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96 Department of the Treasury

Internal Revenue Service

Instructions for Form 1041 and


Schedules A, B, D, G, I, J, and
K-1
U.S. Income Tax Return for Estates and Trusts
Section references are to the Internal Revenue Code unless otherwise noted.

Contents Page
Paperwork Reduction Act Notice Other Information . . . . . . . . . . 17
We ask for the information on this form to carry out the Internal Revenue laws of the Schedule I—Alternative Minimum Tax 18
United States. You are required to give us the information. We need it to ensure that
you are complying with these laws and to allow us to figure and collect the right amount Schedule D (Form 1041)—Capital
of tax. Gains and Losses . . . . . . . . . 22
You are not required to provide the information requested on a form that is subject Schedule J (Form 1041)—
to the Paperwork Reduction Act unless the form displays a valid OMB control number. Accumulation Distribution for a
Books or records relating to a form or its instructions must be retained as long as their Complex Trust . . . . . . . . . . 23
contents may become material in the administration of any Internal Revenue law. Schedule K-1 (Form 1041)—
Generally, tax returns and return information are confidential, as required by Code Beneficiary's Share of Income,
section 6103. Deductions, Credits, etc. . . . . . 25
The time needed to complete and file this form and related schedules will vary
depending on individual circumstances. The estimated average times are: Changes To Note
Form 1041 Schedule D Schedule J Schedule K-1 ● Three new optional filing methods for
Recordkeeping 40 hr., 53 min. 16 hr., 1 min. 39 hr., 28 min. 8 hr., 22 min. certain grantor type trusts are available for
Learning about the law or the form 18 hr., 37 min. 1 hr., 47 min. 1 hr., 5 min. 1 hr., 12 min.
Preparing the form 34 hr., 58 min. 2 hr., 8 min. 1 hr., 47 min. 1 hr., 23 min. tax years beginning after 1995. The
Copying, assembling, and sending optional methods are alternatives to the
the form to the IRS 4 hr., 17 min. filing of Form 1041 for these trusts. If the
If you have comments concerning the accuracy of these time estimates or trustee elects an optional method, he or
suggestions for making this form and related schedules simpler, we would be happy she generally must file a final Form 1041
to hear from you. You can write to the Tax Forms Committee, Western Area Distribution for the tax year that immediately precedes
Center, Rancho Cordova, CA 95743-0001. DO NOT send the tax form to this address. the first tax year for which the trustee
Instead, see Where To File on page 3. elects to report under one of the optional
methods. For details, see page 7.
● For tax years beginning in 1996, the

Contents Page requirement to file a return for a


Contents Page bankruptcy estate applies only if gross
Changes To Note . . . . . . . . . . 1
Of Special Interest to Bankruptcy income is at least $5,900.
Unresolved Tax Problems . . . . . 1 Trustees and Debtors-in-
How To Get Forms and Publications 1 Possession . . . . . . . . . . . 5 Unresolved Tax Problems
General Instructions . . . . . . . . 2 Specific Instructions . . . . . . . 7 The Problem Resolution Program is for
Purpose of Form . . . . . . . . . . 2 Name of Estate or Trust . . . . . . 7 taxpayers that have been unable to
Income Taxation of Trusts and Address . . . . . . . . . . . . . . 7 resolve their problems with the IRS. If the
Decedents' Estates . . . . . . . . 2 estate or trust has a tax problem it cannot
Type of Entity . . . . . . . . . . . 7 clear up through normal channels, write
Definitions . . . . . . . . . . . . . . 2 Number of Schedules K-1 Attached 8 to the estate's or trust's local IRS District
Who Must File . . . . . . . . . . . 2 Employer Identification Number . . . 8 Director, or call the local IRS office and
Electronic Filing . . . . . . . . . . . 3 ask for Problem Resolution assistance.
Date Entity Created . . . . . . . . . 8 Persons who have access to TTY/TDD
When To File . . . . . . . . . . . . 3 Nonexempt Charitable and Split-Interest equipment may call 1-800-829-4059 to
Period Covered . . . . . . . . . . . 3 Trusts . . . . . . . . . . . . . . . 8 ask for help from Problem Resolution.
Where To File . . . . . . . . . . . . 3 Initial Return, Amended Return, Final This office cannot change the tax law or
Return; or Change in Fiduciary's technical decisions. But it can help clear
Who Must Sign . . . . . . . . . . . 4 up problems that resulted from previous
Name or Address . . . . . . . . . 9
Accounting Methods . . . . . . . . 4 contacts.
Pooled Mortgage Account . . . . . 9
Accounting Periods . . . . . . . . . 4
Income . . . . . . . . . . . . . . . 9 How To Get Forms and
Rounding Off to Whole Dollars . . . 4
Deductions . . . . . . . . . . . . . 10 Publications
Estimated Tax . . . . . . . . . . . 4
Tax and Payments . . . . . . . . . 13 By personal computer.— If you
Interest and Penalties . . . . . . . . 4
Schedule A—Charitable Deductions 14 subscribe to an on-line service, ask if IRS
Other Forms That May Be Required 5 information is available and, if so, how to
Schedule B—Income Distribution
Attachments . . . . . . . . . . . . . 5 Deduction . . . . . . . . . . . . . 14 access it. You can get information through
Additional Information . . . . . . . . 5 IRIS, the Internal Revenue Information
Schedule G—Tax Computation . . . 16
Services, on FedWorld, a government

Cat. No. 11372D


bulletin board. Tax forms, instructions, beneficiaries. To figure this deduction, the ● The portion of a lump sum distribution
publications, and other IRS information fiduciary must complete Schedule B. The to the beneficiary of a decedent's IRA that
are available through IRIS. income distribution deduction determines equals the balance in the IRA at the time
IRIS is accessible directly using your the amount of the distribution that is taxed of the owner's death. This includes
modem by calling 703-321-8020. On the to the beneficiaries. unrealized appreciation and income
Internet, telnet to iris.irs.ustreas.gov or, For this reason, a trust or decedent's accrued to that date, less the aggregate
for file transfer protocol services, connect estate sometimes is referred to as a amount of the owner's nondeductible
to ftp.irs.ustreas.gov. If you are using the “pass-through” entity. The beneficiary, contributions to the IRA. Such amounts
World Wide Web, connect to and not the trust or decedent's estate, are included in the beneficiary's gross
http://www.irs.ustreas.gov. FedWorld's pays income tax on his or her distributive income in the tax year that the distribution
help desk offers technical assistance on share of income. Schedule K-1 (Form is received.
accessing IRIS (not tax help) during 1041) is used to notify the beneficiaries The IRD has the same character it
regular business hours at 703-487-4608. of the amounts to be included on their would have had if the decedent lived and
The IRIS menus offer information on income tax returns. received such amount.
available file formats and software Before preparing Form 1041, the The following deductions and credits,
needed to read and print files. You must fiduciary must figure the accounting when paid by the decedent's estate, are
print the forms to use them; they are not income of the estate or trust under the allowed on Form 1041 even though they
designed to be filled in on-screen. will or trust instrument and applicable were not allowable on the decedent's final
Tax forms, instructions, and local law to determine the amount, if any, Form 1040:
publications are also available on of income that is required to be distributed ● Business expenses deductible under
CD-ROM, including prior-year forms because the income distribution deduction section 162.
starting with the 1991 tax year. For is based, in part, on that amount. ● Interest deductible under section 163.
ordering information and software ● Taxes deductible under section 164.
requirements, contact the Government Definitions ● Investment expenses described in
Printing Office's Superintendent of
Documents (202-512-1800) or Federal section 212 (in excess of 2% of AGI).
Beneficiary ● Percentage depletion allowed under
Bulletin Board (202-512-1387).
A beneficiary is an heir, a legatee, or a section 611.
By phone and in person.— To order
devisee. ● Foreign tax credit.
forms and publications, call
1–800–TAX-FORM (1–800–829–3676). Distributable Net Income (DNI) For more information, see section 691.
You can also get most forms and
publications at your local IRS office. The income distribution deduction Income Required To Be Distributed
allowable to estates and trusts for Currently
amounts paid, credited, or required to be
General Instructions distributed to beneficiaries is limited to Income required to be distributed
distributable net income (DNI). This currently is income that is required to be
Purpose of Form amount, which is figured on Schedule B, distributed in the year it is received. The
line 9, is also used to determine how fiduciary must be under a duty to
The fiduciary of a domestic decedent's distribute the income currently, even if the
much of an amount paid, credited, or
estate, trust, or bankruptcy estate uses actual distribution is not made until after
required to be distributed to a beneficiary
Form 1041 to report: (a) the income, the close of the trust's tax year. See
will be includible in his or her gross
deductions, gains, losses, etc. of the Regulations section 1.651(a)-2.
income.
estate or trust; (b) the income that is
either accumulated or held for future Income and Deductions in Respect Fiduciary
distribution or distributed currently to the of a Decedent A fiduciary is a trustee of a trust; or an
beneficiaries; (c) any income tax liability executor, executrix, administrator,
of the estate or trust; and (d) employment When completing Form 1041, you must administratrix, personal representative, or
taxes on wages paid to household take into account any items that are person in possession of property of a
employees. income in respect of a decedent (IRD). decedent's estate.
In general, income in respect of a Note: Any reference in these instructions
Income Taxation of Trusts decedent is income that a decedent was to “you” means the fiduciary of the estate
entitled to receive but that was not
and Decedents' Estates properly includible in the decedent's final
or trust.
A trust (except a grantor type trust) or a Form 1040 under the decedent's method Trust
decedent's estate is a separate legal of accounting.
A trust is an arrangement created either
entity for Federal tax purposes. A IRD includes: (a) all accrued income of by a will or by an inter vivos declaration
decedent's estate comes into existence a decedent who reported his or her by which trustees take title to property for
at the time of death of an individual. A income on a cash method of accounting; the purpose of protecting or conserving it
trust may be created during an individual's (b) income accrued solely because of the for the beneficiaries under the ordinary
life (inter vivos) or at the time of his or her decedent's death in the case of a rules applied in chancery or probate
death under a will (testamentary). If the decedent who reported his or her income courts.
trust instrument contains certain on the accrual method of accounting; and
provisions, then the person creating the (c) income to which the decedent had a
trust (the grantor) is treated as the owner contingent claim at the time of his or her Who Must File
of the trust's assets. Such a trust is a death.
grantor type trust. Some examples of IRD of a decedent Decedent's Estate
A trust or decedent's estate figures its who kept his or her books on a cash The fiduciary (or one of the joint
gross income in much the same manner method are: fiduciaries) must file Form 1041 for the
as an individual. Most deductions and ● Deferred salary payments that are estate of a domestic decedent that has:
credits allowed to individuals are also payable to the decedent's estate. 1. Gross income for the tax year of
allowed to estates and trusts. However, ● Uncollected interest on U.S. savings $600 or more, or
there is one major distinction. A trust or bonds. 2. A beneficiary who is a nonresident
decedent's estate is allowed an income ● Proceeds from the completed sale of alien.
distribution deduction for distributions to
farm produce.

Page 2
Trust for more information on electronic and Please mail to the
magnetic media filing of Form 1041, call If you are located in
following Internal
The fiduciary (or one of the joint Revenue Service
the Magnetic Media Unit at the
fiduciaries) must file Form 1041 for a Center
Philadelphia Service Center at (215)
domestic trust taxable under section 641
516-7533 (not a toll-free number), or write
that has: New Jersey, New York (New
to:
1. Any taxable income for the tax year, York City and counties of
Internal Revenue Service Center Holtsville, NY 00501
Nassau, Rockland, Suffolk,
or
Attention: Magnetic Media Unit–DP 115 and Westchester)
2. Gross income of $600 or more 11601 Roosevelt Blvd.
(regardless of taxable income), or New York (all other
Philadelphia, PA 19154 counties), Connecticut,
3. A beneficiary who is a nonresident Maine, Massachusetts, New Andover, MA 05501
alien. Hampshire, Rhode Island,
Two or more trusts are treated as one
When To File Vermont

trust if such trusts have substantially the For calendar year estates and trusts, file Florida, Georgia, South
Atlanta, GA 39901
same grantor(s) and substantially the Form 1041 and Schedules K-1 on or Carolina
same primary beneficiary(ies), and a before April 15, 1997. For fiscal year Indiana, Kentucky, Michigan,
estates and trusts, file Form 1041 by the Cincinnati, OH 45999
principal purpose of such trusts is Ohio, West Virginia
avoidance of tax. This provision applies 15th day of the 4th month following the
Kansas, New Mexico,
only to that portion of the trust that is close of the tax year. If the due date falls Oklahoma, Texas
Austin, TX 73301
attributable to contributions to corpus on a Saturday, Sunday, or legal holiday,
file on the next business day. For Alaska, Arizona, California
made after March 1, 1984. (counties of Alpine, Amador,
If you are a fiduciary of a nonresident example, an estate that has a tax year Butte, Calaveras, Colusa,
alien estate or foreign trust with U.S. that ends on June 30, 1996, must file Contra Costa, Del Norte, El
Form 1041 by October 15, 1997. Dorado, Glenn, Humboldt,
source income, file Form 1040NR, U.S. Lake, Lassen, Marin,
Nonresident Alien Income Tax Return. Mendocino, Modoc, Napa,
Extension of Time To File Nevada, Placer, Plumas,
Bankruptcy Estate Estates.— Use Form 2758, Application Sacramento, San Joaquin, Ogden, UT 84201
Shasta, Sierra, Siskiyou,
The bankruptcy trustee or for Extension of Time To File Certain Solano, Sonoma, Sutter,
debtor-in-possession must file Form 1041 Excise, Income, Information, and Other Tehama, Trinity, Yolo, and
Returns, to apply for an extension of time Yuba), Colorado, Idaho,
for the estate of an individual involved in Montana, Nebraska, Nevada,
bankruptcy proceedings under chapter 7 to file. North Dakota, Oregon, South
or 11 of title 11 of the United States Code Trusts.— Use Form 8736, Application for Dakota, Utah, Washington,
Automatic Extension of Time To File U.S. Wyoming
if the estate has gross income for the tax
year of $5,900 or more. See Of Special Return for a Partnership, REMIC, or for California (all other counties),
Fresno, CA 93888
Interest To Bankruptcy Trustees and Certain Trusts, to request an automatic Hawaii
Debtors-in-Possession on page 5 for 3-month extension of time to file. Illinois, Iowa, Minnesota,
other details. Kansas City, MO 64999
If more time is needed, file Form 8800, Missouri, Wisconsin
Application for Additional Extension of Alabama, Arkansas,
Qualified Settlement Funds Time To File U.S. Return for a Louisiana, Mississippi, North Memphis, TN 37501
The trustee of a designated or qualified Partnership, REMIC, or for Certain Trusts, Carolina, Tennessee
settlement fund must file Form 1120-SF, for an additional extension of up to 3 Delaware, District of
U.S. Income Tax Return for Settlement months. To obtain this additional Columbia, Maryland,
Funds, rather than Form 1041. See extension of time to file, you must show Pennsylvania, Virginia, any Philadelphia, PA 19255
Regulations section 1.468B-5. reasonable cause for the additional time U.S. possession, or foreign
country
you are requesting. Form 8800 must be
Electronic and Magnetic filed by the extended due date for Form For a charitable or split-interest trust
1041. described in section 4947(a) and a pooled
Media Filing income fund defined in section 642(c)(5):
Qualified fiduciaries or transmitters may Period Covered
be able to file Form 1041 and related Please mail to the
schedules electronically or on magnetic File the 1996 return for calendar year If you are located in
following Internal
1996 and fiscal years beginning in 1996 Revenue Service
media. Tax return data may be filed Center
electronically using telephone lines or on and ending in 1997. If the return is for a
magnetic media using magnetic tape or fiscal year or a short tax year, fill in the tax
year space at the top of the form. Alabama, Arkansas,
floppy diskette. Florida, Georgia, Louisiana,
The 1996 Form 1041 may also be used Atlanta, GA 39901
If you wish to do this, Form 9041, Mississippi, North Carolina,
Application for Electronic/Magnetic Media for a tax year beginning in 1997 if: South Carolina, Tennessee

Filing of Business and Employee Benefit 1. The estate or trust has a tax year of Arizona, Colorado, Kansas,
Plan Returns, must be filed. If Form 1041 less than 12 months that begins and ends New Mexico, Oklahoma, Austin, TX 73301
in 1997; and Texas, Utah, Wyoming
is filed electronically or on magnetic
media, Form 8453-F, U.S. Estate or Trust 2. The 1997 Form 1041 is not available Indiana, Kentucky,
Income Tax Declaration and Signature for by the time the estate or trust is required Michigan, Ohio, West Cincinnati, OH 45999
Virginia
Electronic and Magnetic Media Filing, to file its tax return. However, the estate
must also be filed. For more details, get or trust must show its 1997 tax year on Alaska, California, Hawaii,
Pub. 1437, Procedures for Electronic and the 1996 Form 1041 and incorporate any Idaho, Nevada, Oregon, Fresno, CA 93888
Washington
Magnetic Media Filing of U.S. Income Tax tax law changes that are effective for tax
Returns for Estates and Trusts, Form years beginning after December 31, 1996. Connecticut, Maine,
1041, and Pub. 1438, File Specifications, Massachusetts, New
Holtsville, NY 00501
Hampshire, New York,
Validation Criteria, and Record Layouts Where To File Rhode Island, Vermont
for Electronic and Magnetic Media Filing
of Estate and Trust Returns, Form 1041. For all estates and trusts, except Illinois, Iowa, Minnesota,
To order these forms and publications, or charitable and split-interest trusts and Missouri, Montana,
Kansas City, MO 64999
pooled income funds: Nebraska, North Dakota,
South Dakota, Wisconsin

Page 3
Delaware, District of To change the accounting period of an The fiduciary of a decedent's estate
Columbia, Maryland, New estate, get Form 1128, Application To may make a section 643(g) election only
Jersey, Pennsylvania, Adopt, Change, or Retain a Tax Year. for the final year of the estate.
Philadelphia, PA 19255
Virginia, any U.S.
possession, or foreign Generally, a trust must adopt a See the instructions for line 24b for
country calendar year. The following trusts are more details.
exempt from this requirement:
Who Must Sign ● A trust that is exempt from tax under Interest and Penalties
section 501(a);
The fiduciary, or an authorized ● A charitable trust described in section Interest
representative, must sign Form 1041. 4947(a)(1); and Interest is charged on taxes not paid by
A financial institution that submitted ● A trust that is treated as wholly owned the due date, even if an extension of time
estimated tax payments for trusts for by a grantor under the rules of sections to file is granted.
which it is the trustee must enter its EIN 671 through 679.
in the space provided for the EIN of the Interest is also charged on the
fiduciary. Do not enter the EIN of the trust. failure-to-file penalty, the accuracy-related
For this purpose, a financial institution is
Rounding Off to Whole penalty, and the fraud penalty. The
one that maintains a Treasury Tax and Dollars interest charge is figured at a rate
Loan account. If you are an attorney or determined under section 6621.
You may show the money items on the
other individual functioning in a fiduciary return and accompanying schedules as Late Filing of Return
capacity, leave this space blank. DO NOT whole-dollar amounts. To do so, drop
enter your individual social security The law provides a penalty of 5% a
amounts less than 50 cents and increase month, or part of a month, up to a
number (SSN). any amounts from 50 to 99 cents to the
If you, as fiduciary, fill in Form 1041, maximum of 25%, for each month the
next dollar. return is not filed. The penalty is imposed
leave the Paid Preparer's space blank. If
someone prepares this return and does on the net amount due. If the return is
Estimated Tax more than 60 days late, the minimum
not charge you, that person should not
sign the return. Generally, an estate or trust must pay penalty is the smaller of $100 or the tax
estimated income tax for 1997 if it expects due. The penalty will not be imposed if
Generally, anyone who is paid to you can show that the failure to file on
prepare a tax return must sign the return to owe, after subtracting any withholding
and credits, at least $500 in tax, and it time was due to reasonable cause. If the
and fill in the other blanks in the Paid failure is due to reasonable cause, attach
Preparer's Use Only area of the return. expects the withholding and credits to be
less than the smaller of: an explanation to the return.
The person required to sign the return
must complete the required preparer 1. 90% of the tax shown on the 1997 Late Payment of Tax
information and: tax return, or
2. 100% of the tax shown on the 1996 Generally, the penalty for not paying tax
● Sign it in the space provided for the
tax return (110% of that amount if the when due is 1/2 of 1% of the unpaid
preparer's signature. A facsimile signature amount for each month or part of a month
is acceptable if certain conditions are met. estate's or trust's adjusted gross income
on that return is more than $150,000, and it remains unpaid. The maximum penalty
See Regulations section is 25% of the unpaid amount. The penalty
1.6695-1(b)(4)(iv) for details. less than 2/3 of gross income for 1996 or
1997 is from farming or fishing). is imposed on the net amount due. Any
● Give you a copy of the return in addition penalty is in addition to interest charges
to the copy to be filed with the IRS. However, if a return was not filed for on late payments.
1996 or that return did not cover a full 12
months, item 2 does not apply. Note: If you include interest or either of
Accounting Methods these penalties with your payment,
Figure taxable income using the method Exceptions identify and enter these amounts in the
of accounting regularly used in keeping bottom margin of Form 1041, page 1. Do
Estimated tax payments are not required not include the interest or penalty amount
the estate's or trust's books and records. from:
Generally, permissible methods include in the balance of tax due on line 27.
1. An estate of a domestic decedent or
the cash method, the accrual method, or a domestic trust that had no tax liability for Failure To Supply Schedule K-1
any other method authorized by the the full 12-month 1996 tax year;
Internal Revenue Code. In all cases, the The fiduciary must provide Schedule K-1
2. A decedent's estate for any tax year (Form 1041) to each beneficiary who
method used must clearly reflect income. ending before the date that is 2 years receives a distribution of property or an
Generally, the estate or trust may after the decedent's death; or allocation of an item of the estate. A
change its accounting method (for income 3. A trust that was treated as owned penalty of $50 (not to exceed $100,000
as a whole or for any material item) only by the decedent if the trust will receive the for any calendar year) will be imposed on
by getting consent on Form 3115, residue of the decedent's estate under the the fiduciary for each failure to furnish
Application for Change in Accounting will (or if no will is admitted to probate, the Schedule K-1 to each beneficiary unless
Method. For more information, get Pub. trust primarily responsible for paying reasonable cause for each failure is
538, Accounting Periods and Methods. debts, taxes, and expenses of established.
administration) for any tax year ending
Accounting Periods before the date that is 2 years after the Underpaid Estimated Tax
For a decedent's estate, the moment of decedent's death. If the fiduciary underpaid estimated tax,
death determines the end of the For more information, get Form get Form 2210, Underpayment of
decedent's tax year and the beginning of 1041-ES, Estimated Income Tax for Estimated Tax by Individuals, Estates,
the estate's tax year. As executor or Estates and Trusts. and Trusts, to figure any penalty. Enter
administrator, you choose the estate's tax the amount of any penalty on line 26,
period when you file its first income tax Section 643(g) Election Form 1041.
return. The estate's first tax year may be Fiduciaries of trusts that pay estimated tax
any period of 12 months or less that ends may elect under section 643(g) to have Trust Fund Recovery Penalty
on the last day of a month. If you select any portion of their estimated tax This penalty may apply if certain excise,
the last day of any month other than payments allocated to any of the income, social security, and Medicare
December, you are adopting a fiscal tax beneficiaries. taxes that must be collected or withheld
year. are not collected or withheld, or these

Page 4
taxes are not paid to the IRS. These taxes Agricultural Employees, instead of Form Forms 8288 and 8288-A, U.S.
are generally reported on Forms 720, 941, 941, to report income tax withheld and Withholding Tax Return for Dispositions
943, or 945. The trust fund recovery employer and employee social security by Foreign Persons of U.S. Real Property
penalty may be imposed on all persons and Medicare taxes on farmworkers. Interests; and Statement of Withholding
who are determined by the IRS to have Caution: See Trust Fund Recovery on Dispositions by Foreign Persons of
been responsible for collecting, Penalty on page 4. U.S. Real Property Interests. Use these
accounting for, and paying over these Form 945, Annual Return of Withheld forms to report and transmit withheld tax
taxes, and who acted willfully in not doing Federal Income Tax. Use this form to on the sale of U.S. real property by a
so. The penalty is equal to the unpaid report income tax withheld from foreign person. Also, use these forms to
trust fund tax. See the instructions for nonpayroll payments, including pensions, report and transmit tax withheld from
Form 720, Pub. 15 (Circular E), annuities, IRAs, gambling winnings, and amounts distributed to a foreign
Employer's Tax Guide, or Pub. 51 backup withholding. beneficiary from a “U.S. real property
(Circular A), Agricultural Employer's Tax interest account” that a domestic estate
Caution: See Trust Fund Recovery
Guide, for more details, including the or trust is required to establish under
Penalty on page 4.
definition of responsible persons. Regulations section 1.1445-5(c)(1)(iii).
Form 1040, U.S. Individual Income Tax
Form 8300, Report of Cash Payments
Other Penalties Return.
Over $10,000 Received in a Trade or
Other penalties can be imposed for Form 1040NR, U.S. Nonresident Alien Business. Generally, this form is used to
negligence, substantial underpayment of Income Tax Return. report the receipt of more than $10,000 in
tax, and fraud. Get Pub. 17, Your Federal Form 1041-A, U.S. Information Return— cash or foreign currency in one
Income Tax, for details on these Trust Accumulation of Charitable transaction (or a series of related
penalties. Amounts. transactions).
Forms 1042 and 1042-S, Annual
Other Forms That May Be Withholding Tax Return for U.S. Source Attachments
Income of Foreign Persons; and Foreign
Required Person's U.S. Source Income Subject to If you need more space on the forms or
Forms W-2 and W-3, Wage and Tax Withholding. Use these forms to report schedules, attach separate sheets. Use
Statement; and Transmittal of Wage and and transmit withheld tax on payments or the same size and format as on the
Tax Statements. distributions made to nonresident alien printed forms. But show the totals on
individuals, foreign partnerships, or the printed forms.
Form 56, Notice Concerning Fiduciary
Relationship. foreign corporations to the extent such Attach these separate sheets after all
payments or distributions constitute gross the schedules and forms. Enter the
Form 706, United States Estate (and
income from sources within the United estate's or trust's employer identification
Generation-Skipping Transfer) Tax
States that is not effectively connected number on each sheet.
Return; or Form 706-NA, United States
Estate (and Generation-Skipping with a U.S. trade or business. For more Do not file a copy of the decedent's will
Transfer) Tax Return, Estate of information, see sections 1441 and 1442, or the trust instrument unless the IRS
nonresident not a citizen of the United and Pub. 515, Withholding of Tax on requests it.
States. Nonresident Aliens and Foreign
Corporations. Additional Information
Form 706-GS(D), Generation-Skipping
Transfer Tax Return For Distributions. Forms 1099-A, B, INT, MISC, OID, R,
and S.—You may have to file these The following publications may assist you
Form 706-GS(D-1), Notification of information returns to report in preparing Form 1041.
Distribution From a Generation-Skipping abandonments, acquisitions through Pub. 550, Investment Income and
Trust. foreclosure, proceeds from broker and Expenses; and
Form 706-GS(T), Generation-Skipping barter exchange transactions, interest Pub. 559, Survivors, Executors, and
Transfer Tax Return for Terminations. payments, medical and dental health care Administrators.
Form 720, Quarterly Federal Excise Tax payments, miscellaneous income, original
Return. Use Form 720 to report issue discount, distributions from
environmental excise taxes, pensions, annuities, retirement or Of Special Interest to
communications and air transportation profit-sharing plans, individual retirement
taxes, fuel taxes, luxury tax on passenger arrangements, insurance contracts, and
Bankruptcy Trustees and
vehicles, manufacturers' taxes, ship proceeds from real estate transactions. Debtors-in-Possession
passenger tax, and certain other excise Also, use these returns to report
taxes. amounts received as a nominee on behalf Taxation of Bankruptcy Estates of
Caution: See Trust Fund Recovery of another person, except amounts an Individual
Penalty on page 4. reported to beneficiaries on Schedule K-1 A bankruptcy estate is a separate taxable
Form 940 or Form 940-EZ, Employer's (Form 1041). entity created when an individual debtor
Annual Federal Unemployment (FUTA) Form 8275, Disclosure Statement. File files a petition under either chapter 7 or
Tax Return. The estate or trust may be Form 8275 to disclose items or positions, 11 of title 11 of the U.S. Code. The estate
liable for FUTA tax and may have to file except those contrary to a regulation, that is administered by a trustee or a
Form 940 or 940-EZ if it paid wages of are not otherwise adequately disclosed debtor-in-possession. If the case is later
$1,500 or more in any calendar quarter on a tax return. The disclosure is made to dismissed by the bankruptcy court, the
during the calendar year (or the preceding avoid parts of the accuracy-related debtor is treated as if the bankruptcy
calendar year) or one or more employees penalty imposed for disregard of rules or petition had never been filed. This
worked for the estate or trust for some substantial understatement of tax. Form provision does NOT apply to partnerships
part of a day in any 20 different weeks 8275 is also used for disclosures relating or corporations.
during the calendar year. to preparer penalties for understatements
Form 941, Employer's Quarterly Federal due to unrealistic positions or disregard Who Must File
Tax Return. Employers must file this form of rules. Every trustee (or debtor-in-possession)
quarterly to report income tax withheld on Form 8275-R, Regulation Disclosure for an individual's bankruptcy estate under
wages and employer and employee social Statement, is used to disclose any item chapter 7 or 11 of title 11 of the U.S. Code
security and Medicare taxes. Agricultural on a tax return for which a position has must file a return if the bankruptcy estate
employers must file Form 943, been taken that is contrary to Treasury has gross income of $5,900 or more for
Employer's Annual Tax Return for regulations. tax years beginning in 1996.

Page 5
Failure to do so may result in an Income, Deductions, and Credits discharge of indebtedness. However, any
estimated Request for Administrative amounts excluded from gross income
Under section 1398(c), the taxable
Expenses being filed by the IRS in the must be applied to reduce certain tax
income of the bankruptcy estate generally
bankruptcy proceeding or a motion to attributes in a certain order. Attach Form
is figured in the same manner as an
compel filing of the return. 982, Reduction of Tax Attributes Due to
individual. The gross income of the
Note: The filing of a tax return for the Discharge of Indebtedness, to show the
bankruptcy estate includes any income
bankruptcy estate does not relieve the reduction of tax attributes.
included in property of the estate as
individual debtor of his or her (or their) defined in Bankruptcy Code section 541.
individual tax obligations. Tax Rate Schedule
Also included is gain from the sale of
property. To figure gain, the trustee or Figure the tax for the bankruptcy estate
Employer Identification Number using the tax rate schedule shown below.
debtor-in-possession must determine the
Every bankruptcy estate of an individual correct basis of the property. Enter the tax on Form 1040, line 38.
required to file a return must have its own To determine whether any amount paid If taxable income
employer identification number (EIN). You or incurred by the bankruptcy estate is is:
may apply for one on Form SS-4, allowable as a deduction or credit, or is
Application for Employer Identification treated as wages for employment tax But not
Of the
Number. The social security number Over— The tax is: amount
purposes, treat the amount as if it were over—
over—
(SSN) of the individual debtor cannot be paid or incurred by the individual debtor $0 $20,050 15% $0
used as the EIN for the bankruptcy estate. in the same trade or business or other 20,050 48,450 $3,007.50 + 28% 20,050
48,450 73,850 10,959.50 + 31% 48,450
Accounting Period activity the debtor engaged in before the 73,850 131,875 18,833.50 + 36% 73,850
bankruptcy proceedings began. 131,875 ------ 39,722.50 + 39.6% 131,875
A bankruptcy estate is allowed to have a Administrative expenses.— The
fiscal year. The period can be no longer bankruptcy estate is allowed a deduction Prompt Determination of Tax
than 12 months. for any administrative expense allowed Liability
When To File under section 503 of title 11 of the U.S.
To request a prompt determination of the
Code, and any fee or charge assessed
File Form 1041 on or before the 15th day tax liability of the bankruptcy estate, the
under chapter 123 of title 28 of the U.S.
of the 4th month following the close of the trustee or debtor-in-possession must file
Code, to the extent not disallowed under
tax year. Use Form 2758 to apply for an a written application for the determination
an Internal Revenue Code provision (e.g.,
extension of time to file. with the IRS District Director for the
section 263, 265, or 275).
district in which the bankruptcy case is
Disclosure of Return Information Administrative expense loss.— When pending. The application must be
figuring a net operating loss, nonbusiness submitted in duplicate and executed
Under section 6103(e)(5), tax returns of deductions (including administrative
individual debtors who have filed for under the penalties of perjury. The trustee
expenses) are limited under section or debtor-in-possession must submit with
bankruptcy under chapters 7 or 11 of title 172(d)(4) to the bankruptcy estate's
11 are, upon written request, open to the application an exact copy of the
nonbusiness income. The excess return (or returns) filed by the trustee with
inspection by or disclosure to the trustee. nonbusiness deductions are an the IRS for a completed tax period, and
The returns subject to disclosure to the administrative expense loss that may be a statement of the name and location of
trustee are those for the year the carried back to each of the 3 preceding the office where the return was filed. The
bankruptcy begins and prior years. Use tax years and forward to each of the 7 envelope should be marked, “Personal
Form 4506, Request for Copy or succeeding tax years of the bankruptcy Attention of the Special Procedures
Transcript of Tax Form, to request copies estate. The amount of an administrative Function (Bankruptcy Section). DO NOT
of the individual debtor's tax returns. expense loss that may be carried to any OPEN IN MAILROOM.”
If the bankruptcy case was not tax year is determined after the net
The IRS will notify the trustee or
voluntary, disclosure cannot be made operating loss deductions allowed for that
debtor-in-possession within 60 days from
before the bankruptcy court has entered year. An administrative expense loss is
receipt of the application whether the
an order for relief, unless the court rules allowed only to the bankruptcy estate and
return filed by the trustee or
that the disclosure is needed for cannot be carried to any tax year of the
debtor-in-possession has been selected
determining whether relief should be individual debtor.
for examination or has been accepted as
ordered. Carryback of net operating losses and filed. If the return is selected for
credits.— If the bankruptcy estate itself examination, it will be examined as soon
Transfer of Tax Attributes From the incurs a net operating loss (apart from
Individual Debtor to the as possible. The IRS will notify the trustee
losses carried forward to the estate from or debtor-in-possession of any tax due
Bankruptcy Estate the individual debtor), it can carry back its within 180 days from receipt of the
The bankruptcy estate succeeds to the net operating losses not only to previous application or within any additional time
following tax attributes of the individual tax years of the bankruptcy estate, but permitted by the bankruptcy court.
debtor: also to tax years of the individual debtor
See Rev. Proc. 81-17, 1981-1 C.B. 688.
1. Net operating loss (NOL) carryovers; prior to the year in which the bankruptcy
proceedings began. Excess credits, such Special Filing Instructions for
2. Charitable contributions carryovers; as the foreign tax credit, also may be
3. Recovery of tax benefit items; Bankruptcy Estates
carried back to pre-bankruptcy years of
4. Credit carryovers; the individual debtor. Use Form 1041 only as a transmittal for
5. Capital loss carryovers; Exemption.— For tax years beginning in Form 1040. In the top margin of Form
6. Basis, holding period, and character 1996, a bankruptcy estate is allowed a 1040 write “Attachment to Form 1041. DO
of assets; personal exemption of $2,550. NOT DETACH.” Attach Form 1040 to
Form 1041. Complete only the
7. Method of accounting; Standard deduction.— For tax years identification area at the top of Form
8. Unused passive activity losses; beginning in 1996, a bankruptcy estate 1041. Enter the name of the individual
9. Unused passive activity credits; and that does not itemize deductions is debtor in the following format: “John Q.
allowed a standard deduction of $3,350. Public Bankruptcy Estate.” Beneath, enter
10. Unused section 465 losses.
Discharge of indebtedness.— In a title the name of the trustee in the following
11 case, gross income does not include format: “Avery Snow, Trustee.” In item D,
amounts that normally would be included enter the date the petition was filed or the
in gross income resulting from the date of conversion to a chapter 7 or 11

Page 6
case. Enter on Form 1041, line 23, any Grantor Type Trust considered a grantor type trust, and each
tax due from line 51 of Form 1040. certificate holder is treated as the owner
A grantor type trust is a legal trust under
Complete lines 24 through 29 of Form of an undivided interest in the entire trust
applicable state law that is not recognized
1041, and sign and date it. under the grantor trust rules. Certificate
as a separate taxable entity for income
holders must report their proportionate
tax purposes because the grantor or other
share of the mortgage interest and other
substantial owners have not relinquished
Specific Instructions items of income on their individual tax
complete dominion and control over the
returns.
trust.
Pre-need funeral trusts.— The
Generally, for transfers made in trust
purchasers of pre-need funeral services
Name of Estate or Trust after March 1, 1986, the grantor is treated
are the grantors and the owners of
as the owner of any portion of a trust in
Copy the exact name of the estate or trust pre-need funeral trusts established under
which he or she has a reversionary
from the Form SS-4, Application for state laws. See Rev. Rul. 87-127, 1987-2
interest in either the income or corpus
Employer Identification Number, that you C.B. 156.
therefrom, if, as of the inception of that
used to apply for the employer portion of the trust, the value of that Nonqualified deferred compensation
identification number (EIN). interest is more than 5% of the value of plans.— Taxpayers may adopt and
If a grantor type trust (discussed that portion. Also, the grantor is treated maintain grantor trusts in connection with
below), write the name, identification as holding any power or interest that was nonqualified deferred compensation plans
number, and address of the grantor(s) or held by either the grantor's spouse at the (sometimes referred to as “rabbi trusts”).
other person(s) in parentheses after the time that the power or interest was Rev. Proc. 92-64, 1992-2 C.B. 422,
name of the trust. created or who became the grantor's provides a “model grantor trust” for use in
spouse after the creation of that power or rabbi trust arrangements. The procedure
Address interest. also provides guidance for requesting
rulings on the plans that use these trusts.
Include the suite, room, or other unit Report on Form 1041 the part of the
income that is taxable to the trust. Do not Optional filing methods for certain
number after the street address. grantor type trusts.— Generally, for a
report on Form 1041 the income that is
If the Post Office does not deliver mail taxable to the grantor or another person. trust all of which is treated as owned by
to the street address and the fiduciary has Instead, attach a separate sheet to report one or more grantors or other persons,
a P.O. box, show the box number instead the following: the trustee may use one of the following
of the street address. ● The income of the trust that is taxable
3 optional methods to report instead of
If you change your address after filing filing Form 1041:
to the grantor or another person under
Form 1041, use Form 8822, Change of sections 671 through 678; Method 1. For a trust treated as owned
Address, to notify the IRS. ● The name, identifying number, and
by one grantor or by one other person, the
trustee must give all payers of income
address of the person(s) to whom the
A. Type of Entity income is taxable; and
during the tax year the name and
taxpayer identification number (TIN) of the
Check the appropriate box that describes ● Any deductions or credits applied to this
grantor or other person treated as the
the entity for which you are filing the income. owner of the trust and the address of the
return. The income taxable to the grantor or trust. This method may be used only if the
Note: There are special filing another person under sections 671 owner of the trust provides the trustee
requirements for grantor type trusts and through 678 and the deductions and with a signed Form W-9, Request for
bankruptcy estates (discussed below). credits applied to the income must be Taxpayer Identification Number and
reported on the income tax return that Certification. In addition, unless the
Decedent's Estate person files. grantor or other person treated as owner
An estate of a deceased person is a Family estate trust.— A family estate of the trust is the trustee or a co-trustee
taxable entity separate from the decedent. trust is also known as a family, family of the trust, the trustee must give the
It generally continues to exist until the estate, pure, equity, equity pure, prime, grantor or other person treated as owner
final distribution of the assets of the estate or constitutional trust. of the trust a statement that (a) shows all
is made to the heirs and other In most cases, the grantor transfers items of income, deduction, and credit of
beneficiaries. The income earned from property to the trust or assigns to the trust the trust; (b) identifies the payer of each
the property of the estate during the the income for services the grantor item of income; (c) explains how the
period of administration or settlement performs. The trust instrument usually grantor or other person treated as owner
must be accounted for and reported by provides: of the trust takes those items into account
the estate. ● Evidence of ownership, such as when figuring the grantor's or other
certificates of beneficial interest in the person's taxable income or tax; and (d)
Simple Trust informs the grantor or other person
trust.
A trust may qualify as a simple trust if: ● That the grantor is a trustee and
treated as the owner of the trust that
1. The trust instrument requires that all executive officer. those items must be included when
income must be distributed currently; figuring taxable income and credits on his
● That the trust pays the living expenses
2. The trust instrument does not or her income tax return.
for the grantor and the grantor's family.
provide that any amounts are to be paid, Method 2. For a trust treated as owned
● That the corpus and undistributed
permanently set aside, or used for by one grantor or by one other person, the
income are distributed to the owners after trustee must give all payers of income
charitable purposes; and the trust is terminated.
3. The trust does not distribute amounts during the tax year the name, address,
Generally, a family estate trust is and TIN of the trust. The trustee also must
allocated to the corpus of the trust. treated as a grantor type trust. For more file with the IRS the appropriate Forms
Complex Trust information, see Rev. Rul. 75-257, 1975-2 1099 to report the income or gross
C.B. 251. proceeds paid to the trust during the tax
A complex trust is any trust that does not Mortgage pools.— The trustee of a
qualify as a simple trust as explained year that shows the trust as the payer and
mortgage pool, such as the Federal the grantor or other person treated as
above. National Mortgage Association, collects owner as the payee. The trustee must
principal and interest payments on each report each type of income in the
mortgage and makes distributions to the aggregate and each item of gross
certificate holders. Each pool is proceeds separately. In addition, unless

Page 7
the grantor or other person treated as persons if at least one grantor or other If you are filing for a pooled income
owner of the trust is the trustee or a person is an exempt recipient for fund, attach a statement to support the
co-trustee of the trust, the trustee must information reporting purposes, unless at following:
give the grantor or other person treated least one grantor or other person is not ● The calculation of the yearly rate of
as owner of the trust a statement that (a) an exempt recipient and the trustee return.
shows all items of income, deduction, and reports without treating any of the ● The computation of the deduction for
credit of the trust; (b) explains how the grantors or other persons as exempt distributions to the beneficiaries.
grantor or other person treated as owner recipients. ● The computation of any charitable
of the trust takes those items into account A trustee who previously had filed Form deduction.
when figuring the grantor's or other 1041 for any tax year ending before
person's taxable income or tax; and (c) You do not have to complete Schedules
January 1, 1996 (and who previously had
informs the grantor or other person A or B of Form 1041.
not filed a final Form 1041 under the
treated as the owner of the trust that simplified filing rule in effect prior to If the fund has accumulations of
those items must be included when January 1, 1996), or who files a Form income, file Form 1041-A unless the fund
figuring taxable income and credits on his 1041 for any later tax year, can change is required to distribute all of its net
or her income tax return. This statement to one of the optional methods by filing a income to beneficiaries currently.
satisfies the requirement to give the final Form 1041 for the tax year that You must also file Form 5227,
recipient copies of the Forms 1099 filed immediately precedes the first tax year for Split-Interest Trust Information Return, for
by the trustee. which the trustee elects to report under the pooled income fund.
Method 3. For a trust treated as owned one of the optional methods. On the front
by two or more grantors or other persons, of the final Form 1041, the trustee must B. Number of Schedules K-1
the trustee must give all payers of income write “Pursuant to section 1.671–4(g), this Attached
during the tax year the name, address, is the final Form 1041 for this grantor
and TIN of the trust. The trustee also must trust,” and check the “Final return” box in Every trust or decedent's estate claiming
file with the IRS the appropriate Forms item F. For more details on changing an income distribution deduction on page
1099 to report the income or gross reporting methods, including changes 1, line 18, must enter the number of
proceeds paid to the trust by all payers from one optional method to another, see Schedules K-1 (Form 1041) that are
during the tax year attributable to the part Regulations section 1.671–4(g). attached to Form 1041.
of the trust treated as owned by each Backup withholding.— Generally, a
grantor or other person, showing the trust grantor trust is considered a payor of C. Employer Identification
as the payer and each grantor or other reportable payments received by the trust Number
person treated as owner of the trust as for purposes of backup withholding. If the
the payee. The trustee must report each trust has 10 or fewer grantors, a Every estate or trust must have an EIN.
type of income in the aggregate and each reportable payment made to the trust is To apply for one, use Form SS-4. You
item of gross proceeds separately. In treated as a reportable payment of the may get this form from the IRS or the
addition, the trustee must give each same kind made to the grantors on the Social Security Administration. See Pub.
grantor or other person treated as owner date the trust received the payment. If the 583, Starting a Business and Keeping
of the trust a statement that (a) shows all trust has more than 10 grantors, a Records, for more information.
items of income, deduction, and credit of reportable payment made to the trust is If you are filing a return for a mortgage
the trust attributable to the part of the trust treated as a payment of the same kind pool, such as one created under the
treated as owned by the grantor or other made by the trust to each grantor in an mortgage-backed security programs
person; (b) explains how the grantor or amount equal to the distribution made to administered by the Federal National
other person treated as owner of the trust each grantor on the date the grantor is Mortgage Association (“Fannie Mae”) or
takes those items into account when paid or credited. The trustee must the Government National Mortgage
figuring the grantor's or other person's withhold 31% of reportable payments Association (“Ginnie Mae”), the EIN stays
taxable income or tax; and (c) informs the made to any grantor who is subject to with the pool if that pool is traded from
grantor or other person treated as the backup withholding. For more information, one financial institution to another.
owner of the trust that those items must see section 3406 and Temporary
be included when figuring taxable income Regulations section 35a.9999-2, Q&A 20. D. Date Entity Created
and credits on his or her income tax
return. This statement satisfies the Bankruptcy Estate Enter the date the trust was created, or,
requirement to give the recipient copies if a decedent's estate, the date of the
A chapter 7 or 11 bankruptcy estate is a decedent's death.
of the Forms 1099 filed by the trustee. separate and distinct taxable entity from
Exceptions.—The following trusts the individual debtor for Federal income
cannot report using the optional filing tax purposes. See Of Special Interest to E. Nonexempt Charitable and
methods: Bankruptcy Trustees and Split-Interest Trusts
1. A common trust fund (as defined in Debtors-in-Possession on page 5.
section 584(a)). For more information, see section 1398 Section 4947(a)(1) Trust
2. A foreign trust or a trust that has any and Pub. 908, Bankruptcy Tax Guide. Check this box if the trust is a nonexempt
of its assets located outside the United charitable trust within the meaning of
States. Pooled Income Fund section 4947(a)(1). A nonexempt
3. A qualified subchapter S trust (as A pooled income fund is a split-interest charitable trust is a trust that is not
defined in section 1361(d)(3)). trust with a remainder interest for a public exempt from tax under section 501(a); all
4. A trust all of which is treated as charity and a life income interest retained of the unexpired interests are devoted to
owned by one grantor or one other person by the donor or for another person. The one or more charitable purposes
whose tax year is other than a calendar property is held in a pool with other described in section 170(c)(2)(B); and for
year. pooled income fund property and does not which a deduction was allowed under
5. A trust all of which is treated as include any tax-exempt securities. The section 170 (for individual taxpayers) or
owned by one or more grantors or other income for a retained life interest is similar Code section for personal holding
persons, one of which is not a U.S. figured using the yearly rate of return companies, foreign personal holding
person. earned by the trust. See section 642(c) companies, or estates or trusts (including
and the related regulations for more a deduction for estate or gift tax
6. A trust all of which is treated as information.
owned by one or more grantors or other purposes).

Page 8
Not a Private Foundation instead of Form 1041 to meet its section Line 1—Interest Income
6012 filing requirement.
Check this box if the charitable trust is not Report the estate's or trust's share of all
treated as a private foundation under taxable interest income that was received
section 509. For more information, see F. Initial Return, Amended during the tax year. Examples of taxable
Regulations section 53.4947-1. Return, Final Return; or interest include interest from:
If a nonexempt charitable trust is not Change in Fiduciary's Name ● Accounts (including certificates of
treated as though it were a private deposit and money market accounts) with
foundation, the fiduciary must file Form or Address banks, credit unions, and thrifts.
990 (or Form 990-EZ), Return of ● Notes, loans, and mortgages.
Organization Exempt From Income Tax, Amended Return ● U.S. Treasury bills, notes, and bonds.
and Schedule A (Form 990), If you are filing an amended Form 1041, ● U.S. savings bonds.
Organization Exempt Under Section check the “Amended return” box. ● Original issue discount.
501(c)(3), in addition to Form 1041 if the Complete the entire return, correct the
● Income received as a regular interest
trust's gross receipts are normally more appropriate lines with the new
than $25,000. information, and refigure the estate's or holder of a real estate mortgage
If a nonexempt charitable trust is not trust's tax liability. If the total tax on line investment conduit (REMIC).
treated as though it were a private 23 is larger on the amended return than For taxable bonds acquired after 1987,
foundation, and it has no taxable income on the original return, you generally amortizable bond premium is treated as
under Subtitle A, it can file either Form should pay the difference with the an offset to the interest income instead
990 or Form 990-EZ instead of Form 1041 amended return. However, you should of as a separate interest deduction. See
to meet its section 6012 filing adjust this amount if there is any increase Pub. 550.
requirement. or decrease in the total payments shown For the year of the decedent's death,
on line 25. On an attached sheet explain Forms 1099-INT issued in the decedent's
Section 4947(a)(2) Trust the reason for the amendments and name may include interest income earned
Check this box if the trust is a split-interest identify the lines and amounts being after the date of death that should be
trust described in section 4947(a)(2). A changed on the amended return. reported on the income tax return of the
split-interest trust is a trust that is not If the amended return results in a decedent's estate. When preparing the
exempt from tax under section 501(a); change to income, or a change in decedent's final income tax return, report
has some unexpired interests that are distribution of any income or other on line 1 of Schedule B (Form 1040) or
devoted to purposes other than religious, information provided to a beneficiary, an Schedule 1 (Form 1040A) the total
charitable, or similar purposes described amended Schedule K-1 (Form 1041) must interest shown on Form 1099-INT. Under
in section 170(c)(2)(B); and has amounts also be filed with the amended Form 1041 the last entry on line 1, subtotal all the
transferred in trust after May 26, 1969, for and given to each beneficiary. Check the interest reported on line 1. Below the
which a deduction was allowed under “Amended K-1” box at the top of the subtotal, write “Form 1041” and the name
section 170 (for individual taxpayers) or amended Schedule K-1. and address shown on Form 1041 for the
similar Code section for personal holding decedent's estate. Also, show the part of
companies, foreign personal holding Final Return the interest reported on Form 1041 and
companies, or estates or trusts (including Check this box if this is a final return subtract it from the subtotal.
a deduction for estate or gift tax because the estate or trust has
purposes). terminated. Also, check the “Final K-1”
Line 2—Dividends
The fiduciary of a split-interest trust box at the top of Schedule K-1. Report the estate's or trust's share of all
must also file Form 5227 (for amounts If, on the final return, there are excess ordinary dividends received during the tax
transferred in trust after May 26, 1969); deductions, an unused capital loss year.
and Form 1041-A if the trust's governing carryover, or a net operating loss For the year of the decedent's death,
instrument does not require that all of the carryover, see the discussion in the Forms 1099-DIV issued in the decedent's
trust's income be distributed currently. Schedule K-1 instructions on page 27. name may include dividends earned after
If a split-interest trust has any unrelated Figure the deductions on an attached the date of death that should be reported
business taxable income, however, it sheet. on the income tax return of the decedent's
must file Form 1041 to report all of its estate. When preparing the decedent's
income and to pay any tax due. G. Pooled Mortgage Account final income tax return, report on line 5 of
Schedule B (Form 1040) or Schedule 1
Nonexempt Charitable Trust If you bought a pooled mortgage account (Form 1040A) the total dividends shown
Treated as a Private Foundation during the year, and still have that pool on Form 1099-DIV. Under the last entry
at the end of the tax year, check the on line 5, subtotal all the dividends
If a nonexempt charitable trust is treated “Bought” box and enter the date of
as though it were a private foundation reported on line 5. Below the subtotal,
purchase. If you sold a pooled mortgage write “Form 1041” and the name and
under section 509, then the fiduciary must account that was purchased during this,
file Form 990-PF, Return of Private address shown on Form 1041 for the
or a previous, tax year, check the “Sold” decedent's estate. Also, show the part of
Foundation, in addition to Form 1041. box and enter the date of sale. If you the dividends reported on Form 1041 and
If a nonexempt charitable trust is neither bought nor sold a pooled subtract it from the subtotal.
subject to any of the private foundation mortgage account, skip this item.
excise taxes, then it must also file Form Note: Report capital gain distributions on
4720, Return of Certain Excise Taxes on Schedule D (Form 1041), line 10.
Charities and Other Persons Under
Income
Line 3—Business Income or (Loss)
Chapters 41 and 42 of the Internal Special Rule for Blind Trust
Revenue Code. Any private foundation If the estate or trust operated a business,
taxes paid by the trust cannot be taken If you are reporting income from a report the income and expenses on
as a deduction on Form 1041. qualified blind trust (under the Ethics in Schedule C (Form 1040), Profit or Loss
Government Act of 1978), do not identify From Business (or Schedule C-EZ (Form
If a nonexempt charitable trust is
the payer of any income to the trust but 1040), Net Profit From Business). Enter
treated as though it were a private
complete the rest of the return as the net profit or (loss) from Schedule C (or
foundation, and it has no taxable income
provided in the instructions. Also write Schedule C-EZ) on line 3.
under Subtitle A, it may file Form 990-PF
“Blind Trust” at the top of page 1.

Page 9
Line 4—Capital Gain or (Loss) legatees, and devisees on the basis of the ● Income from discharge of indebtedness
estate's income allocable to each. in a title 11 case (section 108).
Enter the gain from Schedule D (Form
1041), Part III, line 17, column (c); or the For a trust, the depreciation deduction Exception. State income taxes and
loss from Part IV, line 18. is apportioned between the income business expenses that are allocable to
beneficiaries and the trust on the basis of tax-exempt interest are deductible.
Note: Do not substitute Schedule D
the trust income allocable to each, unless Expenses that are directly allocable to
(Form 1040) for Schedule D (Form 1041).
the governing instrument (or local law) tax-exempt income are allocated only to
Line 5—Rents, Royalties, requires or permits the trustee to maintain tax-exempt income. A reasonable
Partnerships, Other Estates and a depreciation reserve. If the trustee is proportion of expenses indirectly allocable
required to maintain a reserve, the to both tax-exempt income and other
Trusts, etc. deduction is first allocated to the trust, up income must be allocated to each class
Use Schedule E (Form 1040), to the amount of the reserve. Any excess of income.
Supplemental Income and Loss, to report is allocated among the beneficiaries in the
the estate's or trust's share of income or same manner as the trust's accounting Deductions That May Be Allowable
(losses) from rents, royalties, income. See Regulations section for Estate Tax Purposes
partnerships, S corporations, other 1.167(h)-1(b).
estates and trusts, and REMICs. Enter the Administration expenses and casualty
For mineral or timber property held by and theft losses deductible on Form 706
net profit or (loss) from Schedule E on line a decedent's estate, the depletion
5. See the instructions for Schedule E may be deducted, to the extent otherwise
deduction is apportioned between the deductible for income tax purposes, on
(Form 1040) for reporting requirements. estate and the heirs, legatees, and Form 1041 if the fiduciary files a
If the estate or trust received a devisees on the basis of the estate's statement waiving the right to deduct the
Schedule K-1 from a partnership, S income from such property allocable to expenses and losses on Form 706. The
corporation, or other flow-through entity, each. statement must be filed before the
use the corresponding lines on Form 1041 For mineral or timber property held in expiration of the statutory period of
to report the interest, dividends, capital trust, the depletion deduction is limitations for the tax year the deduction
gains, etc., from the flow-through entity. apportioned between the income is claimed. See Pub. 559 for more
Line 6—Farm Income or (Loss) beneficiaries and the trust based on the information.
trust income from such property allocable
If the estate or trust operated a farm, use to each, unless the governing instrument Accrued Expenses
Schedule F (Form 1040), Profit or Loss (or local law) requires or permits the Generally, an accrual basis taxpayer can
From Farming, to report farm income and trustee to maintain a reserve for depletion. deduct accrued expenses in the tax year
expenses. Enter the net profit or (loss) If the trustee is required to maintain a that: (a) all events have occurred that
from Schedule F on line 6. reserve, the deduction is first allocated to determine the liability; and (b) the amount
the trust, up to the amount of the reserve. of the liability can be figured with
Line 7—Ordinary Gain or (Loss) Any excess is allocated among the reasonable accuracy. However, all the
Enter from line 20, Form 4797, Sales of beneficiaries in the same manner as the events that establish liability are treated
Business Property, the ordinary gain or trust's accounting income. See as occurring only when economic
loss from the sale or exchange of property Regulations section 1.611-1(c)(4). performance takes place. There are
other than capital assets and also from The deduction for amortization is exceptions for recurring items. See
involuntary conversions (other than apportioned between an estate or trust section 461(h).
casualty or theft). and its beneficiaries under the same
principles for apportioning the deductions Limitations on Deductions
Line 8—Other Income for depreciation and depletion.
Enter other items of income not included An estate or trust is not allowed to At-Risk Loss Limitations
on lines 1 through 7. List the type and make an election under section 179 to
amount on an attached schedule if the expense certain tangible property. Generally, the amount the estate or trust
estate or trust has more than one item. has “at risk” limits the loss it can deduct
The deduction for the amortization of for any tax year. Use Form 6198, At-Risk
Items to be reported on line 8 include: reforestation expenditures under section
● Unpaid compensation received by the
Limitations, to figure the deductible loss
194 is allowed only to an estate. for the year and file it with Form 1041. For
decedent's estate that is income in The estate's or trust's share of more information, get Pub. 925, Passive
respect of a decedent. amortization, depletion, and depreciation Activity and At-Risk Rules.
● Any part of a total distribution shown should be reported on the appropriate
on Form 1099-R, Distributions From lines of Schedule C (or C-EZ), E, or F Passive Activity Loss and Credit
Pensions, Annuities, Retirement or (Form 1040), the net income or loss from Limitations
Profit-Sharing Plans, IRAs, Insurance which is shown on line 3, 5, or 6 of Form
Contracts, etc., that is treated as ordinary Section 469 and the regulations
1041. If the deduction is not related to a
income. For more information, see the thereunder generally limit losses from
specific business or activity, then report it
separate instructions for Form 4972, Tax passive activities to the amount of income
on line 15a.
on Lump-Sum Distributions. derived from all passive activities.
Allocation of Deductions for Similarly, credits from passive activities
Tax-Exempt Income are generally limited to the tax attributable
Deductions to such activities. These limitations are
Generally, no deduction that would first applied at the estate or trust level.
Amortization, Depletion, and otherwise be allowable is allowed for any Generally, an activity is a passive
Depreciation expense (whether for business or for the activity if it involves the conduct of any
A trust or decedent's estate is allowed a production of income) that is allocable to trade or business, and the taxpayer does
deduction for amortization, depletion, and tax-exempt income. Examples of not materially participate in the activity.
depreciation only to the extent the tax-exempt income include: Passive activities do not include working
● Certain death benefits (section 101);
deductions are not apportioned to the interests in oil and gas properties. See
beneficiaries. ● Interest on state or local bonds (section section 469(c)(3).
For a decedent's estate, the 103); For a grantor trust, material
depreciation deduction is apportioned ● Compensation for injuries or sickness participation is determined at the grantor
between the estate and the heirs, (section 104); and level.

Page 10
Generally, rental activities are passive Line 10—Interest Deduction, to figure the allowable
activities, whether or not the taxpayer investment interest deduction.
Enter the amount of interest (subject to
materially participates. However, certain If you must complete Form 4952, check
limitations) paid or incurred by the estate
taxpayers who materially participate in the box on line 10 and attach Form 4952.
or trust on amounts borrowed by the
real property trades or businesses are not Then, add the deductible investment
estate or trust, or on debt acquired by the
subject to the passive activity limitations interest to the other types of deductible
estate or trust (e.g., outstanding
on losses from rental real estate activities interest and enter the total on line 10.
obligations from the decedent) that is not
in which they materially participate. For Qualified residence interest.— Interest
claimed elsewhere on the return.
more details, see section 469(c)(7). paid or incurred by an estate or trust on
If the proceeds of a loan were used for
Note: Material participation standards for indebtedness secured by a qualified
more than one purpose (e.g., to purchase
estates and trusts had not been a portfolio investment and to acquire an residence of a beneficiary of an estate or
established by regulations at the time interest in a passive activity), the fiduciary trust is treated as qualified residence
these instructions went to print. must make an interest allocation interest if the residence would be a
For tax years of an estate ending less according to the rules in Temporary qualified residence (i.e., the principal
than 2 years after the decedent's date of Regulations section 1.163-8T. residence or the second residence
death, up to $25,000 of deductions and selected by the beneficiary) if owned by
Do not include interest paid on
deduction equivalents of credits from the beneficiary. The beneficiary must
indebtedness incurred or continued to
rental real estate activities in which the have a present interest in the estate or
purchase or carry obligations on which the
decedent actively participated is allowed. trust or an interest in the residuary of the
interest is wholly exempt from income tax.
Any excess losses and/or credits are estate or trust. See Pub. 936, Home
suspended for the year and carried Personal interest is not deductible. Mortgage Interest Deduction, for an
forward. Examples of personal interest include explanation of the general rules for
interest paid on: deducting home mortgage interest.
If the estate or trust distributes an
● Revolving charge accounts.
interest in a passive activity, the basis of See section 163(h)(3) for a definition
the property immediately before the ● Personal notes for money borrowed of qualified residence interest and for
distribution is increased by the passive from a bank, credit union, or other person. limitations on indebtedness.
activity losses allocable to the interest, ● Installment loans on personal use
and such losses cannot be deducted. See property. Line 11—Taxes
section 469(j)(12). ● Underpayments of Federal, state, or Enter any deductible taxes paid or
Note: Losses from passive activities are local income taxes. incurred during the tax year that are not
first subject to the at-risk rules. When the Interest that is paid or incurred on deductible elsewhere on Form 1041.
losses are deductible under the at-risk indebtedness allocable to a trade or Deductible taxes include:
rules, the passive activity rules then apply. business (including a rental activity) ● State and local income or real property
Portfolio income is not treated as should be deducted on the appropriate taxes.
income from a passive activity, and line of Schedule C (or C-EZ), E, or F ● The generation-skipping transfer (GST)
passive losses and credits generally may (Form 1040), the net income or loss from tax imposed on income distributions.
not be applied to offset it. Portfolio income which is shown on line 3, 5, or 6 of Form
Do not deduct:
generally includes interest, dividends, 1041.
● Federal income taxes.
royalties, and income from annuities. Types of interest to include on line 10
● Estate, inheritance, legacy, succession,
Portfolio income of an estate or trust must are:
be accounted for separately. and gift taxes.
1. Any investment interest (subject to
● Federal duties and excise taxes.
See Form 8582, Passive Activity Loss limitations);
Limitations, to figure the amount of losses ● State and local sales taxes. Instead,
2. Any qualified residence interest; and
allowed from passive activities. See Form treat these taxes as part of the cost of the
3. Any interest payable under section
8582-CR, Passive Activity Credit property.
6601 on any unpaid portion of the estate
Limitations, to figure the amount of credit tax attributable to the value of a
allowed for the current year. Line 12—Fiduciary Fees
reversionary or remainder interest in
property, or an interest in a closely held Enter the deductible fees paid or incurred
Transactions Between Related to the fiduciary for administering the
Taxpayers business for the period during which an
extension of time for payment of such tax estate or trust during the tax year.
Under section 267, a trust that uses the is in effect. Note: Fiduciary fees deducted on Form
accrual method of accounting may only Investment interest.— Generally, 706 cannot be deducted on Form 1041.
deduct business expenses and interest investment interest is interest (including
owed to a related party in the year the Line 15a—Other Deductions NOT
amortizable bond premium on taxable
payment is included in the income of the bonds acquired after October 22, 1986,
Subject to the 2% Floor
related party. For this purpose, a related but before January 1, 1988) that is paid Attach your own schedule, listing by type
party includes: or incurred on indebtedness that is and amount, all allowable deductions that
1. A grantor and a fiduciary of any trust; properly allocable to property held for are not deductible elsewhere on Form
2. A fiduciary of a trust and a fiduciary investment. Investment interest does not 1041.
of another trust, if the same person is a include any qualified residence interest, Do not include any losses on worthless
grantor of both trusts; or interest that is taken into account under bonds and similar obligations and
3. A fiduciary of a trust and a section 469 in figuring income or loss from nonbusiness bad debts. Report these
beneficiary of such trust; a passive activity. losses on Schedule D (Form 1041).
4. A fiduciary of a trust and a Generally, net investment income is the Do not deduct medical or funeral
beneficiary of another trust, if the same excess of investment income over expenses on Form 1041. Medical
person is a grantor of both trusts; and investment expenses. Investment expenses of the decedent paid by the
5. A fiduciary of a trust and a expenses are those expenses (other than estate may be deductible on the
corporation more than 50% in value of the interest) allowable after application of the decedent's income tax return for the year
outstanding stock of which is owned, 2% floor on miscellaneous itemized incurred. See section 213(c). Funeral
directly or indirectly, by or for the trust or deductions. expenses are deductible ONLY on Form
by or for a person who is a grantor of the The amount of the investment interest 706.
trust. deduction may be limited. Use Form
4952, Investment Interest Expense

Page 11
The following are examples of or trust) that would not have been In the above example:
deductions that are reported on line 15a. incurred if the property were NOT held by AGI = 35,000 – 2,000 – DNI – 100
Bond premium(s).— For taxable bonds the estate or trust; Since the value of line 18 is not known
acquired before October 23, 1986, if the 2. The income distribution deduction because it is limited to the DNI, you are
fiduciary elected to amortize the premium, (line 18); left with the following:
report the amortization on this line. For 3. The amount of the exemption (line AGI = 32,900 – DNI
tax-exempt bonds, the amortization 20); Substitute the value of AGI in the
cannot be deducted. In all cases where 4. The deduction for clean-fuel vehicles equation:
the fiduciary has made an election to claimed on line 15a; and
amortize the premium, the basis must be AMID = 1,500 – (.02(32,900 – DNI))
5. The net operating loss deduction The equation cannot be solved until the
reduced by the amount of amortization. claimed on line 15a.
For more information, see section 171 value of DNI is known. The DNI can be
For those estates and trusts whose expressed in terms of the AMID. To do
and Pub. 550. income distribution deduction is limited to this, compute the DNI using the known
If you claim a bond premium deduction the actual distribution, and NOT the DNI values. In this example, the DNI is equal
for the estate or trust, figure the deduction (i.e., the income distribution is less than to the total income of the trust (less any
on a separate sheet and attach it to Form the DNI), when computing the AGI, use capital gains allocated to corpus; or plus
1041. the amount of the actual distribution. any capital loss from line 4); less total
Casualty and theft losses.— Use Form For those estates and trusts whose deductions from line 16 (excluding any
4684, Casualties and Thefts, to figure any income distribution deduction is limited to miscellaneous itemized deductions); less
deductible casualty and theft losses. the DNI (i.e., the actual distribution the AMID.
Deduction for clean-fuel vehicles.— exceeds the DNI), the DNI must be Thus, DNI = (line 9) – (line 17, column
Section 179A allows a deduction for part figured taking into account the allowable (b) of Schedule D (Form 1041)) – (line 16)
of the cost of qualified clean-fuel vehicle miscellaneous itemized deductions – (AMID)
property. Get Pub. 535, Business (AMID) after application of the 2% floor. Substitute the known values:
Expenses, for more details. In this situation there are two unknown DNI = 35,000 – 20,000 – 2,000 – AMID
Net operating loss deduction amounts: (a) the AMID; and (b) the DNI.
(NOLD).— An estate or trust is allowed DNI = 13,000 – AMID
The following example illustrates how
the net operating loss deduction (NOLD) an algebraic equation can be used to Substitute the value of DNI in the
under section 172. solve for these unknown amounts: equation to solve for AMID:
If you claim an NOLD for the estate or The Malcolm Smith Trust, a complex AMID = 1,500 – (.02(32,900 – (13,000
trust, figure the deduction on a separate trust, earned $20,000 of dividend income, – AMID)))
sheet and attach it to this return. $20,000 of capital gains, and a fully AMID = 1,500 – (.02(32,900 – 13,000
Estate's or trust's share of deductible $5,000 loss from XYZ + AMID))
amortization, depreciation, and partnership (chargeable to corpus) in AMID = 1,500 – (658 – 260 + .02 AMID)
depletion not claimed elsewhere.— If 1996. The trust instrument provides that AMID = 1,102 – .02AMID
you cannot deduct the amortization, capital gains are added to corpus. 50% 1.02AMID = 1,102
depreciation, and depletion as rent or of the fiduciary fees are allocated to AMID = 1,080
royalty expenses on Schedule E (Form income and 50% to corpus. The trust
1040), or as business or farm expenses claimed a $2,000 deduction on line 12 of DNI = 11,920 (i.e., 13,000 – 1,080)
on Schedule C, C-EZ, or F (Form 1040), Form 1041. The trust incurred $1,500 of AGI = 20,980 (i.e., 32,900 – 11,920)
itemize the fiduciary's share of the miscellaneous itemized deductions Note: The income distribution deduction
deductions on an attached sheet and (chargeable to income), which are subject is equal to the smaller of the distribution
include them on line 15a. Itemize each to the 2% floor. There are no other ($17,500) or the DNI ($11,920).
beneficiary's share of the deductions and deductions. The trustee made a Enter the value of AMID on line 15b
report them on the appropriate line of discretionary distribution of the accounting (the DNI should equal line 9 of Schedule
Schedule K-1 (Form 1041). income of $17,500 to the trust's sole B) and complete the rest of Form 1041
beneficiary. according to the instructions.
Line 15b—Allowable Because the actual distribution can If the 2% floor is more than the
Miscellaneous Itemized reasonably be expected to exceed the deductions subject to the 2% floor, no
Deductions Subject to the 2% Floor DNI, the trust must figure the DNI, taking deductions are allowed.
Miscellaneous itemized deductions are into account the allowable miscellaneous
deductible only to the extent that the itemized deductions, to determine the Line 18—Income Distribution
aggregate amount of such deductions amount to enter on line 15b. Deduction
exceeds 2% of adjusted gross income The trust also claims an exemption of If the estate or trust was required to
(AGI). $100 on line 20. distribute income currently or if it paid,
Miscellaneous itemized deductions do To compute line 15b, use the equation credited, or was required to distribute any
not include deductions for: below: other amounts to beneficiaries during the
● Interest under section 163. AMID = total miscellaneous itemized tax year, complete Schedule B to
● Taxes under section 164. deductions – (.02(AGI)) determine the estate's or trust's income
● The amortization of bond premium In the above example: distribution deduction. However, if you are
filing for a pooled income fund, do not
under section 171. AMID = 1,500 – (.02(AGI))
complete Schedule B. Instead, attach a
● Estate taxes attributable to income in In all situations, use the following statement to support the computation of
respect of a decedent under section equation to compute the AGI: the income distribution deduction. If the
691(c). AGI = (line 9) – (the total of lines 12, estate or trust claims an income
For other exceptions, see section 67(b). 14, and 15a to the extent they are costs distribution deduction, complete and
For estates and trusts, the AGI is incurred in the administration of the estate attach:
figured by subtracting the following from or trust that would not have been incurred ● Parts I and II of Schedule I to refigure
total income on line 9 of page 1: if the property were NOT held by the the deduction on a minimum tax basis;
1. The administration costs of the estate or trust) – (line 18) – (line 20). AND
estate or trust (the total of lines 12, 14, Note: There are no other deductions ● Schedule K-1 (Form 1041) for each
and 15a to the extent they are costs claimed by the trust on line 15a that are beneficiary to which a distribution was
incurred in the administration of the estate deductible in arriving at AGI. made or required to be made.

Page 12
Cemetery perpetual care fund.— On On the termination of the estate or trust, not yet filed it. If you have already filed
line 18, deduct the amount, not more than any unused NOL carryover that would be Form 1041-T, do not attach a copy to your
$5 per gravesite, paid for maintenance of allowable to the estate or trust in a later return.
cemetery property. To the right of the tax year, but for the termination, is
entry space for line 18, enter the number allowed to the beneficiaries succeeding to Line 24d—Tax Paid With Extension
of gravesites. Also write “Section 642(i) the property of the estate or trust. See the of Time To File
trust” in parentheses after the trust's instructions for Schedule K-1, lines 12d If you filed either Form 2758 (for estates
name at the top of Form 1041. You do not and 12e. only), Form 8736, or Form 8800 to
have to complete Schedules B of Form Excess deductions on termination.— If request an extension of time to file Form
1041 and K-1 (Form 1041). the estate or trust has for its final year 1041, enter the amount that you paid with
deductions (excluding the charitable the extension request and check the
Line 19—Estate Tax Deduction deduction and exemption) in excess of its appropriate box(es).
(Including Certain Generation- gross income, the excess is allowed as
Skipping Transfer Taxes) an itemized deduction to the beneficiaries Line 24e—Federal Income Tax
If the estate or trust includes income in succeeding to the property of the estate Withheld
respect of a decedent (IRD) in its gross or trust. However, an unused NOL Use line 24e to claim a credit for any
income, and such amount was included carryover that is allowed to beneficiaries Federal income tax withheld (and not
in the decedent's gross estate for estate (as explained in the above paragraph) repaid) by: (a) an employer on wages and
tax purposes, the estate or trust is allowed cannot also be treated as an excess salaries of a decedent received by the
to deduct in the same tax year that portion deduction. If the final year of the estate decedent's estate; (b) a payer of certain
of the estate tax imposed on the or trust is also the last year of the NOL gambling winnings (e.g., state lottery
decedent's estate that is attributable to carryover period, the NOL carryover not winnings); or (c) a payer of distributions
the inclusion of the IRD in the decedent's absorbed in that tax year by the estate or from pensions, annuities, retirement or
estate. For an example of the trust is included as an excess deduction. profit-sharing plans, IRAs, insurance
computation, see Regulations section See the instructions for Schedule K-1, line contracts, etc., received by a decedent's
1.691(c)-1 and Pub. 559. 12a. estate or trust. Attach a copy of Form
If any amount properly paid, credited, Line 24a—1996 Estimated Tax W-2, Form W-2G, or Form 1099-R.
or required to be distributed by an estate Backup withholding.— If the estate or
or trust to a beneficiary consists of IRD
Payments and Amount Applied
trust received a 1996 Form 1099 showing
received by the estate or trust, do not From 1995 Return Federal income tax withheld (i.e., backup
include such amounts in determining the Enter the amount of any estimated tax withholding) on interest income,
estate tax deduction for the estate or trust. payment you made with Form 1041-ES dividends, or other income, check the box
Figure the deduction on a separate sheet. for 1996 plus the amount of any and include the amount withheld on
Attach the sheet to your return. Also, a overpayment from the 1995 return that income retained by the estate or trust in
deduction is allowed for the GST tax was applied to the 1996 estimated tax. the total for line 24e.
imposed as a result of a taxable If the estate or trust is the beneficiary Report on Schedule K-1 (Form 1041),
termination, or a direct skip occurring as of another trust, and received a payment line 13, any credit for backup withholding
a result of the death of the transferor. See of estimated tax that was credited to the on income distributed to the beneficiary.
section 691(c)(3). Enter the estate's or trust (as reflected on the Schedule K-1
trust's share of these deductions on line issued to the trust), then report this Line 24f—Credit From Regulated
19. amount separately with the notation Investment Companies
“section 643(g)” in the space next to line Attach copy B of Form 2439, Notice to
Line 20—Exemption 24a. Shareholder of Undistributed Long-Term
Decedents' estates.— A decedent's Note: Do not include on Form 1041 Capital Gains.
estate is allowed a $600 exemption. estimated tax paid by an individual before
Trusts.— A trust whose governing death. Instead, include the payments on Line 24g—Credit for Federal Tax
instrument requires that all income be the decedent's final Form 1040. on Fuels
distributed currently is allowed a $300
Line 24b—Estimated Tax Include any credit for Federal excise taxes
exemption, even if it distributed amounts
Payments Allocated to paid on fuels that are ultimately used for
other than income during the tax year. All
nontaxable purposes (e.g., an off-highway
other trusts are allowed a $100 Beneficiaries business use) and any credit for a
exemption. See Regulations section The trustee (or executor, for the final year diesel-powered car, van, or light truck
1.642(b)-1. of the estate) may elect under section purchased before August 21, 1996.
643(g) to have any portion of its estimated Attach Form 4136, Credit for Federal Tax
Tax and Payments tax treated as a payment of estimated tax Paid on Fuels. Get Pub. 378, Fuel Tax
made by a beneficiary or beneficiaries. Credits and Refunds, for more
Line 22—Taxable Income The election is made on Form 1041-T, information.
Net operating loss.— If line 22 is a loss, Allocation of Estimated Tax Payments to
the estate or trust may have a net Beneficiaries, which must be filed by the Line 26—Underpayment of
operating loss (NOL). Do not include the 65th day after the close of the trust's tax Estimated Tax
deductions claimed on lines 13, 18, and year. Form 1041-T shows the amounts to If line 27 is at least $500 and more than
20 when figuring the amount of the NOL. be allocated to each beneficiary. This 10% of the tax shown on Form 1041, or
An NOL generally may be carried back to amount is reported on the beneficiary's the estate or trust underpaid its 1996
the 3 prior tax years and forward to the Schedule K-1, line 13a. estimated tax liability for any payment
following 15 tax years. Complete Failure to file Form 1041-T by the due period, it may owe a penalty. See Form
Schedule A of Form 1045, Application for date (March 6, 1997, for calendar year 2210 to determine whether the estate or
Tentative Refund, to figure the amount of estates and trusts) will result in an invalid trust owes a penalty and to figure the
the NOL that is available for carryback or election. An invalid election will require amount of the penalty.
carryover. Use Form 1045 or file an the filing of amended Schedules K-1 for Note: The penalty may be waived under
amended return to apply for a refund each beneficiary who was allocated a certain conditions. Get Pub. 505, Tax
based on an NOL carryback. For more payment of estimated tax. Attach Form Withholding and Estimated Tax, for
information, get Pub. 536, Net Operating 1041-T to your return ONLY if you have details.
Losses.

Page 13
Line 27—Tax Due Specific Instructions the total tax-exempt income of the estate
or trust, and the denominator of which is
You must pay the tax in full when the
Line 1—Amounts Paid for Charitable the gross income of the estate or trust.
return is filed. Make the check or money
Purposes From Gross Income Do not include in the denominator any
order payable to “Internal Revenue
Enter amounts that were paid for a losses allocated to corpus.
Service.” Write the EIN and “1996 Form
1041” on the payment. Enclose, but do charitable purpose out of the estate's or Line 6—Capital Gains for the Tax Year
not attach, the payment with Form 1041. trust's gross income, including any capital Allocated to Corpus and Paid or
gains that are attributable to income under Permanently Set Aside for Charitable
Line 29a—Credit to 1997 Estimated the governing instrument or local law. Purposes
Tax Include amounts paid during the tax year
from gross income received in a prior tax Enter the total of all capital gains for the
Enter the amount from line 28 that you tax year that are:
want applied to the estate's or trust's 1997 year, but only if no deduction was allowed
for any prior tax year for these amounts. ● Allocated to corpus; and
estimated tax. ● Paid or permanently set aside for
Do not include any capital gains for the
tax year allocated to corpus and paid or charitable purposes.
permanently set aside for charitable
Schedule A—Charitable purposes. Instead, enter these amounts
Deduction on line 6. Schedule B—Income
General Instructions Line 2—Amounts Permanently Set Distribution Deduction
Aside for Charitable Purposes From
Generally, any part of the gross income Gross Income General Instructions
of an estate or trust (other than a simple
trust) that, under the terms of the will or Estates, and certain trusts, may claim a If the estate or trust was required to
governing instrument, is paid (or treated deduction for amounts permanently set distribute income currently or if it paid,
as paid) during the tax year for a aside for a charitable purpose from gross credited, or was required to distribute any
charitable purpose specified in section income. Such amounts must be other amounts to beneficiaries during the
170(c) is allowed as a deduction to the permanently set aside during the tax year tax year, complete Schedule B to
estate or trust. It is not necessary that the or be used exclusively for religious, determine the estate's or trust's income
charitable organization be created or charitable, scientific, literary, or distribution deduction. However, if you are
organized in the United States. educational purposes, or for the filing for a pooled income fund, do not
prevention of cruelty to children or complete Schedule B. Instead, attach a
Trusts that claim a charitable deduction statement to support the computation of
animals, or for the establishment,
must also file Form 1041-A. See Form the income distribution deduction.
acquisition, maintenance, or operation of
1041-A for exceptions.
a public cemetery not operated for profit. Note: Use Schedule I to compute the
A pooled income fund, nonexempt DNI and income distribution deduction on
For a trust to qualify, the trust may not
private foundation, or trust with unrelated a minimum tax basis.
be a simple trust, and the set aside
business income should attach a separate
amounts must be required by the terms Separate share rule.— If a single trust
sheet to Form 1041 instead of using
of a trust instrument that was created on has more than one beneficiary, and if
Schedule A of Form 1041 to figure the
or before October 9, 1969. different beneficiaries have substantially
charitable deduction.
Further, the trust instrument must separate and independent shares, their
Election to treat contributions as paid shares are treated as separate trusts for
provide for an irrevocable remainder
in the prior tax year.— The fiduciary of the sole purpose of determining the DNI
interest to be transferred to or for the use
an estate or trust may elect to treat as allocable to the respective beneficiaries.
of an organization described in section
paid during the tax year any amount of If the separate share rule applies, figure
170(c); OR the trust must have been
gross income received during that tax the DNI allocable to each beneficiary on
created by a grantor who was at all times
year or any prior tax year that was paid in a separate sheet and attach the sheet to
after October 9, 1969, under a mental
the next tax year for a charitable purpose. this return. Any deduction or loss that is
disability to change the terms of the trust.
To make the election, the fiduciary must applicable solely to one separate share
Also, certain testamentary trusts that
file a statement with Form 1041 for the tax of the trust is not available to any other
were established by a will that was
year in which the contribution is treated share of the same trust. For more
executed on or before October 9, 1969,
as paid. This statement must include: information, see section 663(c) and
may qualify. See Regulations section
1. The name and address of the 1.642(c)-2(b). related regulations.
fiduciary;
Do not include any capital gains for the Specific Instructions
2. The name of the estate or trust; tax year allocated to corpus and paid or
3. An indication that the fiduciary is permanently set aside for charitable Line 1—Adjusted Total Income
making an election under section purposes. Instead, enter these amounts
642(c)(1) for contributions treated as paid on line 6. If the amount on line 17 of page 1 is a loss
during such tax year; that is attributable wholly or in part to the
4. The name and address of each Line 4—Tax-Exempt Income Allocable capital loss limitation rules under section
organization to which any such to Charitable Contributions 1211(b) (line 4), then enter as a negative
contribution is paid; and Any estate or trust that pays or sets aside amount on line 1, Schedule B, the smaller
any part of its income for a charitable of the loss from line 17 on page 1, or the
5. The amount of each contribution and loss from line 4 on page 1. If the line 17
date of actual payment or, if applicable, purpose must reduce the deduction by the
portion allocable to any tax-exempt loss is not attributable to the capital loss
the total amount of contributions paid to on line 4, enter zero.
each organization during the next tax income. If the governing instrument
year, to be treated as paid in the prior tax specifically provides as to the source from If you are filing for a simple trust,
year. which amounts are paid, permanently set subtract from adjusted total income any
aside, or to be used for charitable extraordinary dividends or taxable stock
The election must be filed by the due dividends included on page 1, line 2, and
date (including extensions) for Form 1041 purposes, the specific provisions control.
In all other cases, determine the amount determined under the governing
for the next tax year. instrument and applicable local law to be
For more information about the of tax-exempt income allocable to
charitable contributions by multiplying line allocable to corpus.
charitable deduction, see section 642(c)
and related regulations. 3 by a fraction, the numerator of which is

Page 14
Line 2—Adjusted Tax-Exempt Interest applicable local law. Do not include If a section 643(e)(3) election is made
To figure the adjusted tax-exempt extraordinary dividends or taxable stock by the fiduciary, then the amount entered
interest: dividends determined under the governing on line 12 will be the FMV of the property.
instrument and applicable local law to be A fiduciary of a complex trust may elect
Step 1. Add tax-exempt interest income allocable to corpus.
on line 4 of Schedule A, any expenses to treat any amount paid or credited to a
allowable under section 212 allocable to Lines 11 and 12 beneficiary within 65 days following the
tax-exempt interest, and any interest close of the tax year as being paid or
Do not include any: credited on the last day of that tax year.
expense allocable to tax-exempt interest.
● Amounts deducted on prior year's To make this election, see the instructions
Step 2. Subtract the Step 1 total from for Question 6 on page 17.
return that were required to be distributed
the amount of tax-exempt interest
in the prior year. The beneficiary includes the amounts
(including exempt-interest dividends)
received. ● Amount that is properly paid or credited on line 12 in his or her income only to the
as a gift or bequest of a specific amount extent of his or her proportionate share
Section 212 expenses that are directly of the DNI.
of money or specific property. (To qualify
allocable to tax-exempt interest are
as a gift or bequest, the amount must be Complex trusts.— If the second tier
allocated only to tax-exempt interest. A
paid in three or fewer installments.) An distributions exceed the DNI allocable to
reasonable proportion of section 212
amount that can be paid or credited only the second tier, the trust may have an
expenses that are indirectly allocable to
from income is not considered a gift or accumulation distribution. See the line 13
both tax-exempt interest and other
bequest. instructions below.
income must be allocated to each class
● Amount paid or permanently set aside
of income. Line 13—Total Distributions
for charitable purposes or otherwise
Figure the interest expense allocable to If line 13 is more than line 10 and you are
qualifying for the charitable deduction.
tax-exempt interest according to the filing for a complex trust, complete
guidelines in Rev. Proc. 72-18, 1972-1 Line 11—Income Required To Be Schedule J (Form 1041) and file it with
C.B. 740. Distributed Currently Form 1041 unless the trust has no
See Regulations sections 1.643(a)-5 Line 11 is to be completed by all simple previously accumulated income.
and 1.265-1 for more information. trusts as well as complex trusts, and
decedent's estates, that are required to Line 14—Adjustment for Tax-Exempt
Line 3 Income
distribute income currently, whether it is
Include all capital gains, whether or not distributed or not. The determination of In figuring the income distribution
distributed, that are attributable to income whether trust income is required to be deduction, the estate or trust is not
under the governing instrument or local distributed currently depends on the terms allowed a deduction for any item of the
law. For example, if the trustee distributed of the governing instrument and the DNI that is not included in the gross
50% of the current year's capital gains to applicable local law. income of the estate or trust. Thus, for
the income beneficiaries (and reflects this purposes of figuring the allowable income
The line 11 distributions are referred to
amount in column (a), line 17 of Schedule distribution deduction, the DNI (line 9) is
as first tier distributions and are deductible
D (Form 1041)), but under the governing figured without regard to any tax-exempt
by the estate or trust to the extent of the
instrument all capital gains are interest.
DNI. The beneficiary includes such
attributable to income, then include 100% If tax-exempt interest is the only
amounts in his or her income to the extent
of the capital gains on line 3. If the tax-exempt income included in the total
of his or her proportionate share of the
amount on Schedule D (Form 1041), line distributions (line 13), and the DNI (line
DNI.
17, column (a) is a net loss, enter zero. 9) is less than or equal to line 13, then
Line 12—Other Amounts Paid, enter on line 14 the amount from line 2.
Line 5
Credited, or Otherwise Required To Be
In figuring the amount of long-term capital If tax-exempt interest is the only
Distributed
gain for the tax year included on Schedule tax-exempt income included in the total
Line 12 is to be completed ONLY by a distributions (line 13), and the DNI is more
A, line 3, the specific provisions of the
decedent's estate or complex trust. These than line 13 (i.e., the estate or trust made
governing instrument control if the
distributions consist of any other amounts a distribution that is less than the DNI),
instrument specifically provides as to the
paid, credited, or required to be then figure the adjustment by multiplying
source from which amounts are paid,
distributed and are referred to as second line 2 by a fraction, the numerator of
permanently set aside, or to be used for
tier distributions. Such amounts include which is the total distributions (line 13),
charitable purposes. In all other cases,
annuities to the extent not paid out of and the denominator of which is the DNI
determine the amount to enter by
income, discretionary distributions of (line 9). Enter the result on line 14.
multiplying line 3 of Schedule A by a
corpus, and distributions of property in If line 13 includes tax-exempt income
fraction, the numerator of which is the
kind. other than tax-exempt interest, figure line
amount of long-term capital gains that are
included in the accounting income of the If Form 1041-T was filed to elect to treat 14 by subtracting the total of the following
estate or trust (i.e., not allocated to estimated tax payments as made by a from tax-exempt income included on line
corpus) AND are distributed to charities, beneficiary, the payments are treated as 13:
and the denominator of which is all items paid or credited to the beneficiary on the 1. The charitable contribution deduction
of income (including the amount of such last day of the tax year and must be allocable to such tax-exempt income, and
long-term capital gains) included in the included on line 12. 2. Expenses allocable to tax-exempt
DNI. Unless a section 643(e)(3) election is income.
made, the value of all noncash property Expenses that are directly allocable to
Line 6 actually paid, credited, or required to be tax-exempt income are allocated only to
Figure line 6 in a similar manner as line distributed to any beneficiaries is the tax-exempt income. A reasonable
5. smaller of: proportion of expenses indirectly allocable
1. The estate's or trust's adjusted basis to both tax-exempt income and other
Line 10—Accounting Income in the property immediately before income must be allocated to each class
If you are filing for a decedent's estate or distribution, plus any gain or minus any of income.
a simple trust, skip this line. If you are loss recognized by the estate or trust on
filing for a complex trust, enter the income the distribution (basis of beneficiary), or Line 17—Income Distribution
for the tax year determined under the 2. The fair market value (FMV) of such Deduction
terms of the governing instrument and property. The income distribution deduction
determines the amount of income that will
Page 15
be taxed to the beneficiaries. The total or exchange refigured to include the the beneficiaries are listed in the
amount of income for regular tax includible gain minus any deductions instructions for Schedule K-1, line 13, on
purposes that is reflected on line 7 of the allocable to the gain. page 27. Generally, these credits are
individual beneficiaries' Schedules K-1 See section 644 for additional apportioned on the basis of the income
should equal the amount claimed on line information, including character rules, allocable to the estate or trust and the
17. special rules, exceptions, installment sale beneficiaries.
rules, and the interest due on the tax if the ● Investment credit (Form 3468).
transferor and the trust have different tax ● Work opportunity credit (Form 5884).
Schedule G—Tax years. ● Credit for alcohol used as fuel (Form
Computation If the section 644 tax is the only tax due 6478).
on line 1b, enter the amount of the tax on ● Credit for increasing research activities
Line 1a line 1b and write “Section 644 tax” to the (Form 6765).
left of the amount column on line 1b. If ● Low-income housing credit (Form
Tax rate schedule.— For tax years there is more than one tax, include the
beginning in 1996, figure the tax using the 8586).
amount of the section 644 tax in the total
Tax Rate Schedule below. Enter the tax ● Enhanced oil recovery credit (Form
tax entered on line 1b.
on line 1a and check the “Tax rate 8830).
Attach the section 644 tax computation
schedule” box. ● Disabled access credit (Form 8826).
to the return. When figuring the trust's
taxable income, exclude the amount of ● Renewable electricity production credit
1996 Tax Rate Schedule any includible gain minus any deductions (Form 8835).
allocable to the gain. ● Empowerment zone employment credit
If (Form 8844).
taxable Line 2a—Foreign Tax Credit
income ● Indian employment credit (Form 8845).
is: Attach Form 1116, Foreign Tax Credit ● Credit for employer social security and
But Of the (Individual, Estate, Trust, or Nonresident
Over— not Its tax is: amount Medicare taxes paid on certain employee
over— over— Alien Individual), if you elect to claim tips (Form 8846).
$0 $1,600 15% $0 credit for income or profits taxes paid or ● Orphan drug credit (Form 8820).
1,600 3,800 $240.00 + 28% 1,600 accrued to a foreign country or a U.S.
3,800 5,800 856.00 + 31% 3,800 ● Credit for contributions to selected
5,800 7,900 1,476.00 + 36% 5,800 possession. The estate or trust may claim community development corporations
7,900 ----- 2,232.00 + 39.6% 7,900 credit for that part of the foreign taxes not (Form 8847).
allocable to the beneficiaries (including
Schedule D.— If the estate or trust had charitable beneficiaries). Enter the
a net capital gain and taxable income of Line 2d—Credit for Prior Year
estate's or trust's share of the credit on Minimum Tax
more than $3,800, complete Part VI of line 2a. See Pub. 514, Foreign Tax
Schedule D (Form 1041), enter the tax Credit for Individuals, for details. An estate or trust that paid alternative
from line 45 of Schedule D, and check the minimum tax in a previous year may be
“Schedule D” box. Line 2b eligible for a minimum tax credit in 1996.
See Form 8801, Credit for Prior Year
Line 1b—Other Taxes Nonconventional Source Fuel Credit Minimum Tax—Individuals, Estates, and
Include any additional tax from the If the estate or trust can claim any section Trusts.
following: 29 credit for producing fuel from a
● Form 4972, Tax on Lump-Sum nonconventional source, figure the credit
Line 5—Recapture Taxes
Distributions. on a separate sheet and attach it to the Recapture of investment credit.— If the
● Section 644 tax on trusts. return. Include the credit on line 2b. estate or trust disposed of investment
Section 644 tax.— If the trust sells or credit property or changed its use before
Qualified Electric Vehicle Credit the end of its useful life or recovery
exchanges property at a gain within 2
years after receiving it from a transferor, Use Form 8834, Qualified Electric Vehicle period, get Form 4255, Recapture of
a section 644 tax may be due. The tax Credit, if the estate or trust can claim a Investment Credit, to figure the recapture
may be due if both 1 and 2 below apply: credit for the purchase of a new qualified tax allocable to the estate or trust.
1. There is an includible gain (defined electric vehicle. Include the credit on line Recapture of low-income housing
below) recognized by the trust; and 2b. credit.— If the estate or trust disposed
of property (or there was a reduction in
2. At the time the trust received the Line 2c—General Business Credit the qualified basis of the property) on
property, the property had an FMV higher which the low-income housing credit was
than its adjusted basis. Complete this line if the estate or trust is
claiming any of the credits listed below. claimed, get Form 8611, Recapture of
The trustee is authorized by section Use the appropriate credit form to figure Low-Income Housing Credit, to figure any
6103(e)(1)(A)(ii) to inspect the transferor's the credit. If the estate or trust is claiming recapture tax allocable to the estate or
income tax return to the extent necessary only one credit, enter the form number trust.
to figure the section 644 tax if the and the amount of the credit in the space Recapture of qualified electric vehicle
transferor refuses to make a disclosure to provided. credit.— If the estate or trust claimed the
the trustee. qualified electric vehicle credit in a prior
If the estate or trust is claiming more
Includible gain is the smaller of 1 or 2 than one credit (not including the tax year for a vehicle that ceased to
below: empowerment zone employment credit), qualify for the credit, part or all of the
1. The gain recognized by the trust on a credit from a passive activity (other than credit may have to be recaptured. See
the sale or exchange of the property; or the low-income housing credit or the Pub. 535 for details. If the estate or trust
2. The amount by which the FMV of the empowerment zone employment credit), owes any recapture tax, include it on line
property at the time of the initial transfer or a credit carryforward, also complete 5 and write “QEV” on the dotted line to the
to the trust exceeds the adjusted basis of Form 3800, General Business Credit, to left of the entry space.
the property immediately after the figure the total credit and enter the Recapture of the Indian employment
transfer. amount from Form 3800 on line 2c. Also, credit.— Generally, if the estate or trust
Figure the tax on the includible gain by be sure to check the box for Form 3800. terminates a qualified employee less than
subtracting the transferor's actual tax for Do not include any amounts that are 1 year after the date of initial employment,
the tax year of the sale or exchange from allocated to a beneficiary. Credits that are any Indian employment credit allowed for
the transferor's tax for the year of the sale allocated between the estate or trust and a prior tax year by reason of wages paid

Page 16
or incurred to that employee must be If you checked “Yes” for Question 3, file
recaptured. See Form 8845 for details. If Form TD F 90-22.1 by June 30, 1997,
the estate or trust owes any recapture tax, Other Information with the Department of the Treasury at the
include it on line 5 and write “45A” on the address shown on the form.
dotted line to the left of the entry space. Question 1 Form TD F 90-22.1 is not a tax return, so
If the estate or trust received tax-exempt do not file it with Form 1041.
Line 7—Household Employment income, figure the allocation of expenses You may order Form TD F 90-22.1 by
Taxes between tax-exempt and taxable income calling 1-800-829-3676
If any of the following apply, get on a separate sheet and attach it to the (1-800-TAX-FORM).
Schedule H (Form 1040), Household return. Enter only the deductible amounts
Employment Taxes, and its instructions, on the return. Do not figure the allocation Question 4
to see if the estate or trust owes these on the return itself. For more information, If the estate or trust received a distribution
taxes. see the instructions for Allocation of from a foreign trust after August 20, 1996,
1. The estate or trust paid any one Deductions for Tax-Exempt Income on it must provide additional information. For
household employee cash wages of page 10. this purpose, a loan of cash or marketable
$1,000 or more in 1996. When figuring the Report the amount of tax-exempt securities generally is considered to be a
amount of cash wages paid, combine interest income received or accrued in the distribution. See Pub. 553, Highlights of
cash wages paid by the estate or trust space provided below Question 1. 1996 Tax Changes, for details.
with cash wages paid to the household Also, include any exempt-interest If the estate or trust was the grantor of,
employee in the same calendar year by dividends the estate or trust received as or the transferor to, a foreign trust that
the household of the decedent or a shareholder in a mutual fund or other existed during the tax year, it may have
beneficiary for whom the administrator, regulated investment company. to file Form 3520, Creation of or
executor, or trustee of the estate or trust Transfers to Certain Foreign Trusts, Form
is acting. Question 2 3520–A, Annual Return of Foreign Trust
2. The estate or trust withheld Federal All salaries, wages, and other With U.S. Beneficiaries, or Form 926,
income tax during 1996 at the request of compensation for personal services must Return by a U.S. Transferor of Property
any household employee. be included on the return of the person to a Foreign Corporation, Foreign Estate
3. The estate or trust paid total cash who earned the income, even if the or Trust, or Foreign Partnership.
wages of $1,000 or more in any calendar income was irrevocably assigned to a
quarter of 1995 or 1996 to household trust by a contract assignment or similar Question 5
employees. arrangement. An estate or trust claiming an interest
The grantor or person creating the trust deduction for qualified residence interest
Line 8—Total Tax is considered the owner if he or she keeps (as defined in section 163(h)(3)) on
Interest on tax deferred under the “beneficial enjoyment” of or substantial seller-provided financing, must include on
installment method for certain control over the trust property. The trust's an attachment to the 1996 Form 1041 the
nondealer real property installment income, deductions, and credits are name, address, and taxpayer identifying
obligations.— If an obligation arising allocable to the owner. number of the person to whom the
from the disposition of real property to If you checked “Yes” for Question 2, interest was paid or accrued (i.e., the
which section 453A applies is outstanding see the Grantor Type Trust instructions seller).
at the close of the year, the estate or trust on page 7. If the estate or trust received or accrued
must include the interest due under such interest, it must provide identical
section 453A(c) in the amount to be Question 3 information on the person liable for such
entered on line 8 of Schedule G, Form Check the “Yes” box and enter the name interest (i.e., the buyer). This information
1041, with the notation “Section 453A(c) of the foreign country if either 1 or 2 below does not need to be reported if it
interest.” Attach a schedule showing the applies. duplicates information already reported
computation. on Form 1098.
1. At any time during the year the
Form 4970, Tax on Accumulation estate or trust had an interest in or
Distribution of Trusts.— Include on this
Question 6
signature or other authority over a bank,
line any tax due on an accumulation securities, or other financial account in a To make the section 663(b) election for a
distribution from a trust. To the left of the foreign country. complex trust to treat any amount paid or
entry space, write “From Form 4970” and credited to a beneficiary within 65 days
Exception. Check “No” if either of the
the amount of the tax. following the close of the tax year as
following applies to the estate or trust:
Form 8697, Interest Computation being paid or credited on the last day of
● The combined value of the accounts
Under the Look-Back Method for that tax year, check the box. For the
was $10,000 or less during the whole election to be valid, you must file Form
Completed Long-Term Contracts.— year; OR
Include the interest due under the 1041 by the due date (including
● The accounts were with a U.S. military extensions). Once made, the election is
look-back method of section 460(b)(2). To
the left of the entry space, write “From banking facility operated by a U.S. irrevocable.
Form 8697” and the amount of interest financial institution.
2. The estate or trust owns more than Question 7
due.
Form 5329, Additional Taxes 50% of the stock in any corporation that To make the section 643(e)(3) election to
Attributable to Qualified Retirement owns one or more foreign bank accounts. recognize gain on property distributed in
Plans (Including IRAs), Annuities, and Get Form TD F 90-22.1, Report of kind, check the box and see the
Modified Endowment Contracts.— If Foreign Bank and Financial Accounts, to instructions for Schedule D (Form 1041).
the estate or trust fails to receive the see if the estate or trust is considered to
have an interest in or signature or other Question 8
minimum distribution under section 4974,
use Form 5329 to pay the excise tax. To authority over a bank, securities, or other If the decedent's estate has been open for
the left of the entry space, write “From financial account in a foreign country. more than 2 years, check the box and
Form 5329” and the amount of the tax. attach an explanation for the delay in
closing the estate.

Page 17
or trust does not include amounts of expense. For a definition of “specified
depreciation, depletion, and amortization private activity bonds,” see the
Schedule I—Alternative that are allocated to the beneficiaries, just instructions for line 4p.
Minimum Tax as the distributable net income (DNI) of Step 2. On line 2, enter the AMT
the estate or trust does not include these disallowed investment interest expense
General Instructions items for regular tax purposes. from 1995.
Use Schedule I to compute: Report separately on line 11 of Step 3. When completing Part II of
Schedule K-1 (Form 1041) any Form 4952, refigure gross income from
1. The estate's or trust's alternative adjustments or tax preference items
minimum taxable income; property held for investment, any net gain
attributable to depreciation, depletion, and from the disposition of property held for
2. The income distribution deduction on amortization that were allocated to the investment, and any investment
a minimum tax basis; and beneficiaries. expenses, taking into account all AMT
3. The estate's or trust's alternative adjustments and tax preference items that
minimum tax (AMT). Optional Write-Off Period Under
Section 59(e) apply. Include any interest income and
Who Must Complete investment expenses from private activity
The estate or trust may elect under bonds issued after August 7, 1986.
● Complete Schedule I, Parts I and II, if section 59(e) to use an optional 10-year To figure the adjustment for line 4a,
the decedent's estate or trust is required (60-month for intangible drilling and subtract the total interest allowable for
to complete Schedule B. development expenditures and 3-year for AMT purposes from the interest deduction
● Complete Schedule I, Parts I and III, if circulation expenditures) write-off period claimed on line 10 of page 1. If the total
the decedent's estate's or trust's share of for certain expenditures. If this election is interest expense allowed for AMT
alternative minimum taxable income (Part made, the optional write-off period is used purposes is more than that allowed for
I, line 12) exceeds $22,500. for regular tax purposes and there is no regular tax purposes, enter the difference
AMT adjustment. This election can be as a negative amount on line 4a.
Recordkeeping made for the following items:
Schedule I contains adjustments and tax ● Circulation expenditures (section 173). Line 4b—Taxes
preference items that are treated ● Research and experimental Enter any state, local, or foreign real
differently for regular tax and AMT expenditures (section 174). property taxes; state or local personal
purposes. If you, as fiduciary for the ● Intangible drilling and development property taxes; and state, local, or foreign
estate or trust, completed a form to figure expenditures (section 263(c)). income taxes that were included on line
an item for regular tax purposes, you may ● Development expenditures for mines 11 of page 1.
have to complete it a second time for AMT and natural deposits (section 616).
purposes. Generally, the difference Line 4d—Refund of Taxes
● Mining exploration expenditures
between the amounts on the two forms is Enter any refunds received in 1996 of
the AMT adjustment or tax preference (section 617(a)).
taxes described for line 4b above that
item to enter on Schedule I. Except for The election must be made in the year were deducted in a tax year after 1986.
Form 1116, any additional form the expenditure was made and may be
completed for AMT purposes does not revoked only with IRS consent. See Line 4e—Depreciation of Property
have to be filed with Form 1041. section 59(e) for more details. Placed in Service After 1986
For regular tax purposes, some Specific Instructions Caution: Do not include on this line any
deductions and credits may result in depreciation adjustment from: (a) an
carrybacks or carryforwards to other tax Part I—Estate's or Trust's Share of activity for which you are not at risk; (b)
years. Examples are: investment interest Alternative Minimum Taxable Income a partnership or an S corporation if the
expense; a net operating loss deduction; basis limitations under section 704(d) or
a capital loss; and the foreign tax credit. Line 1—Adjusted Total Income or 1366(d) apply; (c) a tax shelter farm
Because these items may be refigured for (Loss) activity; or (d) a passive activity. Instead,
the AMT, the carryback or carryforward take these depreciation adjustments into
amount may be different for regular and Enter the amount from line 17 of page 1.
If the adjusted total income includes the account when figuring the adjustments on
AMT purposes. Therefore, you should line 4l, 4m, or 4n, whichever applies.
keep records of these different amount of the alcohol fuel credit as
required under section 87, reduce the For AMT purposes, the depreciation
carryforward and carryback amounts for deduction for tangible property placed in
the AMT and regular tax. The AMT adjusted total income by the credit
included in income. service after 1986 (or after July 31, 1986,
carryforward will be important in if an election was made) must be
completing Schedule I for 1997. Line 2—Net Operating Loss Deduction refigured under the alternative
Credit for Prior Year Minimum Tax Enter any net operating loss deduction depreciation system (ADS) described in
(NOLD) from line 15a of page 1 as a section 168(g).
Estates and trusts that paid alternative
positive amount. For property, other than residential
minimum tax in 1995, or had a minimum
rental and nonresidential real property,
tax credit carryforward, may be eligible for Line 4a—Interest use the 150% declining balance method
a minimum tax credit in 1996. See Form
In determining the alternative minimum (switching to the straight line method in
8801.
taxable income, qualified residence the first tax year when that method gives
Partners, Shareholders, etc. interest (other than qualified housing a better result). However, use the straight
interest defined in section 56(e)) is not line method if that method was used for
An estate or trust that is a partner in a regular tax purposes. Generally, ADS
partnership or a shareholder in an S allowed.
If you completed Form 4952 for regular depreciation is figured over the class life
corporation must take into account its of the property. For tangible personal
share of items of income and deductions tax purposes, you may have an
adjustment on this line. Refigure your property not assigned a class life, use 12
that enter into the computation of its years. See Pub. 946, How To Depreciate
adjustments and tax preference items. investment interest expense on another
Form 4952 as follows: Property, for a discussion of class lives.
Allocation of Deductions to Step 1. On line 1 of Form 4952, add For residential rental and nonresidential
Beneficiaries any interest expense allocable to real property, use the straight line method
The distributable net alternative minimum specified private activity bonds issued over 40 years.
taxable income (DNAMTI) of the estate after August 7, 1986, to the other interest Use the same convention that was
used for regular tax purposes.
Page 18
See Rev. Proc. 87-57, 1987-2 C.B. 687, sections 616(a) and 617(a) for regular tax Enter the difference between the
or Pub. 946 for the optional tables for the purposes must be amortized for AMT income that was reported for regular tax
alternative minimum tax, using the 150% purposes over 10 years beginning with purposes and the income for AMT
declining balance method. the year the expenditures were paid or purposes. If the AMT amount is less than
Do not make an adjustment for motion incurred. that reported for the regular tax, enter the
picture films, videotapes, sound Enter the difference between the difference as a negative amount.
recordings, or property depreciated under amount allowed for AMT purposes and Line 4k—Adjusted Gain or Loss
the unit-of-production method or any other the amount allowed for regular tax (Including Incentive Stock Options)
method not expressed in a term of years. purposes. If the amount allowed for AMT
(See section 168(f)(1), (2), (3), or (4).) purposes exceeds the amount deducted Adjusted gain or loss.— If the estate or
When refiguring the depreciation for regular tax purposes, enter the trust sold or exchanged property during
deduction, be sure to report any difference as a negative amount. the year, or had a casualty gain or loss to
adjustment from depreciation that was See section 56(a)(2)(B) for a discussion business or income-producing property, it
allocated to the beneficiary for regular tax of the rules for losses sustained on may have an adjustment. The gain or loss
purposes separately on line 11 of properties for which a deduction was on the disposition of certain assets is
Schedule K-1 (Form 1041). allowed under section 616(a) or 617(a). refigured for AMT purposes. Use this line
To figure the adjustment, subtract the if the estate or trust reported a gain or
Line 4h—Long-Term Contracts Entered loss on Form 4797, Schedule D (Form
depreciation for AMT purposes from the
Into After February 28, 1986 1041), or Form 4684 (Section B). When
depreciation for regular tax purposes.
For AMT purposes, the percentage of figuring the adjusted basis for those
If the depreciation figured for AMT forms, take into account any AMT
purposes exceeds the depreciation completion method of accounting
described in section 460(b) generally adjustments made this year, or in
allowed for regular tax purposes, enter the previous years, for items related to lines
adjustment as a negative amount. must be used. This rule generally does
not apply to home construction contracts 4e, 4f, 4g, and 4i of Schedule I. For
Line 4f—Circulation and Research and (as defined in section 460(e)(6)). example, to figure the adjusted basis for
Experimental Expenditures AMT purposes, reduce the cost of an
Note: Contracts described in section
asset only by the depreciation allowed for
Caution: Do not make this adjustment for 460(e)(1) are subject to the simplified
AMT purposes.
expenditures for which you elected the method of cost allocation of section
460(b)(4). Enter the difference between the gain
optional 3-year write-off period (10-year or loss reported for regular tax purposes,
for research and experimental Enter the difference between the
and that figured for AMT purposes. If the
expenditures) under section 59(e) for amount reported for regular tax purposes
AMT gain is less than the gain reported
regular tax purposes. and the AMT amount. If the AMT amount
for regular tax purposes, enter the
Circulation expenditures.— Circulation is less than the amount figured for regular
adjustment as a negative amount. If the
expenditures deducted under section tax purposes, enter the difference as a
AMT loss is more than the loss allowed
173(a) for regular tax purposes must be negative amount.
for regular tax purposes, enter the
amortized for AMT purposes over 3 years Line 4i—Amortization of Pollution adjustment as a negative amount.
beginning with the year the expenditures Control Facilities Incentive stock options (ISOs).— For
were paid or incurred. regular tax purposes, no income is
Research and experimental The amortization deduction under section
169 is not allowed for AMT purposes. recognized when an incentive stock
expenditures.— Research and option (as defined in section 422(b)) is
experimental expenditures deducted Instead, the deduction is determined
under the ADS described in section granted or exercised. However, this rule
under section 174(a) for regular tax does not apply for AMT purposes.
purposes generally must be amortized for 168(g) using the Asset Depreciation
Range class life for the facility under the Instead, the estate or trust must generally
AMT purposes over 10 years beginning include the excess, if any, of:
with the year the expenditures were paid straight line method.
To figure the adjustment, subtract the 1. The fair market value of the option
or incurred. However, do not make an (determined without regard to any lapse
adjustment for expenditures paid or amortization deduction taken for regular
tax purposes from the depreciation restriction) at the first time its rights in the
incurred in connection with an activity in option become transferable or when these
which the estate or trust materially deduction determined under the ADS.
rights are no longer subject to a
participated under the passive activity If the deduction allowed for AMT
substantial risk of forfeiture, over
rules. purposes is more than the amount
allowed for regular tax purposes, enter the 2. The amount paid for the option.
Enter the difference between the
difference as a negative amount. Increase the AMT basis of any stock
amount allowed for AMT purposes and
acquired through the exercise of an
the amount allowed for regular tax Line 4j—Installment Sales of Certain incentive stock option by the amount of
purposes. If the amount for AMT purposes Property the adjustment.
exceeds the amount allowed for regular
tax purposes, enter the difference as a For either of the following kinds of If the estate or trust acquired stock by
negative amount. dispositions in which the estate or trust exercising an incentive stock option and
used the installment method for regular disposed of that stock in the same year,
See section 56(b)(2)(B) for a discussion
tax purposes, refigure the income for AMT the tax treatment for regular and AMT
of the rules for losses on properties for
purposes without regard to the installment purposes is the same.
which a deduction was allowed under
section 173(a) or 174(a). method: See section 83 for more details.
1. Any disposition after March 1, 1986,
Line 4g—Mining Exploration and of property used or produced in a farming Line 4l—Certain Loss Limitations
Development Costs business that was held primarily for sale Caution: If the loss is from a passive
Caution: Do not make this adjustment for to customers. activity, use line 4n instead. If the loss is
costs for which you elected the optional 2. Any nondealer disposition of from a tax shelter farm activity (that is not
10-year write-off period under section property that occurred after August 16, passive), use line 4m.
59(e) for regular tax purposes. 1986, but before the first day of your tax Refigure your allowable losses for AMT
Expenditures for the development or year that began in 1987, if an obligation purposes from activities for which you are
exploration of a mine or certain other that arose from the disposition was an not at risk and basis limitations applicable
mineral deposits (other than an oil, gas, installment obligation to which the to interests in partnerships and stock in
or geothermal well) deducted under proportionate disallowance rule applied. S corporations, by taking into account
your AMT adjustments and tax preference
Page 19
items. See sections 59(h), 465, 704(d), Publicly traded partnerships (PTPs).— Line 4s—Accelerated Depreciation of
and 1366(d). If the estate or trust had a loss from a Leased Personal Property Placed in
Enter the difference between the loss PTP, refigure the loss using any AMT Service Before 1987
reported for regular tax purposes and the adjustments and tax preference items. For leased personal property other than
AMT loss. If the AMT loss is more than recovery property, enter the amount by
Line 4o—Beneficiaries of Other Trusts
the loss reported for regular tax purposes, which the regular tax depreciation using
or Decedent's Estates
enter the adjustment as a negative the pre-1987 rules exceeds the
amount. If the estate or trust is the beneficiary of depreciation allowable using the straight
another estate or trust, enter the line method.
Line 4m—Tax Shelter Farm Activities adjustment for minimum tax purposes
For leased 10-year recovery property
Note: Use this line only if the tax shelter from line 8, Schedule K-1 (Form 1041).
and leased 15-year public utility property,
farm activity is not a passive activity. Line 4p—Tax-Exempt Interest From enter the amount by which the
Otherwise, use line 4n. Specified Private Activity Bonds depreciation deduction determined for
For AMT purposes, no loss is allowed regular tax purposes is more than the
from any tax shelter farm activity as Enter the interest earned from specified
deduction allowable using the straight line
defined in section 58(a)(2). private activity bonds reduced (but not
method with a half-year convention, no
An excess farm loss from one farm below zero) by any deduction that would
salvage value, and the following recovery
activity cannot be netted against income have been allowable if the interest were
period:
from another farm activity. Any disallowed includible in gross income for regular tax
loss (for AMT purposes) is carried forward purposes. Specified private activity bonds 10-year property ................................. 15 years
are any qualified bonds (as defined in 15-year public utility property ............. 22 years
until offset by income from the same
activity or when the entire activity is sold. section 141) issued after August 7, 1986. Figure this amount separately for each
See section 57(a)(5) for more information. property and include on line 4s only
Include any other adjustment or tax
preference item and your prior year AMT Exempt-interest dividends paid by a positive amounts.
unallowed loss when refiguring the farm regulated investment company are
treated as interest from specified private Line 4t—Intangible Drilling Costs
loss. For example, if depreciation must be
refigured for AMT purposes, include the activity bonds to the extent the dividends Caution: Do not make this adjustment for
adjustment on this line. DO NOT include are attributable to interest received by the costs for which you elected the optional
it again on line 4e, 4r, or 4s. company on the bonds, minus an 60-month write-off under section 59(e) for
allocable share of the expenses paid or regular tax purposes.
Determine your tax shelter farm activity incurred by the company in earning the
gain or loss for AMT purposes using the Except as provided below, intangible
interest.
same rules you used for regular tax drilling costs (IDCs) from oil, gas, and
purposes except that any AMT loss is Line 4q—Depletion geothermal wells are a tax preference
allowed only to the extent that a taxpayer item to the extent that the excess IDCs
Refigure the depletion deduction for AMT
is insolvent (see section 58(c)(1)). An exceed 65% of the net income from the
purposes by using only the income and
AMT loss may not be used in the current wells. Figure the tax preference item for
deductions allowed for the AMT when
tax year to offset gains from other tax all geothermal properties separately from
refiguring the limit based on taxable
shelter farm activities. Instead, it must be the preference for all oil and gas
income from the property under section
suspended and carried forward properties.
613(a) and the limit based on taxable
indefinitely until either you have a gain in income, with certain adjustments, under Excess IDCs are figured by taking the
a subsequent tax year from that same tax section 613A(d)(1). Also, the depletion amount of your IDCs allowed for regular
shelter farm activity or the activity is deduction for mines, wells, and other tax purposes under section 263(c) (not
disposed of. natural deposits under section 611 is including any section 263(c) deduction for
limited to the property's adjusted basis at nonproductive wells) minus the amount
Line 4n—Passive Activities that would have been allowed if that
the end of the year, as refigured for the
For AMT purposes, the rules described in AMT, unless the estate or trust is an amount had been amortized over a
section 469 apply, except that in applying independent producer or royalty owner 120-month period starting with the month
the limitations, minimum tax rules apply. claiming percentage depletion for oil and the well was placed in production.
Refigure passive activity gains and gas wells. Figure this limit separately for Note: Cost depletion can be substituted
losses on an AMT basis. Refigure a each property. When refiguring the for the amount allowed using amortization
passive activity gain or loss by taking into property's adjusted basis, take into over 120 months.
account all AMT adjustments or tax account any AMT adjustments made this Net income is determined by taking the
preference items that pertain to that year or in previous years that affect basis gross income from all oil, gas, and
activity. (other than the current year's depletion). geothermal wells reduced by the
You may complete a second Form Enter on line 4q the difference between deductions allocable to those properties
8582 to determine the passive activity the regular tax and AMT deduction. If the (determined without regard to excess
losses allowed for AMT purposes, but do AMT deduction is more than the regular IDCs). When figuring net income, use only
not send this AMT Form 8582 to the IRS. tax deduction, enter the difference as a income and deductions allowed for the
Note: The amount of any passive activity negative amount. AMT.
loss that is not deductible (and is Exception. The preference for IDCs from
therefore carried forward) for AMT Line 4r—Accelerated Depreciation of oil and gas wells does not apply to
purposes is likely to differ from the Real Property Placed in Service Before taxpayers who are independent producers
amount (if any) that is carried forward for 1987 (i.e., not integrated oil companies as
regular tax purposes. Therefore, it is For AMT purposes, use the straight line defined in section 291(b)(4)). However,
essential that you retain adequate records method to figure depreciation. Use a this benefit may be limited. First, figure
for both AMT and regular tax purposes. recovery period of 19 years for 19-year the IDC preference as if this exception did
Enter the difference between the loss real property and 15 years for low-income not apply. Then, for purposes of this
reported on page 1, and the AMT loss, if housing. Enter the excess of depreciation exception, complete Schedule I through
any. claimed for regular tax purposes over line 6, including the IDC preference. If the
Caution: Do not enter again elsewhere depreciation refigured using the straight amount of the IDC preference exceeds
on this schedule any AMT adjustment or line method. Figure this amount 40% of the amount figured for line 6, enter
tax preference item included on this line. separately for each property and include the excess on line 4t (the benefit of this
on line 4r only positive amounts. exception is limited). If the amount of the

Page 20
IDC preference is equal to or less than back or forward. See section 172(b) for If tax-exempt interest is the only
40% of the amount figured for line 6, do details. The treatment of alternative tax tax-exempt income included in the total
not enter an amount on line 4t (the benefit NOLs does not affect your regular tax distributions (line 23), and the DNAMTI is
of this exception is not limited). NOL. more than line 23 (i.e., the estate or trust
Note: If you elected under section made a distribution that is less than the
Line 4u—Other Adjustments DNAMTI), then figure the adjustment by
172(b)(3) to forego the carryback period
Include on this line: for regular tax purposes, the election will multiplying line 14 by a fraction, the
● Patron's adjustment.—Distributions also apply for the AMT. numerator of which is the total
the estate or trust received from a distributions (line 23), and the
cooperative may be includible in income. Part II—Income Distribution denominator of which is the DNAMTI (line
Unless the distributions are nontaxable, Deduction on a Minimum Tax Basis 20). Enter the result on line 24.
include on line 4u the total AMT If line 23 includes tax-exempt income
patronage dividend adjustment reported Line 13—Adjusted Alternative other than tax-exempt interest (except for
to the estate or trust from the cooperative. Minimum Taxable Income amounts from line 4p), figure line 24 by
● Related adjustments.—AMT If the amount on line 8 of Schedule I is subtracting the total expenses allocable
adjustments and tax preference items less than zero, and the negative number to tax-exempt income that are allowable
may affect deductions that are based on is attributable wholly or in part to the for AMT purposes from tax-exempt
an income limit other than AGI or modified capital loss limitation rules under section income included on line 23.
AGI (e.g., farm conservation expenses). 1211(b), then enter as a negative number Expenses that are directly allocable to
Refigure these deductions using the the smaller of (a) the loss from line 8; or tax-exempt income are allocated only to
income limit as modified for the AMT. (b) the loss from line 4 on page 1. tax-exempt income. A reasonable
Include the difference between the regular proportion of expenses indirectly allocable
tax and AMT deduction on line 4u. If the Line 14—Adjusted Tax-Exempt Interest to both tax-exempt income and other
AMT deduction is more than the regular To figure the adjusted tax-exempt interest income must be allocated to each class
tax deduction, include the difference as a (including exempt-interest dividends of income.
negative amount. received as a shareholder in a mutual
fund or other regulated investment Line 27—Income Distribution
Note: Do not make an adjustment on line Deduction on a Minimum Tax Basis
4u for an item you refigured on another company), subtract the total of (a) any
line of Schedule I (e.g., line 4q). tax-exempt interest from line 4 of Allocate the income distribution deduction
Schedule A of Form 1041 figured for AMT figured on a minimum tax basis among
Line 7—Alternative Tax Net Operating purposes; and (b) any section 212 the beneficiaries in the same manner as
Loss Deduction (ATNOLD) expenses allowable for AMT purposes income was allocated for regular tax
For tax years beginning after 1986, the allocable to tax-exempt interest from the purposes. Report each beneficiary's share
net operating loss (NOL) under section amount of tax-exempt interest received. on line 6 of Schedule K-1 (Form 1041).
172(c) is modified for alternative tax DO NOT subtract any deductions
purposes by (a) adding the adjustments reported on lines 4a through 4c. Section Part III—Alternative Minimum Tax
made under sections 56 and 58 212 expenses that are directly allocable Computation
(subtracting if the adjustments are to tax-exempt interest are allocated only
negative); and (b) reducing the NOL by to tax-exempt interest. A reasonable Line 36—Alternative Minimum Foreign
any item of tax preference under section proportion of section 212 expenses that Tax Credit
57 (except the appreciated charitable are indirectly allocable to both tax-exempt To figure the AMT foreign tax credit:
contribution preference item). interest and other income must be 1. Complete and attach Form 1116,
When figuring an NOL from a loss year allocated to each class of income. with the notation at the top, “Alt Min Tax”
prior to 1987, the rules in effect before Line 17 for each type of income specified at the
enactment of the Tax Reform Act (TRA) top of Form 1116.
of 1986 apply. The NOL under section Enter any capital gains that were paid or 2. Complete Part I, entering income,
172(c) is reduced by the amount of the tax permanently set aside for charitable deductions, etc., attributable to sources
preference items that were taken into purposes from the current year's income outside the United States computed on a
account in figuring the NOL. In addition, included on line 3 of Schedule A. minimum tax basis.
the NOL is figured by taking into account Lines 18 and 19 3. Complete Part III. On line 9, do not
only itemized deductions that were enter any taxes taken into account in a tax
alternative tax itemized deductions for the Capital gains and losses must take into
account any basis adjustments from line year beginning after 1986 that are treated
tax year and that were a modification to under section 904(c) as paid or accrued
the NOL under section 172(d). See 4k, Part I.
in a tax year beginning before 1987. On
sections 55(d) and 172 as in effect before Line 24—Adjustment for Tax-Exempt line 10 of Form 1116, enter the alternative
the TRA of 1986. Income minimum tax foreign tax credit carryover,
If this estate or trust is the beneficiary In figuring the income distribution and on line 17 of Form 1116, enter the
of another estate or trust that terminated deduction on a minimum tax basis, the alternative minimum taxable income from
in 1996, include any AMT NOL carryover estate or trust is not allowed a deduction line 12 of Schedule I. On line 19 of Form
that was reported on line 12e of Schedule for any item of DNAMTI (line 20) that is 1116, enter the amount from line 35 of
K-1 (Form 1041). not included in the gross income of the Schedule I.
The ATNOLD may be limited. To figure estate or trust figured on an AMT basis. Complete Part IV. The foreign tax credit
the ATNOLD limitation, first figure AMTI Thus, for purposes of figuring the from line 32 of the AMT Form 1116 is
without regard to the ATNOLD. For this allowable income distribution deduction limited to the tax on line 35 of Schedule
purpose, figure a tentative amount for line on a minimum tax basis, the DNAMTI is I, less 10% of what would have been the
4q of Schedule I by treating line 7 as if it figured without regard to any tax-exempt tax on line 35 of Schedule I, if line 7 of
were zero. Then, figure a tentative interest (except for amounts from line 4p). Schedule I had been zero and the
amount for line 6 of Schedule I. The If tax-exempt interest is the only exception for intangible drilling costs does
ATNOLD limitation is 90% of the tentative tax-exempt income included in the total not apply (see the instructions for line 4t
line 6 amount. Enter on line 7 the smaller distributions (line 23), and the DNAMTI on page 20). If Schedule I, line 7, is zero
of the ATNOLD or the ATNOLD limitation. (line 20) is less than or equal to line 23, or blank, and the estate or trust has no
Any alternative tax NOL not used because then enter on line 24 the amount from line intangible drilling costs (or the exception
of the ATNOLD limitation can be carried 14. does not apply), enter on Schedule I, line
36, the smaller of Form 1116, line 32; or

Page 21
90% of Schedule I, line 35. If line 7 has Short-Term or Long-Term ● Exchange of “like-kind” property.
an entry (other than zero), or the Separate the capital gains and losses ● Wash sales of stock or securities
exception for intangible drilling costs according to how long the estate or trust (including contracts or options to acquire
applies, for purposes of this line refigure held or owned the property. The holding or sell stock or securities) (section 1091).
what the tax would have been on period for short-term capital gains and ● Gain or loss on options to buy or sell
Schedule I, line 35, if line 7 were zero and losses is 1 year or less. The holding (section 1234).
the exception did not apply. Multiply that period for long-term capital gains and ● Certain real estate subdivided for sale
amount by 10% and subtract the result losses is more than 1 year. Property
from line 35. Enter on Schedule I, line 36, that may be considered a capital asset
acquired by a decedent's estate from the (section 1237).
the smaller of that amount or the amount decedent is considered as held for more ● Gain on disposition of stock in an
from Form 1116, line 32. than 1 year.
If the AMT foreign tax credit is limited, Interest Charge Domestic International
When you figure the length of the Sales Corporation (section 995(c)).
any unused amount can be carried back period the estate or trust held property, ● Gain on the sale or exchange of stock
or forward in accordance with section begin counting on the day after the estate
904(c). in certain foreign corporations (section
or trust acquired the property and include 1248).
Note: The election to forego the the day the estate or trust disposed of it. ● Sales of stock received under a
carryback period for regular tax purposes Use the trade dates for the date of
also applies for the AMT. acquisition and sale of stocks and bonds qualified public utility dividend
traded on an exchange or reinvestment plan. See Pub. 550 for
Line 38—Regular Tax Before Credits details.
over-the-counter market.
Enter the tax from line 1a of Schedule G, ● Transfer of appreciated property to a
reduced by the amount of any foreign tax Section 643(e)(3) Election political organization (section 84).
credit entered on line 2a of Schedule G. For noncash property distributions, a ● Distributions received from an
DO NOT deduct any foreign tax credit that fiduciary may elect to have the estate or employee pension, profit sharing, or stock
was allocated to the beneficiaries. trust recognize gain or loss in the same bonus plan. See Form 4972.
manner as if the distributed property had ● Disposition of market discount bonds
been sold to the beneficiary at its fair (section 1276).
Schedule D (Form 1041)— market value (FMV). The distribution ● Section 1256 contracts and straddles
Capital Gains and Losses deduction is the property's FMV. This are reported on Form 6781, Gains and
election applies to all distributions made Losses From Section 1256 Contracts and
General Instructions by the estate or trust during the tax year Straddles.
and, once made, may be revoked only
Use Schedule D (Form 1041) to report with the consent of the IRS. Specific Instructions
gains and losses from the sale or Note that section 267 does not allow a
exchange of capital assets by an estate deduction for any loss from the sale of Lines 1 and 7
or trust. property on which a trust makes a section Short-term and long-term capital gains
To report sales or exchanges of 643(e)(3) election. In addition, when a and losses.— Enter all sales of stocks,
property other than capital assets, trust distributes depreciable property, bonds, etc.
including the sale or exchange of property section 1239 applies to deny capital gains Redemption of stock to pay death
used in a trade or business and treatment on the gain to the trust if the taxes.— If stock is redeemed under the
involuntary conversions (other than trust makes a section 643(e)(3) election. provisions of section 303, list and identify
casualties and thefts), see Form 4797 and it on line 7 and give the name of the
related instructions. Section 644 Tax on Trusts
decedent and the IRS office where the
If property is involuntarily converted If a trust sells or exchanges property at a estate tax or generation-skipping transfer
because of a casualty or theft, use Form gain within 2 years after receiving it from tax return was filed.
4684. a transferor, a special tax may be due. If you are reporting capital gain from a
Do not report includible gains under lump-sum distribution, see the instructions
Capital Asset section 644 on Schedule D. The tax on for Form 4972 for information about the
Each item of property held by the estate these gains is reported separately on death benefit exclusion and the Federal
or trust (whether or not connected with its Form 1041. For more information, see the estate tax.
trade or business) is a capital asset instructions for Schedule G, line 1b, on
except: page 16. Column (d)—Sales Price
● Inventoriable assets or property held
Related Persons Enter either the gross sales price or the
primarily for sale to customers; net sales price from the sale. On sales of
● Depreciable or real property used in a A trust cannot deduct a loss from the sale stocks and bonds, report the gross
trade or business; or exchange of property directly or amount as reported to the estate or trust
● Certain copyrights, literary, musical, or indirectly between any of the following: on Form 1099-B or similar statement.
artistic compositions, letters or ● A grantor and a fiduciary of a trust; However, if the estate or trust was
memoranda, or similar property; ● A fiduciary and a fiduciary or beneficiary advised that gross proceeds less
● Accounts or notes receivable acquired of another trust created by the same commissions and option premiums were
in the ordinary course of a trade or grantor; reported to the IRS, enter that net amount
business for services rendered or from the ● A fiduciary and a beneficiary of the in column (d).
sale of inventoriable assets or property same trust; or
Column (e)—Cost or Other Basis
held primarily for sale to customers; and ● A trust fiduciary and a corporation of
● Certain U.S. Government publications which more than 50% in value of the Basis of trust property.— Generally, the
not purchased at the public sale price. outstanding stock is owned directly or basis of property acquired by gift is the
indirectly by or for the trust or by or for the same as the basis in the hands of the
You may find additional helpful
grantor of the trust. donor. If the fair market value (FMV) of
information in the following publications:
the property at the time it was transferred
● Pub. 544, Sales and Other Dispositions
Items for Special Treatment to the trust is less than the transferor's
of Assets; and basis, then the FMV is used for
● Pub. 551, Basis of Assets.
The following items may require special
treatment: determining any loss on disposition.

Page 22
If the property was transferred to the Also, use Form 6252 to report any Line 15, Column (c)—Total
trust after 1976, and a gift tax was paid payment received in 1996 from a sale Enter the total of the amounts entered in
under Chapter 12, then increase the made in an earlier tax year that was columns (a) and (b). The amount in
donor's basis as follows: reported on the installment method. column (c) should be the same as the
Multiply the amount of the gift tax paid To elect out of the installment method, amount on line 6.
by a fraction, the numerator of which is report the full amount of the gain on a
the net appreciation in value of the gift timely filed return (including extensions). Line 16—Net Long-Term Capital Gain
(discussed below), and the denominator Exchange of “like-kind” property.— or Loss
of which is the amount of the gift. For this Generally, no gain or loss is recognized Allocate the net long-term capital gain or
purpose, the net appreciation in value when property held for productive use in loss on line 16 in the same manner as the
of the gift is the amount by which the a trade or business or for investment is net short-term capital gain or loss on line
FMV of the gift exceeds the donor's exchanged solely for property of a 15.
adjusted basis. like-kind to be held either for productive
Basis of decedent's estate property.— use in a trade or business or for Part IV—Capital Loss Limitation
Generally, the basis of property acquired investment. However, if a trust exchanges If the sum of all the capital losses is more
by a decedent's estate is the FMV of the like-kind property with a related person than the sum of all the capital gains, then
property at the date of the decedent's (see Related Persons on page 22), and these capital losses are allowed as a
death, or the alternate valuation date if the before 2 years after the date of the last deduction only to the extent of the smaller
executor elected to use an alternate transfer that was part of the exchange the of the net loss or $3,000.
valuation under section 2032. related person disposes of the property,
See Pub. 551 for a discussion of the or the trust disposes of the property Part V—Capital Loss Carryovers
valuation of qualified real property under received in exchange from the related From 1996 to 1997
section 2032A. person, then the original exchange will not For any year (including the final year) in
Basis of property for bankruptcy qualify for nonrecognition. See section which capital losses exceed capital gains,
estates.— Generally, the basis of 1031(f) for exceptions. complete Part V to figure the capital loss
property held by the bankruptcy estate is Complete and attach Form 8824, carryover. A capital loss carryover may
the same as the basis in the hands of the Like-Kind Exchanges, to Form 1041 for be carried forward indefinitely. Capital
individual debtor. each exchange. losses keep their character as either
Adjustments to basis.— Before figuring Line 10—Capital Gain Distributions short-term or long-term when carried over
any gain or loss on the sale, exchange, to the following year.
or other disposition of property owned by Enter as a long-term capital gain on line
the estate or trust, adjustments to the 10, capital gain distributions paid during Part VI—Tax Computation Using
property's basis may be required. the year, regardless of how long the Maximum Capital Gains Rate
estate or trust held its investment. Also
Some items that may increase the
enter any amounts shown on Form 2439 Line 37c
basis include:
that represent the estate's or trust's share If the estate or trust received capital gains
1. Broker's fees and commissions. of the undistributed capital gains of a
2. Reinvested dividends that were that were derived from income in respect
regulated investment company. Include of a decedent, and a section 691(c)(4)
previously reported as income. on Form 1041, line 24f, the tax paid by the deduction was claimed, then line 37c
3. Reinvested capital gains that were company as shown on Form 2439. Add must be reduced by the portion of the
previously reported as income. to the basis of the stock the excess of the section 691(c)(4) deduction claimed on
4. Costs that were capitalized. amount included in income over the credit Form 1041, page 1, line 19.
5. Original issue discount that has been if the amount is not distributed.
previously included in income. Line 44
Line 15, Column (a)—Beneficiaries' Net
Some items that may decrease the Short-Term Capital Gain or Loss To figure the regular tax, use the 1996
basis include: Tax Rate Schedule on page 16.
Enter the amount of net short-term capital
1. Nontaxable distributions that consist gain or loss allocable to the beneficiary Line 45
of return of capital. or beneficiaries. Except in the final year,
2. Deductions previously allowed or If the tax using the maximum capital gains
include only those short-term capital rate (line 43) is less than the regular tax
allowable for depreciation. losses that are taken into account in (line 44), enter the amount from line 45
3. Casualty or theft loss deductions. determining the amount of gain from the on line 1a of Schedule G, Form 1041, and
See Pub. 551 for additional information. sale or exchange of capital assets that is check the “Schedule D” box.
See section 852(f) for treatment of load paid, credited, or required to be
charges incurred in acquiring stock in a distributed to any beneficiary during the
regulated investment company. tax year. See Regulations section
1.643(a)-3 for more information about Schedule J (Form 1041)—
Carryover basis.— Carryover basis
determined under repealed section 1023 allocation of capital gains and losses. Accumulation Distribution
applies to property acquired from a Except in the final year, if the losses for a Complex Trust
decedent who died after December 31, from the sale or exchange of capital
1976, and before November 7, 1978, only assets are more than the gains, all of the General Instructions
if the executor elected it on a Form losses are allocated to the estate or trust
and none are allocated to the Use Schedule J (Form 1041) to report an
5970-A, Election of Carryover Basis, that accumulation distribution for a complex
was filed on time. beneficiaries.
trust. An accumulation distribution is the
Lines 2 and 8 Line 15, Column (b)—Estate's or excess of amounts properly paid,
Trust's Net Short-Term Capital Gain or credited, or required to be distributed
Installment sales.— If the estate or trust Loss (other than income required to be
sold property at a gain during the tax year, distributed currently) over the DNI of the
and will receive a payment in a later tax Enter the amount of the net short-term
capital gain or loss allocable to the estate trust reduced by income required to be
year, report the sale on the installment distributed currently. To have an
method and file Form 6252, Installment or trust. Include any capital gain paid or
permanently set aside for a charitable accumulation distribution, the distribution
Sale Income, unless you elect not to do must exceed the accounting income of the
so. purpose specified in section 642(c).
trust.

Page 23
Specific Instructions the trust for a throwback year, subtract Line 16—Tax-Exempt Interest Included
any estate tax deduction for income in on Line 13
Part I—Accumulation Distribution in respect of a decedent if the income is For each throwback year, divide line 15
1996 includible in figuring the DNI of the trust by line 6 and multiply the result by the
for that year. following:
Line 1—Distribution Under Section
661(a)(2) Line 7—Distributions Made During Throwback year(s) Amount from line
Earlier Years 1969–1977 ........... Schedule C, Form 1041, line 2(a)
Enter the amount from Schedule B of 1978–1979 ........... Form 1041, line 58(a)
Form 1041, line 12, for 1996. This is the Enter the applicable amounts as follows: 1980 ..................... Form 1041, line 57(a)
amount properly paid, credited, or Throwback year(s) Amount from line 1981–1982 ........... Form 1041, line 55(a)
required to be distributed other than the 1983–1995 ........... Schedule B, Form 1041, line 2
1969–1977 .............. Schedule C, Form 1041, line 8
amount of income for the current tax year 1978 ........................ Form 1041, line 64
required to be distributed currently. 1979 ........................ Form 1041, line 65 Part III—Taxes Imposed on
1980 ........................ Form 1041, line 64 Undistributed Net Income
Line 2—Distributable Net Income 1981–1982 .............. Form 1041, line 62
1983–1995 .............. Schedule B, Form 1041, line 13 For the regular tax computation, if there
Enter the amount from Schedule B of is a capital gain, complete lines 18
Form 1041, line 9, for 1996. This is the Line 11—Prior Accumulation through 25 for each throwback year. If the
amount of distributable net income (DNI) Distribution Thrown Back to any trustee elected the alternative tax on
for the current tax year determined under Throwback Year capital gains, complete lines 26 through
section 643(a). Enter the amount of prior accumulation 31 instead of lines 18 through 25 for each
Line 3—Distribution Under Section distributions thrown back to the throwback applicable year. If there is no capital gain
661(a)(1) years. Do not enter distributions excluded for any year, or there is a capital loss for
under section 663(a)(1) for gifts, every year, enter on line 9 the amount of
Enter the amount from Schedule B of bequests, etc. the tax for each year identified in the
Form 1041, line 11, for 1996. This is the instruction for line 18 and do not complete
amount of income for the current tax year Line 13—Throwback Years Part III. If the trust received an
required to be distributed currently. Allocate the amount on line 5 that is an accumulation distribution from another
Line 5—Accumulation Distribution accumulation distribution to the earliest trust, see Regulations section
applicable year first, but do not allocate 1.665(b)-1A.
If line 13, Schedule B of Form 1041 is more than the amount on line 12 for any Note: The alternative tax on capital gains
more than line 10, Schedule B of Form throwback year. An accumulation was repealed for tax years beginning after
1041, complete the rest of Schedule J and distribution is thrown back first to the December 31, 1978. The maximum rate
file it with Form 1041, unless the trust has earliest preceding tax year in which there on net capital gain for 1981, 1987, and
no previously accumulated income. is undistributed net income (UNI). Then, 1991 through 1995 is not an alternative
Generally, amounts accumulated it is thrown back beginning with the next tax for this purpose.
before a beneficiary reaches age 21 may earliest year to any remaining preceding
be excluded by the beneficiary. See tax years of the trust. The portion of the Line 18—Regular Tax
sections 665 and 667(c) for exceptions accumulation distribution allocated to the Enter the applicable amounts as follows:
relating to multiple trusts. The trustee earliest preceding tax year is the amount
reports to the IRS the total amount of the Throwback year(s) Amount from line
of the UNI for that year. The portion of the
accumulation distribution before any 1969–1976 ............. Form 1041, page 1, line 24
accumulation distribution allocated to any 1977 ....................... Form 1041, page 1, line 26
reduction for income accumulated before remaining preceding tax year is the 1978–1979 ............. Form 1041, line 27
the beneficiary reaches age 21. If the amount by which the accumulation 1980–1984 ............. Form 1041, line 26c
multiple trust rules do not apply, the distribution is larger than the total of the 1985–1986 ............. Form 1041, line 25c
1987 ....................... Form 1041, line 22c
beneficiary claims the exclusion when UNI for all earlier preceding tax years. 1988–1995 ............. Schedule G, Form 1041, line 1a
filing Form 4970, Tax on Accumulation A tax year of a trust during which the
Distribution of Trusts, as you may not be trust was a simple trust for the entire year Line 19—Trust's Share of Net
aware that the beneficiary may be a is not a preceding tax year unless (a) Short-Term Gain
beneficiary of other trusts with other during that year the trust received outside
trustees. For each throwback year, enter the
income or (b) the trustee did not distribute smaller of the capital gain from the two
For examples of accumulation all of the trust's income that was required
distributions that include payments from lines indicated. If there is a capital loss
to be distributed currently for that year. In or a zero on either or both of the two lines
one trust to another trust, and amounts this case, UNI for that year must not be
distributed for a dependent's support, see indicated, enter zero on line 19.
more than the greater of the outside
Regulations section 1.665(b)-1A(b). income or income not distributed during
Throwback year(s) Amount from line
that year.
Part II—Ordinary Income 1969–1970 ........ Schedule D, Line 10, column 2, or
The term “outside income” means
Accumulation Distribution amounts that are included in the DNI of
Schedule D, line 12, column 2.
1971–1978 ........ Schedule D, line 14, column 2, or
Line 6—Distributable Net Income for the trust for that year but that are not Schedule D, line 16, column 2.
Earlier Years “income” of the trust as defined in
Regulations section 1.643(b)-1. Some 1979 .................. Schedule D, line 18, column (b), or
Enter the applicable amounts as follows: Schedule D, line 20, column (b).
examples of outside income are: (a)
Throwback year(s) Amount from line income taxable to the trust under section 1980–1981 ........ Schedule D, line 14, column (b), or
Schedule D, line 16, column (b).
1969–1977 .............. Schedule C, Form 1041, line 5 691; (b) unrealized accounts receivable
1978–1979 .............. Form 1041, line 61 that were assigned to the trust; and (c) 1982 .................. Schedule D, line 16, column (b),or
1980 ........................ Form 1041, line 60 distributions from another trust that Schedule D, line 18, column (b).
1981–1982 .............. Form 1041, line 58
1983–1995 .............. Schedule B, Form 1041, line 9 include the DNI or UNI of the other trust. 1983–1995 ........ Schedule D, line 15, column (b), or
Enter the applicable year at the top of Schedule D, line 17, column (b).
For information about throwback years, each column for each throwback year.
see the instructions for line 13. For
purposes of line 6, in figuring the DNI of

Page 24
Line 20—Trust's Share of Net another Schedule J, completing Parts II Registration Number, and their related
Long-Term Gain and III for each additional throwback year. instructions for information regarding the
Enter the applicable amounts as follows: If the beneficiary is a nonresident alien fiduciary's reporting requirements.
individual or a foreign corporation, see Substitute Forms
Throwback year(s) Amount from line section 667(e) about retaining the
character of the amounts distributed to You do not need prior IRS approval for a
1969–1970 ............... 50% of Schedule D, line 13(e) substitute Schedule K-1 (Form 1041) that
determine the amount of the U.S.
1971–1977 ............... 50% of Schedule D, line 17(e) withholding tax. follows the specifications for filing
Schedule D, line 17(e), or line
The beneficiary uses Form 4970 to substitute Schedules K-1 in Pub. 1167,
1978 ......................... 31, whichever is applicable, Substitute Printed, Computer-Prepared,
less Form 1041, line 23. figure the tax on the distribution. The
beneficiary also uses Form 4970 for the and Computer-Generated Tax Forms and
Schedule D, line 25 or line 27, Schedules, or is an exact copy of an IRS
1979 ......................... whichever is applicable, less section 667(b)(6) tax adjustment if an
Form 1041, line 23. accumulation distribution is subject to Schedule K-1. You must request IRS
estate or generation-skipping transfer tax. approval to use other substitute
1980–1981 ............... Schedule D, line 21, less Schedules K-1. To request approval, write
Schedule D, line 22 This is because the trustee may not be
the estate or generation-skipping transfer to: Internal Revenue Service, Attention:
1982 ......................... Schedule D, line 23, less Substitute Forms Program Coordinator,
Schedule D, line 24. tax return filer.
T:FP:S, 1111 Constitution Avenue, N.W.,
1983–1986 ............... Schedule D, line 22, less Washington, DC 20224.
Schedule D, line 23.
Schedule D, the smaller
Schedule K-1 (Form 1041)— Inclusion of Amounts in Beneficiaries'
1987–1995 ............... of any gain on line 16 or
line 17, column (b).
Beneficiary's Share of Income
Income, Deductions, Credits, Simple trust.— The beneficiary of a
simple trust must include in his or her
Line 22—Taxable Income etc. gross income the amount of the income
Enter the applicable amounts as follows: required to be distributed currently,
General Instructions whether or not distributed, or if the income
Throwback year(s) Amount from line
1969–1976 ..................... Form 1041, page 1, line 23
Use Schedule K-1 (Form 1041) to report required to be distributed currently to all
1977 ............................... Form 1041, page 1, line 25 the beneficiary's share of income, beneficiaries exceeds the distributable net
1978–1979 ..................... Form 1041, line 26 deductions, and credits from a trust or a income (DNI), his or her proportionate
1980–1984 ..................... Form 1041, line 25 decedent's estate. share of the DNI. The determination of
1985–1986 ..................... Form 1041, line 24
1987 ............................... Form 1041, line 21 whether trust income is required to be
1988–1995 ..................... Form 1041, line 22
Who Must File distributed currently depends on the terms
The fiduciary (or one of the joint of the trust instrument and applicable local
Line 26—Tax on Income Other Than fiduciaries) must file Schedule K-1. A copy law. See Regulations section 1.652(c)-4
Long-Term Capital Gain of each beneficiary's Schedule K-1 is for a comprehensive example.
Enter the applicable amounts as follows: attached to the Form 1041 filed with the Estates and complex trusts.— The
IRS and each beneficiary is given a copy beneficiary of a decedent's estate or
Throwback year(s) Amount from line of his or her respective Schedule K-1. complex trust must include in his or her
1969 ......................................... Schedule D, line 20 One copy of each Schedule K-1 must be gross income the sum of:
1970 ......................................... Schedule D, line 19 retained for the fiduciary's records.
1971 ......................................... Schedule D, line 50 1. The amount of the income required
1972–1975 ............................... Schedule D, line 48
Beneficiary's Identifying Number to be distributed currently, or if the income
1976–1978 ............................... Schedule D, line 27 required to be distributed currently to all
As a payer of income, you are required beneficiaries exceeds the DNI (figured
Line 27—Trust's Share of Net under section 6109 to request and provide without taking into account the charitable
Short-Term Gain a proper identifying number for each deduction), his or her proportionate share
If there is a loss on any of the following recipient of income. Enter the of the DNI (as so figured); and
lines, enter zero on line 27 for the beneficiary's number on the respective
2. All other amounts properly paid,
applicable throwback year. Otherwise, Schedules K-1 when you file Form 1041.
credited, or required to be distributed, or
enter the applicable amounts as follows: Individuals and business recipients are
if the sum of the income required to be
responsible for giving you their taxpayer
Throwback year(s) Amount from line distributed currently and other amounts
identification numbers upon request. You
properly paid, credited, or required to be
1969–1970 ............. Schedule D, line 10, column 2 may use Form W-9, Request for
1971–1978 ............. Schedule D, line 14, column 2 distributed to all beneficiaries exceeds the
Taxpayer Identification Number and
DNI, his or her proportionate share of the
Certification, to request the beneficiary's
Line 28—Trust's Share of Taxable excess of DNI over the income required
identifying number.
Income Less Section 1202 Deduction to be distributed currently.
Penalty.— Under section 6723, the payer
Enter the applicable amounts as follows: See Regulations section 1.662(c)-4 for
is charged a $50 penalty for each failure
a comprehensive example.
Throwback year(s) Amount from line to provide a required taxpayer
identification number, unless reasonable For complex trusts that have more than
1969 ......................................... Schedule D, line 19 one beneficiary, and if different
1970 ......................................... Schedule D, line 18 cause is established for not providing it.
1971 ......................................... Schedule D, line 38 Explain any reasonable cause in a signed beneficiaries have substantially separate
1972–1975 ............................... Schedule D, line 39 affidavit and attach it to this return. and independent shares, their shares are
1976–1978 ............................... Schedule D, line 21 treated as separate trusts for the sole
Tax Shelter's Identification Number purpose of determining the amount of DNI
Part IV—Allocation to Beneficiary If the estate or trust is a tax shelter, is allocable to the respective beneficiaries.
Complete Part IV for each beneficiary. If involved in a tax shelter, or is considered For examples of the application of the
the accumulation distribution is allocated to be the organizer of a tax shelter, there separate share rule, see the regulations
to more than one beneficiary, attach an are reporting requirements under section under section 663(c).
additional copy of Schedule J with Part IV 6111 for both the fiduciaries and the Character of income.— The
completed for each additional beneficiary. beneficiaries. beneficiary's income is considered to
Give each beneficiary a copy of his or her See Form 8264, Application for have the same proportion of each class
respective Part IV information. If more Registration of a Tax Shelter, and Form of items entering into the computation of
than 5 throwback years are involved, use 8271, Investor Reporting of Tax Shelter DNI that the total of each class has to the
DNI (e.g., half dividends and half interest

Page 25
if the income of the estate or trust is half effect of the death of a beneficiary during Note: An estate or trust cannot make an
dividends and half interest). the tax year of the estate or trust. election under section 179 to expense
Allocation of deductions.— Generally, certain tangible property.
items of deduction that enter into the Specific Instructions
Lines 4c and 5c—Depletion
computation of DNI are allocated among Line 1—Interest
the items of income to the extent such Enter the beneficiary's share of the
allocation is not inconsistent with the rules Enter the beneficiary's share of the depletion deduction under section 611
set out in section 469 and its regulations, taxable interest income minus allocable attributable to each activity reported on
relating to passive activity loss limitations, deductions. lines 4a and 5a. See the instructions on
in the following order. page 10 for a discussion of how the
Line 2—Dividends depletion deduction is apportioned
First, all deductions directly attributable
to a specific class of income are deducted Enter the beneficiary's share of dividend between the beneficiaries and the estate
from that income. For example, rental income minus allocable deductions. or trust. Report any tax preference item
expenses, to the extent allowable, are attributable to depletion separately on line
Line 3a—Net Short-Term Capital Gain 11b.
deducted from rental income.
Second, deductions that are not directly Enter the beneficiary's share of the net
short-term capital gain from line 15, Lines 4d and 5d—Amortization
attributable to a specific class of income
generally may be allocated to any class column (a), Schedule D (Form 1041), Itemize the beneficiary's share of the
of income, as long as a reasonable minus allocable deductions. Do not enter amortization deductions attributable to
portion is allocated to any tax-exempt a loss on line 3a. If, for the final year of each activity reported on lines 4a and 5a.
income. Deductions considered not the estate or trust, there is a capital loss Apportion the amortization deductions
directly attributable to a specific class of carryover, enter on line 12b the between the estate or trust and the
income under this rule include fiduciary beneficiary's share of short-term capital beneficiaries in the same way that the
fees, safe deposit box rental charges, and loss carryover as a loss in parentheses. depreciation and depletion deductions are
state income and personal property taxes. However, if the beneficiary is a divided. Report any AMT adjustment
The charitable deduction, however, must corporation, enter on line 12b the attributable to amortization separately on
be ratably apportioned among each class beneficiary's share of all short- and line 11c.
of income included in DNI. long-term capital loss carryovers as a
single item in parentheses. See section Line 5a—Trade or Business, Rental
Finally, any excess deductions that are 642(h) and related regulations for more Real Estate, and Other Rental Income
directly attributable to a class of income information. Enter the beneficiary's share of trade or
may be allocated to another class of business, rental real estate, and other
income. In no case can excess Line 3b—Net Long-Term Capital Gain rental income, minus allocable deductions
deductions from a passive activity be Enter the beneficiary's share of the net (other than directly apportionable
allocated to income from a nonpassive long-term capital gain from line 16, deductions). To assist the beneficiary in
activity, or to portfolio income earned by column (a), Schedule D (Form 1041), figuring any applicable passive activity
the estate or trust. Excess deductions minus allocable deductions. Do not enter loss limitations, also attach a separate
attributable to tax-exempt income cannot a loss on line 3b. If, for the final year of schedule showing the beneficiary's share
offset any other class of income. the estate or trust, there is a capital loss of income derived from each trade or
In no case can deductions be allocated carryover, enter on line 12c the business, rental real estate, and other
to an item of income that is not included beneficiary's share of the long-term rental activity.
in the computation of DNI, or attributable capital loss carryover as a loss in
to corpus. parentheses. (If the beneficiary is a Lines 5b Through 5d
Except for the final year, and for corporation, see the instructions for line Caution: The limitations on passive
depreciation or depletion allocations in 3a.) See section 642(h) and related activity losses and credits under section
excess of income (see Rev. Rul. 74-530, regulations for more information. 469 apply to estates and trusts. Estates
1974-2 C.B. 188), you may not show any Gains, or losses, from the complete, or and trusts that distribute income to
negative amounts for any class of income partial, disposition of a rental, rental real beneficiaries are allowed to apportion
because the beneficiary generally may estate, or trade or business activity that is depreciation, depletion, and amortization
not claim losses or deductions from the a passive activity, must be shown on an deductions to the beneficiaries. These
estate or trust. attachment to Schedule K-1. deductions are referred to as “directly
Gifts and bequests.— Do not include in apportionable deductions.”
the beneficiary's income any gifts or Line 4a—Annuities, Royalties, and Rules for treating a beneficiary's
bequests of a specific sum of money or Other Nonpassive Income income and directly apportionable
of specific property under the terms of the Enter the beneficiary's share of annuities, deductions from an estate or trust and
governing instrument that are paid or royalties, or any other income, minus other rules for applying the passive loss
credited in three installments or less. allocable deductions (other than directly and credit limitations to beneficiaries of
Amounts that can be paid or credited apportionable deductions), that is NOT estates and trusts have not yet been
only from income of the estate or trust do subject to any passive activity loss issued.
not qualify as a gift or bequest of a limitation rules at the beneficiary level. Any directly apportionable deduction,
specific sum of money. Use line 5a to report income items subject such as depreciation, is treated by the
Past years.— Do not include in the to the passive activity rules at the beneficiary as having been incurred in the
beneficiary's income any amounts beneficiary's level. same activity as incurred by the estate or
deducted on Form 1041 for an earlier year Lines 4b and 5b—Depreciation trust. However, the character of such
that were credited or required to be deduction may be determined as if the
distributed in that earlier year. Enter the beneficiary's share of the beneficiary incurred the deduction
depreciation deductions attributable to directly.
Beneficiary's Tax Year each activity reported on lines 4a and 5a. To assist the beneficiary in figuring any
The beneficiary's income from the estate See the instructions on page 10 for a applicable passive activity loss limitations,
or trust must be included in the discussion of how the depreciation also attach a separate schedule showing
beneficiary's tax year during which the tax deduction is apportioned between the the beneficiary's share of directly
year of the estate or trust ends. See Pub. beneficiaries and the estate or trust. apportionable deductions derived from
559 for more information, including the Report any AMT adjustment or tax each trade or business, rental real estate,
preference item attributable to and other rental activity.
depreciation separately on line 11a.

Page 26
Line 6—Income for Minimum Tax Line 12a—Excess Deductions on Lines 12d and 12e—Net Operating
Purposes Termination Loss (NOL) Carryover
Enter the beneficiary's share of the If this is the final return and there are Upon termination of a trust or decedent's
income distribution deduction figured on excess deductions on termination (see estate, a beneficiary succeeding to its
a minimum tax basis from line 27 of the instructions for line 22 on page 13), property is allowed to deduct any unused
Schedule I. enter the beneficiary's share of the excess NOL (and any AMT NOL) carryover for
deductions on line 12a. Figure the regular and AMT purposes if the carryover
Line 7—Income for Regular Tax deductions on a separate sheet and would be allowable to the estate or trust
Purposes attach it to the return. in a later tax year but for the termination.
Enter the beneficiary's share of the Excess deductions on termination Enter on lines 12d and 12e the unused
income distribution deduction figured on occur only during the last tax year of the carryover amounts.
line 17 of Schedule B. This amount should trust or decedent's estate when the total
equal the sum of lines 1 through 3b, 4a, Line 13—Other
deductions (excluding the charitable
and 5a. deduction and exemption) are greater Itemize on line 13, or on a separate sheet
than the gross income during that tax if more space is needed, the beneficiary's
Line 9—Estate Tax Deduction tax information not entered elsewhere on
year. Generally, a deduction based on an
(Including Generation-Skipping Schedule K-1. This includes the allocable
NOL carryover is not available to a
Transfer Taxes) share, if any, of:
beneficiary as an excess deduction.
If the distribution deduction consists of However, if the last tax year of the estate ● Payment of estimated tax to be credited
any income in respect of a decedent, and or trust is also the last year in which an to the beneficiary (section 643(g));
the estate or trust was allowed a NOL carryover may be taken (see section ● Tax-exempt interest income received
deduction under section 691(c) for the 172(b)), the NOL carryover is considered or accrued by the trust (including
estate tax paid attributable to such income an excess deduction on the termination exempt-interest dividends from a mutual
(see the line 19 instructions on page 13), of the estate or trust to the extent it is not fund or other regulated investment
then the beneficiary is allowed an estate absorbed by the estate or trust during its company);
tax deduction in proportion to his or her final tax year. For more information, see ● Investment income (section 163(d));
share of the distribution that consists of Regulations section 1.642(h)-4 for a ● Gross farming and fishing income;
such income. For an example of the discussion of the allocation of the
● Credit for backup withholding (section
computation, see Regulations section carryover among the beneficiaries.
1.691(c)-2. Figure the computation on a 3406);
Only the beneficiary of an estate or
separate sheet and attach it to the return. ● The information a beneficiary will need
trust that succeeds to its property is
allowed to deduct that entity's excess to figure any investment credit;
Line 10—Foreign Taxes ● The work opportunity credit;
deductions on termination. A beneficiary
List on a separate sheet the beneficiary's who does not have enough income in that ● The alcohol fuel credit;
share of the applicable foreign taxes paid year to absorb the entire deduction may ● The credit for increasing research
or accrued and the various foreign source not carry the balance over to any activities;
figures needed to figure the beneficiary's succeeding year. An individual beneficiary ● The low-income housing credit;
foreign tax credit. See Pub. 514 and must be able to itemize deductions in ● The renewable electricity production
section 901(b)(5) for special rules about order to claim the excess deductions in
foreign taxes. credit;
determining taxable income.
● The empowerment zone employment
Lines 11a through 11c Lines 12b and 12c—Unused Capital credit;
Enter any adjustments or tax preference Loss Carryover ● The Indian employment credit;
items attributable to depreciation, Upon termination of the trust or ● The orphan drug credit; and
depletion, or amortization that were decedent's estate, the beneficiary ● The information a beneficiary will need
allocated to the beneficiary. For property succeeding to the property is allowed as to figure any recapture taxes.
placed in service before 1987, report a deduction any unused capital loss Note: Upon termination of an estate or
separately the accelerated depreciation carryover under section 1212. If the estate trust, any suspended passive activity
of real and leased personal property. or trust incurs capital losses in the final losses (PALs) relating to an interest in a
Line 11d—Exclusion Items year, use Part V of Schedule D (Form passive activity cannot be allocated to the
1041) to figure the amount of capital loss beneficiary. Instead, the basis in such
Enter the beneficiary's share of the carryover to be allocated to the activity is increased by the amount of any
adjustment for minimum tax purposes beneficiary. PALs allocable to the interest, and no
from Schedule K-1, line 8, that is
losses are allowed as a deduction on the
attributable to exclusion items (Schedule
estate's or trust's final Form 1041.
I, lines 4a through 4d, 4p, and 4q).

Page 27