yes
however there are alternatives to filing the 1041
First Alternative
One alternative method allows the trustee of the trust to file Forms 1099 in lieu of a Form 1041 (see Regs. Sec. 1.671-4(b)(2)(iii)). In that case, the ownership of the assets themselves is listed in the normal way with the payor, so that income is initially reported as taxable to the trust. However, the taxability of that income is shifted to the deemed owner when the trustee prepares Forms 1099 showing the trust itself as the payor, and the deemed owner as the payee. As a practical matter, though, if there are multiple types of income (dividends, interest, rent, etc.) or multiple sale transactions, this method may not be any easier than filing a Form 1041. Furthermore, as described below, unless the deemed owner is the trustee or a co-trustee, filing Forms 1099 does not negate the trustee’s duty to prepare the grantor tax information letter and send it to the deemed owner to be reported on his or her personal return. In that situation, filing Forms 1099 involves virtually as much effort as filing Form 1041.
Second Alternative
The other alternative, however, is a relatively easy way to avoid filing either a Form 1041 or Forms 1099. This involves the way the ownership of the trust’s assets is listed with the payor. Specifically, Regs. Sec. 1.671-4(b)(2)(i)(A) is available as long as the grantor trust is treated as owned by only one person. In this scenario, the trustee furnishes to all payors of income the following information, so that Forms 1099 or Schedules K-1 y be) are issued using:
The grantor’s name;
The grantor’s taxpayer identification number (i.e., Social Security number (SSN)); and
The trustee’s address.
In this alternative, the income is reported to the IRS as being taxable directly to the deemed owner who reports them as if the trust did not exist. This allows the IRS to computer match the income directly against the income shown on the individual’s Form 1040.
