1041 Trust

[jjtrcka221]

A client started a 1041 Trust (Revocable).  The client is the grantor / trustee.  From what I've read in the instructions for form 1041, there was no need to file a form 1041 (trust has never had income).  Any income would be claimed on the clients tax return.  

The client applied for an EIN in 2022.  The IRS EIN form says a 1041 needs to be filed.  Does just obtaining an EIN change reporting requirements?  Seems pretty clear in the instructions.  The optional methods seem to allow for not having to file form 1041.  

Any input would be appreciated.  Thanks!

[IRonMaN]

Irrevocable trusts file 1041s, revocable trusts don't.

[jjtrcka221]

That's what I thought, but the form from the IRS showing the EIN says to file form 1041 by a certain date.

[TexCPA]

They really shouldn't have requested an EIN for a revokable trust. You do not have to file, but you may get a nasty-gram from the IRS asking why you didn't. Or not, they're so deep in unfiled returns, you may get a letter in five years LOL If you do get a letter, you can just respond to it explaining that it's a revokable trust and all income has been reported on form 1040, as that is the correct treatment.

[BobKamman]

Some revocable trusts must file a 1041.  Some irrevocable trusts can still be considered grantor trusts and do not have to file a 1041.  Look at the entire text of the trust document, not just at one word.  

If they applied for an EIN, it's a good indication that they're clueless about why or whether they need a trust, and they bought one because everyone else was doing it.  

[jjtrcka221]

I think you hit the nail on the head.  I think they did it because everyone else was.  The trust has no assets, makes no money and has no employees.  The IRS website says you cannot cancel an EIN, but it does say that you can close the business account associated with it via a letter.  I'm thinking about getting them to close the account.  I just don't want to not file and then have them come back and say the taxpayer should have been filing for the past five years.  

The trust agreement says the grantor (the client) has full power to revoke the trust.  

[TexCPA]

A big problem with trusts - attorneys love selling that service to people who don't need it, and then the client never even puts anything into the trust. If you don't put the property in the trust, then what was the point? The only point here is you paid a payment on the attorney's new lambo. 

[BobKamman]

Most of the trusts I see are sold by insurance agents and CPA's selling financial services on the side.  People who don't trust the simplified probate procedures in most states, aren't going to trust lawyers who tell them the truth.  They are going to trust the salespeople who tell them, "Now that you have a trust, let me help you transfer all your assets into it.  So first, give me a list of all of them."  If you can't trust the person who sold you the trust, whom can you trust?  Then they are told: "These are terrible investments.  I will sell you some that are much better."