K-1 Reporting of Principal Distributions on a Trust Return Form 1041

Forum|Forum|3 years ago
September 26, 2022
1 reply
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When an Irrevocable Complex Trust reports all the income to one beneficiary all the taxes on the income generated in a given year as outlined in the Trust and that beneficiary does not receive any distributions. The remaining distributions of "principal only" are made to the 5 beneficiaries (Children of the Decedent Trust) are such non-taxable distributions reportable on the K-1 in Box 14? The Trust has been distributing amounts annually to the beneficiaries of principal only and have never reported such distributions in the tax return.

This is a new client that first filed a trust return in 2019 and is asking me to file returns for 2020 and 2021. When I spoke to the fiduciary company who manages the Trust assets they mentioned to me that annual distributions have been made the last 2 years of principal only. Could not find if such distributions are reportable information in the Trust return? These distributions are significant to the tune of $900K per year.

Can you tell me where to report such information in the ProConnect software.

Thanks

ProConnect Tax

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PhoebeRoberts

Intuit Community Champion

This is a return due Friday, right? Without seeing the trust document, I hate to even opine on the right tax treatment - I can't come up with a scenario where that would be the right presentation, but some days my imagination is limited.

I would be super unhappy with a client with a delinquent 1041, a nearly-delinquent 1041, a trust company who wasn't wanting to prepare the 1041s (and didn't seem to mind them being delinquent), and an unusual way of calculating / allocating DNI.

Can you tell us more about what the trust document says? Have you talked to the attorney who drafted it?

A

AnmarieAAuthor

Level 5

Yes the 2021 return is due Friday with no extension filed. The beneficiary that all the DNI is reported on the K-1 is 100 years old. The son is the trustee who is responsible for the filings. I have not seen the Trust documents nor spoken to the attorney. When I asked it was discouraged. The Irrevocable Trust was set up at the time the wife of the K-1 beneficiary. I have received all the 1099s from the broker who can not really answer any of my questions The Trustee gave me his father's 2019 and I saw the K-1 and asked questions and he said he did not realize a return needed to be filed every year and I informed that a return is required to file a Form 1041 annually if it has reportable income. Then we got the 1099s from the broker. It seems like no one is taking responsibility and a am trying to figure out what is going on. I saw on the 1099s significant Sch D trades in both years and asked if distributions we're made and tthat is when I was told that the distributions we're of principal not income.

I have read that such distributions have no tax consequence but I did not know how to report them in Pro Connect. Any guidance you can connect me to would be helpful. I only do one other irrevocable trust return and the trust pays the taxes and there are no distributions out of the trust.

This has me confused.

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AnmarieAAuthor

Level 5

Sorry for the tpos, typing from my phone that is making auto corrections....

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