I have a trust that had withholding on a 1099-R that I want to pass through to the beneficiaries along with the income. Is there a place or a way on the K-1 that will show it being passed through? I have had this before and was able to do it, but it was a long time ago and I cannot remember how to do it.
think you have to classify it as backup withholding
Is there a place in Proseries where I can do that?
There's an interesting discussion about this here:
https://www.taxprotalk.com/forums/viewtopic.php?f=8&t=25374
Which starts out with a report that IRS is proposing a $5,000 frivolous-return penalty for the beneficiary who claimed the withholding shown on a K-1. (It came from tax withheld on an IRA distribution.)
One of the post raises an interesting point: How do you know the trust doesn't have to pay tax on it? For example, if the trust's only income and assets were a $100,000 IRA distribution with $20,000 withheld, it would have been able to distribute only $80,000, and it would have to pay tax on the $20,000 it still has (pending refund). Of course if the trust had other assets -- for example, from the sale of real estate at a loss -- then it could have distributed all of the $100K DNI.
What if there are other items on the return that IRS decides are not reported correctly, and while you think the tax is zero they think it's $10K? Now you don't have any money left to pay the assessment, if the idea was to make this a first and final return.
You can probably get away with calling it backup withholding, but are you sure you want to do that?
Yes, but where do you indicate it as backup withholding?
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