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Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: Tax
Satisfied Customers: 577
Experience:  10 years experience
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I am working with an irrevocable trust that has some individuals

Customer Question

I am working with an irrevocable trust that has some individuals and a charity as beneficiaries. So based on this advice from 4 years ago, the charity receives a K-1?
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.
Hi and welcome to our site!Correct - when taxable income is distributed to the beneficiary - K1 form is required.That is true for all beneficiaries - including charities.How that income is reported on each beneficiary's tax return - that is a separate issue. But reporting is required.
Customer: replied 1 year ago.
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Expert:  Lev replied 1 year ago.
When you prepare the tax return for the trust - and issue K1's to beneficiaries - that is not your concern how beneficiaries will treat that taxable income passed to them from the trust .From the trust's prospective - all beneficiaries are equals - unless that is a special trust.Let me know if you need any clarification this matter.
Customer: replied 1 year ago.
Hi Lew,
This trust is in litigation (as I suppose they all are when there is substantial monies involved) and one of the beneficiaries is claiming that the trustee (another beneficiary) "stole" money from the trust. The plaintiff is asking that her legal fees be reimbursed by the trust and her attorney wants me to take this expense as a trust expense allocated all to his client. I don't believe this can be done. I think the reimbursement would be corpus. Any thoughts? If it is possible to have a phone conversation, my number is(###) ###-####
Expert:  Lev replied 1 year ago.
For tax purposes - trust's expenses are NOT allocated between beneficiaries.That may be done upon request - but that is NOT required by the tax regulations.Moreover - trust's expenses are NOT reported on K1s.Correspondingly - corpus distributions are not reported on K1s either - only taxable income passed to beneficiaries would be reported on K1.All other information may be provided in attached statement.I will be able to call ONLY later in the evening..The plaintiff is asking that her legal fees be reimbursed by the trust and her attorney wants me to take this expense as a trust expense allocated all to his client.A.Based on the authority provided by the trust's documents - the trustee MAY decide to reimburse legal expenses - however whether such request is legit or not - you might want to discuss with your attorney.Regarding allocation of trust's expenses to the beneficiary - that is not correct requirement for deductible expenses. But some nondeductible expenses passed to beneficiaries could be allocated.