Year that Trust tax return deductions may be applied

[tgfirst]

Given the following:

•Original Bank #1 Trust acct (of deceased who died in Oct 2021) distributes in full on Feb 2022 to a New Bank Trust acct (opened by successor trustee with new TIN)

•Original Bank #1 uses 65 day rule and creates a 2021 1099 for New Bank Trust acct TIN  (post death to Feb 2022 timeframe), 1099 includes $4000 income (interest), distribution into new trust account is $300K (principal and income)

•Attorney effort and fee ($3000) to enable this distribution (trustee selection, opening of trust, …) spans post death to Jan 2022 timeframe, fee paid by trustee in Feb 2022 (within 65 day time for 2021)

•deceased residence and state of original and new trust acct is FL

Can the Attorney Fee be deducted on the New Bank Trust acct TIN 2021 tax return, to offset the 1099 income  ($4000-$3000=$1000 taxable)?

Likewise, if Turbotax Business 2021 is purchased in Jan 2022, can the cost be deducted on the 2021 New Bank Trust acct TIN  (if used to prepare the 2021 trust tax return)? 

side note (in case wondering) - Original Bank #1 Trust acct also generates a 2021 1099  for personal SSN tax return of the deceased for pre-death timeframe

[Anonymous_]

There is a threshold question here and it involves the transfer of assets from Bank #1 to Bank #2.

Why was the 65-day rule (Section 663(b)) used for this transfer?

The 65-day rule is for distributions, not transfers to non-beneficiaries.

[Anonymous_]

Regarding your other issue:

Trusts are typically cash method taxpayers and operate on a calendar (not fiscal) year. As a result, expenses are deducted in the tax year they are paid.

[tgfirst]

• The named successor trustee of original trust was Bank#1 (where orig trust account was held).  Bank #1 declined to be trustee. 
• Another trustee was appointed, opened the Bank #2 Trust account with new TIN. 
• Bank #1 distributed in full (principal + income) to the new Bank #2 Trust account (same Trust agreement, just post-death & irrevocable now after death). 
• Bank #1 utilizes the 65 day rule so it only has to generate a single 2021 1099 (vs. a 2021, and then another 2022 1099)
• The attorney fees (preferred 2021 deduction) are for the 2021 Trust work, during 2021 & early 2022 to effect this distribution (with 2021 1099)
• There have been no distributions from either Bank #1 or Bank #2 Trust accounts to beneficiaries, not principal or income, and will not be for this distribution until after the Mar 7, 2022 65th day.  

[Anonymous_]

The transfer from Bank #1 to Bank #2 is just that; a transfer. It was not a distribution so there was no need to use the 65-day rule (Section 663(b)).

Regardless, I, for one, do not see an issue with deducting the attorney fees from the trust's income on the 2021 trust return.