Distribution to the beneficiary

[dmertz]

No, the beneficiary does not report nontaxable distributions of corpus or income previously retained and taxed to the estate.

The calculations on Schedule B result in distributions to the beneficiaries effectively being first from current-year income to the extent that there is current-year income.  If the amount distributed to the beneficiaries is less than the current-year income, the amount not distributed is taxable to the estate, not to the beneficiaries; the estate does not get a deduction for distributable net income that is not distributed.

[vstar58]

Well, this is never easy.  Not sure if you are an independent expert or with Turbo Tax software but I'll ask anyway.  So I entered the distribution of corpus on schedule b, line 10, which is not taxable or reportable to beneficiary.  The program creates a K1 with amounts for the beneficiary to report which according to our discussion on this subject would be incorrect.  There are no "step by step" questions in the software on distribution of corpus so the only way to do this is by direct input to the "form".  Perhaps the distinction of the various income tiers impacts this somehow and needs further direct input?  If someone has an answer, I would appreciate it, thx

[dmertz]

If the trust received income and a distribution was made to a beneficiary, there will be reportable income on the Schedule K-1.  If the trust received no income, the result on Schedule B line 15 should be $0 and no income will be passed through on the Schedule K-1.

Nothing of the distribution of corpus will appear as taxable income on the Schedule K-1.  If the trust did receive income, the distribution to the beneficiary is treated as coming first from the income and will appear on the Schedule K-1 in the box associated with the type of income.  You can't distribute corpus without first distributing income.  When making the entry in TurboTax Business, a distribution of corpus is indicated by increasing the amount that TurboTax shows as distributed to beneficiaries to an amount above that beneficiary's share of income to the trust.

[Rose 04]

Distribution is from a Disputed Ownership Fund

[Rose 04]

I don't know where to invlude the money, under interest or dividends. The amount is less then $20.00

[JamesG1]

Do you have a K-1 from a trust or some other tax document?

Or are you preparing the 1041 and asking directions?

See also this TurboTax Help.

[slowreader]

This is maddening! Taxpayer wants to know how to handle distribution of corpus on the 1041 and gets answers on how to handle distribution of income!

Yes, we understand that the beneficiary doesn't have to report such distributions. But does the trustee have to report it on form 1041 and where on that form or its schedules do we report it, exactly? I see references to Schedule B, but when I try to open Schedule B the only thing that comes up is Schedule B QBI aggregation statement which is unrelated.

[dmertz]

Distributions of corpus are not reported on Form 1041.  Form 1041 is an income tax return for reporting income, deductions and credits of the estate or trust and it is those that are passed through to beneficiaries on Schedules K-1 for reporting on the beneficiaries individual income tax return.

[NovaBook]

I've been searching for answers on how to report the principal distributions to irrevocable trust beneficiaries and this string is the closest I've found to what I'm looking for. I'm the trustee for my mother's estate. I'm wading through the muddy 1041 waters just trying to figure out how to complete these forms since this wasn't any grand estate. Her home was in the trust and she had about $10,000 in her bank account.  We sold the home for slightly less than the appraised market value. I distributed the money from the sale to my siblings - eight of us. Q.1 - I think the sale of the home is reported on Form 8949 and then schedule D - is that right?  Q.2 - Where do I report the distributed money (principal) or do I not report that?  Q.3 Since there is no income, do I issue K-1's to my siblings showing that, and does the principal get reported anywhere on the K-1's?

[gloriah5200]

From Page 4 of Instructions for Form 1041:

Distributable net income (DNI). The income distribution deduction allowable to estates and trusts for amounts paid, credited, or required to be distributed to beneficiaries is limited to DNI. This amount, which is figured on Schedule B, line 7, is also used to determine how much of an amount paid, credited, or required to be distributed to a beneficiary will be includible in his or her gross income.

Please refer to the following link for additional information:

IRS Instructions for Form 1041

You can distribute corpus, but it generally is not taxable because only the taxable income is reported on the 1041.  The taxable income is allocated to beneficiaries via k-1 and any excess distributions (corpus) beyond the taxable income does not show on the 1041 nor k-1s unless a comment is made in the comment section to that effect.

Also, the amount of corpus distributed beyond the taxable income allocation is also not deductible on the 

[seadrag76]

Thank you very much @dmertz,

I think people in this discussion forum obtained lots of useful information.  

One more question - an irrevocable trust has 5 beneficiaries.  In 2021, the trustee distributed DNI to only one beneficiary.  In this case, should the beneficiary who received DNI pays income taxes, or should all beneficiaries pay a portion (20% each) even if only one of them received in 2021?  I'm pretty positive that the beneficiary who received DNI should pay income taxes, but not 100% sure since I can't find IRS provision or Rev Rul.  People might ask why only the received party pays income taxes even if DNI is for all beneficiaries.  Many thanks for your contribution and time spent on this.

[slowreader]

In January, the trustee is required to send a tax form (Schedule K, I think it is) to the individual who received income from the trust, and that person is required to report the income as interest, dividends, or capital gains (as the case may be) on his or her tax return. The trustee will also report that payment on the trust's tax return. No other person or entity is involved in this.

I am assuming that we are talking about trust INCOME, not a distribution of capital. And of course I am assuming that the trustee is permitted to distribute income as he or she believes needful, and that it's okay not to distribute ALL income (in which case the trust reports the income and pays taxes on it at the rather high trust rates).

[tagteam]

@slowreader 

Distributions of corpus do not have to be reported on the 1041. 

Even if they are reported (on Line 10 of Schedule B, which some preparers do use to include such distributions), the amounts of the distributions of corpus will not flow through to the K-1s.