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Arthur Rubin
Arthur Rubin, Tax Preparer
Category: Tax
Satisfied Customers: 1493
Experience:  22 years of tax preparation experience, including individual, trust, and estate returns.
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We KNOW my mother-in-law filed tax returns every year. After

Customer Question

We KNOW my mother-in-law filed tax returns every year. After getting an EIN assigned for her estate and having filed her final tax return - we received a letter from the IRS saying "we have determined that you have NOT filed tax returns for the above-mentioned tax period(s) dating as far back as 2005." 2005 was the year she put her living trust together. What is the mix-up here do you think?
Submitted: 7 months ago.
Category: Tax
Expert:  Arthur Rubin replied 7 months ago.
Thank you for trusting Just Answer with your tax problems. If the trust was considered a "grantor type trust" (as are most "living trusts"), then the trust should not be filing a return (form 1041, and OR form 41); however, if the trust received 1099s in its name (and EIN), it needed to issue "nominee" 1099s to MIL. Although the trust was created in 2005, for tax purposes, you report it as created on MIL's death. I think you may need to prepare a dummy 2005 form 1041, with the entity information filled in, but with no other entries.
Expert:  Arthur Rubin replied 7 months ago.
There are two optional filing methods for a grantor trust: (1) Have the trust give MIL's SSN as its tax ID to payors. Then she report(ed) those payments on her tax retrun.(2) Have the trust give its EIN as a tax ID to payors. Then the trust must issue "nominee" 1099s to reallocate the payments to MIL's SSN.If neither of those was done, the trust should (have) file(d) a 1041 with only the entity information, and provide a statement to MIL specifying all the taxable informtion. If none of these were done, the IRS knows the trust exists; if it didn't give payors MIL's SSN, the IRS knows it had income, but they do not officially know it's a grantor trust.