Significant Calculation Error in TurboTax Business — California Form 541 Final Trust Return

To the TurboTax Product Team,

I am writing to report what appears to be a material calculation error in TurboTax Business (2025 tax year) affecting California fiduciary returns (Form 541) for terminating trusts with capital gain distributions.

The Issue: When completing a final-year trust return for the Fahrenthold 1999 Insurance Trust, I discovered that TurboTax Business incorrectly allocated $116,653 in long-term capital gains to the Fiduciary column (column b) on California Schedule D (541), line 9, Part II — rather than to the Beneficiaries column (column a). The federal Form 1041 handled this allocation correctly, but the California state module did not inherit it properly.

The Downstream Impact: This single misallocation cascaded through the return in the following way:

1. California Schedule B, line 3 (net gain from Schedule D) remained blank, because the gain was attributed to the fiduciary rather than flowing into the DNI calculation
2. As a result, the income distribution deduction on Form 541, line 18 showed only $1,915 instead of the correct $116,653
3. The trust's taxable income on line 20a showed $116,653 — the full capital gain — instead of the correct $1,915
4. This produced a California tax bill of $7,287 that was almost entirely incorrect

Critically, TurboTax's error review did not flag this issue. The return passed all error checks and would have been filed and paid incorrectly without manual line-by-line review of the underlying forms.

The Fix: Manually correcting line 9, column (a) of California Schedule D to reflect $116,653 allocated to beneficiaries (and $0 to the fiduciary) immediately resolved the cascade — line 18 corrected to $116,653, line 20a dropped to $1,915, and the tax due fell from $7,287 to $19.

Why This Matters: This error would affect any user filing a final-year California trust return (Form 541) where capital gains are distributed to beneficiaries — a common scenario for terminating trusts. Most users filing through the interview-based workflow would have no reason to inspect the underlying Schedule D columns and would simply pay the inflated tax bill.

I would encourage Intuit to investigate this issue in the California fiduciary module and consider whether other users may have been affected. I am happy to provide additional details or documentation if helpful.

Thank you for your attention to this matter.