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. http://fitz-cpa.com/trust_estate.aspx

Beginning of Estate for Tax Purposes

Although a decedent’s estate is created at the moment of death, its income tax year begins the next day. The timing of appointment of personal representative or administrator or executor has no effect on the beginning of the estate tax year. The date of death, therefore, is the last day of the decedent’s personal income tax year. Income received after the date of death is generally reportable on the estate income tax return using the estate’s tax ID#, not the decedent’s personal income tax return and Social Security number. This is true even though many payers issue tax forms, such as 1099’s and W-2’s, in the name and tax ID# of the decedent.

Trust Distributions Deduction Late Election

The IRS issued a Private Letter Ruling allowing a trust to make a late election to deduct a charitable contribution in one year on the tax return for the prior year. PLR 200905027.