Preparing the final 1041 Irrevocable trust tax return. Taxes paid on all income in prior years. Final distributions of trust principle to beneficiaries made last year bequeathed by the trust in specific amounts to each beneficial. Does the trust need to issue K1s for these distributions since there is no income, gain, etc. Trust has a Net Operating Loss in the last year.
@Smitty_BCS wrote:
Does the trust need to issue K1s for these distributions since there is no income, gain, etc.
No, not if the trust had neither income nor gain and is only distributing corpus.
However, if there is a loss (capital or ordinary), that loss can typically be passed through to the beneficiaries, via K-1s, on the trust's final return (1041).
[as a side note, are you certain there is an NOL? It is unusual for a trust to have an NOL unless there is some sort of business operation involved, there was a sale of rental (or business) property at a loss, and the like]
The trust has a small amount of interest income and expenses for prior year tax preparation and trustee fees. Net of those is the NOL. So, when TT asks if I have any distributions, I should just select "No" and not enter the beneficiaries receiving the specific principle distributions? Just file the 1041 with no K1s? Do the beneficiaries need to be concerned they don't have a K1 to explain their receiving the distribution?
should have mentioned this is the final return as well. Cash accounts have all been dispersed per the trust directions and accounts closed. Trust is effective closed.
Correct; you do not need to report distributions of corpus.
Further, the beneficiaries do not need to receive K-1s if there are no items of income, gain, deductions, or credits that they would have to report on their individual income tax returns. However, it a good practice to issue K-1s if for no other reason than to inform the beneficiaries that they have no tax liability.
Also, if the expenses exceed the interest income, and those expenses are the likes of fiduciary fees and the like, then there is not an NOL but, rather, a final year deduction that can be passed through to the beneficiaries.
However, if this amount is de minimis, it's probably not worth issuing K-1s for that purpose, not to mention that you can't include the trust's exemption in that matrix.
yes it needs to issue k-1s. the issue is not distributions, but that NOL which passes out to the beneficiaries in the year of termination.