Discussion:K-1 concern when amending 1041

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Discussion Forum Index --> Tax Questions --> K-1 concern when amending 1041


ChrisV2 (talk|edits) said:

25 March 2014
Client with a trust on a 1041. Doing the personal tax return as well; the trust generates two K-1s that carry to the personal.

e-filed the 1041 already, then they told me whoops we forgot a 1099-B.

My concern is that if I do the amendment on the 1041, then the new K-1s will be out of synch with what got e-filed with the IRS, and then the IRS will flag it as a mis-match. Do you guys go ahead and just do the 1041 amend, then file the 1040 right away - or should I recommend the 1040 be put on extension to allow time for the IRS (and state) to deal with the amendment?


Thanks...

Kevinh5 (talk|edits) said:

25 March 2014
AMEND THE 1041, NO PROBLEM FILING THE 1040. W-2S AREN'T EVEN IN THE IRS' COMPUTER YET.

ChrisV2 (talk|edits) said:

25 March 2014
I'm not worried about W-2s, I'm worried about K-1s that *I* generated and already transmitted to the IRS, via e-filing the (incorrect) 1041.

I now have to do a paper-file amend on the 1041 which means the IRS will get updated K-1s on paper and it will take them weeks to induct. In the meantime I will file a 1040 with K-1 data in it that is corrected. This is the mis-match I am worried about.

Death&Taxes (talk|edits) said:

25 March 2014
You have great faith in IRS and its computers; the chances of your problem happening are two, and 'Slim just left.'

Dennis (talk|edits) said:

25 March 2014
Out of idle curiosity what makes you think you can get an answer to this question without the details of why you think information about asset sales would affect a k-1?

In general, when this happens with interest or dividends you don't bother to amend the 1041. Just put the correct numbers on the beneficiary's 1040. IRS never bitches if the reported numbers are larger than their match...or has that changed since I retired?

ChrisV2 (talk|edits) said:

25 March 2014
The asset sales will net a capital gain for the trust, which would flow to the K-1s for the beneficiaries. I know this to be true.

If I don't bother to amend the 1041, won't the IRS eventually send a letter asking what happened to the 1099-B issued to the EIN of the trust?

Death&Taxes (talk|edits) said:

25 March 2014
Most state laws require that capital gains (1099B) be allocated to the Corpus of the Trust, and thus taxed at Trust level.

ChrisV2 (talk|edits) said:

25 March 2014
ugh...didn't realize that thanks. I have to see how my software (Drake) handles that, and compare to how NYS says to handle it...

Kevinh5 (talk|edits) said:

25 March 2014
In Drake you code the capital gains distributions and capital gain/loss transactions to F (Fiduciary). You can code the ordinary and qualified dividends and interest to B (beneficiary) if that's who is supposed to be allocated those items of income.

ChrisV2 (talk|edits) said:

25 March 2014
ok thanks Kevin. I was going on the assumption that since this is a simple trust, all income needed to be distributed. I didn't know that there is state law that might say otherwise.

Kevinh5 (talk|edits) said:

25 March 2014
Yes, it is the Uniform Principal and Interest Act, which really isn't uniform because there are three versions, I think. UPIA

Kevinh5 (talk|edits) said:

25 March 2014
You can look up the appropriate UPIA for your client's state.

Dennis (talk|edits) said:

25 March 2014
Actually no state law includes capital gains in income; all state law defers in this to specific document language; and then there is always the Internal Revenue Code Sec. 643(a)(3).

Ah but what is all that compared to the ego of the preparer who "know(s) this to be true."...♫

ChrisV2 (talk|edits) said:

25 March 2014
So if the document language says "distribute the gains" or at least leaves that decision up to the trustee - and NY remains silent on whether or not the trustee is forced to allocate to corpus - it seems like IRC 643 says it is acceptable to treat gains as DNI. Therefore the gain ends up on the K-1, correct?

No ego here Dennis; just trying to learn how to handle this. I could not find anything (so far) that tells me that NY state law requires capital gains in a trust to be allocated to corpus. Not saying it's not true, just that I can't find it.

Dennis (talk|edits) said:

25 March 2014
or at least leaves that decision up to the trustee

No. See the 643 regs.

NY EPTL §11-A-4.4

ChrisV2 (talk|edits) said:

25 March 2014
Thanks Dennis - I found that at the same time and actually abandoned the post I was typing. I appreciate your help and patience here.


So - this trustee did distribute the proceeds of the stock sale to the beneficiaries, in 2013. It would seem that this is in violation of NY law. I guess I have to advise them to put the proceeds back into the trust, if it's even possible to re-tube that toothpaste (?)


And given this, the trust will pay the cap gain...meaning I really do need to amend that 1041. Am I understanding this correctly?

Ckenefick (talk|edits) said:

25 March 2014
I don't think it's that set in stone.

http://www.fmsemblerpllc.com/wp-content/uploads/2013/10/office_-_march_2013_trusts__estates_article_re_including_capital_gains_in_trust_or_estate_distributions_after_atra.pdf

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