IL-1041 Sch D

[larryefraze]

This is our first year using ProConnect after switching from UltraTax. I have an Illinois trust with no beneficiaries. ProConnect has a diagnostic that requires beneficiary information be entered to be able to efile the IL-1041. The diagnostic reads:Illinois requires Schedule D to electronically file the return. Add a beneficiary or file this as a paper return. If a beneficiary is entered without distributions, do not select "3=suppress" for "Zero Distributed K-1", under K-1 Distribution Options. IL - Ref #40925.

We have prepared and efiled the IL-1041 return for years in UltraTax and before that in ProSystems for multiple trust clients without ever needing to complete the Illinois 1041 schedule D. I contacted support, who made a good effort, but without success.

How can I resolve the diagnostic so we can efile the IL-1041? 

[sjrcpa]

Who is it in trust for?

There has to be at least 1 beneficiary. They may not be getting any income on a K-1, and you may not issue a K-1, but someone is going to benefit eventually. And you may not have their name, address and SSN but that's different.

[larryefraze]

We have a few like this where there is no identified beneficiary. The one I am working on is a trust that issues $500 scholarships to different recipients each year, so I suppose it could be argued that the beneficiaries change each year.

Regardless, this was set up in 2005. In almost twenty years, we have never listed a beneficiary and Illinois has accepted every time without a beneficiary. I want to clear the diagnostic without adding beneficiaries so we do not create inconsistency for the client.

And, the diagnostic cannot be right as evidenced by prior years filings.

[sjrcpa]

Interesting. Sounds more like a trust that should be reporting on a 990 or 990PF. But you have to deal with what you have.

Whether it is an Intuit thing or an IL thing, you won't be able to efile unless you clear the Diagnostic.

Could you dummy up a beneficiary - such as "the class of people who got scholarships", trust address, and 999-99-9999?

[sjrcpa]

What kind of trust is it on 1041 page 1?

[larryefraze]

This one is a complex trust but I have a simple trust with the same problem.

[larryefraze]

I put in a dummy beneficiary and the diagnostic goes away but then the Illinois return includes a schedule D with the dummy beneficiary information. 

[sjrcpa]

For the simple trust, is there DNI? 

For both types, how do you record the scholarship distributions? I'm curious since I've never seen a trust like this.

[larryefraze]

For the simple trust, adjusted total income is a loss of $2,586. No DNI.

For the scholarship trust, the trust was created by a will. The trust is managed by the trust department at a bank. The trust document specifies that the annual income is used to first cover expenses then provide for educational scholarships until DNI is used up. So long as the income covers expenses (given the size of corpus it always will) the trust should be perpetual. Payments are made to and educational institution FBO the recipient. We have always recorded the scholarships as an Other Expense and listed the scholarship recipients.

[larryefraze]

I went back through our old software data in CCH and UltraTax for these tax returns. The only difference I can see between that data and ProConnect is that CCH and UltraTax have no data of any kind for beneficiaries whereas ProConnect requires the Type of Entity for Illinois even when there is no beneficiary. I suspect that this is triggering the Illinois diagnostic. The only solution may be to paper file the Illinois return unless there is a way to eliminate the default data.

[sjrcpa]

You may have to.