Have a Tax Question? Ask a Tax Expert
The amount of the final distribution might or might not include the amount of gain on sale of assets. Final distributions do have to be reduced not only by the tax that was paid by the trust but also by any and all other items payable by the trust.
That is, the trust will not distribute any amounts that may have to still be paid from the trust assets.
There usually are other items than the taxes on income that will be taken from the assets prior to distribution. Very often the final tax return and accounting fees are not yet paid prior to distribution; but the specific items that were retained should be able to be identified from the accounting.
Usually there is an accounting or computation from which one can see how the amount of distribution was computed for a final estate or trust. For example, the trust accounting will show the beginning assets, disbursements for expenses (including taxes), income received, distribution amounts and any reserves for yet unpaid expenses to account for the assets.
If this is for an income beneficiary please know that trust accounting income very often does not include capital gain. The trust agreement can specify whether or not income includes capital gain; but if not specified the state law is used. Capital gain is generally considered part of the corpus, or body, of the trust and not income to be distributed.
For a discussion see http://www.nysscpa.org/cpajournal/2005/405/essentials/p52.htm
"Trust income can include an allocation of capital gains, if allowed under the governing instrument and local law. Such allocation may also be made in accordance with a discretionary power granted to the trustee by local law or the governing instrument, provided it is not prohibited by applicable law. "
As you see, including capital gain in income is something that can be dictated in the agreement, left to the discretion of the trustee to do so or not but is not the default or usual method for trust accounting income.
That is, it often is correct to not distribute capital gain to an income beneficiary. Since this does depend on the specific trust agreement this would have to be confirmed by a practitioner that review the facts and documents in your case.
If you are seeing a deduction in the computation of distribution to a beneficiary for the entire amount of capital gain that may be correct when only income is being distributed to that beneficiary and the assets will be distributed to another beneficiary, or remainderman. The capital gains are often deemed part of the assets that go to the remainderman and not part of income to the income beneficiary.
So, those are possibilities - other items that are unpaid or that capital gain is not income to be distributed (either under the terms of the trust or applicable state law) can both explain why the amount distributed was reduced by more than the tax on the gain.
Please do ask if you need more discussion.
Sorry I meant to compare the income tax which was from capital gains not the capital gains themselves . A fraudulent cpa prepared the last trust report 1 year before the 1041 was done and deducted $187,000 from the distribution for income tax to the estate.
However, the real CPA did the 1041 in April following the distribution to the heirs and that triggered a K-1 and amended return for me. But I see on the 1041 that the income taxes actually paid tothe IRS was only $76,000.
Aren't all the heirs due an additional distribution of the difference?
From what you wrote there was incorrect reporting or computation of distribution in a prior year.
It is not possible to say that the difference between what was correct and the incorrect amount reported is or is not the amount that is to be distributed. In almost all cases the amounts would not be identical.
First, the fictitious amount reported may or may not have actually represented funds that existed and could be available to be distributed.
Second, even if the incorrect amounts were actual funds in the trust when the improper return was prepared by the time the proper reporting was done the value of the assets might have fluctuated with the market so it would usually not be the same.
Once the books were corrected an accounting or computation from which one can see how the amount of distribution was computed for a final estate or trust would be made and available.
The correct trust accounting will show the beginning assets, disbursements for expenses (including taxes), income received, distribution amounts and any reserves for yet unpaid expenses to account for the assets, and so on.
So it is not at all certain that any additional distribution would or would not be needed due to incorrect reporting in the past. Also, if one was needed it would rarely just be the difference between the correct and incorrect amounts.
In any case it is the accounting that can be examined to see how that distribution amount was computed and to trace the use of all the trust assets and where it all went.
Please ask again is you need more help.