I’ve got a nonprofit client that was named a 50% beneficiary in a deceased individual’s will. The succession assets were transferred to a charitable trust. The Trust didn’t disperse any funds in 2019. In March 2020 The Trust disbursed $200,000 and sent a letter to the nonprofit requesting that it provide a signed receipt of the donation as required by the IRS. Then in September 2020 the Trust issued a 2019 K-1 (1041) to the nonprofit showing interest income, dividends, and long term capital gains totaling about $170,000. Does the nonprofit treat the distribution from the Trust as a donation (like the initial letter indicates), or is the nonprofit required to report the income as UBIT in 2019 per the K-1 received? If it is UBIT, where does the K-1 get entered in the Exempt Org module?
Thanks for the help!
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If they got $200,000 they report that as a bequest (donation). The only thing reportable from the K-1 would be UBIT. Investment income such as you described-interest, divs & LTCG is not UBIT.
I'm a bit confused on the issue of will and trust. If the not-for-profit is in the will, who created a trust, what went into the trust, and why did the trust also pay out a donation? The will should state the assets that transfer directly to the organization as the bequest, or these assets were already in a trust?
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