Form 1041 Schedule J - is it applicable?

[cmoore5026]

I have a complex trust that only receives an RMD distribution from an IRA in it.  When the $100 exemption amount and the cost of Turbotax Business is entered as deductions, the accounting income on the 1041 is less than the distribution to the beneficiary which consisted solely of the RMD amount.  Turbotax Business says Schedule J should be prepared (it's never indicated that before when there was a similar situation with this trust).  I read in IRS Schedule J instructions the following:

"Use Schedule J (Form 1041) to report an accumulation distribution for a domestic complex trust that was:

• Previously treated at any time as a foreign trust (unless an exception is provided in future regulations); or

• Created before March 1, 1984, unless that trust would not be aggregated with other trusts under the rules of section 643(f) if that section applied to the trust."

Does this mean if this trust does not meet either of the above 2 bullet points (it's not a foreign trust and it was created after 1984), that Schedule J need not be prepared?

[tagteam · Accepted solution]

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@cmoore5026 wrote:

Does this mean if this trust does not meet either of the above 2 bullet points (it's not a foreign trust and it was created after 1984), that Schedule J need not be prepared?

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Yes, that is what that means; the schedule is used to report accumulation distributions for certain trusts (i.e., trusts subject to the throwback rules).

Refer also to the instructions at the link below.

See https://www.irs.gov/pub/irs-pdf/f4970.pdf

[NELSONDL]

Thanks. I'm getting this "tip" this year too for distributing an amount higher than the trust income. Never had this in the past. The trust creation date is entered--it would be nice if the software would recognize that!

[cmoore5026]

Totally agree. It threw me for a loop and caused unnecessary consternation and delay.

[tagteam]

It is simply a reminder to check whether the schedule applies and needs to be completed. 

The program also exhibits the same behavior when the taxable income falls below zero; it suggests that there might be an NOL even when there is not.

[pchurch]

Hey, I am hitting this NOL thing right now on a trust which I have to do the taxes for. How do I know if I have to complete schedule J when the taxable income is less than zero as you mentioned. Thanks I am wading through this mess right now.

[tagteam]

The trust most likely does not have an NOL. 

See https://www.irs.gov/publications/p536#en_US_2022_publink1000177318

Schedule J is for accumulation distributions (also likely not applicable).

See https://www.irs.gov/instructions/i1041#en_US_2022_publink100052920

[pchurch]

Very good. After reading more seems you are correct. thanks

[jntate]

If it is simply a reminder to check if the trust meets the two conditions requiring Schedule J to be filed, Intuit should word it that way instead of stating definitively that the user needs to complete Schedule J. Even better, the program could check for one or both of those two conditions (at least creation date, which the program knows) and walk the user through the form if either of them were met.  

[pchurch]

I agree 100%, thanks for your reply. Filed my taxes today. Cheers.

[tagteam]

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@jntate wrote:

....the program could check for one or both of those two conditions...

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That has been suggested, several times, several years ago, but has never been implemented.

The 1099 import functionality request (which the program still does not have) is paramount, in my opinion. 

[taheri1]

Hi @tagteam,

What is an example of a trust that's subject to throwback rules?

Can a domestic complex trust created after March 1, 1984 be subject to throwback rules? (I'm new to the concept of "throwback rules".)