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We established a testamentary beneficiary trust on July 8, 2014. We filed the first tax return for the trust on a fiscal year basis, year beginning July 8, 2014, ending June 30, 2015. The IRS has notified us that they rejected our return and will not accept it. The reason they said is because the trust cannot have a fiscal year for its first tax year. The form is 1041. They said if they don’t hear within 30 days, they will withdraw. IRS indicated we should amend that return they rejected and we should file a return for the period July 8, 2014 through December 31, 2015. If they’re correct, then would it be a 2014 return or a 2015 return? Or would it be an 18 month return?
I rarely withdraw but I am going to opt out as your tax question deals with trusts.
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Here is the statute
(a) In general
For purposes of this subtitle, the taxable year of any trust shall be the calendar year.
(b) Exception for trusts exempt from tax and charitable trusts
Subsection (a) shall not apply to a trust exempt from taxation under section 501 (a) or to a trust described in section 4947 (a)(1).
Different tax year is allowed for the estate.
Thus - if the trust makes so-called "the 645 election," that woudl allow to treat the trust income tax return as a combined estate and trust tax return.In this case a fiscal year woudl be allowed.
So far - the IRS seems as correct and your filing must be corrected.You will have first short tax year for the period July 8, 2014 through December 31, 2014 - and you will use 2014 tax forms.then - you will file 2015 tax return for the full year.
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