990-PF Conundrum

[Mel7777]

A client had a foundation established as a result of a trust in 2024 and the foundation was issued a K1 because the foundation is a 30% beneficiary of the trust.  The trust did not actually transfer funds until 2025 but it did issue a K1.  

The foundation did get it's EIN in 2024 and did receive a K1 but did not actually receive any funds.

The filing requirement is that an annual information return needs to be filed - as I understand it.

So, I'm trying to figure out:

1. Was the trust correct to issue a K1 even though it didn't transfer funds? The governing document states that the foundation is a 30% beneficiary.

2. On the 990PF, would you represent the dividends on the K1 as dividend income and a dividend receivable on the BS?

I appreciate this community and any guidance or suggestions on where to get more info.

Thank you!

[sjrcpa]

1. Under normal trust rules, if it is a Simple Trust, all income is required to be distributed to the beneficiaries. So they get a K-1 whether they actually receive any money or not. But, K-1s are generally not issued to tax-exempt beneficiaries.

Somewhere there is a Rev Proc, Ruling, or something similar that says the tax exempt entity has a choice. They can report in accordance with the K-1 or they can report when and what they receive. I think I'd wait til they get money and record as a bequest. If you report dividends per the K-1 the PF will have to pay tax on it.

EDIT: Your facts don't indicate bequest. I'm not following "client had a foundation established as a result of a trust in 2024 " and " the foundation is a 30% beneficiary of the trust. "

Seems circular.