Tax

Have a Tax Question? Ask a Tax Expert

Ask an Expert,
Get an Answer ASAP!

Tax
This answer was rated:

what is section 512 of the tax code (related to section 66

4)...
what is section 512 of the tax code (related to section 66 4)
Ask Your Own Tax Question
Answered in 23 minutes by:
3/21/2012
gregmey
gregmey, CPA
Category: Tax
Satisfied Customers: 147
Experience: Certified Public Accountant & Certified Financial Planner
Verified
Hi, If a CRUT has Unrelated Business Taxable Income (UBTI) in any given year, the trust is subject to tax on ALL income for that year Treas Reg 1.664-1(c). If there is UBTI the tax due is calculated under the complex trust rules. Therefore, any distribution to the beneficiaries would be deductible as a distribution deduction to the trust. Any income left after the distribution deduction is taxable at the trust level.

Let me know if you have any further questions.

Thanks,

Greg
Ask Your Own Tax Question
Customer reply replied 5 years ago

Note: I sent this reply(question) via Email which was probably incorrect---I was confused as how to send a follow-up question.

Anyway, the question is:

 

Since complex trust rules would apply, does that mean that I file a 1041 rather then the normal 5227 or both? And apparently, a form 4720 is also required to compute the tax. But where in the instructions (1041 or 4720) does it specify that the distribution to the beneficiary is deductible? And finally, is the amount of (presumed) excise tax equal to the "net" income (after distribution to the beneficiary)?

 

Sorry for the confusion,

 

XXXX XXXX

Hi Larry, You need to post questions in the chat in order for me to see them.

Even though the complex trust rules apply you do not need to file Form 1041. You will need to file Form 4720 and Form 5227. Refer to the instructions of Form 5227 pg 4 section G.

http://www.irs.gov/pub/irs-pdf/i5227.pdf

There is an example in the Treasury Regulations 1.664-1(c) that shows you can deduct the distribution deduction. I don't see an explanation of this in the form instructions.

Yes, the amount of excise tax is equal to the net income after the distribution deduction.

Thanks,

Greg

Ask Your Own Tax Question
Customer reply replied 5 years ago

And-----one final question !!

 

The K-1's in question (qty 2) identify the "unrelated taxable business income" as negative numbers, in both blocks 1 and 20. (Presumably, the negative "ordinary income" in block 1 will pass through to me as a passive loss on Schedule E)

 

But I digress---Even though the UTBI is negative, does the excise tax still apply?

Note: Maybe this is the reason for the IRS to impose this tax via Form 4720 !!??

 

Please answer/comment on the foregoing.

 

Thank you in advance for your assistance---You've been very helpful!!!

 

XXXX XXXX

Hi Larry,

The UBTI is taxable at the CRUT not to the income beneficiary. The beneficiary will recognize income from the CRUT distributions based on the following ordering rules in Reg. §1.664-1(d)(1)(i):

1) Ordinary Income
2) Capital Gains
3) Tax Exempt Income
4) Return or principal

The UBTI income makes the CRUT a non-tax exempt entity for the year but it does not change the income classification for the beneficiary.

I hope this answers your question.

Thanks,

Greg
Ask Your Own Tax Question
Customer reply replied 5 years ago

Greg---

 

Sorry for this "reply" but------as asked in my most recent inquiry, "Even though the UTBI is negative, does the excise tax still apply?"

 

i.e. in blocks 1 and 20 on the K-1 to the CRUT (issued by the company in which the CRUT is invested), the number is XXXXX!! (specfically -$8,296.00)!!

 

Correspondingly, does the excise tax apply to both positive and negative amounts? I am confused on this, since I've never encountered this UTBI problem before.

 

Your most recent correspondence did not seem to address this question.

 

XXXX XXXX

I'm sorry I misunderstood what you were asking.

In this situation the excise tax on the CRUT does not apply because there is no Unrelated Business Taxable Income (UBTI) this year. The K-1's are reporting a $8,296 loss. The excise tax does not apply to negative amounts.

Again, sorry for misunderstanding your original question.

Thanks,

Greg

gregmey
gregmey, CPA
Category: Tax
Satisfied Customers: 147
Experience: Certified Public Accountant & Certified Financial Planner
Verified
gregmey and 87 other Tax Specialists are ready to help you
Ask your own question now
Ask gregmey Your Own Question
gregmey
gregmey
gregmey, CPA
Category: Tax
Satisfied Customers: 147
147 Satisfied Customers
Experience: Certified Public Accountant & Certified Financial Planner

gregmey is online now

A new question is answered every 9 seconds

How JustAnswer works:

  • Ask an ExpertExperts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional AnswerVia email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction GuaranteeRate the answer you receive.

JustAnswer in the News:

Ask-a-doc Web sites: If you've got a quick question, you can try to get an answer from sites that say they have various specialists on hand to give quick answers... Justanswer.com.
JustAnswer.com...has seen a spike since October in legal questions from readers about layoffs, unemployment and severance.
Web sites like justanswer.com/legal
...leave nothing to chance.
Traffic on JustAnswer rose 14 percent...and had nearly 400,000 page views in 30 days...inquiries related to stress, high blood pressure, drinking and heart pain jumped 33 percent.
Tory Johnson, GMA Workplace Contributor, discusses work-from-home jobs, such as JustAnswer in which verified Experts answer people’s questions.
I will tell you that...the things you have to go through to be an Expert are quite rigorous.

What Customers are Saying:

I really was impressed with the prompt response. Your expert was not only a tax expert, but a people expert!!! Her genuine and caring attitude came across in her response...

T.G.WMatteson, IL

I WON!!! I just wanted you to know that your original answer gave me the courage and confidence to go into yesterday's audit ready to fight.

BonnieChesnee, SC

Great service. Answered my complex tax question in detail and provided a lot of additional useful information for my specific situation.

JohnMinneapolis, MN

Excellent information, very quick reply. The experts really take the time to address your questions, it is well worth the fee, for the peace of mind they can provide you with.

OrvilleHesperia, California

Wonderful service, prompt, efficient, and accurate. Couldn't have asked for more. I cannot thank you enough for your help.

Mary C.Freshfield, Liverpool, UK

This expert is wonderful. They truly know what they are talking about, and they actually care about you. They really helped put my nerves at ease. Thank you so much!!!!

AlexLos Angeles, CA

Thank you for all your help. It is nice to know that this service is here for people like myself, who need answers fast and are not sure who to consult.

GPHesperia, CA

< Previous | Next >

Meet the Experts:

Wallstreet Esq.

Wallstreet Esq.

Tax Attorney

586 satisfied customers

10 years experience

Mark D

Mark D

Enrolled Agent

1,300 satisfied customers

MBA, EA, Specializing in Business and Individual Tax Returns and Issues

Richard

Richard

Tax Attorney

4,310 satisfied customers

29 years of experience as a tax, real estate, and business attorney.

Robin D.

Robin D.

Senior Tax Advisor 4

13,695 satisfied customers

15years with H & R Block. Divisional leader, Instructor

Megan C

Megan C

Certified Public Accountant (CPA)

8,651 satisfied customers

Licensed CPA, CFE, CMA, CGMA who teaches accounting courses at Master's Level

jgordosea

jgordosea

Enrolled Agent

2,885 satisfied customers

I've prepared all types of taxes since 1987.

R. Klein, EA

R. Klein, EA

Enrolled Agent

1,839 satisfied customers

Over 20 Years experience

< Previous | Next >

Related Tax Questions
Suppose my taxable income in 220,000 this year and the tax
Suppose my taxable income in 220,000 this year and the tax rate is X up to 200K, but Y for 200and over, do I pay Y on the full 220K or just that above 200K? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Is the sale of customer list a capital gain or ordinary income?
Is the sale of self-created intangibles, such customer lists, digital files, web sites, etc subject to capital gain or ordinary income treatment?… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Form 1120, cash basis. If Taxes paid to IRS are deductible,
Form 1120, cash basis. If Taxes paid to IRS are deductible, are refunds for overpayment the equivalent of income?… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
I have a schedule e form that I filed for extension (2016).
I have a schedule e form that I filed for extension (2016) . I attempted to send in time online but was thwarted by my own incompetence to follow directions basically. I saw that if I used a free form… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
I have a question regarding the ordinary income tax. If the
Hello, I have a question regarding the ordinary income tax. If the ordinary income tax due is negative does that apply anywhere? This pertains to the sale of an S corp .business. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
If my Schedule E loss is disallowed for a rental property
If my Schedule E loss is disallowed for a rental property (due to income level), can I take the mortgage interest and real estate taxes paid on Schedule A instead of on Schedule E?The entire expense a… read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
You may recall that tax deductions are only deductible by
You may recall that tax deductions are only deductible by the legislative grace of Congress. After this lesson, you might have realized that Congress was pretty generous with the types of business exp… read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
Is 1120-S K1 non-passive ordinary income also taxable to
Is 1120-S K1 non-passive ordinary income also taxable to self-employment tax? … read more
Barbara
Barbara
Enrolled Agent, Paralegal
3,490 satisfied customers
A Form 1041 is filed for a Credit Shelter Trust & shows a
A Form 1041 is filed for a Credit Shelter Trust & shows a loss on the Taxable Income line (Page 1, line 22). Is this loss carried forward?… read more
abci168
abci168
Principal
27 satisfied customers
I am trying to figure out the net income from the following
Hi. I am trying to figure out the net income from the following part-time jobs in MARYLAND and then the total net income. If possible, will you please send me how you arrived at the figures (the calcu… read more
LEV
LEV
Retired
Bachelor's Degree
14,896 satisfied customers
Can house maintenance and property taxes be deducted on form
Hello. Can house maintenance and property taxes be deducted on form 1041 for a house owned by decedent prior to the Executors selling it? … read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Form 1041 questions Where do you enter the 2k bond
Form 1041 questionsWhere do you enter the 2k bond premium-tax-exempt obligations on Form 1041. the 2k is shown on Form 1099-INT under Adjustments to interest and original issue discount… read more
keeperumiami
keeperumiami
Sr Financial & Tax Consultant
Bachelor\u0027s Degree
1 satisfied customers
I received a Schedule K-1 (Form 1041) from my aunt's estate
I received a Schedule K-1 (Form 1041) from my aunt's estate from which I received a distribution. In Part 3, Beneficiary's Share of Current Year Income, Deductions, Credits, and Other Items, there is … read more
Chad CFP ®
Chad CFP ®
Certified Financial Planner(R), Pro
Master\u0027s Degree
736 satisfied customers
Undistributed taxable income previously taxed. Have 3
Undistributed taxable income previously taxed. Have 3 shareholders with balances due to them from previous years. Can it be paid all in one year to bring their amounts owing to zero until the next pro… read more
Mark Taylor
Mark Taylor
Certified Public Accountant
Masters
2,230 satisfied customers
I would like clarification on the IRS tax deductions and a
I would like clarification on the IRS tax deductions and a rental property I purchased recently. … read more
Robin D.
Robin D.
Senior Tax Advisor 4
Vocational, Technical or Trade School
13,695 satisfied customers
Rules on Rollovers (Return of a non-taxed IRA Distribution).
Rules on Rollovers (Return of a non-taxed IRA Distribution). Over 70-1/2 years old) … read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
ON FORM 1041-DNI PAGE 2-DISTRIBUTIONS PAID-IF A FAMILY TRUST
ON FORM 1041-DNI PAGE 2-DISTRIBUTIONS PAID-IF A FAMILY TRUST DOCUMENT STATES THAT TIER ONE BENEFICIARIES (2) RECEIVE 100K PER YEAR THAT ARE NOT PAID FROM INCOME OR CAPITAL GAINS BUT ARE TO BE PAID REG… read more
PDtax
PDtax
Owner
Master\u0027s Degree
1 satisfied customers
Can an estate on its Form 1041 take a deduction for
Can an estate on its Form 1041 take a deduction for charitable donations? I see a place on Schedule A. What about non-cash donations. Can it take them?… read more
NPVAdvisor
NPVAdvisor
CFP Licensee and Practitioner
Master's Degree
180 satisfied customers
Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Disclaimer: Information in questions, answers, and other posts on this site ("Posts") comes from individual users, not JustAnswer; JustAnswer is not responsible for Posts. Posts are for general information, are not intended to substitute for informed professional advice (medical, legal, veterinary, financial, etc.), or to establish a professional-client relationship. The site and services are provided "as is" with no warranty or representations by JustAnswer regarding the qualifications of Experts. To see what credentials have been verified by a third-party service, please click on the "Verified" symbol in some Experts' profiles. JustAnswer is not intended or designed for EMERGENCY questions which should be directed immediately by telephone or in-person to qualified professionals.

Show MoreShow Less

Ask Your Question

x