Irrevocable Trust Tax Filing Question

[krulrich]

In 2021, we filed individual income and irrevocable trust income on a single tax return.  In 2022, we filed two separate returns; 1 for individual income and other for irrevocable trust income due to a large gain in the irrevocable trust.   For 2023, we would like to revert back to a single tax return for both the personal income and the irrevocable trust income.  Is this possible for 2023 or do we need to continue forward every year with separate returns?

Thanks.

[Anonymous_]

You need to provide more details with respect to the trust beyond stating it is simply an "irrevocable" trust.

Is the trust a grantor trust? Does the trust have an EIN? Did you establish the trust and are the trustee and beneficiary? Who is "we"?

See https://www.irs.gov/instructions/i1041#en_US_2022_publink1000286018

[krulrich]

Thank you for the respone and apologies for not being clear.

It is a grantor trust.

The trust has its own EIN.

We established the trust as the grantor.  We are neither the Trustee or the Beneficiary of the trust.

Thank you for your patience and advice.

[Anonymous_]

In that event, you need to continue filing a 1041, and any required state/local return, for the trust.

Of course, that filing is required if the trust has income of $600 or more or any taxable income.

[krulrich]

Thank you!

[Mike9241]

@krulrich that irrevocable trust can still be a grantor trust with income taxed to the grantor if any of the conditions in IRC SEC 671-678 are met.

• A reversionary interest of more than 5% of the trust property or income;
• The power to revoke the trust and/or to return the trust’s corpus/principle to the grantor;
• The power to distribute income to the grantor or grantor’s spouse;
• Power over the beneficial interests in the trust;
• Administrative powers over the trust allowing the grantor to benefit.
• A trustee, beneficiary, or other person a power exercisable solely by himself to vest the corpus or the income therefrom in himself;
• A United States person who directly or indirectly transfers property to a foreign trust.

these include the power to change beneficiaries.  Another feature of grantor trusts is a privilege conferred to the grantor called “the power of sub- stitution.” This power allows the grantor, in their discretion, to remove any asset or assets from the trust corpus in exchange for another asset or assets of equivalent value.