Level 3

Grantor tax return

Forum|Forum|4 years ago
December 3, 2021
22 replies
29 views

Hi All,

I need help with trust tax returns. Never worked with trusts before.

Living trust was created back in April 2020, grantor died in June 2020. Residential property was sold in 2021. Nothing else beside the residential property was in the trust. Should I file original grantor trust return in 2020, than another return for 2020 as a simple trust after grantor's death and final simple trust in 2021 reporting sale of the property?

This topic has been closed for replies.

BobKamman

Level 15

Is there a probate estate that will require filing a 1041?

N

NatashaAuthor

Level 3

Yes. Have to file 1041.

sjrcpa

Level 15

Personal residence or rental real estate?

The more I know the more I don’t know.

N

NatashaAuthor

Level 3

Hi yes, personal residence and 1041 has to be filed.

sjrcpa

Level 15

"Should I file original grantor trust return in 2020, than another return for 2020 as a simple trust after grantor's death"

What would you put on these returns? The property is not income producing.

Definitely do not file a 1041 for the period of time in 2020 Grantor was alive.

There is an election that can be made to treat the trust as part of the estate. That may simplify the filings and get you a fiscal year end. See Form 8855.

The more I know the more I don’t know.

joshuabarksatlcs

Level 9

Not enough facts. It could be very simple but could get complicated, depending on the facts not given. Just typing out loud of my thoughts without fiscal year consideration:

1. @sjrcpa is correct. NO need for Grantor trust from 4/20 thru DOD - that is, provided trustee was the grantor during that period. If the trustee was NOT the Grantor, technically, a Grantor trust return may be needed and a grantor tax information letter has to be sent to each "deemed owner". See various sections of Regs. Secs. 1.671-4(b)(2) and 1.671-4(b)(3).

2. Period from DOD to 12/31/2020 - filing requirement depended on the trust income.

3. For 2021, to report the sale, check the escrow info. Basically "Who was the seller?"

4. Based on the facts as stated, the Trust may not even have FEIN. If 1099 was/were issued, to whom and whose SSN? I am careful in matching the tax reporting to 1099's. For a sale, it may be necessary to include a "dummy sale" and clarification note if the sale was reported on the 1041 and K-1. NO fun when client got a bill of x% of the gross sales per the 1099 a year or two later.

5. If the sale was reported on the heir's (heirs') SSN, could there be a "deemed distribution" from the Trust to the beneficiaries? (To me, this is a legal question, NOT a tax question.) If the (competent) answer given to me is yes, the distribution is NOT reported on 1041; Client may still choose to file 1041 anyway, with the sale reported on 1040.

The exact reporting decisions could basically be "1099-S" driven.

6. California has a withholding tax Form 593. If care was not taken and state tax was withheld, it could lead to some "janitorial tax services".

Hope this is not TMI.

I come here for kudos and IRonMaN's jokes.

N

NatashaAuthor

Level 3

1. Trustee is not a grantor. Meaning I have to file from 4/20 thru DOD. Trust has EIN.

2. Trust has no income. I believe I have to file due to change in trust from Grantor to Simple.

3. Sale has to be reported on 1041 due to personal reason.

sjrcpa

Level 15

@sjrcpa No, but I never file Forms 3115 either, and so far I have managed to avoid Leavenworth.

My client who is a professional fiduciary files them for every case (conservatorships, estates and trustee appointments) and I understand that's SOP for those licensed in that profession.

They tell me it does result in IRS sending notices concerning 1040 and 1041 filings to the fiduciary. This is often helpful if they get a case where they don't know if returns have been filed, or taxes owed.

Do a search for Internal Revenue Manual 3.13.5.32 for details on what IRS does with these. Apparently they also ask for a Form 8822 with them. I don’t know if that’s what my client does.

There’s this interesting detail in the Manual:

“When reviewing Form 56, if you notice the taxpayer is appointing a high ranking IRS or Treasury employee or other high ranking governmental official or him/herself as a fiduciary, refer these cases to Frivolous Return Program (FRP). See IRM 3.13.5.7 for additional guidance.”

Thanks. I guess it does make sense to file for professional fiduciaries. I mainly get spouses, kids, grandparents, in-laws, etc. as fiduciaries.

But I do file 3115s. 😉

The more I know the more I don’t know.

Sign up

Login with SSO

Let's get you signed in

Login with SSO