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Ask Lane Your Own Question
Category: Tax
Satisfied Customers: 12196
Experience:  Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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In which cases is a Trust considered as an entity for tax purposes?

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In which cases is a Trust considered as an entity for tax purposes? By this I mean that the trust may be a taxpayer and must get EIN, file tax returns, and such? Is it the case in the US that Trusts set up by companies in order to administer pension and retirement funds or stock plans are tax exempt?

No, retirement plans are trusts and although somewhat different from the typical irrevocable trust are taxable entities and mist file using IRS form 5500.

DOL (Dept of Labor), IRS and PPBGC (Pension Benefit Guaranty Corp.) jointly developed the Form 5500 Series so employee benefit plans could utilize the Form 5500 Series forms to satisfy annual reporting requirements under Title I and Title IV of ERISA and under the Internal Revenue Code..

In terms of the more typical trusts that are used by individuals and Corporations to segregate assets, for estate planning , charitable needs and special needs planning, it comes down to one thing; ... whether the grantor of the trust has any discretion to direct or use trust proceeds. Truly irrevocable trusts such as these use form 1041 and pay taxes based on the tax brackets for trusts (IRS publishes tax brackets and rates for (1) individuals, (2) corporations and (3) trusts).

Revocable trusts, very much like S-Corps, LLC;s and partnerships are pass-throughs, and are taxes are passed through to the owner/grantor's personal tax return.

Qualified plan reporting:

Trust - and estates - reporting (irrevocable):

Where all income for revocable trusts, LLC's, Sole Proprietorships, partnerships and S-corps end up; the 1040 (or one of it's versions)

We should not forget that Federal estate and gift taxes are paid using
form 706 (estates) and form 709 (post 1976 taxable gifts)

I provide this as an overview. Each of these forms have exceptions, caveats and multiple possible supporting documents and scheduls.

But hopefully this gives a feel for how it all works.

Circling back to your original question, essentially trusts are either taxed as their own entities or to the grantor, depending on whether the grantor has truly given up all present interest.


Lane and other Tax Specialists are ready to help you

Thank so much!

If you ever need more help in this ares just go to my profile and the question will come right to me.

Thanks again,