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Trust Taxation

Level 4

Is there a way for the trust to pay the taxes in the final year even though the income gets distributed to the beneficiaries?  I'm trying to tell the trustee that the beneficiaries have to pay the taxes via a K-1 but he insists on the trust to pay taxes.  The only way I can get that to work is to remove the beneficiaries from the return.  I don't believe that the trust can pay the taxes in the final year but I can't find a concrete answer with IRS.



0 Cheers
3 Comments 3
Level 15

Frequently asked here and the answer is always no.  The trustee, of course, should have told the beneficiaries in December not to file their returns until they received a K-1.  Oh well. 

The better question is, what happens if we do it wrong?  Likely the trust will pay more tax than the beneficiaries would on their returns.  So does IRS really care?  Has IRS ever audited the average run-of-the-mill 1041?  In the unlikely event that they did, would they insist on issuing a refund and assessing the beneficiaries?

I wonder if that's something that could be filed with a disclosure statement.  Probably not.  

Level 15

I think a few years back the IRS removed the death penalty from those type of infractions 😁

Slava Ukraini!
Level 15

@IRonMaN Yes, but you never know when they're going to weaponize the criminal justice system.