taxpayer has a grantor trust. He is initial Trustee. He resigns and successor Trustee steps in as Trustee. According to TB pages 20-20 and 20-21, a new tax ID number needs to be obtained, and a 1041 needs to be filed. However, the 1041 should not contain income, deductions, or expenses, but merely have a list attached detailing the same. Does this mean:

1) Report all investment income on the 1040 as usual
2) Prepare a blank 1041 (except for name, address, and tax ID) and attach a list recapping the income from assets held inside the Trust)

If this is accurate, what is the point? Also:

1) Does one do W9s for the investment companies putting all assets into the tax ID number of the Trust even though the 1041 does not report the income or do you leave the assets in the Grantor's SSN?

What am I missing here? This seems crazy. I have read subsection J of the IRS code and still don't have a clear picture.

Thanks in advance.

jas

[Bees Knees]

Does this mean:

1) Report all investment income on the 1040 as usual

yes

Does this mean:

2) Prepare a blank 1041 (except for name, address, and tax ID) and attach a list recapping the income from assets held inside the Trust)

yes

If this is accurate, what is the point?

Tax rules do not always have a point. Sometimes IRS will make you do things just to show whose in charge.

Also:

1) Does one do W9s for the investment companies putting all assets into the tax ID number of the Trust even though the 1041 does not report the income or do you leave the assets in the Grantor's SSN?

You need to have them put the trust ID on all the accounts.

What am I missing here? This seems crazy. I have read subsection J of the IRS code and still don't have a clear picture.

Don't ever try to read the code. You will go crazy

For your own safety, stick to reading TheTaxBook.

[DaveO]

Great Answer Bees

Those are the strangest looking returns. The first time I saw one I couldn't believe it either.

[jasdlm]

Thanks so much!

I really appreciate the reply; I thought I was crazy.

jas

[taxonomy]

1041

It is kind of strange looking. When the grantor trust box is checked, some software automatically puts a note on front page that says something to the effect - this is grantor trust, taxed to owner, list of income and deductions attached.