Discussion:Trust with only tax-exempt income required to file?
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| Revision as of 21:33, 17 October 2009 LH2004 (Talk | contribs) (I did look at th) ← Previous diff |
Revision as of 23:29, 17 October 2009 Dennis (Talk | contribs) (Difference in in) Next diff → |
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| Whether a payer is required to tell the payee about a payment has very little to do with the payee's tax liability.}} | Whether a payer is required to tell the payee about a payment has very little to do with the payee's tax liability.}} | ||
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| + | {{ForumReplyPost|UserID=Dennis|Date=17 October 2009|Text=Difference in interpretation, I guess. I agree that State law does not require telling the IRS, however failure to inform the beneficiaries would involve liability that transfers to the accountant that provided the advice...♫ You could always write them letters and provide them with the information that would have been on the K-1 if you did do the return. }} | ||
Revision as of 23:29, 17 October 2009
Discussion Forum Index --> Basic Tax Questions --> Trust with only tax-exempt income required to file?
Discussion Forum Index --> Tax Questions --> Trust with only tax-exempt income required to file?
| 15 October 2009 | |
| I know the income limit for filing requirements on a trust is $600, but does this include tax exempt income? I have a client who has a trust with $2000 tax exempt interest and no other income or deductions. Is she required to file? | |
| 15 October 2009 | |
| Are there distributions of that tax exempt income that need to be reported on K-1 forms? | |
| October 15, 2009 | |
| Not if there's no requirement to file a return, which there isn't if there is no taxable income and less than $600 of gross income. | |
| 15 October 2009 | |
| Yes...distributions do need to be reported. I will instruct my client that a return does need to be filed. For clarification purposes, though, is tax exempt income excluded from 'gross income' when using the $600 test? | |
| 15 October 2009 | |
| I couldn't find a clear answer to whether tax exempt income was included in gross income but I suspect it is not.
However, I was concerned the beneficiaries needed to know their share of tax exempt income to put on their own 1040's. The brokers now have to issue 1099 forms for that. I suppose you could have sent them letters to explain not filing and here is your number. Better yet send them a K-1 form that you didn't actually file with a 1041. They know what to do with a K-1 - hand to the tax preparer! | |
| 15 October 2009 | |
| Yes , it over the limit even though it's exempt. The bene needs the tax exempt amt to report on the 1040. Tax exempt income is reportable. | |
| 15 October 2009 | |
| Thanks for the prompt responses. I will advise accordingly. | |
| October 16, 2009 | |
| I'm not getting where this requirement would come from. Sec. 6033 requires an income tax return to be filed with respect to a trust if it has taxable income, $600 of gross income, or a nonresident alien beneficiary. Sec. 641 says to compute a trust's income in the same manner as an individual's, with enumerated exceptions, none of which seem relevant here. Sec. 103(b) says that gross income does not include interest on municipal bonds. Hence, if that's what these bonds are, then the trust has no gross income and no taxable income, and so is not required to file a return if it doesn't have a nonresident alien beneficiary. | |
| 17 October 2009 | |
| dumb discussion. The requirement to file a K-1 is separate from the requirement to file a return. You guys want to file a k-1 without the 1041 have fun...♫ | |
| October 17, 2009 | |
| OK then: where does the requirement to file a K-1 come from? | |
| 17 October 2009 | |
| You could look at the instructions. Given the fact that the beneficiary has to report the distributable income, telling him/her what it is comes under the heading of fiduciary responsibility governed by all sorts of state laws. Unless of course, you believe that if a 1041 is not required to file the distributable income is not taxable...♫ | |
| October 17, 2009 | |
| I did look at the instructions. They have no hint whatsoever that a trust not required to file a return is required to file a schedule on the return. If they did, it would be contrary to the statute and regulations, unless there's another requirement I'm not seeing.
If state law requires the fiduciary to help the beneficiary file his return, then so be it, but I haven't seen such a law. State law certainly won't require a fiduciary to tell the IRS anything. Whether a payer is required to tell the payee about a payment has very little to do with the payee's tax liability. | |
| 17 October 2009 | |
| Difference in interpretation, I guess. I agree that State law does not require telling the IRS, however failure to inform the beneficiaries would involve liability that transfers to the accountant that provided the advice...♫ You could always write them letters and provide them with the information that would have been on the K-1 if you did do the return. | |
