Do I need to file a 1041 if the bypass trust hasn't been funded yet?

[klanderso]

Here's the scenario: Mom and Dad were married (50+ years) and had a family trust.  Mom inherited a home and stocks when her mother died in 2012 and for some reason did not put these in the trust but held them in her name only. Mom died unexpectedly in 2014 and we had to go through probate.  My Dad did a disclaimer and after completing probate mom's property/stocks were placed in a bypass trust which we just completed paperwork on in January 2017.  The EIN was applied for in 2016.

I've received something from the IRS stating that I need to complete a Form 1041 which is due in April. Do I need to complete this even though the stocks and property are only just now being placed into the bypass trust?  The income from the property (rental) and stocks in 2014 and 2015 were just placed directly on my Dad's tax return. I had planned to do the same with 2016 but now I don't know if I should be doing the 1041/K-1 beginning with 2016 or beginning with 2017 which is when we are putting the property/stock into the bypass trust.

Hopefully this makes sense. Thanks!

[AmyT · Accepted solution]

Since you received an EIN in 2016, the IRS will be looking for a fiduciary return (Form 1041) for the trust, and may assess failure-to-file penalties.

You can file a zero activity return for the trust for 2016, since it was not funded in 2016.  The least expensive way to do this (since it will be a $0 return) is to download the form (https://www.irs.gov/pub/irs-pdf/f1041.pdf) and fill out the top portion, put a "0" on lines 9, 21, 22, 23, and 27.  You will also need to answer the check-box questions at the bottom of page 2 under "Other Information".

Your state may also have a filing requirement - it would be a good idea to check with the taxing authority to see if you also need to file a state return.

[klanderso]

The state is California.  Instructions on 541 say not to file if there is no California income (which there wasn't since it wasn't funded) so I think I'll just do the 1041 with all the "0's" and not file the 541.  Thanks!

[AmyT]

Sounds like a good plan.