Discussion:Grantor Charitable Lead Trust - 1041 Required?
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| Revision as of 20:39, 3 April 2007 Dennis (Talk | contribs) (You file a 1041,) ← Previous diff |
Revision as of 01:14, 8 April 2007 Mikelim (Talk | contribs) (Dennis/Kevin, T) Next diff → |
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| {{ForumReplyPost|UserID=Dennis|Date=3 April 2007|Text=You file a 1041, 1041A and 5227. The trust probably has a make up provision such that current K-1 will only show partnership income and the later year's gain on sale will flow on K-1 as part of the make up. Conference with attorney to make sure you understand what he wants done.}} | {{ForumReplyPost|UserID=Dennis|Date=3 April 2007|Text=You file a 1041, 1041A and 5227. The trust probably has a make up provision such that current K-1 will only show partnership income and the later year's gain on sale will flow on K-1 as part of the make up. Conference with attorney to make sure you understand what he wants done.}} | ||
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| + | {{ForumReplyPost|UserID=Mikelim|Date=8 April 2007|Text=Dennis/Kevin, | ||
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| + | Thanks for all the help. One more question - what would you attach to the return to support this deduction? I was planning on attaching the 5227, the attorney's calculation of the charitable donation amount (with valuation assumptions used), possibly a copy of the trust document, and a statement from the trust administrator that the charitable beneficiary is indeed a qualified 501c charitable organization. | ||
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| + | Am I missing anything?}} | ||
Revision as of 01:14, 8 April 2007
Discussion Forum Index --> Tax Questions --> Grantor Charitable Lead Trust - 1041 Required?
| 31 March 2007 | |
| I have a client who set up a Charitable Lead Trust (Grantor) by contributing 10% of his existing LLC. Up to this point, I was convinced by the literature (and my review of the posts on tax almanac) that he did not have to file a 1041 for the trust - just file a grantor letter with the return, and report income and expense amounts.
Then I realized that, because of the way it was structured, the trust owns 10% of the LLC and is a member. Therefore, it receives 10% of biz income, and other items, etc. To top it off, he may consider selling the LLC this year, which means the Trust would receive 10% of the gain on sale of the business. I think the safe thing to do would be to file the 1041 so that the K-1 generated by the LLC has somewhere to go (especially next year, when he may have sold the biz). But I don't want to create the entity so that those amounts can be taxed at trust rates. As I've know, trusts are complex, and most CPA's (including me) do not have much experience in them. Does anyone have any thoughts or authoritative guidance on this one? I've checked the board, but it appears that the situations are slightly different than mine... | |
| 31 March 2007 | |
| 1041-A & 5227
Split-Interest Charitable Trusts I'll be giving a 2 hour CPE course on these at NATP's conference in July. See my profile page for details Kevinh5 I wouldn't limit the knowledge gap to only CPAs, although you are right, many have no idea of what these are or what to do with them.
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| 31 March 2007 | |
| Watch out for UBTI for your case. A real problem if your taxpayer doesn't know what he is doing or is a do-it-himselfer. May already be too late?? | |
| 31 March 2007 | |
| By the way, where is the cash coming from to pay the annuity/ unitrust amount to the charity?
How much does it cost to appraise the LLC interest at the date of the initial gift and again each year? What kind of discount did they give to the minority interest? | |
| 31 March 2007 | |
| Maybe I have given you too much food for thought for one evening? Or you have left for dinner. | |
| 3 April 2007 | |
| Kevin,
Just a little of both...:) In any case, the client hired a pretty good attorney that drafted the trust document. The guy seems very sharp, so hopefully he would have covered the bases. To answer your questions, the LLC is being taxed as a 1065 partnership (it's just him and his wife - and now the Trust owns 10%). The cash to pay the annuity was given (gifted?) 10% of the partnership, which was valued at $400,000. I have the other info in the trust document back at my office... In any case - it would seem that you would have to file a trust return to be safe...I don't know how you would attribute the K-1 income to the trust otherwise, if it was just reported on the taxpayer's return. Am I going in the right direction? | |
| 3 April 2007 | |
| You file a 1041, 1041A and 5227. The trust probably has a make up provision such that current K-1 will only show partnership income and the later year's gain on sale will flow on K-1 as part of the make up. Conference with attorney to make sure you understand what he wants done. | |
| 8 April 2007 | |
| Dennis/Kevin,
Thanks for all the help. One more question - what would you attach to the return to support this deduction? I was planning on attaching the 5227, the attorney's calculation of the charitable donation amount (with valuation assumptions used), possibly a copy of the trust document, and a statement from the trust administrator that the charitable beneficiary is indeed a qualified 501c charitable organization. Am I missing anything? | |
