1041 Trust and K1?

[jhouse78]

Are K-1s required for a 1041 return if the trust did not earn any money?  I'm trying to complete what I thought was a fairly simply trust return with TT Business, the trust had investments that were sold at a loss, there are no taxable earning at all, only distributions.  Beneficiary distributions were made, but is it then required to send each beneficiary a K-1?  

[tagteam · Accepted solution]

No. K-1s are required to report items of income, gain, deductions, and credits that are passed through to the beneficiaries.

They do not need to be issued to report distributions of corpus (principal).

[jhouse78]

Thank you for the information!  So just to clarify, the trust DID earn income in excess of $600 but also experienced losses from bond sales resulting in a loss (no taxes owed)…the only thing distributed to beneficiaries WAS principal however is the K1 required to report the loss?  Or can I safely submit the 1041 without K1s?

[tagteam]

Capital losses would remain with the trust unless this is the final return (in which case the loss could be distributed to the beneficiaries for them to use on their individual income tax returns).

[jhouse78]

Thank you!  Final question: if I don't need to pass through anything to the beneficiaries (meaning only principal was distributed) in order to let the trust pay its own taxes (which is nothing) can I skip the K1s by just leaving the beneficiary section blank in TurboTax? 

[tagteam]

Yes, but you virtually almost do not even have to file a return (Form 1041) if there is no income and only corpus (principal) is being distributed. 

I suppose, as a formality, you can handle the return in that manner in order to simply indicate that the estate has terminated and is filing its final return (with that particular box checked on the 1041).

[jhouse78]

Thank you!  I guess what I meant was the trust DOES have income requiring the 1041 but losses from bonds sales offsets it – in the end there is -$2000 tax owed.  So in that case, can I safely submit the 1041 and just bypass the Beneficiary info/K1s entirely and basically forfeit the loss?  This is the final return for the trust.  

I'm just trying to keep things simple!

[tagteam]

I understand, but you are making this decision for the other beneficiaries, correct?

Is that what they want or would they rather be able to use the loss?

[jhouse78]

I know but two of them are refusing to give me their SS#s which (I've learned) is going to require me to attach affidavits, etc. to the return and potentially incur a fine, etc.  I'm trying to avoid that if possible. There's no mention in the trust instrument that I have to include carryover loss in distribution, I would do it obviously if everyone was cooperating.   One of them DID give it to me, so I could just give it all to them but I guess that would appear as preference.  It's a thankless job being a trustee. 🙄 

[tagteam]

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@jhouse78 wrote:

I know but two of them are refusing to give me their SS#s which (I've learned) is going to require me to attach affidavits, etc. to the return and potentially incur a fine....

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The problem with that line of reasoning is you could be in for even worse if one of the beneficiaries decides you failed to perform your duties as a fiduciary. I can tell you in no uncertain terms that failure is actionable.

It is always wise to follow the Regulations promulgated by the Treasury in these matters.