I am the trustee of irrevocable trust for my nephew. He is the sole beneficiary of the trust. In 2019, he directed me to make a gift of $30,000 from his trust to his mother. This gift is from corpus (principal) and not income. Does the trust have to file a Form 709 gift tax return for this gift ? I don't think a Form K-1 has to be filed, because no income was transferred.
Only individuals are required to file gift tax returns. If a trust, estate, partnership, or corporation makes a gift, the individual beneficiaries, partners, or stockholders are considered donors and may be liable for the gift and GST taxes.
is this really an irrevocable trust for tax purposes.
Under IRC Section 674(a), the grantor is the owner of any portion of a trust in respect of which the beneficial enjoyment of the corpus or income is subject to a power of disposition, exercisable by the grantor or a nonadverse party, or both, without the approval or consent of any adverse party. “Adverse party” refers to any person with a substantial beneficial interest in a trust that would be adversely affected by the exercise or nonexercise of a power (IRC Section 672(a)).
thus if he has full power of disposition of corpus or certain other powers, for tax purposes the trust is treated as a grantor trust. this is crucial because it determines what form of 1041 to file and how and to whom the income is taxed. just because a trust is titled irrevocable and you are the trustee doesn't mean it treated as a non-grantor trust for tax purposes.