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William Ellis, CPA
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience:  Over 15 years of experience in public accounting
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I am preparing a 1041 for 2010 (fiscal year) for a decedents

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I am preparing a 1041 for 2010 (fiscal year) for a decedent's probate estate. The gross income (interest, dividends, capital gains, IRA distributions) is $81,230. The will provides for the residuary estate to be divided into 26 shares, however, one individual receives 5/26ths (19.24%), 15 individuals each receive 1/26th (3.84), one organization (a state right to life organization, not their charitable trust) receives 1/26th (software rounded to 3.86%) , and five qualifying charities receive 1/26th each for a total of 19.3%. A substantial distribution of the estate was made within the fiscal year, so more principal was distributed to all beneficiaries than income. No net income is allocated to the estate. On schedule A of the 1041 for the charitable deduction, do I multiply the gross income of $83,751 x 19.3%? The gross charitable deduction is $16,163? Then there is an allocation of federal tax exempt interest of $873. My software calculated a net charitable deduction and then it reduced the amount of income to be eligible for the income distribution deduction to the 16 individuals and 1 non-qualifying charitable. But the K-1s used the correct percentages for the individual beneficiaries of the estate, but for the non-qualifying beneficiary, it allocated the missing percentages to it, and increased it's share of interest, etc. I am confused as to how to properly claim the charitable deduction, and how to allocate the remaining 17 beneficiaries' shares equally on the K-1s. Any help you can provide will be greatly appreciated.
Submitted: 2 years ago.
Category: Tax
Expert:  Lindie-mod replied 2 years ago.

Hi, I’m a moderator for this topic and I wonder whether you’re still waiting for an answer. If you are, please let me know and I will do my best to find an Expert to assist you right away. If not, feel free to let me know and I will cancel this question for you. Thank you!
Customer: replied 2 years ago.

I am still working on this and needing an answer. Thank you.

 

Bill

Expert:  Lindie-mod replied 2 years ago.

Sometimes, finding the right Expert can take a little longer than expected and we thank you greatly for your understanding. We’ll be in touch again shortly.
Customer: replied 2 years ago.
Should I use your site's option to open it up to any tax experts online?
Expert:  William Ellis, CPA replied 2 years ago.
Hello and thank you for allowing us at Just Answer to assist you. Do the terms of the will address whether the charitable organizations and the other beneficiary are to be allocated portions of tax-exempt interest and charitable donations?

If it does not directly address these issues, are the remaining amounts material? If they are not, I would try to have the software allocate everything pro-rata. Otherwise, the software could allow you to treat specific items differently. You may be able to override specific entries on the K-1s. I can with my software.

Thanks,
Bill
Customer: replied 2 years ago.
The will is silent as to allocation of charitable beneficiary shares from certain types of income. Each charity receives the same proportion of the residuary estate as the individual beneficiaries. The estate made a substantial distribution of income and principal to all individual and charitable beneficiaries in the proportions as their shares of the residuary estate. It seems to me that in this case, would there still be a deduction on Part A of the 1041, or let the software allocate all income, etc. to all of the individual and charitable beneficiaries and let the system generate K-1s for the charities, even though K-1s are not technically necessary for charities?
Expert:  William Ellis, CPA replied 2 years ago.
Regarding the charitable donations, they are properly treated as an expense to the trust. Because of this, the donations should not be passed along to the beneficiaries and should not show on the K-1s.

If the charities are supposed to receive their share of income, you should let the software issue the K-1s to them. If you don't, the IRS's matching system would not be accurate. The charities would enter the income as unrelated income.

Thanks,
Bill
Customer: replied 2 years ago.

What you are saying is the charities' percentage portions would not be listed on Schedule A but allocated to the charities just like an individual and the K-1s issued to the charities with the same amounts as the individuals?

 

Sorry I am a little dense, but this issue has been very difficult to find clear answers.

 

Thank you so much.

Expert:  William Ellis, CPA replied 2 years ago.
Not quite. Sch A is used to determine the amount of charitable donations made by the estate is deductible for its taxes. You wouldn't enter any percentage of the donations below 100%.

Is this a situation where payments were made to the charities listed as beneficiaries? If so, let me do a little research.

Thanks,

Bill
Customer: replied 2 years ago.
The payments were made to the charities as beneficiaries of the probate estate. Again, the charities each received $11,725.00, the same as the individual beneficiaries, but not all of the distribution was only income, but included principal as well. The charities' share of the estate is the same percentage as the individuals. There was not a direction in the will to say, "Pay $x out of gross income to charity A, " or all gross income during the administration of the estate to the charities.
Expert:  William Ellis, CPA replied 2 years ago.
Okay, let's treat the payments separately. Let's say the $16,163 was divided between the five charities. This amount should go through Sch A and be reported on Line 13 of the 1041 as a deduction.

The remaining net income should flow properly to each of the beneficiaries' K-1. Don't muddle the issue by trying to treat the charities' beneficial shares as additional charitable donations because they are not.

Thanks,

Bill
Customer: replied 2 years ago.
Ok. So after deducting the combined 5 charities' shares of the gross income on Schedule A, then I need to change the percentage shares of the remaining beneficiaries for their K-1s and not use the actual percentage shares, correct?
Expert:  William Ellis, CPA replied 2 years ago.
No. I'm not saying that at all. Treat the charitable donation as if there were no charities as beneficiaries.

Enter the full payment on Sch A and the result on Line 13 of page 1 of the 1041.

Then, let the K-1s generate. There shouldn't be any mention of the charitable donations on the K-1s because that would lead to counting the contribution twice.

Don't worry about how the charities handle the K-1s. Their share of the income is not a deductible expense.

You've put too much thought into this. Step back, grab a sandwich, and follow my advice with Sch A and the K-1s.

Thanks again,

Bill
William Ellis, CPA, CPA
Category: Tax
Satisfied Customers: 296
Experience: Over 15 years of experience in public accounting
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