Thanks for your reply @DaveF1006.
I went ahead and entered the entire distribution as you suggested on line 10 of Schedule B which generated amounts in Box 14A (Tax Exempt Income) and 14B (Foreign Tax Credit) on each beneficiary's K-1
I have a follow up question regarding the impact to the non resident alien beneficiaries.
I filled out a test 1040-NR for my siblings to see what would occur based on the K-1 and the1040-NR schedule NEC is all zeros and tax due is zero since the income was tax exempt income. Based on this I assume they do not have to file a 1040-NR nor do I need to issue a 1042-S for each of them. Please confirm that you agree.
Interestingly the foreign tax credit was not taken on the 1041 as I expected but instead was passed on to the beneficiaries. Based on this I assume that I as a US citizen can claim it on my 1040 but my siblings are not required to file a 1040-NR to claim theirs and can simply forego it. Please let me know if my assumptions are correct.
Thanks in advance. I appreciate your expert opinion.
