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There is no requirements for ALL assets to be distributed in order for the trust (or estate) to pass the taxable income to beneficiaries.If that is the only reason provided by your CPA - I would rather disagree. However, you might suggest trust's documents to verify if there any specific provisions.Generally - in the final year - income is required to be distributed, while if the year is not final - the administrator generally has a choice - either the trust pays taxes on that income or taxable income is passed to beneficiaries (deducted on 1041 line 18) or a combination of both.The decision to distribute taxable income is made by the administrator of the estate.As the CPA disagree - you may discuss the issue with a different tax prepare - and if that is more beneficial - consider filing amended tax return.Let me know if you need any help.