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Lev
Lev, Tax Advisor
Category: Tax
Satisfied Customers: 29796
Experience:  Taxes, Immigration, Labor Relations
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My Dad died in 2009. During s life he set up a revocable

Customer Question

My Dad died in 2009. During his life he set up a revocable trust for me with distribution to my Mom if necessary. After he died we never filed a 1041 IRS form and all the income was reported with my Moms return. My Mom just passed and I am trying to do her tax returns. As I did so I discovered that when my Dad died the trust changed to an irrevocable trust due to his passing and that I should have been filing form 1041 from the year he died. What do I do now??
Submitted: 1 year ago.
Category: Tax
Expert:  Lev replied 1 year ago.

You assumptions are correct - when the grantor passes away a revocable trust is automatically converted to irrevocable - and is treated as a separate taxing entity.
Based on your information - your mother was named as a beneficiary of that trust

and you was named as a successor beneficiary.

.

First of all - regarding filing requirements - see instructions - page 4 - Who Must File

https://www.irs.gov/pub/irs-pdf/i1041.pdf

Trust
The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has:
1. Any taxable income for the tax year,
2. Gross income of $600 or more (regardless of taxable income), or
3. A beneficiary who is a nonresident alien.

.

So filing was required IF there was any taxable income during the tax year.

However - if income was distributed to the beneficiary (your mother) - that income would be reported on K1 statement and taxed on her individual tax return.

Thus - there was NO additional tax liability - and only missing filing requirements.

.

As you realized the mistake - I suggest to requires EIN for the trust as soon as possible and start filing trust's tax return.

As there is no past tax liability you may attach a letter with the trust tax return with explanation of facts and why returns were not filed - and state that all income was included into your mother's tax returns.

I would assume the IRS will not have any concern.

But if they do - you would not have any choice - but start filing all missing tax returns.

Questions?

Customer: replied 1 year ago.
I will do the proper reporting after my Moms death in 2015 but from 2009 to nov 2015 we included the trust income in my moms return when the trust had been converted to an irrevocable trust after my dads death in 2009 thus requiring a form 1041.
Do I mend the last 7 years returns or just leave it and start reporting as it should be?
Expert:  Lev replied 1 year ago.

You do not need to amend your mother's tax returns...
Because you correctly included income distributed form the trust into her individual tax returns.
Regardless if income is reported directly or indirectly via K1 statements - that would be the same income and same tax liability - so there is no reason to amend.

The question is ONLY about filing trust's tax returns that were required.
I hope the IRS would not require you to go back as there would not be any additional tax liability anyway.