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Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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The CPA didnt file a K-1 in/for 2011 because all Trust assets

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The CPA didn't file a K-1 in/for 2011 because all Trust assets had not been distributed in a large part because the house in Trust had not been sold. The CPA elected to treat the Trust as part of an Estate. The decedent passed in September of 2010. No Federal Estate taxes applied. The 1040 for 2010 for the decedent was filed.

The CPA said he needed all expenses and income records of the Trust through 8/31/2011. The 1041 for the Estate/Trust was filed for December 31, 2011 in December. Income was taxed at the Estate level with no pass-through K-1s. (I as a beneficiary could have offset some of the Trust income with Capital Gain losses I had if K-1 had been used). Instead the Trust incurred taxes.

Do you agree that unless the final 1041 is being filed K-1s are not used? (I would have used K-1s with the 1041 filing for 2011 noting not all Trust assests have been sold and distributed and subsequent 1041 forms and K-1s will be issued.) Obviously the CPA didn't agree. There were substantial distributions of monies in 2011. How would you have handled the situation?


Hi and welcome to Just Answer!


There is no requirements for ALL assets to be distributed in order for the trust (or estate) to pass the taxable income to beneficiaries.
If that is the only reason provided by your CPA - I would rather disagree. However, you might suggest trust's documents to verify if there any specific provisions.
Generally - in the final year - income is required to be distributed, while if the year is not final - the administrator generally has a choice - either the trust pays taxes on that income or taxable income is passed to beneficiaries (deducted on 1041 line 18) or a combination of both.
The decision to distribute taxable income is made by the administrator of the estate.
As the CPA disagree - you may discuss the issue with a different tax prepare - and if that is more beneficial - consider filing amended tax return.
Let me know if you need any help.

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