Friday, January 29, 2010

When is a Trust Income Tax Return, Form 1041, Required?

For income tax purposes, the IRS does not recognize that a trust exists when it is revocable. Accordingly, all of a revocable trust’s income and tax deductions are reported on the grantor’s personal income tax return. No trust income tax return, IRS Form 1041, needs to be filed unless the trustee is someone other than the grantor. Because of this, a revocable trust typically does not need to obtain a tax identification number, or FEIN (Federal Employer Identification Number). When a revocable trust turns into an irrevocable trust, which typically occurs when the grantor dies, a trust income tax return, IRS Form 1041, usually must be filed each year. However, no trust income tax return is required if all of these conditions are met: there is no taxable income, gross income is less than $600, and there is no nonresident alien beneficiary. When a trust tax returns is filed and there is a distribution or deemed distribution to a beneficiary, the beneficiary receives a Schedule K-1 showing the share of income and tax deductions.