FIDUCIARY INCOME TAX RETURNS -- FORM 1041 WORKSHOP

Transcription

1 FIDUCIARY INCOME TAX RETURNS -- FORM 1041 WORKSHOP

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3 Basics of Estates and Trusts Learning objectives 1 I. Fiduciary returns -- Form A. Controlling instrument(s) and state law 1 1. Read and evaluate 1 2. Allocation of receipts and expenditure 1 II. Reporting income -- Estates 4 A. Estate basics 4 1. Personal-property income reported by the estate 4 2. Personal-property income reported by beneficiary 5 3. Real-property income and expenses -- Reported by estate or beneficiaries? 6 B. Income allocation in year of death between decedent s final Form 1040 and the estate s Form In general 7 2. Summary of rules 7 III. Trusts 13 A. Trust basics Definitions Personal and real property income represented by trusts Simple versus complex trusts 14 B. Grantor trusts: revocable and irrevocable In general Grantor trust reporting requirements Grantor trust alternative reporting requirements to filing Form Grantor trust -- Death of grantor 17 C. Revocable living trusts Definitions Revocable trusts -- Benefits Revocable trusts -- Tax disadvantages after death of grantor Merging the revocable trust into the estate Making the 645 election 24 IV. Pooled income fund 34 A. In general Defined Statutory requirements 34 B. Specific provisions Remainder interest Income interest Commingling of property Prohibition against tax-exempt securities Maintenance of the fund Prohibition against donor or beneficiary serving as trustee Rate of return Allocation of income Taxable year 37 C. Income taxation of the pooled income fund Complex trust Income tax 37 D. Planning considerations Advantages Disadvantages 37 E. Filings Funds Donor 38 V. Miscellaneous 38 A. Community-property basics What is community property? 38 1-i Copyright 2013 Surgent McCoy CPE, LLC /13/01

4 2. Community-property states Included value of community property Identifying community property Basis -- Community property at death of one spouse Tracing issues Commingling property Use of marital agreements Community-property income reported by estates 40 1-ii Copyright 2013 Surgent McCoy CPE, LLC /13/01

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7 Deductions of Estates and Trusts Learning objectives 1 I. In general 1 A. Estate and trust deductions -- Introduction 1 1. General principles 1 2. Expenses 2 3. Apportioned deductions and credits 2 4. Deductions in respect of a decedent (DRD) ( 691(b)) 3 B. Estate election to claim administrative expenses as fiduciary income-tax deductions 4 1. In general 4 2. Election 5 3. Excess deductions on termination 5 II. Specific line items 7 A. Interest -- Line In general 7 2. Investment-interest expense 7 3. Qualified residence interest 8 4. Interest on deferred estate-tax payments [Revenue Ruling 92-10] 8 5. Personal interest expense -- Nondeductible 8 B. Taxes -- Line In general 9 2. Taxes deductible for estate-tax or income-tax purposes 9 3. Taxes accrued at death 9 4. Taxes not deductible for income-tax purposes 10 C. Fiduciary fees -- Line In general Fiduciary fees and self-employment tax 10 D. Charitable deductions -- Line In general Deductions allowed Charitable deduction pull-back election Trust accumulation of charitable amounts -- Form 1041-A Compliance Substantiation 14 E. Attorney, accountant, and return-preparer fees -- Line F. Other deductions not subject to the two-percent floor -- Line 15a In general Nonadministrative expenses Deductible administrative expenses Selling expenses as administrative expenses Nonbusiness casualty and theft losses Other casualty and theft losses Depreciation, depletion, and amortization deduction not claimed elsewhere Net operating loss 18 G. Miscellaneous itemized deductions subject to the two-percent floor -- Line 15b In general Reduction for tax-exempt income allocation Miscellaneous itemized deductions Which expenses are miscellaneous itemized deductions? Proposed regulations Supreme Court decision Bundled investment management and advisory costs Adjusted gross income 26 H. Income-distribution deduction -- Line I. Estate-tax deduction -- Line In general Amount of deduction 29 4-i Copyright 2013 Surgent McCoy CPE, LLC /13/01

8 3. Timing 29 J. Expenses related to tax-exempt income In general Permissible allocation method 33 K. Depreciation, depletion, and amortization Decedent s depreciation, depletion, and amortization in the year of death Depreciation -- Qualified joint interest property by surviving spouse Depreciation apportionment between estate or trust and beneficiaries Depreciation methods Section 179 expense election Depreciation recapture MACRS deduction in short tax year MACRS deduction for a short year 39 4-ii Copyright 2013 Surgent McCoy CPE, LLC /13/01

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