1041 Grantor Trust

[USER987456]

We have an irrevocable grantor trust that our accountant missed filing 1041 for in 2019 and 2020,  as he thought the trust attorney filed.  What should we do? Since it is just pass through income to the grantor do we even need to file something as long as the trust income (only qualified dividends) was paid on the grantors 1040?

[Anonymous_]

Grantor trusts can use one of the optional filing methods set forth in the instructions for Form 1041.

See https://www.irs.gov/instructions/i1041#en_US_2021_publink1000286018

Did the trust apply for and receive an EIN and were 1041s filed for previous years?

[Mike9241]

if the trust obtained an EIN and the assets were registered using that EIN rather than the individual's SSN, a trust return was due. many grantor trusts do not obtain an EIN so they use the grantor's SSN. 

since a grantor trust does not pay taxes there's little the IRS can do except impose a penalty of $100 per year. however, your would be filing late so the penalty could apply.  if the IRS issues a penalty notice you could always ask for abatement since the income was properly reported on the grantor's return.

[Anonymous_]

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@Mike9241 wrote:

since a grantor trust does not pay taxes there's little the IRS can do except impose a penalty of $100 per year. however, your would be filing late so the penalty could apply. 

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Any penalty for late filing would be tough since that would be based upon any tax due (which in this case would be zero). There is also no penalty for late filing of K-1(s) since a K-1 is not issued by grantor trusts.

[USER987456]

Yes, this trust has its own EIN and we filed 1041 previous years though fell through the cracks in 2020. Guess we need to file a late 1041?

[Anonymous_]

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@USER987456 wrote:
 Guess we need to file a late 1041?

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That would most likely be the safest course of action.

[USER987456]

thank you,