How to handle the trustee fee correctly？

[easyxpress]

This is an irrevocable Trust and has its own TIN. I read that the Trust is not treated as a business, so there's no need to issue 1099-MISC to the trustee regarding the fee. Then, how is this fee reported to IRS (or not)?

[tagteam · Accepted solution]

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@easyxpress wrote:

....how is this fee reported to IRS (or not)?

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Trustees who receive trustee fees from trusts must report the fees regardless of whether or not they receive tax reporting statements such as Form 1099-MISC.

[easyxpress]

Sure. My question is actually concerning the Trust side (not the trustee). Is there a proper way for the Trust to report the trustee fee to IRS? So IRS can match the income for the trustee. Since 1099-MISC won't be used, reporting the trustee fee becomes a honest system?

[Anonymous]

Since it isn't a business the issuance of a 1099 isn't required though nothing prevents the trust from issuing one.  it is the recipient who has responsibility for reporting the income even though no 1099 is issued. 

[tagteam · Accepted solution]

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@easyxpress wrote:

Since 1099-MISC won't be used, reporting the trustee fee becomes a honest system?

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Yes. In fact the entire federal income tax system is based upon voluntary compliance.

[Carl]

Just because a trust is not required to issue a tax reporting document, does not mean the trust is forbidden from doing so. Trusts issue 1099-MISCs all the time for expenses paid out of the trust - especially fees paid to the trust administrator.

[tagteam]

I do not believe anyone in this thread stated that trusts are prohibited from issuing 1099-MISC forms.

The fact remains, however that trusts do not "issue 1099-MISCs all the time for expenses paid out of the trust" (I have no idea how that statement could be either verified or corroborated as the typical trust is private).

Regardless, it is clear that the IRS intended the form to be used only for trade or business reporting with extremely limited exceptions.

Trade or business reporting only.

Report on Form 1099-MISC only when payments are made in the course of your trade or business.

[Anonymous]

read my previous post. it provides the answer you are seeking. 

[tagteam]

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@Anonymous wrote:

read my previous post. it provides the answer you are seeking. 

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I hope you are not responding to my post because I actually read other posts in threads and read your post as well. Apparently, many others do not follow suit.

[FDaras]

How does a Trustee report the fees they collected? Since it's an "honor" system and the trust isn't going to issue a 1099 where on the 1040 is the income documented? 

[MaryK4]

If you do not act as Trustee as a trade or business, you will report it as Miscellaneous Income - Other Reportable Income.  This will include it on Schedule 1.  Because it is not a trade or business, you do not have to pay self-employment tax on it.

@FDaras

[easyxpress]

When the Trustee is in trade or business? 

[tagteam]

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@easyxpress wrote:

When the Trustee is in trade or business? 

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That would depend upon the facts and circumstances particular to your situation.

Generally, however, if you act as a trustee on a regular and continuous basis for fees and/or commissions, doing so would rise to the level of a trade or business (and require reporting other than as miscellaneous income).

[techs]

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@easyxpress wrote:

Is there a proper way for the Trust to report the trustee fee to IRS? So IRS can match the income for the trustee.

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Since this is a stale thread, I hope you got your answer another way.  The responses marked "best answer" in this topic aren't even responsive to the questions asked, IMO.  As far as I can tell, "how does the trustee report compensation received on an individual 1040?" was clearly and correctly answered by @MaryK4 on 24Jan21.  I believe the answer to the question "how does the trust report compensation paid?" is that it will be shown* as a deductible expense on the trust 1041.  How the IRS might connect the two, I'm not sure — but they are at least clearly disclosed and traceable to each other this way when a 1099 is not issued.

*TT2021 interview was no help with this — I turned up another user tip about where and how to make a manual/form entry.

[tagteam]

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@techs wrote:
Since this is a stale thread, I hope you got your answer another way.  The responses marked "best answer" in this topic aren't even responsive to the questions asked, IMO. 

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Here is the original question:

I read that the Trust is not treated as a business, so there's no need to issue 1099-MISC to the trustee regarding the fee. Then, how is this fee reported to IRS (or not)?

The original poster was already aware that the trust could deduct the fee paid to the trustee and merely wanted to know how the fee gets reported to the IRS when a tax reporting statement (e.g,, a 1099-MISC) is not required.

Try reading the first post in this thread before offering your opinion on what is not the "best answer".