Irrevocable IDGT and filing form K1/ reporting directly

[Ionnowhy]

Hello,

For an IDGT (irrevocable trust), the format of the K1 provided by the trust accountant to the grantor does not match the format of the K1 in turbotax or IRS. A few quick questions from the grantor's perspective:

1. Does the grantor directly report the income/ capital losses/ credits on his tax forms without filling the K1 section in turbotax (So, not use the Trust Income section of turbotax at all)?

2. Does the grantor put the trust information as the payor/ source of the income, foreign tax credits, etc.?

3. Anything else the grantor should know?

Thank you.

[M-MTax · Accepted solution]

The format of the K-1 doesn't match because it's a grantor trust so everything gets reported on the grantor's tax return......grantor trusts don't issue K-1s. So it's as if the trust doesn't exist other than having to file a 1041 with normally all zeroes and a tax statement to the grantor outlining the types of income.

[Ionnowhy]

Thank you for the clarification. If the grantor has the following entities:

1. Interest Income

2. Dividend Income

3. Margin expense.

4. Capital gains, losses

5. Section 1256 (Options) gains and losses.

6. Foreign tax credits

What would the source of these be when reporting in the grantor section? The original brokerage form or the trust information? Usually they ask for brokerage firm name, tax ID, address, etc- does the grantor simply enter all he info pertaining to the trust.

If relevant the trust has a EID that is different than the SSN of the grantor.

Thanks again.

[M-MTax]

If the brokerage firm and others were given the trust's EIN and the trust filed a 1041 as a grantor trust then the source would be the trust. Otherwise it would be the brokerage firm or bank or the like. There are optional methods for filing.

Optional Method 2.

For a trust treated as owned by one grantor or by one other person, the trustee must give all payers of income during the tax year the name, address, and TIN of the trust. The trustee must also file with the IRS the appropriate Forms 1099 to report the income or gross proceeds paid to the trust during the tax year that show the trust as the payer and the grantor, or other person treated as owner, as the payee. The trustee must report each type of income in the aggregate and each item of gross proceeds separately. The due date for any Forms 1099 required to be filed with the IRS by a trustee under this method is February 28, 2024 (March 31, 2024, if filed electronically).

In addition, unless the grantor, or other person treated as owner of the trust, is the trustee or a co-trustee of the trust, the trustee must give the grantor or other person treated as owner of the trust a statement that:

• Shows all items of income, deduction, and credit of the trust;

• Explains how the grantor or other person treated as owner of the trust takes those items into account when figuring the grantor's or other person's taxable income or tax; and

• Informs the grantor or other person treated as the owner of the trust that those items must be included when figuring taxable income and credits on their income tax return. This statement satisfies the requirement to give the recipient copies of the Forms 1099 filed by the trustee.

Optional Method 3.

For a trust treated as owned by two or more grantors or other persons, the trustee must give all payers of income during the tax year the name, address, and TIN of the trust. The trustee must also file with the IRS the appropriate Forms 1099 to report the income or gross proceeds paid to the trust by all payers during the tax year attributable to the part of the trust treated as owned by each grantor, or other person, showing the trust as the payer and each grantor, or other person treated as owner of the trust, as the payee. The trustee must report each type of income in the aggregate and each item of gross proceeds separately. The due date for any Forms 1099 required to be filed with the IRS by a trustee under this method is February 28, 2024 (March 31, 2024, if filed electronically).

In addition, the trustee must give each grantor or other person treated as owner of the trust a statement that:

• Shows all items of income, deduction, and credit of the trust attributable to the part of the trust treated as owned by the grantor or other person;

• Explains how the grantor or other person treated as owner of the trust takes those items into account when figuring the grantor's or other person's taxable income or tax; and

• Informs the grantor or other person treated as the owner of the trust that those items must be included when figuring taxable income and credits on their income tax return. This statement satisfies the requirement to give the recipient copies of the Forms 1099 filed by the trustee.

[Ionnowhy]

Thank you. The trust has its own EIN but the accountant gave me a grantor letter and filed the 1041 and said the grantor would be paying the taxes with no official K1. The accountant asked the grantor to report it on personal taxes as if the grantor had directly received the returns since the 1041 had been filed. Furthermore, turbotax does not ask for a separate EIN when reporting personal returns. 

Thank you.

Anil.