AccountingWEB staff writer Anne Rosivach attended the recent CCH audio seminar: Preparing Form 1041: U.S. Income Tax Return for Estates and Trusts. This is her report.
Tax professionals need to be aware that in the coming years the Internal Revenue Service plans to audit more of the estimated four million trusts which are the centerpiece of estate planning and file Form 1041, says Steve Siegel, J.D., LL.M., estates and trusts practitioner. Siegel conducts "Preparing Form 1041: U.S. Income Tax Return for Estates and Trusts," a two-hour CCH audio seminar that offers practitioners who are gearing up for the coming tax season a concise, line-by-line review of Form 1041 and analysis of what must be done to accurately complete the form.
Throughout the course Siegel refers to fiduciary responsibility and suggests steps fiduciaries can take to optimize the position of beneficiaries and their own position as they prepare the form.
Materials provided for course participants include a concise desk reference and sample forms, schedules, and K-1's prepared for the various types of estates and trusts, which illustrate practical fiduciary tax problems.
Some of the more complex issues practitioners should pay particular attention to as they prepare the form which Siegel discusses in detail are:
Issues relating to income of the trust include:
- Business income -- If the fiduciary is responsible for operating a business, the fiduciary is viewed as a new taxpayer-owner
- Taxation of capital gains -- tax consequences for beneficiaries.
- Specific rules for capital losses in year of termination
- Consequences of retaining ordinary income
- Fiduciary passive activity losses – depreciation
- Partnership income – technical difficulties
Siegel reviews specific rules and exceptions, actions that can maximize deductions, as well as areas where deductions are limited. Among these are:
- Claiming deductions for expenses related to the decedent's estate tax return that may also be claimed on Form 706)
- Moving income to the final 1040
- Allocating expenses to nontaxable income
- Charitable deduction -- Siegel emphasizes that there must be some document or evidence that the decedent intended the charitable contribution for which a deduction is taken. He discusses the timing of charitable contributions – election to file in year 1 or year 2
- Fiduciary as a separate taxable entity with pass through characteristics for the income distribution deduction
- Distributable net income (DNI) concept and exceptions
- "65-day" rule
- Deduction for income in respect of a decedent and certain generation skipping taxes
Final year considerations
Siegel also refers to rules relating to deductions that apply only to the final year for the estate and reminds participants that Form 7004 will extend the date for filing only for five months in 2009, until September 15th. Other special situations that apply to the final year are reviewed including use of excess deductions and claiming fees as deductions.
Before analyzing the sample 1041's, 1041 schedules and K-1s, Siegel touches on calculation of tax owed, payment and penalties, use of the AMT credit, and fees charged by the fiduciary.
About the presenter
Steven G. Siegel is president of The Siegel Group, a Morristown, New Jersey - based national consulting firm specializing in tax consulting, estate planning and advising family business owners and entrepreneurs. Mr. Siegel holds a BS from Georgetown University, a JD from Harvard Law School and an LLM in Taxation from New York University.
About CCH Audio Seminars
You can train your staff with the power of CCH audio seminars. CCH audio seminar events are live and interactive with opportunities to ask the presenter(s) your questions. The audio is delivered directly to you over the telephone to provide clear, reliable sound quality. Some events also include a web component. Invite as many people as you wish to attend at your location. For large groups, use a speakerphone to deliver the audio and a projection system to deliver the Web component.
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