Discussion:Form 1041 sec.642(c)(1) election
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Discussion Forum Index --> Tax Questions --> Form 1041 sec.642(c)(1) election
| 6 February 2007 | |
| The estate has a simple will; 70% charity 30%heir. In year 1, no distributions were made and the estate had DNI. In year 2, the estate has made distributions to both beneficiaries well in excess of year 1 DNI.
I'm preparing the year 1 Form 1041. Am I correct in making the 642(c)(1) election for the charitable deduction of 70% of the estate's income? Can it exceed 70% or is that wishful thinking? Thanks in advance. | |
| 6 February 2007 | |
| Does the will state "70% of the income" or does the will state "70% of the assets"? | |
| 6 February 2007 | |
| It states "the rest, residue and remainder". The charity is entitled to 70% of everything after expenses and specific gifts. | |
| 6 February 2007 | |
| Yes you would appear to have a deduction. In most states a formal accounting will be required to close this estate. The amount of income reserved for charity will depend on state law. | |
| 6 February 2007 | |
| In this case, an informal accounting will be kept in the attorney's file as a CYA measure. You can be sure that the charity will want their percentage of the bottom line before consenting to it. Thanks. | |
| 6 February 2007 | |
| The point is that the amount reserved for charity will depend on the fiduciary accounting numbers (which are typically on a cash received basis), not those reported for tax. | |
| 6 February 2007 | |
| Specific and pecuniary bequests are generally required by law to be paid out of corpus. As such, the payment is not from taxable gross income. If not paid from taxable gross income and pursuant to the terms of the estate's governing instrument Sec. 642(c), then no deduction. | |
| 6 February 2007 | |
| In general (although there are exceptions). Personally I don't see anything in a standard remainder clause that would imply either. | |
| 6 February 2007 | |
| Thanks for the clarification Dennis. I'd had some thoughts about the tax liability. Thanks Kevin for the addition. In this case, the charity is receiving a residual bequest and not a specific bequest. | |
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