Does this make sense to anyone?
My CPA's original plan was to move money from Estate to Trust, then the Trust donates everything to charities and deducts it, and neither pays any taxes since it's all deductible. But instead of a straightforward K-1 from the Estate, and listing that income and individual charitable deductions for the Trust, they've issued an Estate K-1 to the Trust that lists the income in Box 5 but also lists a Box 14 Code H deduction for the same amount. So now the Trust isn't reporting the income or charitable deductions. I don't get it.
Details:
- We moved $200k in 1099-R IRA income from the Estate to the Trust.
- The Trust was the beneficiary listed on the K-1.
- The Trust paid out all $200k to charities. No charitable contributions from Estate.
- Estate reports the 1099-R income on the 1041, and generated a K-1 to the Trust, which has 200k listed as other income in Box 5 and -200k listed on Box 14, with code H. ($200k is also listed in Box 18 of form 1041.)
- Code H is for net investment income tax or deductions.
- Trust is not reporting this K-1 income or the related charitable deductions. (I'm guessing because Box 5 minus Box 14 is 0.)
I have mentioned my concerns to her several times but she says it's fine as-is and refuses to explain it to me further. I just don't want an audit so I'm quite paranoid. She says the income and deduction are both listed on the estate and therefore do not need to be listed on the trust. But I have no idea how Code H is at all relevant for the Estate, especially when the Trust is the one who should be listing the deductions. It's very confusing. Is this plan of hers just a simpler alternative that achieves the same thing with less work?
