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Where To File 4

Department of the Treasury Electronic Filing of Form 1041 4


Internal Revenue Service Estimated Income Tax Payments 4
Income and Deductions In Respect of

Instructions for Form 1041 a Decedent


Interest
Penalties
4
5
5
and Schedules A, B, D, G, Attachments
Of Special Interest to Bankruptcy
5

H, J, and K-1 Trustees and Debtors-in-Possession 5


Type of Entity
Employer Identification Number
7
8
U.S. Fiduciary Income Tax Return Nonexempt Charitable and
Section references are to the Internal Revenue Code unless otherwise noted. Split-Interest Trusts 8
Initial Return, Amended Return, Final
Paperwork Reduction Act Notice Return; or Change of Name or
We ask for the information on this form to carry out the Internal Revenue laws of the Address 8
United States. You are required to give us the information. We need it to ensure that Income 9
you are complying with these laws and to allow us to figure and collect the right Deductions 9
amount of tax.
Limitations on Deductions 10
The time needed to complete and file this form and related schedules will vary
depending on individual circumstances. The estimated average times are: Schedule A—Charitable Deduction 14
Form 1041 Schedule D Schedule J Schedule K-1 Schedule B—Income Distribution
Deduction 14
Recordkeeping 41 hr. 51 min. 16 hr. 1 min. 39 hr. 28 min. 8 hr. 22 min.
Schedule G—Tax Computation 15
Learning about the
law or the form 17 hr. 43 min. 1 hr. 59 min. 1 hr. 5 min. 1 hr. 17 min. Signature 17
Preparing the form 34 hr. 4 min. 2 hr. 20 min. 1 hr. 47 min. 1 hr. 29 min. Schedule H—Alternative Minimum
Tax 17
Copying,
assembling, and Other Information 22
sending the form Schedule D—Capital Gains and
to the IRS 4 hr. 17 min. Losses 22
If you have comments concerning the accuracy of these time estimates or Schedule J—Accumulation Distribution
suggestions for making these forms more simple, we would be happy to hear from for a Complex Trust 24
you. You can write to both the Internal Revenue Service, Attention: Reports Schedule K-1—Beneficiary’s Share of
Clearance Officer, PC:FP, Washington, DC 20224; and the Office of Management Income, Deductions, Credits, etc. 26
and Budget, Paperwork Reduction Project (1545-0092), Washington, DC 20503. DO
NOT send the tax form to either of these offices. Instead, see Where To File on
page 4.
General Instructions
Changes To Note General Business Credit. See Purpose of Form
instructions for Schedule G, line 2c.
● The Revenue Reconciliation Act of The fiduciary of a domestic decedent’s
● For tax years beginning in 1993, the estate, trust, or bankruptcy estate uses
1993 (the 1993 Act) provides for: filing requirement for bankruptcy estates
1. An increase in income tax rates for Form 1041 to report: (1) the income
is increased to $5,450. received by the estate or trust; (2) the
trusts and decedent’s estates effective ● All bankruptcy trustees and
for tax years beginning after 1992. income that is either accumulated or
debtors-in-possession in a chapter 7 or held for future distribution or distributed
2. New rules that limit the amount of 11 case should read the new section on currently to the beneficiaries; and (3) any
capital gains that are eligible for the page 5 devoted to topics of special applicable tax liability of the estate or
maximum capital gains rate on Schedule interest for trustees of bankruptcy trust.
D (Form 1041) if the gain is treated as estates.
investment income.
Income Taxation of Trusts
3. A waiver of any estimated tax
and Decedent’s Estates
penalties for 1993 with respect to any
underpayment for any period before
Contents
A trust (except a grantor type trust) or a
April 16, 1994, that was attributable to Purpose of Form 1 decedent’s estate is a separate legal
changes under the 1993 Act. Income Taxation of Trusts and entity for Federal tax purposes. A
● The Energy Policy Act of 1992 Decedent’s Estates 1 decedent’s estate is created upon the
provides for: Who Must File 2 death of an individual. A trust may be
1. A new deduction for the cost of Definitions 2 created during an individual’s life (inter
clean-fuel vehicles and certain refueling vivos) or upon his or her death under a
Additional Returns and Documents You will (testamentary). If the trust instrument
property. See instructions for line 15a, May Have To File 2
page 1. contains certain provisions, then the
Period Covered by the Return 3 person creating the trust (the grantor) is
2. A new qualified electric vehicle deemed to be the owner of the trust’s
Decedent’s Final Income Tax Return 3
credit. See instructions for Schedule G, assets and the trust is treated as a
line 2. Accounting Methods 3
“grantor type trust.”
3. A new renewable electricity When To File 3
production credit that is part of the Extension of Time To File 3
Cat. No. 11372D
A trust or decedent’s estate computes 2. Gross income of $600 or more Distributable Net Income
its gross income in much the same regardless of the taxable income, or
The income distribution deduction
manner as an individual. Generally, the 3. A beneficiary who is a nonresident allowable to estates and trusts for
deductions and credits allowed to alien. amounts paid, credited, or required to
individuals are also allowed to estates If you are a fiduciary of a nonresident be distributed to beneficiaries is limited
and trusts. However, there is one major alien estate or foreign trust with U.S. to the “distributable net income” (DNI).
distinction. A trust or decedent’s estate source income, you should file Form This limit is also used to determine how
is allowed an income distribution 1040NR, U.S. Nonresident Alien Income much of an amount paid, credited, or
deduction for distributions to Tax Return. required to be distributed to a
beneficiaries. To compute this deduction,
beneficiary will be includible in his or her
the fiduciary must complete Schedule B. Bankruptcy Estate gross income.
The income distribution deduction
determines the amount of the The bankruptcy trustee or
distribution that is to be taxed to the debtor-in-possession must file Form Additional Returns and
1041 for the estate of an individual
beneficiary.
involved in bankruptcy proceedings
Documents You May Have
For this reason, sometimes a trust or under chapter 7 or 11 of title 11 of the To File
decedent’s estate is referred to as a United States Code if the estate has
“pass-through” entity because it may Forms W-2 and W-3, Wage and Tax
gross income for the tax year of $5,450 Statement and Transmittal of Income
distribute its income and apportion or more. See Of Special Interest To
certain deductions among the income and Tax Statements.
Bankruptcy Trustees and
beneficiaries and the estate or trust. It is Form 1040, U.S. Individual Income Tax
Debtors-in-Possession on page 5 for
the beneficiary, and not the trust or Return.
other details.
decedent’s estate, that pays the income Form 1040NR, U.S. Nonresident Alien
tax on his or her distributive share of Qualified Settlement Funds Income Tax Return.
income. Schedule K-1 (Form 1041) is Form 1041-A, U.S. Information Return—
used to notify the beneficiaries of the The trustee of a designated or qualified
settlement fund should use Form Trust Accumulation of Charitable
amounts to be included on their Amounts.
respective tax returns. 1120-SF, U.S. Income Tax Return for
Settlement Funds. See Regulations Form 1041-ES, Estimated Income Tax
Before preparing Form 1041, the section 1.468B-5. for Fiduciaries.
fiduciary must compute the accounting
income of the estate or trust under the Form 1041-T, Allocation of Estimated
will or trust instrument to determine the Definitions Tax Payments to Beneficiaries.
amount, if any, of income that is Form 56, Notice Concerning Fiduciary
Fiduciary Relationship.
required to be distributed since the
income distribution deduction is based, The term “fiduciary” includes a trustee Form 706, United States Estate (and
in part, on that amount. of a trust or the executor, executrix, Generation-Skipping Transfer) Tax
administrator, administratrix, personal Return; or Form 706NA, United States
representative, or a person in Estate (and Generation-Skipping
Additional Information possession of property of a decedent’s Transfer) Tax Return, Estate of
The following publications may assist estate. Nonresident Not a Citizen of the United
you in preparing Form 1041. Note: Throughout these instructions, any States.
Publication 448, Federal Estate and Gift reference to “you” means the fiduciary of Form 706GS(D), Generation-Skipping
Taxes; the estate or trust. Transfer Tax Return for Distributions.
Publication 550, Investment Income and Form 706GS(D-1), Notification of
Expenses; and Trust
Distribution From A Generation-Skipping
Publication 559, Survivors, Executors, The term “trust” refers to an Trust.
and Administrators. arrangement created either by a will or
Form 706GS(T), Generation-Skipping
These and other publications may be by an inter vivos declaration by which
Transfer Tax Return for Terminations.
obtained at most IRS offices. To order trustees take title to property for the
purpose of protecting or conserving it Form 940 or Form 940-EZ, Employer’s
publications and forms, call our toll-free Annual Federal Unemployment (FUTA)
number 1-800-TAX-FORM for the beneficiaries under the ordinary
rules applied in chancery or probate Tax Return. The fiduciary may be liable
(1-800-829-3676). for FUTA tax and may have to file Form
courts.
940 or 940-EZ if it paid wages of $1,500
Who Must File Beneficiary or more in any calendar quarter during
The term “beneficiary” includes heir, the calendar year (or the preceding
Decedent’s Estate calendar year) or one or more
legatee, or devisee.
The fiduciary (or one of the joint employees worked for the estate or trust
fiduciaries) must file Form 1041 for the Income Required To Be for some part of a day in any 20
estate of a domestic decedent that has: Distributed Currently different weeks during the calendar year.
1. Gross income for the tax year of Form 941, Employer’s Quarterly Federal
The term “income required to be
$600 or more, or Tax Return. Employers must file this
distributed currently” means income that
2. A beneficiary who is a nonresident form quarterly to report income tax
is required to be distributed in the year it
alien. withheld and employer and employee
is received. The fiduciary must be under
social security and Medicare taxes.
a duty to distribute the income currently,
Trust even if the actual distribution is not
Agricultural employers must file Form
943, Employer’s Annual Tax Return for
The fiduciary (or one of the joint made until after the close of the trust’s
Agricultural Employees, instead of Form
fiduciaries) must file Form 1041 for a tax year. See Regulations section
941, to report income tax withheld and
domestic trust taxable under section 641 1.651(a)-2.
employer and employee social security
that has:
and Medicare taxes on farmworkers.
1. Any taxable income for the tax year,
or
Page 2
Caution: A Trust Fund Recovery Penalty Form 8300, Report of Cash Payments 1040) or Schedule 1 (Form 1040A), that
may apply where income, social security, Over $10,000 Received in a Trade or the balance of any interest or dividend
and Medicare taxes that should be Business. Generally, this form is used to income is reported on Form 1041. The
withheld are not withheld or are not paid report the receipt of more than $10,000 name and address of the fidiciary return,
to the IRS. Under this penalty, certain in cash or foreign currency in one Form 1041, should also be shown.
employees of the estate or trust become transaction (or a series of related
personally liable for payment of the taxes transactions). Accounting Methods
and may be penalized in an amount Decedent’s will and trust
equal to the unpaid taxes. See Circular Taxable income must be computed
instrument.—You do not have to file a
E, Employer’s Tax Guide (or Circular A, using the method of accounting regularly
copy of the decedent’s will or the trust
Agr icultural Employer’s Tax Guide), for used in keeping the estate’s or trust’s
instrument unless the IRS requests it. If
more details concer ning who may be books and records. Generally,
the IRS requests it, file a copy (including
liable for the Trust Fund Recovery permissible methods include the cash
any amendments) with the following:
Penalty. method, the accrual method, or any
1. A signed statement that, under the other method authorized by the Internal
Forms 1042 and 1042-S, Annual penalties of perjury, the copy of the will Revenue Code. The method used must
Withholding Tax Return for U.S. Source or the trust instrument is true and clearly reflect income.
Income of Foreign Persons; and Foreign complete.
Person’s U.S. Source Income Subject to Unless otherwise allowed by law, the
2. A statement naming the provisions estate or trust may not change the
Withholding. Use these forms to report of the will or the trust instrument that
and transmit withheld tax on payments accounting method used to report
you believe determines how the income income in earlier years (for income as a
or distributions made to nonresident is to be split up among the decedent’s
alien individuals, foreign partnerships, or whole or for any material item) without
estate or trust, the grantor (if applicable), first getting consent on Form 3115,
foreign corporations to the extent such and the beneficiaries.
payments or distributions constitute Application for Change in Accounting
gross income from sources within the Method. See Publication 538,
United States that is not effectively Period Covered by the Accounting Periods and Methods, for
connected with a U.S. trade or business. Return more information.
For more information, see sections 1441
For a decedent’s estate, the moment of When To File
and 1442, and Publication 515,
death determines the end of the
Withholding of Tax on Nonresident File Form 1041 by the 15th day of the
decedent’s tax year and the beginning of
Aliens and Foreign Corporations. 4th month following the close of the tax
the estate’s tax year. As executor or
Forms 1099-A, B, INT, MISC, OID, R, administrator, you choose the estate’s year of the estate or trust. For calendar
and S.—You may have to file these tax period when you file its first income year trusts, file Form 1041 and
information returns to report tax return. The estate’s first tax year Schedules K-1 on or before April 15,
abandonments, acquisitions through may be any period of 12 months or less 1994. If the due date for a return falls on
foreclosure, proceeds from broker and that ends on the last day of a month. If a Saturday, Sunday, or legal holiday, the
barter exchange transactions, interest you select the last day of any month return is due on the next regular
payments, medical and dental health other than December, then you are workday. For example, a fiscal year
care payments, miscellaneous income, adopting a fiscal tax year. estate would file Form 1041 by October
original issue discount, distributions from 17, 1994, for an estate that has a tax
Generally, a trust must adopt a
pensions, annuities, retirement or year that ends on June 30, 1994.
calendar year. The following trusts are
profit-sharing plans, individual retirement Note: The 1993 For m 1041 may also be
exempt from this requirement:
arrangements, insurance contracts, and used for a tax year beginning in 1994 if:
proceeds from real estate transactions. ● A trust that is exempt from tax under
section 501(a); 1. The estate or trust has a tax year of
Also, use these returns to report less than 12 months that begins and
amounts that were received as a ● A charitable trust described in section
4947(a)(1); and ends in 1994; and
nominee on behalf of another person.
● A trust that is treated as wholly owned 2. The 1994 For m 1041 is not
Some of the above 1099 forms do not available by the time the estate or trust
have to be filed if it would result in the by a grantor under the rules of sections
671 through 679. is required to file its tax return. However,
duplication of income information the estate or trust must show its 1994
required to be reported on Schedule K-1 File Form 1041 for the calendar year tax year on the 1993 For m 1041 and
(Form 1041). 1993 (if this is the initial year of the incorporate any tax law changes that are
Form 8275, Disclosure Statement, is estate or trust, the tax period that ends effective for tax years beginning after
used by taxpayers and income tax on December 31, 1993), or for a fiscal December 31, 1993.
return preparers to disclose items or year beginning in 1993. To change the
positions, except those contrary to a accounting period of an estate, get
regulation, that are not otherwise Form 1128, Application To Adopt, Extension of Time To File
adequately disclosed on a tax return. Change, or Retain a Tax Year. Estates
The disclosure is made to avoid parts of
the accuracy-related penalty imposed for Decedent’s Final Income Tax Use Form 2758, Application for
negligence, disregard of rules, or Extension of Time To File Certain Excise,
Return Income, Information, and Other Returns,
substantial understatement of tax. Form
8275 is also used for disclosures relating When reporting interest or dividend to apply for an extension of time to file.
to preparer penalties for income on Form 1041 for the first year
of the decedent’s estate and on the Trusts
understatements due to unrealistic
positions or for willful or reckless decedent’s final income tax return, Use Form 8736, Application for
conduct. Forms 1099-DIV and 1099-INT issued in Automatic Extension of Time To File U.S.
the name of the decedent may reflect Return for a Partnership, REMIC, or for
Form 8275-R, Regulation Disclosure
earnings for the entire year. The Certain Trusts, to request an automatic
Statement, is used to disclose any item
fiduciary, when preparing the final 3-month extension of time to file. If more
on a tax return for which a position has
income tax return of the decedent, time is needed, file Form 8800,
been taken that is contrary to Treasury
should indicate on Schedule B (Form Application for Additional Extension of
regulations.
Page 3
Time To File a U.S. Return for a Indiana, Kentucky, Michigan,
other expenses of administration) are
Partnership, REMIC, or for Certain Cincinnati, OH 45999 only required to make estimated tax
Ohio, West Virginia
Trusts. For more information, see payments for any tax year ending 2 or
Regulations section 1.6081-3T. Alaska, California, Hawaii, more years after the decedent’s death.
Idaho, Nevada, Oregon, Fresno, CA 93888
Washington
Where To File Exceptions
Connecticut, Maine,
Generally, the estate or trust will not
Except for char itable and split-interest Massachusetts, New
Holtsville, NY 00501
Hampshire, New York, have to pay estimated tax if its 1994
trusts and pooled income funds:
Rhode Island, Vermont income tax return will show:
Please mail to the 1. A tax balance due of less than
following Internal Illinois, Iowa, Minnesota,
Revenue Service Missouri, Montana, $500; or
Kansas City, MO 64999
If you are located in Center Nebraska, North Dakota, 2. The estate or trust had no tax
Ä Ä South Dakota, Wisconsin
liability in the preceding tax year and the
New Jersey, New York (New Delaware, District of preceding tax year was a full 12 months.
York City and counties of Columbia, Maryland,
Holtsville, NY 00501 New Jersey, Pennsylvania, Philadelphia, PA 19255 For more information, see Form
Nassau, Rockland, Suffolk,
and Westchester) Virginia, any U.S. possession, 1041-ES.
or foreign country
New York (all other Section 643(g) Election
counties), Connecticut,
Maine, Massachusetts, New Andover, MA 05501 Electronic Filing of Form Fiduciaries of both estates and trusts
Hampshire, Rhode Island, that pay estimated tax may elect to have
Vermont 1041 any portion of their estimated tax
Florida, Georgia, Qualified tax return filers can file Form payments allocated to any of the
Atlanta, GA 39901 beneficiaries. You must file Form 1041-T
South Carolina 1041 and related schedules via magnetic
media (magnetic tapes, floppy diskettes) to make a section 643(g) election to
Indiana, Kentucky, Michigan, show the allocation of any estimated tax
Cincinnati, OH 45999 or electronically. If the fiduciary files the
Ohio, West Virginia
estate’s or trust’s return electronically or payments among the beneficiaries.
Kansas, New Mexico, on magnetic tape, he or she must also Note: The fiduciary of a decedent’s
Austin, TX 73301
Oklahoma, Texas
file Form 8453-F, U.S. Fiduciary Income estate may make a section 643(g)
Alaska, Arizona, California Tax Declaration and Signature for election only for the last tax year of the
(counties of Alpine, Amador, Electronic and Magnetic Media Filing. estate.
Butte, Calaveras, Colusa,
Contra Costa, Del Norte, El
See Publication 1437, Procedures for Amounts applied to each beneficiary
Dorado, Glenn, Humboldt, Electronic and Magnetic Media Filing of are treated as paid or credited to the
Lake, Lassen, Marin, U.S. Fiduciary Income Tax Returns, beneficiary on the last day of the trust’s
Mendocino, Modoc, Napa, Form 1041, for Tax Year 1993, for more tax year and should be reported on
Nevada, Placer, Plumas, information.
Sacramento, San Joaquin, Ogden, UT 84201 Schedule K-1 (Form 1041) and Form
Shasta, Sierra, Siskiyou, An application form to participate in 1041-T. On Form 1041-T be sure to
Solano, Sonoma, Sutter, the electronic filing program and copy the name, address, and EIN of the
Tehama, Trinity, Yolo, and Publication 1437 may be obtained by estate or trust exactly as reported on
Yuba), Colorado, Idaho,
Montana, Nebraska, Nevada,
calling the Magnetic Media Unit at the Form 1041. See section 643(g) and
North Dakota, Oregon, South Philadelphia Service Center at (215) instructions for line 24b.
Dakota, Utah, Washington, 969-7533 (not a toll-free number) or by
Wyoming writing to: Magnetic Tape Filing
California (all other counties), Internal Revenue Service Requirements
Fresno, CA 93888 Philadelphia Service Center
Hawaii Under the provisions of Rev. Proc.
11601 Roosevelt Blvd. 89-49, 1989-2 C.B. 615, fiduciaries that
Illinois, Iowa, Minnesota,
Missouri, Wisconsin
Kansas City, MO 64999 ATTN: Magnetic Media Unit–DP 115 have a Treasury Tax and Loan (TT&L)
Philadelphia, PA 19154 Account for deposited Federal taxes and
Alabama, Arkansas,
Louisiana, Mississippi, Memphis, TN 37501 administer at least 200 taxable trusts are
North Carolina, Tennessee Estimated Income Tax required to submit the data on estimated
Payments tax payments on magnetic tape. See
Delaware, District of
Columbia, Maryland,
Rev. Proc. 89-49 for details on this filing
Generally, you must pay estimated requirement.
Pennsylvania, Virginia, any Philadelphia, PA 19255
U.S. possession, or foreign income tax if the estate or trust expects
country to owe, after subtracting any withholding
and credits, at least $500 in tax for Income and Deductions in
For a char itable or split-interest trust 1993, and it expects the withholding and Respect of a Decedent
descr ibed in section 4947(a) and a credits to be less than: When completing Form 1041, the
pooled income fund defined in section 1. 90% of the tax shown on the 1993 fiduciary should take into account any
642(c)(5): tax return, or items that are income in respect of a
2. 100% of the tax shown on the 1992 decedent (IRD).
Please mail to the
following Internal tax return (assuming the return covered In general, the term “income in
Revenue Service all 12 months). respect of a decedent” means income
If you are located in Center that a decedent was entitled to receive
Ä Ä
Note: Certain estates and trusts may not
be able to use the 100% of the previous but that was not properly includible in
Alabama, Arkansas, Florida, year’s tax. See For m 1041-ES. the decedent’s final Form 1040 under
Georgia, Louisiana, the decedent’s method of accounting.
Atlanta, GA 39901 Estates (and any trust that was
Mississippi, North Carolina,
South Carolina, Tennessee treated as owned by the decedent and IRD includes: (1) all accrued income of
that received the residue of a decedent’s a decedent who reported his or her
Arizona, Colorado, Kansas, income on a cash method of
New Mexico, Oklahoma, Austin, TX 73301 estate under the will, or if no will is
Texas, Utah, Wyoming admitted to probate, a trust primarily accounting; (2) income accrued solely
responsible for paying debts, taxes, and by reason of the decedent’s death in the
Page 4
case of a decedent who reported his or Interest Attachments
her income on an accrual method of
accounting; and (3) income to which the Interest will be charged on taxes not If you need more space on the forms or
decedent had a contingent claim at the paid by their due date, even if an schedules, attach separate sheets
time of his or her death. extension of time to file is granted. showing the same information in the
Interest is also charged on penalties same order as on the printed forms.
Some examples of IRD of a decedent Show the totals on the printed forms.
who kept his or her books on a cash imposed for failure to file, negligence,
method are: substantial understatement of tax, Enter the estate’s or trust’s employer
substantial valuation overstatement, and identification number on each sheet.
● Deferred salary payments that are fraud. Also, use sheets that are the same size
payable to the decedent’s estate. as the forms and schedules and indicate
● Uncollected interest on U.S. savings Penalties clearly the line of the printed form to
bonds. which the information relates.
● Proceeds from the completed sale of Late Filing of Return
farm produce. The law provides a penalty of 5% of the Rounding Off to Whole
The character of the IRD is the same tax due for each month, or part of a Dollars
in the hands of the estate as if the month, that the return is late (maximum
decedent had lived and received such 25%) unless you can show reasonable You may show the money items on the
amount. cause for the delay. If you file a return return and accompanying schedules as
late, attach a full explanation to your whole-dollar amounts. To do so, drop
Section 691(b) allows the following
return. If your return is more than 60 amounts less than 50 cents and
deductions and credits, when paid by
days late, the minimum penalty is the increase any amounts from 50 to 99
the decedent’s estate, on Form 1041
smaller of $100 or the tax due on your cents to the next dollar.
that were not allowable on the
decedent’s final Form 1040: return.
● Business expenses deductible under Unresolved Tax Problems
Late Payment of Tax
section 162. The IRS has a Problem Resolution
● Interest deductible under section 163. Generally, the penalty for not paying tax Program for taxpayers who have been
when due is 1⁄2 of 1% of the unpaid unable to resolve their problems with the
● Taxes deductible under section 164. amount for each month or part of a IRS. If you have a tax problem you have
● Investment expenses described in month it remains unpaid. The maximum been unable to resolve through normal
section 212 (in excess of 2% of AGI). penalty is 25% of the unpaid amount. channels, write to your local IRS District
● Percentage depletion allowed under The penalty applies to any unpaid tax Director, or call your local IRS office and
section 611. shown on a return. Any penalty is in ask for Problem Resolution assistance.
● Foreign tax credit. addition to interest charges on late The Problem Resolution Office will
payments. ensure that your problem receives
For more information, see section 691.
Note: If you include interest or either of proper attention. Although the office
Individual retirement accounts.—The
these penalties with your payment, cannot change the tax law or make
portion of a lump sum distribution to the
identify and enter these amounts in the technical decisions, it can help you clear
beneficiary of a decedent’s IRA that
bottom margin of For m 1041, page 1. up problems that resulted from previous
equals the amount of the balance in the
Do not include the interest or penalty contacts.
IRA at the time of the owner’s death is
amount in the balance of tax due on Hearing-impaired taxpayers who have
income in respect of a decedent. This
line 27. access to TDD equipment may call
includes unrealized appreciation and
income accrued to that date, less the Failure To Supply Schedule K-1 1-800-829-4059 to ask for help from
aggregate amount of the owner’s Problem Resolution.
nondeductible contributions to the IRA. The fiduciary must provide Schedule K-1
Such amounts are included in the (Form 1041) to each beneficiary who
beneficiary’s gross income in the tax receives a distribution of property or an Of Special Interest to
year that the distribution is received. allocation of an item of the estate. A
penalty of $50 (not to exceed $100,000 Bankruptcy Trustees and
for any calendar year) will be imposed Debtors-in-Possession
Special Rule for Blind Trust on the fiduciary for each failure to
If you are reporting income from a furnish Schedule K-1 to each beneficiary
Taxation of Bankruptcy Estates of
qualified blind trust (under the Ethics in unless reasonable cause for each failure
Government Act of 1978), do not identify is established. an Individual
the payer of any income to the trust but Under section 1398(a), a bankruptcy
complete the rest of the return as Underpaid Estimated Tax estate is a separate tax entity created
provided in the instructions. Also write If the fiduciary underpaid estimated tax, when an individual debtor files a petition
“Blind Trust” at the top of page 1. attach Form 2210, Underpayment of under either chapter 7 or 11 of title 11 of
Estimated Tax by Individuals and the United States Code. The estate is
Multiple Trust Rules Fiduciaries, to compute any penalties. administered by a trustee, or a
Enter the amount of any penalties on debtor-in-possession. If the case is later
Two or more trusts are treated as one dismissed by the bankruptcy court, the
line 26, Form 1041.
trust if such trusts have substantially the debtor is treated as if the bankruptcy
same grantor(s) and substantially the Other Penalties petition had never been filed. This
same primary beneficiary(ies), and a provision does NOT apply to
principal purpose of such trusts is Other penalties can be imposed for
negligence and substantial partnerships and corporations.
avoidance of tax. This provision applies
only to that portion of the trust that is underpayment of tax. See Publication Who Must File
attributable to contributions to corpus 17, Your Federal Income Tax, for details
on these penalties. Every trustee (or debtor-in-possession)
made after March 1, 1984.
for an individual’s bankruptcy estate
under chapter 7 or 11 of title 11 of the
United States Code must file a return if
Page 5
the bankruptcy estate has gross income Extension of Time To File that does not itemize deductions is
for the tax year beginning in 1993 of allowed a standard deduction of $3,100.
The trustee or debtor-in-possession for a
$5,450 or more. Net operating loss (NOL).—The
bankruptcy estate should use Form
Failure to do so may result in an 2758 to apply for an extension of time to bankruptcy estate may have a net
estimated Request for Administrative file. operating loss (NOL) for the tax year if
Expenses being filed by the IRS in the the estate’s administrative expenses
bankruptcy proceeding or a motion to Disclosure of Return Information exceed the estate’s gross income. The
compel filing of the return. NOL created may be carried back to
Under section 6103(e)(5), tax returns of
Form 1041 is used ONLY as a each of the 3 preceding tax years, and
individual debtors who have filed for
transmittal for Form 1040, U.S. carried forward to each of the 7
bankruptcy under chapters 7 or 11 of
Individual Income Tax Return. Figure the succeeding tax years.
title 11 are, upon written request, open
tax for the bankruptcy estate on Form to inspection by or disclosure to the The 3 tax years preceding the loss
1040 using the tax rate schedule (shown trustee. year may include tax years of the
below) for a married person filing individual debtor before the year in
The returns subject to disclosure to
separately. Enter the tax on page 2 of which the bankruptcy estate was
the trustee are those for the year the
Form 1040. Attach Form 1040 to Form created. For example, if the bankruptcy
bankruptcy begins and prior years. Use
1041. In the top margin of Form 1040 estate was created on June 1, 1993,
Form 4506, Request for Copy of Tax
write “Attachment to Form 1041. DO and generates an NOL for the tax year
Form, to request copies of the individual
NOT DETACH.” ending on December 31, 1993, the NOL
debtor’s tax returns.
can be carried back to the individual’s
If taxable income is: If the bankruptcy case was not 1990 Form 1040.
Of the voluntary, disclosure cannot be made
Discharge of indebtedness.—In a title
But not The tax amount before the bankruptcy court has entered
Over— over— is: over— 11 case, gross income does not include
an order for relief, unless the court rules
amounts that normally would be
$0 $18,450 15% $0 that the disclosure is needed for
$2,767.50 + 28% 18,450 included in gross income resulting from
18,450 44,575 determining whether relief should be
44,575 70,000 10,082.50 + 31% 44,575 the discharge of indebtedness. However,
70,000 125,000 17,964.25 + 36% 70,000 ordered.
37,964.25 + 39.6% 125,000
any amounts excluded from gross
125,000 -----
Transfer of Tax Attributes From income must be applied to reduce
the Individual Debtor to the certain tax attributes in a certain order.
Complete only the identification area Use Form 982, Reduction of Tax
at the top of Form 1041, enter any tax
Bankruptcy Estate
Attributes Due to Discharge of
due from line 53 of Form 1040 to line 23 Under section 1398(g), the bankruptcy Indebtedness, to show the reduction of
of Form 1041. Sign and date the Form estate succeeds to the following tax tax attributes.
1041. attributes of the individual debtor:
Note: The filing of a tax return for the 1. Net operating loss (NOL) Prompt Determination of Tax
bankruptcy estate does not relieve the carryovers; Liability
individual debtor of his or her (or their) 2. Charitable contributions carryovers; To request a prompt determiniation of
individual tax obligations. 3. Recovery of tax benefit items; the tax liability of the bankruptcy estate,
the trustee or debtor-in-possession must
Employer Identification Number 4. Credit carryovers;
file a written application for the
(EIN) 5. Capital loss carryovers; determination with the IRS District
Every bankruptcy estate of an individual 6. Basis, holding period, and character Director for the district in which the
required to file a return must have its of assets; bankruptcy case is pending. The
own employer identification number. You 7. Method of accounting; and application must be submitted in
may apply for one on Form SS-4, 8. Other tax attributes that may be duplicate and executed under the
Application for Employer Identification prescribed by the IRS. penalties of perjury. The trustee or
Number. The social security number debtor-in-possession must submit with
(SSN) of the individual debtor cannot be Income and Deductions the application an exact copy of the
used as the EIN for the bankruptcy return (or returns) filed by the trustee
Under section 1398(c), the taxable with the IRS for a completed tax period,
estate. income of the bankruptcy estate is and a statement of the name and
Identification Area computed in the same manner as an location of the office where the return
individual. The gross income of the was filed. The envelope should be
Enter the name of the individual debtor bankruptcy estate includes any income
in the following format: marked, “Personal Attention of the
as defined in Bankruptcy Code section Special Procedures Function
“John Q. Public Bankruptcy Estate.” 541. Also included is gain from the sale
Beneath, enter the name of the trustee (Bankruptcy Section). DO NOT OPEN IN
of property. To compute gain, the trustee MAILROOM.”
in the following format: or debtor-in-possession must determine
“Avery Snow, trustee.” the correct basis of the property. The Examination Function will notify
the trustee or debtor-in-possession
Date Entity Created Amounts paid or incurred by the within 60 days from receipt of the
bankruptcy estate are allowable as application whether the return filed by
Enter the date the petition was filed; or deductions or credits; or treated as
the date of conversion to a chapter 7 or the trustee or debtor-in-possession has
wages, as if the individual debtor were been selected for examination or has
11 case. still engaged in the trades and been accepted as filed. If the return is
Period Covered by Return businesses, or activities, that the selected for examination, it will be
individual debtor was engaged in before examined as soon as possible. The
A bankruptcy estate is allowed to have a the bankruptcy proceedings began. Examination Function will notify the
fiscal year. The period can be no longer Exemption.—For tax years beginning in trustee or debtor-in-possession of any
than 12 months; and the tax return must 1993, a bankruptcy estate is allowed a tax due within 180 days from receipt of
be filed on or before the 15th day of the personal exemption of $2,350. the application or within any additional
4th month following the close of the
Standard deduction.—For tax years time permitted by the bankruptcy court.
fiscal year.
beginning in 1993, a bankruptcy estate
Page 6
See Rev. Proc. 81-17, 1981-1 C.B. Grantor Type Trust For more information, see Rev. Rul.
688. 75-257, 1975-2 C.B. 251.
A “grantor type trust” is a legal trust
under applicable state law that is not Mortgage pools.—The trustee of a
recognized as a separate taxable entity mortgage pool, such as the Federal
Specific Instructions for income tax purposes because the National Mortgage Association, collects
grantor or other substantial owners have principal and interest payments on each
not relinquished complete dominion and mortgage and makes distributions to the
Identification Area control over the trust. certificate holders. Each pool is
considered a grantor type trust, and
Please copy the exact name of the Generally, transfers made in trust after
each certificate holder is treated as the
estate or trust from the Form SS-4, March 1, 1986, are subject to section
owner of an undivided interest in the
Application for Employer Identification 673(a). This section treats the grantor as
entire trust under the grantor trust rules.
Number, that you used to apply for the the owner of any portion of a trust in
Certificate holders must report their
employer identification number. which he or she has a reversionary
proportionate share of the mortgage
Fill in the information called for at the interest in either the income or corpus
interest and other items of income on
top of the form and check the therefrom, if, as of the inception of that
their individual tax returns.
appropriate entity box. See Type of portion of the trust, the value of that
interest is more than 5% of the value of Pre-need funeral trusts.—The
Entity below for descriptions of the purchasers of pre-need funeral services
types of trusts and estates. that portion.
are the grantors and the owners of
Further, section 672(e) treats the
Address pre-need funeral trusts established
grantor as holding any power or interest
under state laws. See Rev. Rul. 87-127,
Include the suite, room, or other unit that was held by either the grantor’s
1987-2 C.B. 156.
number after the street address. spouse at the time that the power or
interest was created or who became the Nonqualified deferred compensation
If the postal service does not deliver grantor’s spouse subsequent to the plans.—Taxpayers may adopt and
mail to the street address and the creation of that power or interest. maintain grantor trusts in connection
fiduciary has a P.O. box, show the box with nonqualified deferred compensation
number instead of the street address. Report on Form 1041 the part of the
plans (sometimes referred to as “rabbi
income that is taxable to the trust. Do
If the fiduciary changes its address trusts”). Rev. Proc. 92-64, 1992-2 C.B.
not report on Form 1041 the income that
after filing its return, use Form 8822, 422, provides a “model grantor trust” for
is taxable to the grantor or another
Change of Address, to notify the IRS. use in rabbi trust arrangements. The
person. Instead, attach a separate sheet
procedure also provides guidance for
to report the following:
A. Type of Entity requesting rulings on the plans that use
● The income of the trust that is taxable these trusts.
Check the appropriate box that to the grantor or another person under
Simplified filing requirement for
describes the entity for which you are sections 671 through 678;
certain grantor type trusts.—The
filing the return. ● The name, identifying number, and grantor/trustee for a trust described
Note: There are special filing address of the person(s) to whom the below that was created in a tax year
requirements for Grantor Type Trusts and income is taxable; and beginning on or after January 1, 1981,
Bankruptcy Estates (discussed below). ● Any deductions or credits applied to should not file Form 1041 and therefore
this income. will not need an EIN for the trust. The
Decedent’s Estate grantor/trustee must furnish his or her
On page 1 at the top of Form 1041,
An estate of a deceased person is a write the name, identification number, social security number (SSN) to payers
taxable entity separate from the and address of the grantor(s) or other of income and report all items of
decedent. It generally continues to exist person(s) in parentheses after the name income, deduction, and credit from the
until the final distribution of the assets of of the trust. trust on his or her Form 1040.
the estate is made to the heirs and other This special rule applies to certain
The income taxable to the grantor or
beneficiaries. The income earned by the revocable trusts that are located in the
another person under sections 671
property of the estate during the period United States and have all assets
through 678 and the deductions and
of administration or settlement must be located in the United States if:
credits applied to the income must be
accounted for and reported by the
reported on the income tax return that ● The same individual is both grantor
estate.
person files. and trustee (or co-trustee) of the trust;
Simple Trust Family estate trust.—A family estate and
A trust may qualify as a “simple trust” if trust is also known as a family, family ● The individual is treated as owner of
the trust instrument: estate, pure, equity, equity pure, prime, all trust assets under section 676 (power
or constitutional trust. to revoke) for the tax year.
1. Requires that all income must be
distributed currently; In most cases, the grantor transfers These rules also apply to certain other
property to the trust or assigns to the revocable trusts in which:
2. Does not allow amounts to be paid, trust the income for services the grantor
permanently set aside, or used in the ● A husband and wife are the sole
performs. The trust instrument usually grantors;
tax year for charitable purposes; and provides:
3. The trust does not distribute ● One spouse is trustee or co-trustee
● Evidence of ownership, such as with a third party or both spouses are
amounts allocated to the corpus of the certificates of beneficial interest in the
trust. trustees or co-trustees with a third party;
trust.
● One or both spouses are treated as
Complex Trust ● That the grantor is a trustee and owners of all trust assets under section
executive officer. 676 (power to revoke) for the tax year;
A “complex trust” is any trust that does
not qualify as a simple trust as explained ● That the trust pays the living expenses and
above. for the grantor and the grantor’s family. ● The husband and wife file a joint
● That the corpus and undistributed income tax return for the tax year.
income are distributed to the owners Grantor trusts created in tax years
after the trust is terminated. beginning before 1981.—The
Page 7
grantor/trustee for a trust described B. Number of Schedules K-1 file either Form 990 or Form 990-EZ
above who has previously filed Form Attached instead of Form 1041 to meet its section
1041 can take advantage of the 6012 filing requirement.
simplified reporting requirements in the Every trust or decedent’s estate claiming
future by filing a Form 1041 for the an income distribution deduction on Section 4947(a)(2) Trust
current year, writing on it “Pursuant to page 1, line 18, must enter the number
Check this box if the trust is a
section 1.671-4(b), this is the final return of Schedules K-1 (Form 1041) that are
split-interest trust described in section
for this grantor trust,” and checking the attached to Form 1041.
4947(a)(2). A “split-interest trust” is a
“Final return” box. C. Employer Identification Number trust that is not exempt from tax under
A grantor/trustee who chooses this (EIN) section 501(a); has some unexpired
option must furnish his or her SSN to interests that are devoted to purposes
payers of income for the next year and Every estate or trust must have an other than religious, charitable, or similar
report the trust income on his or her employer identification number (EIN). To purposes described in section
Form 1040 for the next tax year and for apply for one, use Form SS-4. You may 170(c)(2)(B); and has amounts
future years. The grantor/trustee must get this form from the IRS or the Social transferred in trust after May 26, 1969,
not file Form 1041 for future years. Security Administration. See Publication for which a deduction was allowed
583, Taxpayers Starting a Business, for under section 170 (for individual
Backup withholding.—Generally, a
more information. taxpayers) or similar Code section for
grantor trust with 10 or more grantors is
considered a payor of reportable If you are filing a return for a mortgage personal holding companies, foreign
payments received by the trust for pool, such as one created under the personal holding companies, or estates
purposes of backup withholding. The mortgage-backed security programs or trusts (including a deduction for
trustee is required to withhold 20% of administered by the Federal National estate or gift tax purposes).
amounts paid or credited to any grantor Mortgage Association (“Fannie Mae”) or The fiduciary of a split-interest trust
who is subject to backup withholding. the Government National Mortgage must also file Form 5227 (for amounts
See Regulations section 35a.9999-2 Association (“Ginnie Mae”), the EIN transferred in trust after May 26, 1969);
Q/A-20. stays with the pool if that pool is traded and Form 1041-A if the trust’s governing
from one financial institution to another. instrument does not require that all of
Bankruptcy Estate the trust’s income be distributed
D. Date Entity Created currently. Use Form 1041 to report any
A chapter 7 or 11 “bankruptcy estate” is
a separate and distinct taxable entity Enter the date the trust was created, or, unrelated business taxable income and
from the individual debtor for Federal if a decedent’s estate, the date of the to pay any tax that may be due.
income tax purposes. See Of Special decedent’s death.
Interest to Bankruptcy Trustees and
Nonexempt Charitable Trust
E. Nonexempt Charitable and Treated as a Private Foundation
Debtors-in-Possession on page 5.
Split-Interest Trusts If a nonexempt charitable trust is treated
For more information, see section
1398 and Publication 908, Bankruptcy Section 4947(a)(1) Trust as though it were a private foundation
and Other Debt Cancellation. under section 509, then the fiduciary
Check this box if the trust is a must file Form 990-PF, Return of Private
Pooled Income Fund nonexempt charitable trust within the Foundation, in addition to Form 1041.
meaning of section 4947(a)(1). A
A “pooled income fund” is a If a nonexempt charitable trust is
“nonexempt charitable trust” is a trust
split-interest trust with a remainder subject to any of the private foundation
that is not exempt from tax under
interest for a public charity and a life excise taxes, then it must also file Form
section 501(a); all of the unexpired
income interest retained by the donor or 4720, Return of Certain Excise Taxes on
interests are devoted to one or more
for another person. The property is held Charities and Other Persons Under
charitable purposes described in section
in a pool with other pooled income fund Chapters 41 and 42 of the Internal
170(c)(2)(B); and for which a deduction
property and does not include any Revenue Code. Any private foundation
was allowed under section 170 (for
tax-exempt securities. The income for a taxes paid by the trust cannot be taken
individual taxpayers) or similar Code
retained life interest is figured using the as a deduction on Form 1041.
section for personal holding companies,
yearly rate of return earned by the trust. foreign personal holding companies, or If a nonexempt charitable trust is
See section 642(c) and the related estates or trusts (including a deduction treated as though it were a private
regulations for more information. for estate or gift tax purposes). foundation, and doesn’t have any
If you are filing for a pooled income taxable income under Subtitle A, it may
fund, attach a statement to support the Not a Private Foundation file Form 990-PF instead of Form 1041
following: Check this box if the charitable trust is to meet its section 6012 filing
● The calculation of the yearly rate of not treated as a private foundation under requirement.
return. (See Regulations section section 509. For more information, see F. Initial Return, Amended Return,
1.642(c)-6(c) for the calculation rules.) Regulations section 53.4947-1. Final Return; or Change in
● The computation of the deduction for If a nonexempt charitable trust is not Fiduciary’s Name or Address
distributions to the beneficiaries. treated as though it were a private
● The computation of any charitable foundation, the fiduciary must file Form Initial Return
deduction. 990 (or Form 990-EZ), Return of
Check this box if this is the initial return
You do not have to complete Organization Exempt From Income Tax,
for the estate or trust. Also, be sure to
Schedules A or B of Form 1041. and Schedule A (Form 990),
enter the date the entity was created in
Organization Exempt Under Section
If the fund has accumulations of Item D.
501(c)(3), in addition to Form 1041 if the
income, file Form 1041-A unless the trust’s gross receipts are normally more
fund is required to distribute all of its net Amended Return
than $25,000.
income to beneficiaries currently. If you are filing an amended Form 1041,
If a nonexempt charitable trust is not
You must also file Form 5227, check the “Amended return” box.
treated as though it were a private
Split-Interest Trust Information Return, Complete the entire return, correct the
foundation, and doesn’t have any
for the pooled income fund. appropriate line(s) with the new
taxable income under Subtitle A, it can
information, and recompute the estate’s
Page 8
or trust’s tax liability. On an attached For taxable bonds acquired after Examples of income to be reported on
sheet explain the reason for the December 31, 1987, amortizable bond line 8 are:
amendment(s) and identify the line(s) premium is treated as an offset to the ● Unpaid compensation received by the
and amount(s) being changed on the interest income instead of as a separate decedent’s estate that is income in
amended return. interest deduction. See Publication 550. respect of a decedent.
If the amended return results in a ● Any part of a total distribution shown
change to income, or a change in
Line 2—Dividends
on Form 1099-R, Distributions From
distribution of any income or other Report the estate’s or trust’s share of all Pensions, Annuities, Retirement or
information provided to a beneficiary, an taxable dividends received during the Profit-Sharing Plans, IRAs, Insurance
amended Schedule K-1 (Form 1041) tax year. Contracts, etc., that is treated as
must also be filed with the amended ordinary income.
Form 1041 and given to each Line 3—Business Income or (Loss)
For more information, see the
beneficiary. Check the “Amended K-1” If the estate or trust operated a separate instructions for Form 4972, Tax
box at the top of the amended Schedule business, report the income and on Lump-Sum Distributions.
K-1. expenses on Schedule C (Form 1040),
Profit or Loss From Business (or
Final Return Schedule C-EZ (Form 1040), Net Profit Deductions
Check this box if this is a final return From Business). Enter the net profit or Amortization, Depletion, and
because the estate or trust has (loss) from Schedule C (or Schedule
Depreciation
terminated. Also, check the “Final K-1” C-EZ) on line 3.
box at the top of Schedule K-1. A trust or decedent’s estate is allowed a
Line 4—Capital Gain or (Loss) deduction for amortization, depletion,
On the final return, neither an estate
nor a trust is allowed an exemption. If Enter the net capital gain or (loss) from and depreciation only to the extent the
there is an unused capital loss carryover Schedule D (Form 1041), Part III. deductions are not apportioned to the
or excess deductions on the final return, beneficiaries.
Note: Schedule D (For m 1040) cannot
see the discussion in the Schedule K-1 be substituted for Schedule D (For m For property held by a decedent’s
instructions on page 28. Figure the 1041). estate, the allowable deduction is
deductions on an attached sheet. apportioned between the estate and the
Although Schedule B is not required to Line 5—Rents, Royalties, heirs, legatees, and devisees on the
be completed in the final year, you may Partnerships, Other Estates and basis of the income allocable to each.
want to complete it to determine the Trusts, etc. For property held by a trust, the
DNI of the trust or decedent’s estate. allowable deduction is apportioned
Use Schedule E (Form 1040),
between the income beneficiaries and
Change in Fiduciary’s Name or Supplemental Income and Loss, to
the trust on the basis of the trust
Address report the estate’s or trust’s share of
income allocable to each, unless the
income or (losses) from rents, royalties,
If there has been a change in the governing instrument (or local law)
partnerships, S corporations, other
fiduciary’s name or address, please requires or permits the trustee to
estates and trusts, and REMICs. Enter
check the appropriate box. maintain a depreciation reserve. If the
the net profit or (loss) from Schedule E
trustee is required to maintain a
on line 5. See the instructions for
G. Pooled Mortgage Account Schedule E (Form 1040) for reporting
depreciation reserve, the deduction is
If you bought a pooled mortgage first allocated to the trust, up to the
requirements.
account during the year, and still have amount of the reserve. Any excess is
If the estate or trust received a allocated among the beneficiaries in the
that pool at the end of the tax year, Schedule K-1 from a partnership, S
check the “Bought” box and enter the same manner as the trust’s accounting
corporation, or other flow-through entity, income. See Regulations section
date of purchase. use the corresponding lines on Form 1.167(h)-1.
If you sold a pooled mortgage account 1041 to report the interest, dividends,
that was purchased during this, or a An estate or trust is not allowed to
capital gains, etc., from the flow-through
previous, tax year, check the “Sold” box make an election under section 179 to
entity.
and enter the date of sale. expense certain tangible property.
If you neither bought nor sold a Line 6—Farm Income or (Loss) The deduction for the amortization of
pooled mortgage account, skip this item. If the estate or trust operated a farm, reforestation expenditures under section
use Schedule F (Form 1040), Profit or 194 is allowed only to an estate.
Income Loss From Farming, to report farm The estate’s or trust’s share of
income and expenses. Enter the net amortization, depletion, and depreciation
Line 1—Interest Income profit or (loss) from Schedule F on line 6. should be reported on the appropriate
lines of Schedule C (or C-EZ), E, or F
Report the estate’s or trust’s share of all Line 7—Ordinary Gain or (Loss) (Form 1040) whose net amounts are
taxable interest income that was shown on line 3, 5, or 6 of Form 1041. If
received during the tax year. Examples Enter from Form 4797, Sales of
Business Property, the gain or loss from the deduction is not related to a specific
of taxable interest include interest from: business or activity, then report it on line
● Accounts (including certificates of the sale or exchange of property other
than capital assets and also from 15a.
deposit and money market accounts)
with banks, credit unions, and thrifts. involuntary conversions (other than Allocation of Deductions for
casualty or theft). For more information,
● Notes, loans, and mortgages. see the instructions for Form 4797.
Tax-Exempt Income
● U.S. Treasury bills, notes, and bonds. Generally, no deduction that would
● U.S. savings bonds. Line 8—Other Income otherwise be allowable is allowed for
● Original Issue Discount. Enter the total taxable income not any expense (whether for business or for
reportable elsewhere. State the type and the production of income) that is
● Income received as a regular interest attributable to tax-exempt income.
holder of a Real Estate Mortgage amount of the income. Attach a separate
sheet if necessary. Examples of tax-exempt income include:
Investment Conduit (REMIC).
● Certain death benefits (section 101);
Page 9
● Interest on state or local bonds with reasonable accuracy. However, all Portfolio income is not treated as
(section 103); the events that establish liability are income from a passive activity, and
● Compensation for injuries or sickness treated as occurring only when passive losses and credits generally may
(section 104); and economic performance takes place. not be applied to offset it. Portfolio
There are exceptions for recurring items. income generally includes interest,
● Income from discharge of
See section 461(h). dividends, royalties, and income from
indebtedness in a title 11 case (section
annuities. Portfolio income of an estate
108).
Limitations on Deductions or trust must be accounted for
Note: A business expense that is directly separately. See Form 8582, Passive
attr ibutable to tax-exempt interest is At-Risk Loss Limitations Activity Loss Limitations, to compute the
deductible. amount of allowable passive activity
Generally, the amount the estate or trust
A nonbusiness expense, which would loss. See Form 8582-CR, Passive
has “at risk” limits the loss it can deduct
otherwise be deductible under section Activity Credit Limitations, to compute
for any tax year. Use Form 6198,
212 (e.g., investment advisory fees) and the amount of credit allowed for the
At-Risk Limitations, to figure the
which is attributable to both taxable current year.
deductible loss for the year and file it
income and tax-exempt interest, must
with Form 1041. For more information, Transactions Between Related
be allocated on a proportionate basis.
see Publication 559 and Publication Taxpayers
Only that portion that is attributable to
925, Passive Activity and At-Risk Rules.
taxable income is allowable as a Under section 267, a trust that uses the
deduction. Passive Activity Loss and Credit accrual method of accounting may only
All deductions entered on lines 11, 12, Limitations deduct business expenses and interest
14, and 15 must include only the owed to a related party in the year the
fiduciary’s share of deductions related to Section 469 and the regulations
thereunder limit losses from passive payment is included in the income of the
taxable income. If the estate or trust has related party. For this purpose, a
tax-exempt income, the amount activities to the amount of income
derived from all passive activities. “related party” includes:
included on lines 11, 12, 14, and 15 1. A grantor and a fiduciary of any
must be reduced by the allocable Similarly, credits from passive activities
are limited to the tax attributable to such trust;
portion attributed to tax-exempt income.
State income taxes that are directly activities. These limitations are first 2. A fiduciary of a trust and a fiduciary
attributable to tax-exempt interest are applied at the estate or trust level. of another trust, if the same person is a
deducted in full on line 11. The allocable Generally, an activity is deemed to be grantor of both trusts;
amounts can be determined as follows: a passive activity if it involves the 3. A fiduciary of a trust and a
Step 1. Determine the percentage of conduct of any trade or business, and beneficiary of such trust;
tax-exempt income to gross income by the taxpayer does not materially 4. A fiduciary of a trust and a
dividing the total tax-exempt income participate in the activity. Passive beneficiary of another trust, if the same
received by the total of all items of gross activities do not include working person is a grantor of both trusts; and
income (including tax-exempt income) interests in oil and gas properties. See
5. A fiduciary of a trust and a
included in the DNI. section 469(c).
corporation more than 50% in value of
Step 2. Determine the excludable In the case of a grantor trust, material the outstanding stock of which is
amount of each specific deduction by participation is determined at the grantor owned, directly or indirectly, by or for the
multiplying the percentage of level. trust or by or for a person who is a
tax-exempt income by each specific Rental activities are passive activities, grantor of the trust.
deduction. whether or not the taxpayer materially
participates. Line 10—Interest
Step 3. Determine the amount
deductible on lines 11, 12, 14, and 15 Note: Mater ial participation standards for Enter the amount of interest (subject to
by subtracting the excludable amount of estates and trusts had not been limitations) paid by the estate or trust on
each specific deduction from the established by regulations at the time amounts borrowed by the estate or
specific deduction and enter the balance these instructions went to pr int. trust, or on debt acquired by the estate
on the appropriate line. In the case of taxable years of an or trust (e.g., outstanding obligations
estate ending less than 2 years after the from the decedent) that is not claimed
Deductions That May Be decedent’s date of death, up to $25,000 elsewhere on the return.
Allowable for Estate Tax Purposes of deductions and deduction equivalents If the proceeds of a loan were used
Administration expenses and losses of credits attributable to all rental real for more than one purpose (e.g., to
deductible on Form 706 may be estate activities in which the decedent purchase a portfolio investment and to
deducted on Form 1041 if the fiduciary actively participated is allowed. Any acquire an interest in a passive activity),
files a statement waiving the right to unused losses and/or credits are the fiduciary must make an interest
deduct the expenses and losses on deemed “suspended” passive activity allocation according to the rules in
Form 706. The statement must be filed losses for the year, and are carried Temporary Regulations section 1.163-8T.
before the expiration of the statutory forward. Do not include interest paid on
period of limitations applicable to the tax If the estate or trust distributes any indebtedness incurred or continued to
year for which the deduction is claimed. interest in a passive activity, the basis of purchase or carry obligations on which
You cannot deduct on Form 1041 a the property immediately before the the interest is wholly exempt from
decedent’s medical and dental expenses distribution is increased by the passive income tax.
that are paid by the fiduciary. See activity losses allocable to the interest; If interest paid is attributable to both
Publication 559 for more information. and such losses are not allowable as a taxable and tax-exempt income, you
deduction. See section 469(j). may use the procedure outlined in the
Accrued Expenses Note: Losses from passive activities are discussion of Allocation of Deductions
Generally, an accrual basis taxpayer can first subject to the at-r isk rules. When for Tax-Exempt Income on page 9 to
deduct accrued expenses in the tax year the losses are deductible under the determine the deductible portion.
that: (1) all events have occurred that at-risk rules, the passive activity rules Personal interest is not deductible.
determine the liability; and (2) the then apply. This includes interest paid on:
amount of the liability can be figured
Page 10
● Revolving charge accounts. principal residence or the second paid by the estate or trust during the tax
● Personal notes for money borrowed residence selected by the beneficiary) if year.
from a bank, credit union, or other owned by the beneficiary. The
person. beneficiary must have a present interest Line 15a—Other Deductions NOT
in the estate or trust or an interest in the Subject to the 2% Floor
● Installment loans on personal property.
residuary of the estate or trust. See Attach your own schedule, listing by
● Taxes. Publication 936, Home Mortgage type and amount, all allowable
Interest that is paid or accrued on Interest Deduction, for an explanation of deductions that are not deductible
indebtedness incurred in connection the general rules for deducting home elsewhere on Form 1041.
with the conduct of a trade or business mortgage interest.
(including a rental activity) by the estate Do not include on line 15a any losses
See section 163(h)(3) for a definition of on worthless bonds and similar
or trust should be deducted on the qualified residence interest and for
appropriate line of Schedule C (or C-EZ), obligations and nonbusiness bad debts.
limitations on indebtedness. These items are reported on Schedule D
E, or F (Form 1040) whose net amount
Seller-provided financing.—An estate (Form 1041).
is shown on line 3, 5, or 6 of Form 1041.
or trust claiming an interest deduction The following are examples of
Types of interest to include on line 10 for qualified residence interest on
are: deductions that are reported on line 15a.
seller-provided financing, must include
1. Any investment interest (subject to on an attachment to the 1993 Form Bond premium(s).—For taxable bonds
limitations); 1041 the name, address, and taxpayer acquired before October 23, 1986, if the
identifying number of the person to fiduciary elected to amortize the
2. Any qualified residence interest; premium, report the amortization on this
and whom the interest was paid (i.e., the
seller). line. For tax-exempt bonds, the
3. Any interest payable under section amortization cannot be deducted. In all
6601 on any unpaid portion of the estate If the estate or trust received such cases where the fiduciary has made an
tax attributable to the value of a interest, it must provide identical election to amortize the premium, the
reversionary or remainder interest in information on the person liable for such basis must be reduced by the amount of
property, or an interest in a closely held interest (i.e., the buyer). amortization.
business for the period during which an This information does not need to be For more information, see section 171
extension of time for payment of such reported if it duplicates information and Publication 550.
tax is in effect. already reported on Form 1098.
If you claim a bond premium
Generally, “investment interest” is See Question 6 under Other deduction for the estate or trust, figure
interest (including amortizable bond Information on page 2 of Form 1041. the deduction on a separate sheet and
premium on taxable bonds acquired attach it to Form 1041.
after October 22, 1986, but before Line 11—Taxes
January 1, 1988) that is paid or accrued Casualty and theft losses.—Use Form
Enter any deductible taxes paid or 4684, Casualties and Thefts, to figure
on indebtedness that is properly accrued during the tax year that are not
allocable to property held for investment. any deductible casualty and theft losses.
deductible elsewhere on Form 1041.
Investment interest does not include any Deduction for clean-fuel vehicles and
Deductible taxes include: certain refueling property.—Section
qualified residence interest, or interest
that is taken into account under section ● State and local income or real 179A allows a deduction for part of the
469 in computing income or loss from a property tax. cost of qualified clean-fuel vehicle
passive activity. ● The Generation-Skipping Transfer property and qualified clean-fuel vehicle
Generally, net investment income is (GST) tax imposed on income refueling property placed in service after
the excess of investment income over distributions. June 30, 1993. See Publication 535,
investment expenses. Investment Nondeductible taxes include: Business Expenses, for more details.
expenses are those expenses (other ● Federal income taxes. Net operating loss deduction.—An
than interest) allowable after application estate or trust is allowed the net
● Estate, inheritance, legacy, operating loss deduction (NOLD) under
of the 2% floor on miscellaneous succession, and gift taxes.
itemized deductions. section 172. In computing the net
● Federal duties and excise taxes. operating loss, exclude that portion of
The amount of the investment interest
deduction may be limited. Use Form ● State and local sales taxes that are the income and deductions attributable
4952, Investment Interest Expense treated as part of the cost of the to the grantor under sections 671
Deduction, to compute the allowable property upon acquisition, or as a through 678. Also, the charitable
investment interest deduction. reduction in the amount realized upon contribution deduction under section
disposition. 642(c) and the income distribution
Any disallowed investment interest deductions under sections 651 and 661
expense is allowed as a carryforward to Line 12—Fiduciary Fees are not allowed.
the next tax year. See Publication 550
for more information. Enter the deductible fees paid to the The estate or trust is allowed the
fiduciary for administering the estate or carryback and carryforward period for
If the allowable part of the excess trust during the tax year. the NOLD.
investment interest expense is
deductible and Form 4952 is required to Note: Fiduciary fees deducted on For m For more information, see Publication
be completed, check the box on line 10 706 cannot be deducted on For m 1041. 536, Net Operating Losses, and Form
to indicate that Form 4952 is attached. 1045, Application for Tentative Refund. If
Line 13—Charitable Deduction you claim a NOLD for the estate or trust,
Then add the deductible interest to the
other types of deductible interest and Enter the total from Schedule A of Form figure the deduction on a separate sheet
enter the total on line 10. 1041, line 7. and attach it to this return.
Interest paid or accrued by an estate Fiduciary’s share of amortization,
Line 14—Attorney, Accountant, depreciation, and depletion not
or trust on indebtedness secured by a and Return Preparer Fees
qualified residence of a beneficiary of an claimed elsewhere.—If you cannot
estate or trust is treated as qualified Enter the deductible attorney, deduct the amortization, depreciation,
residence interest if the residence would accountant, and return preparer fees and depletion as rent or royalty
be a qualified residence (i.e., the expenses on Schedule E (Form 1040), or
Page 11
as business or farm expenses on two unknown amounts: (1) the AMID; miscellaneous itemized deductions); less
Schedules C (or C-EZ) and F (Form and (2) the DNI. the AMID.
1040), itemize the fiduciary’s share of the The following example illustrates how Thus, DNI = (line 9) – (line 17 column
deductions on an attached sheet. Then an algebraic equation can be used to (b) of Schedule D (Form 1041)) – (line 16)
include them on line 15a. Itemize each solve for these unknown amounts: – (AMID)
beneficiary’s share of the deductions The Malcolm Smith Trust, a complex Substitute the known values:
and report them on the appropriate line trust, earned $20,000 of dividend
of Schedule K-1 (Form 1041). DNI = 35,000 – 20,000 – 2,000 – AMID
income, $20,000 of capital gains, and a DNI = 13,000 – AMID
Line 15b—Allowable fully deductible $5,000 loss from XYZ
partnership (chargeable to corpus) in Substitute the value of DNI in the
Miscellaneous Itemized equation to solve for AMID:
1993. The trust instrument provides that
Deductions Subject to the 2% capital gains be added to corpus. 50% AMID = 1,500 – (.02(32,900 – (13,000
Floor of the fiduciary fees were allocated to – AMID)))
Miscellaneous itemized deductions are income and 50% to corpus. The trust AMID = 1,500 – (.02(32,900 – 13,000 +
deductible only to the extent that the claimed a $2,000 deduction on line 12 of AMID))
aggregate amount of such deductions Form 1041. The trust incurred $1,500 of AMID = 1,500 – (658 – 260 + .02
exceeds 2% of adjusted gross income miscellaneous itemized deductions AMID)
(AGI). (chargeable to income), which are
subject to the 2% floor. There are no AMID = 1,102 – .02AMID
The term “miscellaneous itemized
other deductions. The trustee made a AMID = 1,080
deductions” does not include deductions
relating to: discretionary distribution of the DNI = 11,920 (i.e., 13,000 – 1,080)
accounting income of $17,500 to the AGI = 20,980 (i.e., 32,900 – 11,920)
● Interest under section 163. trust’s sole beneficiary.
● Taxes under section 164. Note: The income distr ibution deduction
Because the actual distribution can is equal to the smaller of the distribution
● The amortization of bond premium reasonably be expected to exceed the ($17,500) or the DNI ($11,920).
under section 171. DNI, the trust must compute the DNI,
Enter the value of AMID on line 15b
● Estate taxes in the case of income in taking into account the allowable
(the DNI should equal line 9 of Schedule
respect of a decedent under section miscellaneous itemized deductions, to
B) and complete the rest of Form 1041
691(c). determine the amount to be entered on
according to the instructions.
For more exceptions, see section line 15b.
If the 2% floor is more than the
67(b). The trust also claims an exemption of
deductions subject to the 2% floor, no
For estates and trusts, the AGI is $100 on line 20.
deductions are allowed.
computed by subtracting the following To compute line 15b, use the equation
from total income on line 9 of page 1: below: Line 17—Adjusted Total Income or
1. The administration costs of the AMID = total miscellaneous itemized (Loss)
estate or trust (the total of lines 12, 14, deductions – (.02(AGI)) If you are filing for a year other than the
and 15a to the extent they are costs In the above example: final year, and line 16 is more than line
incurred in the administration of the AMID = 1,500 – (.02(AGI)) 9, you may have a net operating loss
estate or trust); (NOL). Use Form 1045 to determine
In all situations, use the following
2. The income distribution deduction equation to compute the AGI: whether you have an NOL that you can
under section 651 or 661 (line 18); carry back or forward.
AGI = (line 9) – (the total of lines 12,
3. The amount of the exemption under 14, and 15a to the extent they are costs If you are filing for the final year, and
section 642(b) (line 20); and incurred in the administration of the the amount on line 16 is more than the
4. Other deductions claimed on lines estate or trust) – (line 18) – (line 20) amount on line 9, then you have excess
10 through 15a that were incurred in the Note: There are no other deductions deductions. Excess deductions can only
conduct of a trade or business, or the claimed by the trust on lines 10 through be distributed to a beneficiary on the
production of income. 15a that were incurred in the conduct of final return of the estate or trust. For
Allowable administration costs are a trade or business, or for the production more information, see the instructions
those costs incurred with the of income. for Schedule K-1, line 12a.
administration of the estate or trust that In the above example: Line 18—Income Distribution
would not have been incurred if the AGI = 35,000 – 2,000 – DNI – 100
property were not held in such estate or Deduction
trust. These administration costs are not Since the value of line 18 is not Complete Schedule B of Form 1041 to
subject to the 2% floor. known because it is limited to the DNI, determine the amount of the income
you are left with the following: distribution deduction. If you claim an
For those estates and trusts whose
income distribution deduction is limited AGI = 32,900 – DNI income distribution deduction, complete
to the actual distribution, and NOT the Substitute the value of AGI in the and attach:
DNI (i.e., the income distribution is less equation: ● Parts I and II of Schedule H to
than the DNI), when computing the AGI, AMID = 1,500 – (.02(32,900 – DNI)) recompute the deduction on a minimum
use the amount of the actual The equation cannot be solved until tax basis; AND
distribution. the value of DNI is known. The DNI can ● Schedule K-1 (Form 1041) for each
For those estates and trusts whose be expressed in terms of the AMID. To beneficiary to which a distribution was
income distribution deduction is limited do this, compute the DNI using the made.
to the DNI (i.e., the actual distribution known values. In this example, the DNI If this trust was identified as a trust
exceeds the DNI), the DNI must be is equal to the total income of the trust other than a “Pooled Income Fund” on
computed taking into account the (less any capital gains allocated to page 1, Form 1041, complete Schedule
allowable miscellaneous itemized corpus; or plus any loss from line 4); B on page 2. However, if line 17 is equal
deductions (AMID) after application of less total deductions from line 16 to or less than zero and no distributions
the 2% floor. In this situation there are (computed without regard to any were actually made or available on

Page 12
demand to the beneficiaries in the tax Tax and Payments Line 24e—Federal Income Tax
year, then do not complete Schedule B. Withheld
Cemetery perpetual care fund.—On Line 22—Taxable Income of
Fiduciary Use line 24e to claim a credit for any
line 18, deduct the amount, not more Federal income tax withheld (and not
than $5 per gravesite, paid for If line 22 is less than zero, you may have repaid) by: (1) an employer on wages
maintenance of cemetery property. To a net operating loss (NOL) that you can and salaries of a decedent received by
the right of the entry space for line 18, carry to another tax year. If you carry the the decedent’s estate; (2) a payer of
enter the number of gravesites. Also loss back to earlier tax years, use Form certain gambling winnings (e.g., state
write “Section 642(i) trust” in 1045 (or file an amended return) to apply lottery winnings); or (3) a payer of
parentheses after the trust’s name at the for a refund of taxes. See the line 15a distributions from pensions, annuities,
top of Form 1041. You do not have to instructions for a discussion of retirement or profit-sharing plans, IRAs,
complete Schedules B of Form 1041 computation of an NOL for an estate or insurance contracts, etc., received by a
and K-1 (Form 1041). trust. decedent’s estate or trust. Attach a copy
Line 19—Estate Tax Deduction of Form W-2, Form W-2G, or Form
Line 24a—1993 Estimated Tax 1099-R.
(Including Certain Generation- Payments and 1992 Overpayment
Skipping Transfer Taxes) Credited to 1993 Line 24f—Credit From Regulated
If the estate or trust includes income in Enter the amount of any estimated tax Investment Companies
respect of a decedent (IRD) in its gross payment you made on Form 1041-ES Attach copy B of Form 2439, Notice to
income, and such amount was included for 1993 plus the amount of any Shareholder of Undistributed Long-Term
in the decedent’s gross estate for estate overpayment from the 1992 return that Capital Gains.
tax purposes, the estate or trust is was applied to the 1993 estimated tax.
allowed to deduct in the same tax year
If the trust is the beneficiary of
Line 24g—Credit for Federal Tax
that portion of the estate tax imposed on Fuels
another trust, and received a payment of
on the decedent’s estate that is
estimated tax that was credited to the Include any credit for Federal excise
attributable to the inclusion of the IRD in
trust (as reflected on the Schedule K-1 taxes paid on fuels that are ultimately
the decedent’s estate. For an example
issued to the trust), then report this used for “nontaxable” purposes (e.g., an
of the computation, see Regulations
amount separately with the notation off-highway business use) and any credit
section 1.691(c)-1 and Publication 559.
“section 643(g)” in the space next to line for the purchase of a diesel-powered
If any amount properly paid, credited, 24a. car, van, or light truck. Attach Form
or required to be distributed by an 4136, Credit for Federal Tax Paid on
Note: Do not include on For m 1041
estate or trust to a beneficiary consists Fuels. See Publication 378, Fuel Tax
estimated tax paid by an individual
of IRD received by the estate or trust, Credits and Refunds, for more
before death. Instead, include the
do not include such amounts in information.
payments on the decedent’s final For m
determining the estate tax deduction for
1040.
the estate or trust. Figure the deduction Line 24h—Other
on a separate sheet. Attach the sheet to Line 24b—Estimated Tax
your return. Also, a deduction is allowed Include any credit for backup
Payments Allocated to withholding (under section 3406) for
for the GST tax imposed as a result of a
taxable termination, or a direct skip
Beneficiaries income retained by the estate or trust.
occurring as a result of the death of the The trustee (or executor, under certain Report on Schedule K-1 (Form 1041),
transferor. See section 691(c)(3). Enter circumstances) may elect under section line 13, any credit for backup
the fiduciary’s share of these deductions 643(g) to have any portion of its withholding for income distributed to the
on line 19. estimated tax treated as a payment of beneficiary.
estimated tax made by a beneficiary or Line 26—Underpayment of
Line 20—Exemption beneficiaries. The election is made on Estimated Tax
The exemption amount is determined by Form 1041-T, which must be filed on or
whether the fiduciary is filing for a before the 65th day after the close of If line 27 is at least $500 and more than
decedent’s estate or a trust; and the trust’s tax year. Form 1041-T shows 10% of the tax shown on your return, or
whether this is the final year of the the amounts to be allocated to each you underpaid your 1993 estimated tax
estate or trust. beneficiary. This amount is reported on liability for any payment period, you may
the beneficiary’s Schedule K-1, line 13a. owe a penalty. See Form 2210, to
If you are filing for a decedent’s determine whether the estate or trust
estate, you are entitled to a $600 See Section 643(g) Election on page 4.
Failure to file Form 1041-T on or owes a penalty, and to figure the
exemption; unless you are filing for the amount of the penalty.
final year, in which case no exemption is before March 7, 1994, will result in an
allowed. invalid election. An invalid election will Note: The penalty may be waived under
require the filing of amended Schedules certain conditions. See Publication 505,
If you are filing for a trust, and the Tax Withholding and Estimated Tax, and
governing instrument requires that all K-1 for each beneficiary who was
allocated a payment of estimated tax. Changes To Note on page 1 for details.
income be distributed currently, then you
are entitled to a $300 exemption, even Be sure to attach Form 1041-T to your
return ONLY if you have not yet filed it. If Line 27—Tax Due
though you may have distributed
amounts other than income during the you have already filed Form 1041-T, do The tax of both an estate and a trust
tax year. No exemption is allowed for the not attach a copy to your return. must be paid in full when the return is
final year. See Regulations section filed.
Line 24d—Tax Paid With Extension
1.642(b)-1. Make your check or money order
of Time To File payable to “Internal Revenue Service.”
All other trusts (i.e., complex trusts)
are allowed a $100 exemption, unless If you filed either Form 2758 (for estates Write the EIN and “1993 Form 1041” on
you are filing for the final year, in which only), Form 8736, or Form 8800 to the payment.
case no exemption is allowed. request an extension of time to file,
enter the amount that you paid and
check the appropriate box(es).

Page 13
Line 29a—Credit to 1994 Specific Instructions ● Paid or permanently set aside for
Estimated Tax charitable purposes; and
Line 1—Amounts Paid for Charitable ● Not included on line 1 or 2.
Enter the amount from line 28 that you Purposes From Current Year’s Gross
want applied to your 1994 estimated Income
tax.
Enter amounts that were paid for a Schedule B—Income
charitable purpose out of the estate’s or Distribution Deduction
Schedule A—Charitable trust’s current year’s gross income,
including any capital gains that are
Deduction attributable to income under the
governing instrument or local law.
General Instructions
Include on line 6 any amounts that were All trusts and decedent’s estates, except
General Instructions paid, or set aside, from capital gains that pooled income funds, must complete
Generally, any part of the current year’s are attributable to corpus. Schedule B to determine: (1) the
gross income of an estate or trust (other distributable net income (DNI) of the
Line 2—Amounts Permanently Set estate or trust; and
than a simple trust) that, pursuant to the Aside for Charitable Purposes From
terms of the will or governing (2) the income distribution deduction for
Current Year’s Gross Income regular tax purposes.
instrument, is paid (or treated as paid)
during the tax year for a charitable Estates, and certain trusts, may claim a Note: Use Schedule H to compute the
purpose specified in section 170(c) is deduction for amounts permanently set DNI and income distr ibution deduction
allowed as a deduction to the estate or aside for a charitable purpose. Such on a minimum tax basis.
trust. It is not necessary that the amounts must be permanently set aside Separate share rule.—If a single trust
charitable organization be created or during the tax year or be used has more than one beneficiary, and if
organized in the United States. exclusively for religious, charitable, different beneficiaries have substantially
Trusts that claim a charitable scientific, literary, or educational separate and independent shares, their
deduction must also file Form 1041-A. purposes, or for the prevention of cruelty shares are treated as separate trusts for
See Form 1041-A for exceptions. to children or animals, or for the the sole purpose of determining the DNI
establishment, acquisition, maintenance, allocable to the respective beneficiaries.
A pooled income fund, nonexempt or operation of a public cemetery not
private foundation, or trust with If the separate share rule applies, figure
operated for profit. the DNI allocable to each beneficiary on
unrelated business income should attach
a separate sheet to Form 1041 instead For a trust to qualify, the trust may not a separate sheet and attach the sheet to
of using Schedule A of Form 1041 to be a simple trust, and the set aside this return. Any deduction or loss that is
compute the charitable deduction. amounts must be required by the terms applicable solely to one separate share
of a trust instrument that was created on of the trust is not available to any other
Election to treat contribution as paid or before October 9, 1969. share of the same trust. For more
in preceding tax year.—The fiduciary of information, see section 663(c) and
an estate or trust may elect to treat as Further, the trust instrument must
provide for an irrevocable remainder related regulations.
paid during the previous tax year any
amount of gross income received during interest to be transferred to or for the
the next tax year that was paid for a use of an organization described in Specific Instructions
charitable purpose. section 170(c); OR the trust must have
been created by a grantor who was at Line 1—Adjusted Total Income
To make the election, the fiduciary all times after October 9, 1969, under a If the amount on line 17 of page 1 is
must file a statement with Form 1041 for mental disability to change the terms of less than zero and the negative number
the tax year in which the contribution is the trust. is attributable wholly or in part to the
treated as paid. This statement must capital loss limitation rules under section
include: Also, certain testamentary trusts that
were established by a will that was 1211(b) (line 4), then enter as a negative
1. The name and address of the executed on or before October 9, 1969, number on line 1, Schedule B, the
fiduciary; may qualify. See Regulations section smaller of the loss from line 17 on page
2. The name of the estate or trust; 1.642(c)-2(b). 1, or the loss from line 4 on page 1. If
3. An indication that the fiduciary is the negative number is not attributable
Line 4—Tax-Exempt Income Allocable to the capital loss on line 4, enter zero.
making an election under section
to Charitable Contributions
642(c)(1) in respect of contributions Line 2—Adjusted Tax-Exempt Interest
treated as paid during such tax year; Any estate or trust that pays or sets
4. The name and address of each aside any part of its income for a To figure the adjusted tax-exempt
organization to which any such charitable purpose must reduce the interest, subtract the total of:
contribution is paid; and deduction by a proportionate amount of 1. Tax-exempt interest on line 4 of
any tax-exempt income. Multiply line 3 Schedule A; and
5. The amount of each contribution
by a fraction, the numerator of which is 2. Any expenses allowable under
and date of actual payment of, if
the total tax-exempt income of the section 212 allocable to tax-exempt
applicable, the total amount of
estate or trust; and the denominator of interest, and any interest expense
contributions paid to each organization
which is the gross income of the estate allocable to tax-exempt interest from the
during the succeeding tax year, to be
or trust. Do not include in the amount of tax-exempt interest received.
treated as paid in the preceding tax
denominator any losses allocated to
year. Figure section 212 expenses allocable
corpus.
The election must be filed by the due to tax-exempt interest as follows: Divide
date (including extensions) for Form Line 6—Amounts Paid or Set Aside for the total tax-exempt interest received by
1041 for the succeeding tax year. Charitable Purposes Other Than From the total of all the items of gross income
For more information about the the Current Year’s Income (including tax-exempt interest) included
charitable deduction, see section 642(c) in the DNI. Multiply the result by the
Enter the total of all net capital gains
and related regulations. total section 212 expenses that are not
that are:
directly attributable to any items of
● Allocable to corpus; income.

Page 14
Figure the interest expense allocable ● Amounts deducted on an earlier year’s the second tier, the trust may have an
to tax-exempt interest according to the return that were required to be accumulation distribution. See the line
guidelines in Rev. Proc. 72-18, 1972-1 distributed in the earlier year. 13 instructions below.
C.B. 740. ● Amount that is properly paid or Line 13—Total Distributions
See Regulations sections 1.643(a)-5 credited as a gift or bequest of a
and 1.265-1 for more information about specific amount of money or specific Add lines 11 and 12 and enter the total
the adjustments to deductions for property. (To qualify as a gift or bequest, on line 13. If line 13 is more than line 10
expenses and interest relating to the amount must be paid in three or and you are filing for a complex trust,
tax-exempt interest. fewer installments.) An amount that can complete Schedule J (Form 1041) and
Note: Whenever the term “tax-exempt be paid or credited only from income is file it with Form 1041 unless the
interest” is used in figuring the DNI, it not considered a gift or bequest. complex trust has no previously
includes any exempt-interest dividends ● Amount paid or permanently set aside accumulated income.
that the estate or trust received as a for charitable purposes or otherwise Line 14—Adjustment for Tax-Exempt
shareholder in a mutual fund or other qualifying for the charitable deduction. Income
regulated investment company.
Line 11—Income Required To Be In computing the income distribution
Line 3 Distributed Currently deduction for beneficiaries, the estate or
Include all capital gains, whether or not Line 11 is to be completed by all simple trust is not allowed a deduction for any
they are distributed, that are attributable trusts as well as complex trusts, and item of the DNI that is not included in
to income under the governing decedent’s estates, that are required to the gross income of the estate or trust.
instrument or local law. For example, if distribute income currently, whether it is Thus, for purposes of computing the
the trustee distributed 50% of the distributed or not. The determination of allowable income distribution deduction,
current year’s capital gains to the whether trust income is required to be the DNI (line 9) is computed without
income beneficiary (and reflects this distributed currently depends upon the regard to any tax-exempt interest.
amount in column (a), line 17 of terms of the governing instrument and If tax-exempt interest is the only
Schedule D (Form 1041)), but under the the applicable local law. tax-exempt income included in the total
governing instrument all capital gains are The line 11 distributions are referred to distributions (line 13), and the DNI (line
attributable to income, then include as “first tier” distributions and are 9) is less than or equal to line 13, then
100% of the capital gains on line 3. If deductible by the estate or trust to the enter on line 14 the amount from line 2.
the amount on Schedule D (Form 1041), extent of the DNI. The beneficiary If tax-exempt interest is the only
line 17, column (a) is a net loss, enter includes such amounts in his or her tax-exempt income included in the total
zero. income to the extent of his or her distributions (line 13), and the DNI is
proportionate share of the DNI. more than line 13 (i.e., the estate or trust
Line 5—Long-Term Capital Gains made a distribution that is less than the
Distributed for Charitable Purposes Line 12—Other Amounts Paid, DNI), then compute the adjustment as
Figure the amount to enter on line 5 as Credited, or Otherwise Required To Be follows:
follows: Multiply line 3 of Schedule A by Distributed Multiply line 2 by a fraction; the
a fraction; the numerator of which is the Line 12 is to be completed ONLY by a numerator of which is the total
amount of long-term capital gains that decedent’s estate or complex trust. distributions (line 13), and the
are included in the accounting income of These distributions consist of any other denominator of which is the DNI (line 9).
the estate or trust (i.e., not allocated to amounts paid, credited, or required to Enter the result on line 14.
corpus) AND are distributed to charities; be distributed and are referred to as If line 13 includes tax-exempt income
the denominator of which is all items of “second tier” distributions. Such other than tax-exempt interest, figure
income (including the amount of such amounts include annuities to the extent line 14 as follows:
long-term capital gains) included in the not paid out of income, discretionary
DNI. From tax-exempt income included on
distributions of corpus, and distributions line 13, subtract the total of:
Line 6—Short-Term Capital Gains of property in kind.
1. The charitable contribution
Distributed for Charitable Purposes Unless a section 643(e)(3) election is deduction allocable to such tax-exempt
made, the value of all noncash property income, and
Figure line 6 in the same manner as line actually paid, credited, or required to be
5, except the numerator of the fraction distributed to any beneficiaries after 2. Expenses allocable to tax-exempt
includes only short-term capital gains June 1, 1984, is the smaller of: income.
that are included in the accounting To compute the expenses allocable to
income of the estate or trust and 1. The estate’s or trust’s adjusted
basis in the property immediately before tax-exempt income, divide tax-exempt
distributed to charities. income by total income. Multiply the
distribution, plus any gain or minus any
Line 10—Accounting Income loss recognized to the estate or trust on result by expenses not directly allocable
the distribution (basis of beneficiary), or to any item of income.
If you are filing for an estate, enter zero.
If you are filing for a simple or a complex 2. The fair market value (FMV) of such
trust, enter the income for the tax year property. This rule does not apply to any
noncash property distributed in Schedule G—Tax
determined under the terms of the
governing instrument and applicable satisfaction of a specific sum of money. Computation
local law. Do not include extraordinary If a section 643(e)(3) election is made by
dividends or taxable stock dividends the fiduciary, then the amount entered Line 1a
determined under the governing on line 12 will be the FMV of the
instrument and applicable local law to property. Tax rate schedule.—For tax years
be attributable to corpus. The beneficiary includes such beginning in 1993, figure the tax using
amounts in his or her income only to the the Tax Rate Schedule below. Enter the
Lines 11 and 12 extent of his or her proportionate share tax on line 1a and check the “Tax Rate
of the DNI. Schedule” box.
Do not include any:
Complex trusts.—If the second tier
distributions exceed the DNI allocable to
Page 15
tax” to the left of the amount column on credit. Use Form 5884 to figure the
1993 Tax Rate Schedule line 1b. If there is more than one tax, fiduciary’s share of the credit.
If the amount on include the amount of the section 644 Form 6478, Credit for Alcohol Used as
line 22, page 1, is: tax in the total tax entered on line 1b. Fuel.—If the estate or trust sells straight
Of the Attach the section 644 tax alcohol (or an alcohol mixture) at retail or
But not Enter on amount
Over— over— line 1a: over— computation to the return. Do not uses it as fuel in a trade or business, it
include the section 644 gain in the may be able to take a credit for the
$0 $1,500 15% $0 trust’s taxable income. alcohol used as fuel. Use Form 6478 to
1,500 3,500 $225 + 28% 1,500
3,500 5,500 785 + 31% 3,500 figure the fiduciary’s share of the credit.
5,500 7,500 1,405 + 36% 5,500 Line 2a—Foreign Tax Credit
2,125 + 39.6% 7,500
Form 6765, Credit for Increasing
7,500 -----
Attach Form 1116, Foreign Tax Credit Research Activities.—The estate or trust
Schedule D.—If the estate or trust is (Individual, Fiduciary, or Nonresident may be able to take a credit for research
eligible for the maximum 28% rate on Alien Individual), if you elect to claim and experimental expenditures paid or
net capital gains, complete Part VI of credit for income or profits taxes paid or incurred in carrying on a trade or
Schedule D (Form 1041), enter the accrued to a foreign country or a U.S. business. Use Form 6765 to figure the
amount, and check the “Schedule D” possession. The estate or trust may fiduciary’s share of the credit.
box. claim credit for that part of the foreign Form 8586, Low-Income Housing
taxes not allocable to the beneficiaries Credit.—If the estate or trust owned a
Line 1b (including charitable beneficiaries). Enter building that was part of a low-income
Other taxes.—Include any additional tax the fiduciary’s share of the credit on line housing project, it may be able to take a
from the following and attach each form 2a. See Publication 514, Foreign Tax credit. Use Form 8586, Schedule A
to the return. If there is more than one, Credit for Individuals, for more (Form 8609), and Form 8609 to figure
list on a separate sheet: information about the foreign tax credit. the fiduciary’s share of the credit.
● Form 4970, Tax on Accumulation Line 2b—Nonconventional Source Fuel Form 8826, Disabled Access Credit.—If
Distribution of Trusts. Credit the estate or trust paid or incurred
● Form 4972, Tax on Lump-Sum expenses to make a business accessible
If the estate or trust can claim any
Distributions. to or usable by individuals with
section 29 credit for producing fuel from
disabilities, it may be able to take a
● Section 644 tax on trusts. a nonconventional source, figure the
credit. Use Form 8826 to figure the
Section 644 tax.—If the trust sells or credit on a separate sheet and attach it
credit.
exchanges property at a gain within 2 to the return. Include the credit on line
2b. Form 8830, Enhanced Oil Recovery
years after receiving it from a transferor, Credit.—If the estate or trust paid or
a section 644 tax may be due. The tax Qualified Electric Vehicle Credit incurred costs in connection with
may be due if both 1 and 2 below apply: qualified enhanced oil recovery projects
1. There is an “includible gain” Use Form 8834, Qualified Electric
Vehicle Credit, if the estate or trust can located in the United States for which
recognized by the trust; and the first injection of liquids, gases, or
claim a credit for the purchase of a
2. At the time the trust received the qualified new electric vehicle that was other matter began after 1990, it may be
property, the property had an FMV placed in service after June 30, 1993. eligible for this credit. Use Form 8830 to
higher than its adjusted basis. Include the credit on line 2b. figure the credit.
The trustee is authorized by section Form 8835, Renewable Electricity
6103(e)(1)(A)(ii) to inspect the transferor’s Line 2c—General Business Credit Production Credit.—If the estate or trust
income tax return to the extent Complete this line if the estate or trust is produced electricity using closed-loop
necessary to figure the section 644 tax if claiming any of the credits listed below. biomass from a facility that was
the transferor refuses to make a Use the appropriate credit form to figure originally placed in service after 1992,
disclosure to the trustee. the credit. If the estate or trust is and sold the electricity to an unrelated
Includible gain is the smaller of 1 or 2 claiming only one credit, enter the form person, it may be able to take a credit.
below: number and the amount of the credit in Use Form 8835 to figure the fiduciary’s
the space provided. share of the credit.
1. The gain recognized by the trust on
the sale or exchange of the property; or If the estate or trust is claiming more Line 2d—Credit for Prior Year
2. The amount by which the FMV of than one credit, a credit from a passive Minimum Tax
the property at the time of the initial activity, or a credit carryforward, also
complete Form 3800, General Business If the estate or trust paid alternative
transfer to the trust exceeds the minimum tax in a previous year, it may
adjusted basis of the property Credit, to figure the total credit and enter
the amount from Form 3800 on line 2c. be eligible for a minimum tax credit in
immediately after the transfer. 1993. See Form 8801, Credit for Prior
Also, be sure to check the box for Form
Figure the tax on the includible gain Year Minimum Tax—Individuals and
3800.
by subtracting the transferor’s actual tax Fiduciaries.
for the tax year of the sale or exchange Do not include any amounts that are
from the transferor’s tax for the year of allocated to a beneficiary. Line 5—Recapture Taxes
the sale or exchange refigured to include Form 3468, Investment Credit.—The Figure the increase in tax allocable to
the recognized gain minus any estate or trust may claim the investment the fiduciary on an attached Form 4255,
deductions allocable to the gain. credit for property placed in service that Recapture of Investment Credit. Enter
See section 644 for additional is qualified rehabilitation property, energy the tax on line 5. Also, attach Form
information, including character rules, property, qualified timber property, or 8611, Recapture of Low-Income
special rules, exceptions, installment transition property. See the Instructions Housing Credit, for any recapture
sale rules, and the interest due on the for Form 3468 for definitions and other allocable to the fiduciary.
tax if the transferor and the trust have details.
different tax years. Form 5884, Jobs Credit.—If the estate Line 6—Alternative Minimum Tax
If the section 644 tax is the only tax or trust operates a business that hires Estates and trusts compute their
due on line 1b, enter the amount of the people who are members of special alternative minimum tax by determining
tax on line 1b and write “section 644 targeted groups, it may qualify for this the DNI on a minimum tax basis.

Page 16
Use Schedule H of Form 1041 to The person required to sign the return Recordkeeping
compute: (1) the estate’s or trust’s must complete the required preparer
Schedule H contains adjustments and
alternative minimum taxable income; information and:
tax preference items that are treated
(2) the income distribution deduction on ● Sign it in the space provided for the differently for regular tax and AMT
a minimum tax basis; and (3) the preparer’s signature. A facsimile purposes. If you, as fiduciary for the
estate’s or trust’s alternative minimum signature is acceptable if certain estate or trust, completed a form to
tax. If the estate or trust takes an conditions are met. See Notice 89-48, compute an item for regular tax
income distribution deduction, be sure 1989-1 C.B. 688. purposes, you may have to complete it a
to complete Schedule H of Form 1041, ● Give you a copy of the return in second time for AMT purposes.
regardless of whether the estate or trust addition to the copy to be filed with the Generally, the difference between the
is liable for the alternative minimum tax. IRS. amounts on the two forms is the AMT
Line 7—Total Tax adjustment or tax preference amount to
enter on Schedule H. Except for Form
Interest on tax deferred under the Schedule H—Alternative 1116, any additional form completed for
installment method for certain Minimum Tax AMT purposes does not have to be filed
nondealer real property installment with Form 1041.
obligations.—If an obligation arising
from the disposition of real property to For regular tax purposes, some
Changes To Note deductions and credits may result in
which section 453A applies is
outstanding at the close of the year, the ● The Revenue Reconciliation Act of carrybacks or carryforwards to other tax
estate or trust must include the interest 1993 provides for: years. Examples are: investment interest
due under section 453A(c) in the amount 1. An increase in the alternative expense; a net operating loss deduction;
to be entered on line 7 of Schedule G, mimimum tax rates for tax years a capital loss; and the foreign tax credit.
Form 1041, with the notation “Section beginning after 1992. Because these items may be refigured
453A(c) interest.” Attach a schedule for the AMT, the carryback or
2. An increase in the exemption carryforward amount may be different for
showing the computation. amount for alternative mimimum tax for regular and AMT purposes. Therefore,
Form 8697, Interest Computation tax years beginning after 1992. you should keep records of these
Under the Look-Back Method for 3. Repeal of the tax preference for different carryforward and carryback
Completed Long-Term Contracts.— contributions of appreciated property for amounts for the AMT and regular tax.
Include the interest due under the contributions made after December 31, The AMT carryforward will be important
look-back method of section 460(b)(2). 1992. in completing Schedule H for 1994.
To the left of the entry space, write
● The Energy Policy Act of 1992
“From Form 8697” and the amount of Credit for Prior Year Minimum Tax
provides for the following changes for
interest due.
tax years beginning after 1992: Estates and trusts that paid alternative
Form 5329, Additional Taxes minimum tax in 1992, or had a minimum
1. The adjustment based on energy
Attributable to Qualified Retirement tax credit carryforward, may be eligible
preferences was repealed.
Plans (Including IRAs), Annuities, and for a minimum tax credit in 1993. See
Modified Endowment Contracts.—If 2. The depletion tax preference (line
6b) does not apply to 15% depletion for Form 8801.
the fiduciary fails to make the minimum
distribution under section 4974, use oil and gas wells by independent Partners, Shareholders, etc.
Form 5329 to pay the excise tax. To the producers and royalty owners.
left of the entry space, write “From Form 3. The intangible drilling cost tax An estate or trust that is a partner of a
5329” and the amount of the tax. preference (line 7c) generally does not partnership or a shareholder of an
apply to independent producers. S corporation must take into account its
Signature However, the benefit of this exception distributive share of items of income and
may be limited. See page 20. deductions that enter into the
Form 1041 must be signed by the computation of its adjustments and tax
fiduciary or by an authorized preference items.
representative. General Instructions
Financial institutions that submitted Use Schedule H to compute: Allocation of Deductions to
estimated tax payments for trusts for
1. The estate’s or trust’s alternative Beneficiaries
which they are the trustee must enter
minimum taxable income; The distributable net alternative
their EIN in the space provided. Do not
2. The income distribution deduction minimum taxable income (DNAMTI) of
enter the EIN of the trust. For this
on a minimum tax basis; and the estate or trust does not include
purpose, a financial institution is one
3. The estate’s or trust’s alternative amounts of depreciation, depletion, and
that maintains a Treasury Tax and Loan
minimum tax (AMT). amortization that are allocated to the
account.
beneficiaries, just as the distributable net
Note: If you are an attorney or other Who Must Complete income (DNI) of the estate or trust does
individual functioning in a fiduciary not include these items for regular tax
capacity, leave this space blank. DO Every trust or decedent’s estate that purposes.
NOT enter your individual social security takes an income distribution deduction
under section 651 or 661 must complete Report separately on line 11 of
number (SSN).
Part I and Part II. Part III must also be Schedule K-1 (Form 1041) any
If you, as fiduciary, fill in Form 1041, adjustments or tax preference items
leave the Paid Preparer’s space blank. If completed if the fiduciary’s share of
alternative minimum taxable income attributable to depreciation, depletion,
someone prepares this return and does and amortization that were allocated to
not charge you, that person should not (Part I, line 12) exceeds $22,500.
the beneficiaries.
sign the return. If the estate or trust does not take an
Generally, anyone who is paid to income distribution deduction and is not Carryback and Carryover of
prepare a tax return must sign the return subject to the AMT, do not complete Unused Credits
and fill in the other blanks in the Paid Schedule H of Form 1041.
It may be necessary to refigure the
Preparer’s Use Only area of the return. carryback or carryover of certain unused

Page 17
credits. See the appropriate credit forms Step 2. On line 2, enter the AMT For residential rental and
and Code sections for more information. disallowed investment interest expense nonresidential real property, use the
from 1992. straight line method over 40 years.
Optional Write-Off Period Under Step 3. When completing Part II of Use the same convention that was
Section 59(e) Form 4952, recompute gross income used for regular tax purposes.
The estate or trust may elect under from property held for investment, any See Rev. Proc. 87-57, 1987-2 C.B.
section 59(e) to use an optional 10-year net gain from the disposition of property 687, or Publication 534 for the optional
(60 months for intangible drilling and held for investment, and any investment tables for the alternative minimum tax,
development expenditures and 3 years expenses, taking into account all AMT using the 150% declining balance.
for circulation expenditures) write-off adjustments and tax preference items Do not make an adjustment for motion
period for certain adjustments and tax that apply. Include any interest income picture films, videotapes, sound
preference items. If this election is and investment expenses from private recordings, or property depreciated
made, the optional write-off period is activity bonds issued after August 7, under the unit-of-production method or
used for regular tax purposes and there 1986. any other method not expressed in a
is no AMT adjustment. This election can To compute the adjustment for line 4a, term of years. (See section 168(f)(1), (2),
be made for the following items: subtract the total interest allowable for (3), or (4).)
● Circulation expenditures (section 173). AMT purposes from the interest When recomputing the depreciation
● Research and experimental deduction claimed on line 10 of page 1. deduction, be sure to report any
expenditures (section 174). If the total interest expense allowed for adjustment from depreciation that was
AMT purposes is more than that allowed
● Intangible drilling and development for regular tax purposes, enter the
allocated to the beneficiary for regular
expenditures (section 263(c)). tax purposes separately on line 11 of
difference as a negative amount on line Schedule K-1 (Form 1041).
● Development expenditures for mines 4a.
and natural deposits (section 616). To compute the adjustment, subtract
● Mining exploration expenditures Line 4b—Taxes the recomputed depreciation for AMT
(section 617(a)). Enter any state, local, or foreign real purposes from the depreciation
property taxes; state or local personal deduction for regular tax purposes.
The election must be made in the year
the expenditure was made and may be property taxes; and state, local, or If the depreciation figured for AMT
revoked only with IRS consent. See foreign income taxes that were included purposes exceeds the depreciation
section 59(e) for more information. on line 11 of page 1. allowed for regular tax purposes, enter
the adjustment as a negative amount.
For more details, see Publication 909, Line 4d—Refund of Taxes
Alternative Minimum Tax for Individuals. Line 5b—Circulation and Research
Enter any refunds received in 1993 of and Experimental Expenditures Paid
taxes described for line 4b above that
Specific Instructions were deducted in a tax year after 1986.
or Incurred After 1986
Caution: Skip this line if you elected the
Part I—Fiduciary’s Share of Line 5a—Depreciation of Property optional 3-year wr ite-off period for
Alternative Minimum Taxable Placed in Service After 1986 circulation expenditures (10-year for
Income Caution: Do not include on this line any research and exper imental expenditures)
Line 1—Adjusted Total Income or depreciation adjustment from: (1) an under section 59(e) for regular tax
(Loss) activity for which you are not at r isk; purposes.
(2) amounts received from a partnership Circulation expenditures.—Circulation
Enter the amount from line 17 of page 1. or an S corporation if the basis expenditures deducted under section
If the adjusted total income includes the limitations under section 704(d) or 173(a) for regular tax purposes must be
amount of the alcohol fuel credit as 1366(d) apply; (3) a tax shelter far m amortized for AMT purposes over 3
required under section 87, reduce the activity; or (4) a passive activity. Instead, years beginning with the year the
adjusted total income by the credit take these depreciation adjustments into expenditures were paid or incurred.
included in income. account when figur ing the adjustments Research and experimental
Line 2—Net Operating Loss Deduction on line 5h, 5i, or 5j, whichever applies. expenditures.— Research and
Enter any net operating loss deduction For AMT purposes, the depreciation experimental expenditures deducted
(NOLD) from line 15a of page 1 as a deduction for tangible property placed in under section 174(a) for regular tax
positive amount. service after 1986 (or after July 31, purposes must be amortized for AMT
1986, if an election was made) must be purposes over 10 years beginning with
Line 4a—Interest recomputed under the alternative the year the expenditures were paid or
depreciation system (ADS) described in incurred.
In determining the alternative minimum
section 168(g). Enter the difference between the
taxable income, qualified residence
interest (other than qualified housing For property, other than residential amount allowed for AMT purposes and
interest defined in section 56(e)) is not rental and nonresidential real property, the amount allowed for regular tax
allowed. use the 150% declining balance method purposes. If the amount for AMT
(switching to the straight line method in purposes exceeds the amount allowed
If you completed Form 4952 for
the first tax year when that method for regular tax purposes, enter the
regular tax purposes, you may have an
gives a better result). However, use the difference as a negative amount.
adjustment on this line. Refigure your
straight line method if that method was See section 56(b)(2)(B) for a
investment interest expense on another
used for regular tax purposes. Generally, discussion of the rules for losses on
Form 4952 as follows:
alternative depreciation is computed properties for which a deduction was
Step 1. On line 1 of Form 4952, add over the class life of the property. For allowed under section 173(a) or 174(a).
any interest expense allocable to personal property having no class life,
specified private activity bonds issued use 12 years. See Publication 534,
after August 7, 1986, to the other Depreciation, for a discussion of class
interest expense. For a definition of lives.
“specified private activity bonds,” see
the instructions for line 6a.
Page 18
Line 5c—Mining Exploration and Line 5f—Installment Sales of Certain for AMT purposes, reduce the cost of an
Development Costs Paid or Incurred Property asset only by the depreciation allowed
After 1986 For either of the following kinds of for AMT purposes.
Caution: Skip this line if you elected the dispositions in which you used the Enter the difference between the gain
optional 10-year wr ite-off period under installment method for regular tax or loss reported for regular tax purposes,
section 59(e) for regular tax purposes. purposes, you must refigure your income and that computed for AMT purposes. If
Expenditures for the development or for AMT purposes without regard to the the gain computed for AMT purposes is
exploration of a mine or certain other installment method: less than the gain reported for regular
mineral deposits (other than an oil, gas, 1. Any disposition after March 1, tax purposes, enter the adjustment as a
or geothermal well) deducted under 1986, of property used or produced in a negative amount. If the loss computed
sections 616(a) and 617(a) for regular tax farming business that was held primarily for AMT purposes is more than the loss
purposes must be amortized for AMT for sale to customers. allowed for regular tax purposes, enter
purposes over 10 years beginning with the adjustment as a negative amount.
2. Any nondealer disposition of
the year the expenditures were paid or property that occurred after August 16, Line 5h—Certain Loss Limitations
incurred. 1986, but before the first day of your tax Caution: If the loss is from a passive
Enter the difference between the year that began in 1987, if an obligation activity, use line 5j instead. If the loss is
amount allowed for AMT purposes and that arose from the disposition was an from a tax shelter far m activity (that is
the amount allowed for regular tax installment obligation to which the not passive), use line 5i.
purposes. If the amount allowed for AMT proportionate disallowance rule applied.
purposes exceeds the amount deducted Refigure your allowable losses from
Enter the difference between the activities for which you are not at risk
for regular tax purposes, enter the income that was reported for regular tax
difference as a negative amount. and basis limitations applicable to
purposes and the income recomputed interests in partnerships and stock in
See section 56(a)(2)(B) for a discussion for AMT purposes. If the amount S corporations, taking into account your
of the rules for losses sustained on reportable for the AMT is less than that AMT adjustments and tax preference
properties for which a deduction was reported for the regular tax, enter the items. See sections 59(h), 465, 704(d),
allowed under section 616(a) or 617(a). difference as a negative amount. and 1366(d).
Line 5d—Long-Term Contracts Line 5g—Adjusted Gain or Loss To compute the adjustment, enter the
Entered Into After February 28, 1986 (Including Incentive Stock Options) difference between the loss reported for
For AMT purposes, the percentage of Incentive stock options (ISOs).—For regular tax purposes, and the
completion method of accounting regular tax purposes, no income is recomputed loss. If the recomputed loss
described in section 460(b) generally recognized when an incentive stock is more than the loss reported for regular
must be used. This rule generally does option (as defined in section 422(b)) is tax purposes, enter the adjustment as a
not apply to, “home construction granted or exercised. However, this rule negative amount.
contracts” (as defined in section does not apply for AMT purposes. Line 5i—Tax Shelter Farm Activities
460(e)(6)). Instead, you must generally include the
excess, if any, of: Note: Use this line only if the tax shelter
Note: Contracts described in section far m activity is not a passive activity.
460(e)(1) are subject to the simplified 1. The fair market value of the option Otherwise, use line 5j.
method of cost allocation of section (determined without regard to any lapse
460(b)(4). restriction) at the first time your rights in For AMT purposes, no loss is allowed
the option become transferable or when from any tax shelter farm activity as
Enter the difference between the defined in section 58(a)(2).
amount reported for regular tax these rights are no longer subject to a
purposes and the amount reported using substantial risk of forfeiture, over An excess farm loss from one farm
the percentage of completion method. If 2. The amount you paid for the option. activity cannot be netted against income
the amount for AMT purposes is less from another farm activity. Any
Increase your AMT basis of any stock disallowed loss (for AMT purposes) is
than the amount computed for regular acquired through the exercise of an
tax purposes, enter the difference as a carried forward until offset by income
incentive stock option by the amount of from the same activity or when the entire
negative amount. the adjustment. activity is sold.
Line 5e—Pollution Control Facilities If the estate or trust acquired stock by Include any other adjustment or tax
Placed in Service After 1986 exercising an incentive stock option and preference item and your prior year AMT
disposed of that stock in the same year, unallowed loss when refiguring the farm
For any certified pollution control facility the tax treatment for regular and AMT
placed in service after 1986, the loss. For example, if depreciation must
purposes is the same. be refigured for AMT purposes, include
deduction under section 169 is not
allowed for AMT purposes. Instead, the See section 83 for more details. the adjustment on this line. DO NOT
deduction is determined under the ADS Adjusted gain or loss.—If the estate or include it again on line 5a, 7a, or 7b.
described in section 168(g) using the trust sold or exchanged property during Determine your tax shelter farm
Asset Depreciation Range class life for the year, or had a casualty gain or loss activity gain or loss for AMT purposes
the facility under the straight line to business or income-producing using the same rules you used for
method. property, you may have an adjustment. regular tax purposes except that any
To compute the adjustment, subtract The gain or loss on the disposition of recomputed loss is allowed only to the
the amortization deduction taken for certain assets is recomputed for AMT extent that a taxpayer is insolvent (see
regular tax purposes, from the purposes. Use this line if you reported a section 58(c)(1)). Any recomputed loss
depreciation deduction determined gain or loss on Form 4797, Schedule D may not be used in the current tax year
under the ADS. (Form 1041), or Form 4684 (Section B). to offset gains from other tax shelter
When computing the adjusted basis for farm activities. Instead, it must be
If the deduction allowed for AMT those forms, take into account any AMT
purposes is more than the amount suspended and carried forward
adjustments made this year, or in indefinitely until either you have a gain in
allowed for regular tax purposes, enter previous years, for items related to lines
the difference as a negative amount. a subsequent tax year from that same
5a, 5b, 5c, and 5e of Schedule H. For tax shelter farm activity or the activity is
example, to compute the adjusted basis disposed of.

Page 19
Line 5j—Passive Activities Line 6b—Depletion used in line 7a or 7b, do not complete
For AMT purposes, the rules described Refigure the depletion deduction for those lines for that recovery property.
in section 469 apply, except that in AMT purposes by using only the income Line 7c—Intangible Drilling Costs
applying the limitations, minimum tax and deductions allowed for the AMT
rules apply. when refiguring the limit based on Caution: Skip this line if you elected the
taxable income from the property under optional 60-month wr ite-off under
Refigure passive activity gains and section 59(e) for regular tax purposes.
losses on an AMT basis. Refigure a section 613(a) and the limit based on
passive activity gain or loss by taking taxable income, with certain Except as provided below, intangible
into account all AMT adjustments or tax adjustments, under section 613A(d)(1). drilling costs (IDCs) from oil, gas, and
preference items that pertain to that Also, the depletion deduction for mines, geothermal wells are a tax preference
activity. wells, and other natural deposits under item to the extent that the excess IDCs
section 611 is limited to the property’s exceed 65% of the net income from the
If the special allowance for rental real adjusted basis at the end of the year, as wells. The tax preference item for
estate activities with active participation refigured for the AMT, unless the estate geothermal properties is computed
applies to an estate, the estate’s or trust is an independent producer or separately from the preference for oil
adjusted gross income must be refigured royalty owner claiming percentage and gas properties.
by using only the income and depletion for oil and gas wells. Figure
deductions allowed for the alternative Excess IDCs are computed by taking
this limit separately for each property. the amount of your IDCs allowed for
minimum tax. When refiguring the property’s adjusted regular tax purposes under section
You may complete a second Form basis, take into account any AMT 263(c) (not including any section 263(c)
8582 to determine the passive activity adjustments made this year or in deduction for nonproductive wells)
losses allowed for AMT purposes, but previous years that affect basis (other minus the amount that would have been
do not send this AMT Form 8582 to the than the current year’s depletion). allowed if that amount had been
IRS. Enter on line 14c the difference amortized over a 120-month period
Note: The amount of any passive activity between the regular tax and AMT starting with the month the well was
loss that is not deductible (and is deduction. If the AMT deduction is more placed in production.
therefore carr ied forward) for AMT than the regular tax deduction, enter the Note: Cost depletion can be substituted
purposes is likely to differ from the difference as a negative amount. for the amount allowed using
amount (if any) that is carried forward for amortization over 120 months.
regular tax purposes. Therefore, it is Line 7a—Accelerated Depreciation of
essential that you retain adequate Real Property Placed in Service Net income is determined by taking
records for both AMT and regular tax Before 1987 the gross income from all oil, gas, and
purposes. geothermal wells reduced by the
For AMT purposes, use the straight line
deductions allocable to those properties
To compute the adjustment, enter the method to figure depreciation. Enter the
(determined without regard to excess
difference between the loss reported on excess of depreciation claimed for
IDCs). When refiguring net income, use
page 1, and the recomputed AMT regular tax purposes over depreciation
only income and deductions allowed for
allowable loss, if any. refigured using the straight line method.
the AMT.
Caution: Do not account for any AMT Figure this amount separately for each
Exception. The preference for IDCs
adjustment or tax preference item twice. property and include on line 7a only
does not apply to taxpayers who are
Any AMT adjustment or tax preference positive amounts. For 15-, 18-, or
independent producers (i.e., not an
item included on this line is not to be 19-year real property, use the straight
integrated oil company). However, this
entered again elsewhere on this line method over 15, 18, or 19 years. For
benefit may be limited. First, figure the
schedule. low-income housing, use the straight line
IDC preference as if this exception did
Publicly traded partnerships (PTPs).— method over 15 years.
not apply. Then, for purposes of this
If the estate or trust had a loss from a Line 7b—Accelerated Depreciation of exception, complete Schedule H through
PTP, refigure the loss using any AMT Leased Personal Property Placed in line 8, including the IDC preference, and
adjustments and tax preference items. Service Before 1987 excluding the net operating loss
deduction from line 2. If the amount of
Line 5k—Beneficiaries of Other Trusts For AMT purposes, use the straight line the IDC preference exceeds 30% of the
or Decedent’s Estates method to figure depreciation for leased amount figured for line 8, enter the
If the estate or trust is the beneficiary of personal property. Enter the excess of excess on line 7c (the benefit of this
another estate or trust, enter the the depreciation taken for regular tax exception is limited). If the amount of
minimum taxable income adjustment purposes over the depreciation using the the IDC preference is equal to or less
from line 8, Schedule K-1 (Form 1041). straight line method. Figure this amount than 30% of the amount figured for line
separately for each property and include 8, do not enter an amount on line 7c
Line 6a—Tax-Exempt Interest From on line 7b only positive amounts. (the benefit of this exception is not
Specified Private Activity Bonds For leased recovery property, other limited).
Enter the interest earned from specified than 15-, 18-, or 19-year real property,
private activity bonds reduced (but not or low-income housing, enter the Line 8
below zero) by any deduction that would amount by which the depreciation AMT adjustments and tax preference
have been allowable if the interest were deduction determined for regular tax items may affect deductions that are
includible in gross income for regular tax purposes is more than the deduction based on an income limit (e.g., farm
purposes. The term “specified private allowable using the straight line method conservation expenses and personal
activity bonds” means any qualified with a half-year convention, no salvage casualty or theft losses). Refigure these
bond (as defined in section 141) issued value, and the following recovery period: deductions using the income limit as
after August 7, 1986. See section 10-year property 15 years modified for the AMT. Figure the
57(a)(5) for more information. 15-year public utility difference between the regular tax and
Exempt-interest dividends paid by a property 22 years AMT deduction and include it in the total
regulated investment company are for line 8. If the AMT deduction is more
Note: If the recovery per iod actually
treated as interest from a specified than the regular tax deduction, subtract
used is longer than the recovery per iod
private activity bond to the extent the the difference from the total for line 8.
company received interest on the bond. Enter "Other" and the amount of the
Page 20
adjustment on the dotted line next to number is attributable wholly or in part Multiply line 14 by a fraction, the
line 8. If the adjustment is negative, to the capital loss limitation rules under numerator of which is the total
enclose the amount in parentheses. section 1211(b), then enter as a negative distributions (line 23), and the
Note: Do not make an adjustment on number the smaller of: (1) the loss from denominator of which is the DNAMTI
line 8 for an item you refigured on line 10; or (2) the loss from line 4 on (line 20). Enter the result on line 24.
another line of Schedule H (e.g., line 5j page 1. If line 23 includes tax-exempt income
or 6b). Line 14—Adjusted Tax-Exempt other than tax-exempt interest (except
Interest for amounts from line 6a), figure line 24
Line 9—Alternative Tax Net Operating as follows:
Loss Deduction (ATNOLD) To figure the adjusted tax-exempt From tax-exempt income included on
For tax years beginning after 1986, the interest (including exempt-interest line 23, subtract the expenses allocable
net operating loss (NOL) under section dividends received as a shareholder in a to tax-exempt income that are allowable
172(c) is modified for alternative tax mutual fund or other regulated for AMT purposes.
purposes by: (1) adding the adjustments investment company), subtract the total
of: (1) any tax-exempt interest from line To compute the expenses allocable to
made under sections 56 and 58 tax-exempt income, divide tax-exempt
(subtracting if the adjustments were 4 of Schedule A of Form 1041
computed for AMT purposes; and income by total income. Multiply the
negative); and (2) reducing the NOL by result by expenses allowable for AMT
any item of tax preference under section (2) any section 212 expense allowable
for AMT purposes allocable to purposes not directly allocable to any
57 (except the appreciated charitable item of income.
contribution preference item). tax-exempt interest from the amount of
tax-exempt interest received. DO NOT Line 27—Income Distribution
When computing an NOL from a loss
subtract any deductions reported on Deduction on a Minimum Tax Basis
year prior to 1987, the rules in effect
lines 4a through 4c. Figure section 212
before enactment of the Tax Reform Act Allocate the income distribution
expenses allocable to tax-exempt
(TRA) of 1986 apply. The NOL under deduction computed on a minimum tax
interest as follows: Divide the total
section 172(c) is reduced by the amount basis among the beneficiaries in the
tax-exempt interest received for AMT
of the tax preference items that were same manner as income was allocated
purposes by the total of all items of
taken into account in computing the for regular tax purposes. Report each
gross income (including tax-exempt
NOL. In addition, the NOL is computed beneficiary’s share on line 6 of their
interest) included in the DNAMTI.
by taking into account only itemized respective Schedules K-1 (Form 1041).
Multiply the result by the total section
deductions that were alternative tax
212 expenses that are not directly Part III—Alternative Minimum Tax
itemized deductions for the tax year and
attributable to any items of income.
that were a modification to the NOL Computation
under section 172(d). See sections 55(d) Line 17
and 172 as in effect before the TRA of Line 36—Alternative Minimum Tax
1986. Enter any capital gains that were paid or Foreign Tax Credit
permanently set aside for charitable
If this estate or trust is the beneficiary purposes included on line 3 of To compute the AMT foreign tax credit:
of another estate or trust that terminated Schedule A. 1. Complete and attach Form 1116,
in 1993, include any AMT NOL carryover with the notation at the top, “Alt Min
that was reported on line 12e of Lines 18 and 19 Tax” for each type of income specified
Schedule K-1 (Form 1041). Capital gains and losses must take into at the top of Form 1116.
The ATNOLD may be limited. To account any basis adjustments from line 2. Complete Part I, entering income,
compute the ATNOLD limitation, first 5g, Part I. deductions, etc., attributable to sources
figure AMTI without regard to the outside the United States computed on
ATNOLD. To do this, use a second Line 24—Adjustment for Tax-Exempt a minimum tax basis.
Schedule H as a worksheet. Complete Income
3. Complete Part III. On line 9, do not
Schedule H through line 8, but when In computing the income distribution enter any taxes taken into account in a
figuring lines 5j and 6b, and any write-in deduction on a minimum tax basis, the tax year beginning after 1986, which are
adjustments on line 8, treat line 9 as if it estate or trust is not allowed a treated under section 904(c) as paid or
were zero. Multiply line 8 of the second deduction for any item of DNAMTI that accrued in a tax year beginning before
Schedule H used as a worksheet by is not included in the gross income of 1987. On line 10 of Form 1116, enter
90%. This is the ATNOLD limitation. the estate or trust computed on an AMT the alternative minimum tax foreign tax
Enter on line 9 the smaller of the basis. Thus, for purposes of computing credit carryover, and on line 17 of Form
ATNOLD or the ATNOLD limitation. Any the allowable income distribution 1116, enter the alternative minimum
alternative tax NOL not used because of deduction on a minimum tax basis, the taxable income from line 12 of Schedule
the ATNOLD limitation can be carried DNAMTI (line 20) is computed without H. On line 19 of Form 1116, enter the
back or forward. See section 172(b) for regard to any tax-exempt interest amount from line 34 or 35 of Schedule
details. The treatment of alternative tax (except for amounts from line 6a). H.
NOLs does not affect your regular tax
NOL. If tax-exempt interest is the only Complete Part IV. The foreign tax
tax-exempt income included in the total credit from line 32 of the AMT Form
Note: If you elected, under section distributions (line 23), and the DNAMTI 1116 is limited to the tax on line 34 or
172(b)(3), to forego the carryback period (line 20) is less than or equal to line 23, 35 of Schedule H, less 10% of what
for regular tax purposes, the election will then enter on line 24 the amount from would have been the tentative AMT on
also apply for the AMT. line 14. line 34 or 35 of Schedule H, if line 9 of
Part II—Income Distribution If tax-exempt interest is the only Schedule H had been zero and the
tax-exempt income included in the total exception for intangible drilling costs did
Deduction on a Minimum Tax
distributions (line 23), and the DNAMTI is not apply (see the instructions for line 7c
Basis on page 20). If Schedule H, line 9, is
more than line 23 (i.e., the estate or trust
Line 13—Adjusted Alternative made a distribution that is less than the zero or blank, and you have no
Minimum Taxable Income DNAMTI), then compute the adjustment intangible drilling costs (or the exception
as follows: does not apply to you), enter on
If the amount on line 10 of Schedule H Schedule H, line 36, the smaller of Form
is less than zero, and the negative
Page 21
1116, line 32; or 90% of Schedule H, determine allowable passive losses, and pay any excise tax due under section
line 34 or 35. If line 9 has an entry (other the amount of carryforward of any 1491.
than zero), or the exception for “suspended” passive activity losses for Form 3520, Creation of or Transfers to
intangible drilling costs applies to you, the year. Certain Foreign Trusts, is used by the
for purposes of this line recompute what grantor of an inter vivos trust or the
your tax would have been on Schedule Question 3 fiduciary of a testamentary trust, or the
H, line 34 or 35, if line 9 were zero and All salaries, wages, and other transferor, to meet the reporting
the exception did not apply. Multiply that compensation for personal services requirements under section 6048 with
amount by 10% and subtract the result must be included in the return of the respect to transfers of money or
from line 34 or 35, whichever applies. person who earned the income, even property to a foreign trust, or the
Enter on Schedule H, line 36, the smaller though the income was irrevocably creation of a foreign trust.
of that amount or the amount from Form assigned to a trust by a contract Form 3520-A, Annual Return of Foreign
1116, line 32. assignment or similar arrangement. Trust With U.S. Beneficiaries, must be
If there is an entry on line 9 of The grantor or person creating the filed under section 6048(c) by any U.S.
Schedule H, recompute what your trust is considered the owner if he or person who directly or indirectly
tentative AMT would have been if line 9 she keeps “beneficial enjoyment” of or transfers property to a foreign trust (with
were zero. Multiply that amount by 90% substantial control over the trust certain exceptions) that has one or more
(.90). Enter the smaller of that amount or property. The trust’s income, deductions, U.S. beneficiaries.
line 32, Form 1116, on line 36 of and credits are allocable to the owner.
Schedule H. If you checked “Yes” for Question 3, Question 6
If your AMT foreign tax credit is see the Grantor Type Trust instructions If the estate or trust paid, or received,
limited, any unused amount can be on page 7. interest from seller-financed mortgages
carried back or forward in accordance for a qualified residence, check the
with section 904(c). Question 4 “Yes” box and provide the information
Note: If you elected to forego the Check the “Yes” box and enter the requested under Seller-provided
carryback per iod for regular tax name of the foreign country if either 1 or financing in the instructions for line 10,
purposes, the election will also apply for 2 below applies. page 1.
the AMT. 1. At any time during the year the Question 8
Line 38a—Regular Tax Before Credits estate or trust had an interest in or
signature or other authority over a bank, To make the section 663(b) election for a
Enter the total of the fiduciary’s regular securities, or other financial account in a complex trust to treat any amount
tax from line 1a of Schedule G plus any foreign country. properly paid or credited to a beneficiary
section 667(b) tax from Form 4970 within the first 65 days following the
Exception: Check “No” if either of the
entered on line 1b of Schedule G. From close of the tax year as being properly
following applies to the estate or trust:
that amount subtract any foreign tax paid or credited on the last day of the
credit that was allocated to the fiduciary ● The combined value of the accounts preceding tax year, check the box.
from line 2a of Schedule G. DO NOT was $10,000 or less during the whole
deduct any foreign tax credit that was year; OR Question 9
allocated to the beneficiaries. ● The accounts were with a U.S. military To make the section 643(e)(3) election to
banking facility operated by a U.S. recognize gain on property distributed in
Line 38b—Section 644 Tax financial institution. kind, check the box and see the
Enter any section 644 tax included on 2. The estate or trust owns more than Instructions for Schedule D (Form 1041).
line 1b of Schedule G. 50% of the stock in any corporation that
owns one or more foreign bank Question 10
accounts. If the decedent’s estate has been open
Other Information Get Form TD F 90-22.1, Report of for more than 2 years, check the box
Foreign Bank and Financial Accounts, to and attach an explanation for the delay
Question 1 see if the estate or trust is considered to in closing the estate.
have an interest in or signature or other
If the estate or trust received tax-exempt authority over a bank, securities, or
income, figure the allocation of expenses other financial account in a foreign Schedule D (Form 1041)—
between tax-exempt and taxable income country.
on a separate sheet and attach it to the Capital Gains and Losses
If you checked “Yes” for Question 4,
return. Enter only the deductible
file Form TD F 90-22.1 by June 30,
amounts on the return. Do not figure the
1994, with the Department of the General Instructions
allocation on the return itself. For more
Treasury at the address shown on the
information, see the instructions for Use Schedule D (Form 1041) to report
form. Form TD F 90-22.1 is not a tax
Allocation of Deductions for gains and losses from the sale or
return, so do not file it with Form 1041.
Tax-Exempt Income on page 9. exchange of capital assets by an estate
You may order Form TD F 90-22.1 or trust.
Report the amount of tax-exempt
from an IRS Forms Distribution Center.
interest income received or accrued in To report sales or exchanges of
the space provided below Question 1. Question 5 property other than capital assets,
Also, include any exempt-interest including the sale or exchange of
An estate or trust that transferred
dividends the estate or trust received as property used in a trade or business and
property to a foreign corporation, foreign
a shareholder in a mutual fund or other involuntary conversions (other than
estate or trust, or foreign partnership
regulated investment company. casualties and thefts), see Form 4797
must file Form 926, Return by a U.S.
and related instructions.
Question 2 Transferor of Property to a Foreign
Corporation, Foreign Estate or Trust, or If property is involuntarily converted
See the instructions on page 10 for a Foreign Partnership, even if the transfer because of a casualty or theft, use Form
discussion of the rules of passive is nontaxable. Form 926 is also used to 4684.
activity losses and credits. If you
checked “Yes,” get Form 8582 to
Page 22
Capital Asset Section 644 Tax on Trusts ● Disposition of market discount bonds
(section 1276).
Each item of property held by the estate If a trust sells or exchanges property at
or trust (whether or not connected with a gain within 2 years after receiving it ● Section 1256 Contracts and Straddles
its trade or business) is a capital asset from a transferor, a special tax may be are reported on Form 6781, Gains and
except: due. Do not include section 644 gains Losses From Section 1256 Contracts
on Schedule D. The tax is reported and Straddles.
● Inventoriable assets or property held
primarily for sale to customers; separately on Form 1041. For more
● Depreciable or real property used in a information, see the instructions for Specific Instructions
Schedule G, line 1b.
trade or business; Lines 1 and 7
● Certain copyrights, literary, musical, or Transfer of Appreciated Property Short-term and long-term capital
artistic compositions, letters or to a Political Organization gains and losses.—Enter all sales of
memorandums, or similar property; stocks, bonds, etc.
If an estate or trust transfers property to
● Accounts or notes receivable acquired a political organization as defined in Redemption of stock to pay death
in the ordinary course of a trade or section 527(e)(1), and if at the time of taxes.— If stock is redeemed under the
business for services rendered or from the transfer the FMV of the property is provisions of section 303, list and
the sale of inventoriable assets or more than the adjusted basis, treat the identify it on line 7 and give the name of
property held primarily for sale to transfer as a sale of property on the the decedent and the IRS office where
customers; and date of transfer. Report the FMV of the the estate tax or generation-skipping
● Certain U.S. Government publications property at the time of transfer as the transfer tax return was filed.
not purchased at the public sale price. sale price. Ordinary income or capital If you are reporting capital gain from a
You may find additional helpful gain provisions apply as if a sale had lump-sum distribution, see the
information in the following publications actually occurred. For more information, instructions for Form 4972 for
that are available from the IRS: see section 84. information about the death benefit
● Publication 544, Sales and Other Related Persons
exclusion and the Federal estate tax.
Dispositions of Assets; and
A trust cannot deduct a loss from the Column (d). Gross Sales Price
● Publication 551, Basis of Assets.
sale or exchange of property directly or Enter either the gross sales price or the
Short Term or Long Term indirectly between any of the following: net sales price from the sale. On sales
Separate the capital gains and losses ● A grantor and a fiduciary of a trust; of stocks and bonds, report the gross
according to how long the estate or trust ● A fiduciary and a fiduciary or amount as reported to the fiduciary by
held or owned the property. The holding beneficiary of another trust created by the fiduciary’s broker on Form 1099-B or
period for short-term capital gains and the same grantor; similar statement. However, if the broker
advised the fiduciary that gross
losses is 1 year or less. The holding ● A fiduciary and a beneficiary of the
period for long-term capital gains and proceeds (gross sales price) less
same trust; or
losses is more than 1 year. Property commissions and option premiums were
● A trust fiduciary and a corporation of reported to the IRS, enter that net
acquired by a decedent’s estate from which more than 50% in value of the
the decedent and sold or otherwise amount in column (d).
outstanding stock is owned directly or
disposed of within 1 year is considered indirectly by or for the trust or by or for Column (e). Cost or Other Basis
as held for more than 1 year. the grantor of the trust. Basis of trust property.—Generally, the
When you figure the length of the basis of property acquired by gift is the
period the estate or trust held property, Items for Special Treatment same as the basis would be in the
begin counting on the day after the The following items may require special hands of the donor. If the FMV of the
estate or trust acquired the property and treatment: property at the time it was transferred to
include the day the estate or trust
disposed of it. Use the trade dates for ● Exchange of “like-kind” property. the trust is less than the transferor’s
● Wash sales of stock or securities basis, then the FMV is used for
the date of acquisition and sale of determining any loss on disposition.
stocks and bonds on an exchange or (section 1091).
over-the-counter market. ● Gain or loss on options to buy or sell If the property was transferred to the
(section 1234). trust after 1976, and a gift tax was paid
Section 643(e)(3) Election under Chapter 12, then increase the
● Certain real estate subdivided for sale donor’s basis as follows:
For noncash property distributions a that may be considered a capital asset
fiduciary may elect to have the estate or (section 1237). Multiply the amount of the gift tax
trust recognize gain or loss in the same paid by a fraction; the numerator of
● Gain on disposition of stock in an which is the net appreciation in value of
manner as if the distributed property had Interest Charge Domestic International
been sold to the beneficiary at its fair the gift (discussed below); and the
Sales Corporation (section 995(c)). denominator of which is the amount of
market value (FMV). The distribution
● Gain on the sale or exchange of stock the gift. For this purpose, the net
deduction is the property’s FMV. This
in certain foreign corporations (section appreciation in value of the gift is the
election applies to all distributions made
1248). amount by which the FMV of the gift
by the estate or trust during the tax
year, and once made may be revoked ● Gain on the sale of qualified exceeds the donor’s adjusted basis.
only with the consent of the IRS. reinvested dividends from a qualified Basis of decedent’s estate property.—
public utility. See Publication 550 for Generally, the basis of property acquired
Note that section 267 does not allow
details. by a decedent’s estate is the FMV of the
a deduction for any loss from the sale of
property on which a trust makes a ● Loss on sale, exchange, or property at the date of the decedent’s
section 643(e)(3) election. In addition, worthlessness of small business stock death, or the alternative valuation date if
when a trust distributes depreciable (section 1244 stock). the executor elected to use an alternate
property, section 1239 applies to deny ● Distributions received from an valuation under section 2032.
capital gains treatment on the gain to employee pension, profit-sharing, or See Publication 551 for a discussion
the trust if the trust makes a section stock bonus plan. See Form 4972. of the valuation of qualified real property
643(e)(3) election. under section 2032A.
Page 23
Basis of property for bankruptcy part of the exchange the related person extent of the smaller of the net loss or
estates.—Generally, the basis of disposes of the property, or the trust $3,000.
property held by the bankruptcy estate disposes of the property received in
is the same as what it was in the hands exchange from the related person, then Part V—Computation of Capital
of the individual debtor. the original exchange will not qualify for Loss Carryovers From 1993 to
Adjustments to basis.—Before figuring nonrecognition. See section 1031(f) for 1994
any gain or loss on the sale, exchange, exceptions. For any year (including the final year) in
or other disposition of property owned Complete and attach Form 8824, which capital losses exceed capital
by the estate or trust, the fiduciary must Like-Kind Exchanges, to Form 1041 for gains, complete Part V to figure the
make adjustments to the property’s each exchange. capital loss carryover. A capital loss
basis. carryover may be carried forward
Line 10—Capital Gain Distributions
Some items that may increase the indefinitely. Capital losses keep their
basis include: Enter any amounts shown on Form 2439 character as either short-term or
1. Broker’s fees and commissions. that represent the estate’s or trust’s long-term when carried over to the
share of the undistributed capital gains following year. To the extent the capital
2. Reinvested dividends that were of a regulated investment company. loss subject to the limitation is deducted
previously reported as income. Include on Form 1041, line 24f, the tax from ordinary income, consider the net
3. Reinvested capital gains that were paid by the company as shown on Form short-term capital loss as deducted first.
previously reported as income. 2439. Add to the basis of the stock, the
4. Costs that were capitalized. excess of the amount included in Part VI—Tax Computation Using
5. Original issue discount that has income over the credit if the amount is Maximum Capital Gains Rate
been previously included in income. not distributed.
Line 37
Some items that may decrease the Line 15, column (a)—Beneficiaries’ Net
basis include: If the estate or trust received capital
Short-Term Capital Gain or Loss gains that were derived from income in
1. Nontaxable distributions that Enter the amount of net short-term respect of a decedent, and a section
consist of return of capital. capital gain or loss allocable to the 691(c)(4) deduction was claimed, then
2. Deductions previously allowed for beneficiary or beneficiaries. Except in line 37 must be reduced by the portion
depreciation. the final year, include only those of the section 691(c)(4) deduction
3. Casualty or theft loss deductions. short-term capital losses that are taken claimed on line 19.
See Publication 551 for additional into account in determining the amount
of gain from the sale or exchange of Line 44
information.
capital assets that is paid, credited, or To compute the regular tax, use the
See section 852(f) for treatment of required to be distributed to any 1993 Tax Rate Schedule on page 16.
load charges incurred in acquiring stock beneficiary during the tax year. See
in a regulated investment company. Regulations section 1.643(a)-3 for more Line 45
Carryover basis.—Carryover basis information about allocation of capital If the tax, using the Maximum Capital
determined under repealed section 1023 gains and losses. Gains Rate (line 43), is less than the
applies to property acquired from a Except in the final year, if the losses regular tax (line 44), then enter the
decedent who died after December 31, from the sale or exchange of capital amount from line 45 on line 1a of
1976, and before November 7, 1978, assets are more than the gains, all of the Schedule G, Form 1041, and check the
only if the executor elected it on a Form losses are allocated to the fiduciary and “Schedule D” box.
5970-A, Election of Carryover Basis, that none are allocated to the beneficiaries.
was filed on time.
Line 15, column (b)—Fiduciary’s Net Schedule J (Form 1041)—
Lines 2 and 8 Short-Term Capital Gain or Loss
Installment sales.—If the estate or trust Accumulation Distribution
Enter the amount of the net short-term
sold property at a gain during the tax capital gain or loss allocable to the for a Complex Trust
year, and will receive a payment in a fiduciary. Include any capital gain paid or
later tax year, report the sale on the permanently set aside for a charitable
installment method and file Form 6252, purpose specified in section 642(c). General Instructions
Installment Sale Income, unless you
Use Schedule J (Form 1041) to report an
elect not to do so. Line 15, column (c)—Total
accumulation distribution for a complex
Also, use Form 6252 to report any Enter the total of the amounts entered in trust. The term “accumulation
payment received in 1993 from a sale columns (a) and (b). The amount in distribution” refers to the excess of
made in an earlier tax year that was column (c) should be the same as the amounts properly paid, credited, or
reported on the installment method. amount on line 6. required to be distributed (other than
To elect out of the installment method, income required to be distributed
report the full amount of the gain on a Line 16—Net Long-Term Capital Gain currently) over the DNI of the trust
timely filed return (including extensions). or Loss reduced by income required to be
Exchange of “like-kind” property.— Allocate the net long-term capital gain or distributed currently. To have an
Generally, no gain or loss is recognized loss on line 16 in the same manner as accumulation distribution, the
when property held for productive use in the net short-term capital gain or loss on distribution must exceed the accounting
a trade or business or for investment is line 15. income of the trust.
exchanged solely for property of a Part IV—Computation of Capital
“like-kind” to be held either for
productive use in a trade or business or
Loss Limitation
for investment. However, if a trust If the sum of all the capital losses is
exchanges “like-kind” property with a more than the sum of all the capital
“related person” (see Related Persons gains, then these capital losses are
on page 23), and before 2 years after allowed as a deduction only to the
the date of the last transfer that was
Page 24
Specific Instructions For information about throwback trust that include the DNI or UNI of the
years, see the instructions for line 13. other trust. Enter the applicable year at
Part I—Accumulation Distribution For purposes of line 6, in figuring the the top of each column for each
in 1993 DNI of the trust for a throwback year, throwback year.
subtract any estate tax deduction for
Line 1—Distribution Under Section income in respect of a decedent if the Line 16—Tax-Exempt Interest Included
661(a)(2) income is includible in figuring the DNI on Line 13
Enter the amount from Schedule B of of the trust for that year. For each throwback year, divide line 15
Form 1041, line 12, for 1993. This is the by line 6 and multiply the result by one
Line 7—Distributions Made During of the following:
amount properly paid, credited, or
Earlier Years
required to be distributed other than the Throwback year(s) Amount from line
amount of income for the current tax Enter the applicable amounts as follows:
1969–1977 Schedule C (Form 1041), line 2(a)
year required to be distributed currently. Throwback year(s) Amount from line
1978–1979 Form 1041, line 58(a)
Line 2—Distributable Net Income 1969–1977 Schedule C (Form 1041), line 8
1980 Form 1041, line 57(a)
Enter the amount from Schedule B of 1978 Form 1041, line 64
1981–1982 Form 1041, line 55(a)
Form 1041, line 9, for 1993. This is the 1979 Form 1041, line 65
1983–1992 Schedule B, Form 1041, line 2
amount of distributable net income (DNI) 1980 Form 1041, line 64
for the current tax year determined 1981–1982 Form 1041, line 62 Part III—Taxes Imposed on
under section 643(a). Undistributed Net Income
1983–1992 Schedule B, Form 1041, line 13
Line 3—Distribution Under Section For the regular tax computation, if there
661(a)(1) Line 11—Prior Accumulation is a capital gain, complete lines 18
Distribution Thrown Back to any through 25 for each throwback year. If
Enter the amount from Schedule B of Throwback Year
Form 1041, line 11, for 1993. This is the the trustee elected the alternative tax on
amount of income for the current tax Enter the amount of prior accumulation capital gains, complete lines 26 through
year required to be distributed currently. distributions thrown back to the 31 instead of lines 18 through 25 for
throwback years. Do not enter each applicable year. If there is no
Line 5—Accumulation Distribution distributions excluded under section capital gain for any year, or there is a
If line 13, Schedule B of Form 1041 is 663(a)(1) for gifts, bequests, etc. capital loss for every year, enter on line
more than line 10, Schedule B of Form 9 the amount of the tax for each year
Line 13—Throwback Years identified in the instruction for line 18
1041, complete the rest of Schedule J
and file it with Form 1041, unless the Allocate the amount on line 5 that is an and do not complete Part III. If the trust
trust has no previously accumulated accumulation distribution to the earliest received an accumulation distribution
income. applicable year first, but do not allocate from another trust, see Regulations
more than the amount on line 12 for any section 1.665(b)-1A.
Generally, amounts accumulated throwback year. An accumulation
before a beneficiary reaches age 21 may distribution is thrown back first to the Line 18—Regular Tax
be excluded by the beneficiary. See earliest preceding tax year in which Enter the applicable amounts as follows:
sections 665 and 667(c) for exceptions there is undistributed net income (UNI).
relating to multiple trusts. The trustee Throwback year(s) Amount from line
Then it is thrown back beginning with
reports to the IRS the total amount of the next earliest year to any remaining 1969–1976 Form 1041, page 1, line 24
the accumulation distribution before any preceding tax years of the trust. The 1977 Form 1041, page 1, line 26
reduction for income accumulated portion of the accumulation distribution 1978–1979 Form 1041, line 27
before the beneficiary reaches age 21. If allocated to the earliest preceding tax
the multiple trusts rules do not apply, 1980–1984 Form 1041, line 26c
year is the amount of the UNI for that
the beneficiary claims the exclusion year. The portion of the accumulation 1985–1986 Form 1041, line 25c
when filing Form 4970, Tax on distribution allocated to any remaining 1987 Form 1041, line 22c
Accumulation Distribution of Trusts, as preceding tax year is the amount by 1988–1992 Schedule G, Form 1041, line 1a
you may not be aware that the which the accumulation distribution is
beneficiary may be a beneficiary of other larger than the total of the UNI for all Line 19—Trust’s Share of Net
trusts with other trustees. earlier preceding tax years. A tax year of Short-Term Gain
For examples of accumulation a trust during which the trust was a For each throwback year, enter the
distributions that include: (1) payments simple trust for the entire year is not a smaller of the capital gain from the two
from one trust to another trust, and (2) preceding tax year unless: (1) during lines indicated. If there is a capital loss
amounts distributed for a dependent’s that year the trust received outside or a zero on either or both of the two
support, see Regulations section income or (2) the trustee did not lines indicated, enter zero on line 19.
1.665(b)-1A(b). distribute all of the trust’s income that
Throwback year(s) Amount from line
was required to be distributed currently
Part II—Ordinary Income
Accumulation Distribution
for that year. In this case, UNI for that
year must not be more than the greater
1969–1970
$ Schedule D, line 10, column 2, or
Schedule D, line 12, column 2.

Line 6—Distributable Net Income for of the outside income or income not
distributed during that year.
1971–1978
$ Schedule D, line 14, column 2, or
Schedule D, line 16, column 2.
Earlier Years
Enter the applicable amounts as follows:
The term “outside income” means
amounts that are included in the DNI of
1979
$ Schedule D, line 18, column (b), or
Schedule D, line 20, column (b).

Throwback year(s) Amount from line the trust for that year but that are not
“income” of the trust as defined in
1980–1981
$ Schedule D, line 14, column (b), or
Schedule D, line 16, column (b).
1969–1977 Schedule C (Form 1041), line 5
1978–1979 Form 1041, line 61
Regulations section 1.643(b)-1. Some
examples of outside income are: (1)
1982
$ Schedule D, line 16, column (b), or
Schedule D, line 18, column (b).
1980
1981–1982
Form 1041, line 60
Form 1041, line 58
income taxable to the trust under
section 691; (2) unrealized accounts
1983–1992
$ Schedule D, line 15, column (b), or
Schedule D, line 17, column (b).

1983–1992 Schedule B, Form 1041, line 9 receivable that were assigned to the
trust; and (3) distributions from another
Page 25
Line 20—Trust’s Share of Net 1972–1975 Schedule D, line 39 Penalty.—Under section 6723, the payer
Long-Term Gain 1976–1978 Schedule D, line 21 is charged a $50 penalty for each failure
Enter the applicable amounts as follows: to provide a required taxpayer
Part IV—Allocation to Beneficiary identification number, unless reasonable
Throwback year(s) Amount from line cause is established for not providing it.
Complete Part IV for each beneficiary. If
1969–1970 50% of Schedule D, line 13(e) the accumulation distribution is allocated Explain any reasonable cause in a
1971–1977 50% of Schedule D, line 17(e) to more than one beneficiary, attach an signed affidavit and attach it to this

$
Schedule D, line 17(e) or line additional copy of Schedule J with Part return.
1978 31, whichever is applicable, IV completed for each additional
less Form 1041, line 23.
Tax Shelter’s Identification Number
beneficiary. Give each beneficiary a copy

$
Schedule D, line 25 or line 27, of his or her respective Part IV If the estate or trust is a tax shelter, is
1979 whichever is applicable, less information. If more than 5 throwback involved in a tax shelter, or is considered
Form 1041, line 23. years are involved, use another to be the organizer of a tax shelter, there

$
1980–1981 Schedule D, line 21, less Schedule J, completing Parts II and III are reporting requirements under section
Schedule D, line 22. for each additional throwback year. 6111 for both the fiduciaries and the
beneficiaries.
1982
$
Schedule D, line 23, less
Schedule D, line 24.
If the beneficiary is a nonresident alien
individual or a foreign corporation, see See Form 8264, Application for

$
1983–1986 Schedule D, line 22, less section 667(e) about retaining the Registration of a Tax Shelter, and Form
Schedule D, line 23. character of the amounts distributed to 8271, Investor Reporting of Tax Shelter

$
Schedule D, the smaller determine the amount of the U.S. Registration Number, and their related
1987–1992 of any gain on line 16 or withholding tax. instructions for information regarding the
17, column (b). The beneficiary uses Form 4970 to fiduciary’s reporting requirements.
Line 22—Taxable Income compute the tax on the distribution. The Substitute Forms
beneficiary also uses Form 4970 for the
Enter the applicable amounts as follows: section 667(b)(6) tax adjustment if an You do not need prior IRS approval for a
accumulation distribution is subject to substitute Schedule K-1 (Form 1041)
Throwback year(s) Amount from line
estate or generation-skipping transfer that follows the specifications for filing
1969–1976 Form 1041, page 1, line 23 substitute Schedules K-1 in Publication
tax. This is because the trustee may not
1977 Form 1041, page 1, line 25 be the estate or generation-skipping 1167, Substitute Printed,
1978–1979 Form 1041, line 26 transfer tax return filer. Computer-Prepared, and
1980–1984 Form 1041, line 25
Computer-Generated Tax Forms and
Schedules, or is an exact copy of an IRS
1985–1986 Form 1041, line 24 Schedule K-1. You must request IRS
1987 Form 1041, line 21
Schedule K-1 (Form 1041)—
approval to use other substitute
1988–1992 Form 1041, line 22
Beneficiary’s Share of Schedules K-1. To request approval by
Note: The alternative tax on capital gains was Income, Deductions, Credits, U.S. mail, write to: Internal Revenue
repealed for tax years beginning after etc. Service, Attention: Substitute Forms
December 31, 1978. Neither the 1981, 1987, Program Coordinator, T:I:F, P.O. Box 969,
nor maximum rate on net capital gains for Oxon Hill, MD 20750. Requests sent by
1991 and 1992 is an alternative tax for this General Instructions other carriers (e.g., Federal Express,
purpose. United Parcel Service) should be
Use Schedule K-1 (Form 1041) to report addressed to: Internal Revenue Service,
Line 26—Tax on Income Other Than the beneficiary’s share of income, Attention: Substitute Forms Program
Long-Term Capital Gain deductions, and credits from a trust or a Coordinator, T:I:F, 6710 Oxon Hill Road,
Enter the applicable amounts as follows: decedent’s estate. 4th Floor, Oxon Hill, MD 20745.
Throwback year(s) Amount from line Who Must File Inclusion of Amounts in
1969 Schedule D, line 20 The fiduciary (or one of the joint Beneficiaries’ Income
1970 Schedule D, line 19 fiduciaries) must file Schedule K-1. A Simple trust.—The beneficiary of a
1971 Schedule D, line 50 copy of each beneficiary’s Schedule K-1 simple trust must include in his or her
1972–1975 Schedule D, line 48
is attached to the Form 1041 filed with gross income the amount of the income
the IRS and each beneficiary is given a required to be distributed currently,
1976–1978 Schedule D, line 27 copy of his or her respective Schedule whether or not distributed. The
Line 27—Trust’s Share of Net K-1. One copy of each Schedule K-1 determination of whether trust income is
Short-Term Gain must be retained for the fiduciary’s required to be distributed currently
records. depends upon the terms of the trust
If there is a loss on any of the following
lines, enter zero on line 27 for the Beneficiary’s Identifying Number instrument and the applicable local law.
applicable throwback year. Otherwise, If the amount of income required to be
As a payer of income, you are required distributed currently to beneficiaries
enter the applicable amounts as follows: under section 6109 to request and exceeds the DNI of the trust, each
Throwback year(s) Amount from line provide a proper identifying number for beneficiary includes in his or her gross
1969–1970 Schedule D, line 10, column 2 each recipient of income. Enter the income an amount equal to his or her
1971–1978 Schedule D, line 14, column 2
beneficiary’s number on the respective proportionate share of the DNI (less
Schedules K-1 when you file Form 1041. tax-exempt interest as adjusted for
Line 28—Trust’s Share of Taxable Individuals and business recipients are expenses). See Regulations section
Income Less Section 1202 Deduction responsible for giving you their taxpayer 1.652(c)-4 for a comprehensive example.
identification numbers upon request. You
Enter the applicable amounts as follows: Estates and complex trusts.—The
may use Form W-9, Request for
Throwback year(s) Amount from line Taxpayer Identification Number and beneficiary of a decedent’s estate or
Certification, to request the beneficiary’s complex trust must include in his or her
1969 Schedule D, line 19 gross income the sum of:
1970 Schedule D, line 18
identifying number.
1971 Schedule D, line 38
Page 26
1. The amount of the income required excess of income (see Rev. Rul. 74-530, final year of the estate or trust. If, for the
to be distributed currently; and 1974-2 C.B. 188), you may not show final year, there is a capital loss
2. All other amounts properly paid, any negative amounts for any class of carryover, enter on line 12c the
credited, or required to be distributed to income because the beneficiary beneficiary’s share of the long-term
the beneficiary by the estate or complex generally may not claim losses or capital loss carryover as a loss in
trust. See Regulations section 1.662(c)-4 deductions from the estate or trust. parentheses. (If the beneficiary is a
for a comprehensive example of the Allocation of credits.—In general, the corporation, see the instructions for line
computation when the amount of estate or trust or the beneficiaries may 3a.) See section 642(h) and related
income required to be distributed claim applicable tax credits according to regulations for more information.
currently exceeds the DNI (less how the income is divided. For more Gains, or losses, from the complete,
tax-exempt interest as adjusted for information, see Form 3800. or partial, disposition of a rental, rental
expenses and the charitable Also, see Form 8582-CR for rules on real estate, or trade or business activity
contributions), and amounts are set credits from passive activities. that is a passive activity, must be shown
aside for a charitable contributions Gifts and bequests.—Do not include in as an attachment to Schedule K-1.
deduction. the beneficiary’s income any gifts or Line 4a—Business Income and Other
For estates and complex trusts that bequests of a specific sum of money or Nonpassive Income
have more than one beneficiary, and if of specific property under the terms of
different beneficiaries have substantially the governing instrument that are paid or Enter the beneficiary’s share of
separate and independent shares, their credited in three installments or less. annuities, royalties, or any other income,
shares are treated as a single trust for before any directly apportionable
Amounts that can be paid or credited deductions, that is NOT subject to any
the sole purpose of determining the only from income of the estate or trust
amount of DNI allocable to the passive activity loss limitation rules at
do not qualify as a gift or bequest of a the beneficiary level. Use line 5a to
respective beneficiaries. For examples of specific sum of money.
the application of the separate share report income items that could be
rule, see the regulations under section Past years.—Do not include in the subject to the passive activity rules at
663(c). beneficiary’s income any amounts the beneficiary’s level.
deducted on Form 1041 for an earlier
Character of income.—The year that were credited or required to be Lines 4b and 5b—Depreciation
beneficiary’s income is considered to distributed in that earlier year. (including cost recovery)
have the same proportion of each class
of items entering into the computation of Enter the beneficiary’s share of the
Beneficiary’s Tax Year depreciation deductions attributable to
DNI that the total of each class has to
the DNI (e.g., half dividends and half The beneficiary’s income from the estate each activity reported on lines 4a and
interest if the entity’s income is half or trust must be included in the 5a. See the instructions on page 9 for a
dividends and half interest). beneficiary’s tax year during which the discussion of how the depreciation
tax year of the estate or trust ends. See deduction is apportioned between the
Allocation of deductions.—Generally, Publication 559 for more information beneficiaries and the estate or trust.
items of deduction that enter into the including the effect of the death of a Report any tax preference attributable to
computation of DNI are to be allocated beneficiary during the tax year of the depreciation separately on line 11a.
among the items of income to the extent estate or trust.
such allocation is not inconsistent with Note: An estate or trust cannot make an
the rules set out in section 469 and the election under section 179 to expense
regulations thereunder, relating to Specific Instructions certain tangible property.
passive activity loss limitations, in the Line 1—Interest Lines 4c and 5c—Depletion
following order.
Enter the beneficiary’s share of the Enter the beneficiary’s share of the
First, all deductions directly
taxable interest income. depletion deduction under section 611
attributable to one class of income are
attributable to each activity reported on
deducted from that income. For Line 2—Dividends lines 4a and 5a. See the instructions on
example, rental expenses, to the extent
Enter the beneficiary’s share of dividend page 9 for a discussion of how the
allowable, are deducted from rental
income. depletion deduction is apportioned
income.
between the beneficiaries and the estate
Second, deductions that are not Line 3a—Net Short-Term Capital Gain or trust. Report any tax preference
directly attributable to one class of Enter the beneficiary’s share of the net attributable to depletion separately on
income, such as fiduciary fees, may be short-term capital gain from line 15, line 11b.
allocated to any class of income, as long column (a), Schedule D (Form 1041). Do
as a reasonable portion is allocated to Lines 4d and 5d—Amortization
not enter a loss for any year before the
any tax-exempt income. final year of the estate or trust. If, for the Itemize the beneficiary’s share of the
Finally, any excess deductions that are final year, there is a capital loss amortization deductions attributable to
directly attributable to a class of income carryover, enter on line 12b the each activity reported on lines 4a and
may be allocated to another class of beneficiary’s share of short-term capital 5a. Apportion the amortization
income. In no case can excess loss carryover as a loss in parentheses. deductions between the fiduciary and
deductions from a passive activity be However, if the beneficiary is a the beneficiaries in the same way that
allocated to income from a nonpassive corporation, enter the beneficiary’s share the depreciation and depletion
activity, or to portfolio income earned by of all short- and long-term capital loss deductions are divided. Report any tax
the estate or trust. Excess deductions carryovers as a single item in preference attributable to amortization
attributable to tax-exempt income parentheses. See section 642(h) and separately on line 11c.
cannot offset any other class of income. related regulations for more information.
In no case can deductions be Lines 5a through 5d
allocated to an item of income that is Line 3b—Net Long-Term Capital Gain Caution: The limitations on passive
not included in the computation of DNI, Enter the beneficiary’s share of the net activity losses and credits under section
or attributable to corpus. long-term capital gain from line 16, 469 apply to estates and trusts. Estates
Except for the final year and for column (a), Schedule D (Form 1041). Do and trusts that distr ibute income to
depreciation or depletion allocations in not enter a loss for any year before the beneficiar ies are allowed to apportion
Page 27
depreciation, depletion, and amortization Line 10—Foreign Taxes Lines 12d and 12e—Net Operating
deductions to the beneficiaries. These List on a separate sheet the Loss (NOL) Carryover
deductions are referred to as “directly beneficiary’s share of the applicable Generally, a deduction based upon an
apportionable deductions.” foreign taxes paid or accrued and the NOL carryover is not available to a
Rules for treating a beneficiary’s various foreign source figures needed to beneficiary as an excess deduction.
income and directly apportionable compute the beneficiary’s foreign tax However, if the last tax year of the
deductions from an estate or trust and credit. See Publication 514, and section estate or trust is also the last year in
other rules for applying the passive loss 901(b)(5) for special rules about foreign which an NOL carryover may be taken
and credit limitations to beneficiaries of taxes. (see section 172(b)), then the NOL
estates and trusts have not yet been carryover is considered an excess
issued. Line 11—Tax Preference Items deduction on the termination of the
Any directly apportionable deduction, Enter any minimum tax adjustments or entity to the extent it is not absorbed by
such as depreciation, is treated by the tax preference items attributable to the estate or trust during its final tax
beneficiary as having been incurred in depreciation, depletion, or amortization year. For more information, see
the same activity as incurred by the that were allocated to the beneficiary. Regulations section 1.642(h)-4 for a
estate or trust. However, the character For property placed in service before discussion of the allocation of the
of such deduction may be determined 1987, report separately the accelerated carryover among the beneficiaries.
as if the beneficiary incurred the depreciation of real and leased personal Upon termination of a trust or
deduction directly. property. decedent’s estate, a beneficiary
To assist the beneficiary in computing succeeding to its property is allowed to
Line 12a—Excess Deductions on
any applicable passive activity loss deduct any unused NOL (and any AMT
Termination
limitations, also attach a separate NOL) carryover for regular and AMT
schedule showing the beneficiary’s share If this is the final return and there are purposes. Enter on lines 12d and 12e
of income derived from: (1) rental; (2) excess deductions on termination (see the unused carryover amounts.
rental real estate; and Line 17—Adjusted Total Income or
(3) business activities. (Loss) on page 12) enter the Line 13—Other
beneficiary’s share of the excess Itemize on line 13, or on a separate
Line 6—Income for Minimum Tax deductions on line 12a. sheet if more space is needed, the
Purposes beneficiary’s tax information for which
Excess deductions on termination
Enter the beneficiary’s share of the occur only during the last taxable year of there is no other line on Schedule K-1.
income distribution deduction computed the trust or decedent’s estate when the This includes the allocable share, if any,
on a minimum tax basis from line 27 of total deductions (other than the of:
Schedule H. deductions allowed under section 642(b) ● Payment of estimated tax to be
(relating to the exemption amount)) or credited to the beneficiary (section
Line 7—Income for Regular Tax section 642(c) (relating to the charitable
Purposes 643(g));
contributions) are greater than the gross ● Tax-exempt interest realized by the
Enter the beneficiary’s share of the income during that tax year. Figure the trust (including exempt-interest
income distribution deduction computed deductions on a separate sheet and dividends received as a shareholder in a
on line 17 of Schedule B. This amount attach it to the return. mutual fund or other regulated
should equal the sum of lines 1 through Only the beneficiary of an estate or investment company);
3b, 4a, and 5a. trust that succeeds to its property is ● Gross farming and fishing income;
allowed to deduct that entity’s excess
Line 8—Adjustment for Minimum Tax
deductions on termination. A beneficiary ● Credit for backup withholding (section
Purposes 3406);
who does not have enough income in
To assist the beneficiary in computing that year to absorb the entire deduction ● Investment income (section 163(d));
the correct credit for prior year minimum may not carry the balance over to any ● Low-income housing credit;
tax, enter the beneficiary’s share of this succeeding year. An individual ● The jobs credit;
adjustment that is attributable to beneficiary must be able to itemize
exclusion items (lines 4e and 6c of ● The alcohol fuel credit;
deductions in order to claim the excess
Schedule H) separately on line 11d. deductions in determining taxable ● The increased research credit;
income. ● The renewable electricity production
Line 9—Estate Tax Deduction
credit;
(including Generation-Skipping Lines 12b and 12c—Unused Capital
Transfer Taxes) Loss Carryover ● The information a beneficiary will need
to figure any investment credit;
If the distribution deduction consists of Upon termination of the trust or ● The information a beneficiary will need
any income in respect of a decedent, decedent’s estate, the beneficiary to refigure an earlier year investment
and the estate or trust was allowed a succeeding to the property is allowed as credit; and
deduction under section 691(c) for the a deduction any unused capital loss
estate tax paid attributable to such carryover under section 1212. If the ● The information a beneficiary will need
income (see the line 19 instructions on estate or trust incurs capital losses in to compute any recapture taxes.
page 13), then the beneficiary is allowed the final year, use Part V of Schedule D Note: Upon ter mination of an estate or
an estate tax deduction in proportion to (Form 1041) to compute the amount of trust, any suspended passive activity
his or her share of the distribution that capital loss carryover to be allocated to losses (PALs) relating to an interest in a
consists of such income. For an the beneficiary. passive activity cannot be distributed to
example of the computation, see the beneficiary. Instead, the basis in
Regulations section 1.691(c)-2. Figure such activity is increased by the amount
the computation on a separate sheet of any PALs allocable to the interest, and
and attach it to the return. no losses are allowed as a deduction on
the estate’s or trust’s final Form 1041.

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