Who Must File

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Who Must File

Decedent's Estate

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic estate that has:

  1. Gross income for the tax year of $600 or more, or

  2. A beneficiary who is a nonresident alien.

An estate is a domestic estate if it is not a foreign estate. A foreign estate is one the income of which is from sources outside the United States that is not effectively connected with the conduct of a U.S. trade or business and is not includible in gross income. If you are the fiduciary of a foreign estate, file Form 1040NR, U.S. Nonresident Alien Income Tax Return, instead of Form 1041.

Trust

The fiduciary (or one of the joint fiduciaries) must file Form 1041 for a domestic trust taxable under section 641 that has:

  1. Any taxable income for the tax year,

  2. Gross income of $600 or more (regardless of taxable income), or

  3. A beneficiary who is a nonresident alien.

Two or more trusts are treated as one trust if the trusts have substantially the same grantor(s) and substantially the same primary beneficiary(ies) and a principal purpose of such trusts is avoidance of tax. This provision applies only to that portion of the trust that is attributable to contributions to corpus made after March 1, 1984.

A trust is a domestic trust if:

  • A U.S. court is able to exercise primary supervision over the administration of the trust (court test), and

  • One or more U.S. persons have the authority to control all substantial decisions of the trust (control test).

See Regulations section 301.7701-7 for more information on the court and control tests.

Also treated as a domestic trust is a trust (other than a trust treated as wholly owned by the grantor) that:

  • Was in existence on August 20, 1996,

  • Was treated as a domestic trust on August 19, 1996, and

  • Elected to continue to be treated as a domestic trust.

A trust that is not a domestic trust is treated as a foreign trust. If you are the trustee of a foreign trust, file Form 1040NR instead of Form 1041. Also, a foreign trust with a U.S. owner generally must file Form 3520-A, Annual Information Return of Foreign Trust With a U.S. Owner.

If a domestic trust becomes a foreign trust, it is treated under section 684 as having transferred all of its assets to a foreign trust, except to the extent a grantor or another person is treated as the owner of the trust when the trust becomes a foreign trust.

Grantor Type Trusts

If all or any portion of a trust is a grantor type trust, then that trust or portion of a trust must follow the special reporting requirements discussed later, under Special Reporting Instructions. See Grantor Type Trust under Specific Instructions for more details on what makes a trust a grantor type trust.

Note.

A trust may be part grantor trust and part “other” type of trust, for example, simple or complex, or electing small business trust (ESBT).

Qualified subchapter S trusts (QSSTs). QSSTs must follow the special reporting requirements for these trusts discussed later, under Special Reporting Instructions.

Special Rule for Certain Revocable Trusts

Section 645 provides that if both the executor (if any) of an estate (the related estate) and the trustee of a qualified revocable trust (QRT) elect the treatment in section 645, the trust must be treated and taxed as part of the related estate during the election period. This election may be made by a QRT even if no executor is appointed for the related estate.

In general, Form 8855, Election To Treat a Qualified Revocable Trust as Part of an Estate, must be filed by the due date for Form 1041 for the first tax year of the related estate. This applies even if the combined related estate and electing trust do not have sufficient income to be required to file Form 1041. However, if the estate is granted an extension of time to file Form 1041 for its first tax year, the due date for Form 8855 is the extended due date.

Once made, the election is irrevocable.

Qualified revocable trusts. In general, a QRT is any trust (or part of a trust) that, on the day the decedent died, was treated as owned by the decedent because the decedent held the power to revoke the trust as described in section 676. An electing trust is a QRT for which a section 645 election has been made.

Election period. The election period is the period of time during which an electing trust is treated as part of its related estate.

The election period begins on the date of the decedent's death and terminates on the earlier of:

  • The day on which the electing trust and related estate, if any, distribute all of their assets, or

  • The day before the applicable date.

To determine the applicable date, first determine whether a Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return, is required to be filed as a result of the decedent's death. If no Form 706 is required to be filed, the applicable date is 2 years after the date of the decedent's death. If Form 706 is required, the applicable date is the later of 2 years after the date of the decedent's death or 6 months after the final determination of liability for estate tax. For additional information, see Regulations section 1.645-1(f).

Taxpayer identification number (TIN). All QRTs must obtain a new TIN following the death of the decedent whether or not a section 645 election is made. (Use Form W-9, Request for Taxpayer Identification Number and Certification, to notify payers of the new TIN.)

An electing trust that continues after the termination of the election period does not need to obtain a new TIN following the termination unless:

  • An executor was appointed and agreed to the election after the electing trust made a valid section 645 election, and the electing trust filed a return as an estate under the trust's TIN, or

  • No executor was appointed and the QRT was the filing trust (as explained later).

A related estate that continues after the termination of the election period does not need to obtain a new TIN.

For more information about TINs, including trusts with multiple owners, see Regulations sections 1.645-1 and 301.6109-1(a).

General procedures for completing Form 1041 during the election period.

If there is an executor.

The following rules apply to filing Form 1041 while the election is in effect.

  • The executor of the related estate is responsible for filing Form 1041 for the estate and all electing trusts. The return is filed under the name and TIN of the related estate. Be sure to check the Decedent's estate box at the top of Form 1041. The executor continues to file Form 1041 during the election period even if the estate distributes all of its assets before the end of the election period.

  • The Form 1041 includes all items of income, deduction, and credit for the estate and all electing trusts.

  • The executor must attach a statement to Form 1041 providing the following information for each electing trust: (a) the name of the electing trust, (b) the TIN of the electing trust, and (c) the name and address of the trustee of the electing trust.

  • The related estate and the electing trust are treated as separate shares for purposes of computing DNI and applying distribution provisions. Also, each of those shares can contain two or more separate shares. For more information, see Separate share rule, later, and Regulations section 1.645-1(e)(2)(iii).

  • The executor is responsible for insuring that the estate's share of the combined tax obligation is paid.

For additional information, including treatment of transfers between shares and charitable contribution deductions, see Regulations section 1.645-1(e).

If there is no executor.

If no executor has been appointed for the related estate, the trustee of the electing trust files Form 1041 as if it was an estate. File using the TIN that the QRT obtained after the death of the decedent. The trustee can choose a fiscal year as the trust's tax year during the election period. Be sure to check the Decedent's estate box at the top of page 1 during the election period. The electing trust is entitled to a single $600 personal exemption on returns filed for the election period.

If there is more than one electing trust, the trusts must appoint one trustee as the filing trustee. Form 1041 is filed under the name and TIN of the filing trustee's trust. A statement providing the same information about the electing trusts (except the filing trust) that is listed under, If there is an executor, above must be attached to these Forms 1041. All electing trusts must choose the same tax year.

If there is more than one electing trust, the filing trustee is responsible for ensuring that the filing trust's share of the combined tax liability is paid.

For additional information on filing requirements when there is no executor, including application of the separate share rule, see Regulations section 1.645-1(e). For information on the requirements when an executor is appointed after an election is made and the executor does not agree to the election, see below.

Responsibilities of the trustee when there is an executor (or there is no executor and the trustee is not the filing trustee).

When there is an executor (or there is no executor and the trustee is not the filing trustee), the trustee of an electing trust is responsible for the following during the election period.

  • To timely provide the executor with all the trust information necessary to allow the executor to file a complete, accurate, and timely Form 1041.

  • To ensure that the electing trust's share of the combined tax liability is paid.

The trustee does not file a Form 1041 during the election period (except for a final return if the trust terminates during the election period as explained later).

Procedures for completing Form 1041 for the year in which the election terminates.

If there is an executor.

If there is an executor, the Form 1041 filed under the name and TIN of the related estate for the tax year in which the election terminates includes (a) the items of income, deduction, and credit for the related estate for its entire tax year, and (b) the income, deductions, and credits for the electing trust for the period that ends with the last day of the election period. If the estate will not continue after the close of the tax year, indicate that this Form 1041 is a final return.

At the end of the last day of the election period, the combined entity is deemed to distribute the share comprising the electing trust to a new trust. All items of income, including net capital gains, that are attributable to the share comprising the electing trust are included in the calculation of DNI of the electing trust and treated as distributed. The distribution rules of sections 661 and 662 apply to this deemed distribution. The combined entity is entitled to an income distribution deduction for this deemed distribution, and the "new" trust must include its share of the distribution in its income. See Regulations sections 1.645-1(e)(2)(iii) and 1.645-1(h) for more information.

If the electing trust continues in existence after the termination of the election period, the trustee must file Form 1041 under the name and TIN of the trust, using the calendar year as its accounting period, if it is otherwise required to file.

If there is no executor.

If there is no executor, the following rules apply to filing Form 1041 for the tax year in which the election period ends.

  • The tax year of the electing trust closes on the last day of the election period, and the Form 1041 filed for that tax year includes all items of income, deduction, and credit for the electing trust for the period beginning with the first day of the tax year and ending with the last day of the election period.

  • The deemed distribution rules discussed above apply.

  • Check the box to indicate that this Form 1041 is a final return.

  • If the filing trust continues after the termination of the election period, the trustee must obtain a new TIN. If the trust meets the filing requirements, the trustee must file a Form 1041 under the new TIN for the period beginning with the day after the close of the election period and, in general, ending December 31 of that year.

Responsibilities of the trustee when there is an executor (or there is no executor and the trustee is not the filing trustee).

In addition to the requirements listed above under this same heading, the trustee is responsible for the following.

  • If the trust will not continue after the close of the election period, the trustee must file a Form 1041 under the name and TIN of the trust. Complete the entity information and items A, C, D, and F. Indicate in item F that this is a final return. Do not report any items of income, deduction, or credit.

  • If the trust will continue after the close of the election period, the trustee must file a Form 1041 for the trust for the tax year beginning the day after the close of the election period and, in general, ending December 31 of that year. Use the TIN obtained after the decedent's death. Follow the general rules for completing the return.

Special filing instructions.

When the election is not made by the due date of the QRT's Form 1041.

If the section 645 election has not been made by the time the QRT's first income tax return would be due for the tax year beginning with the decedent's death, but the trustee and executor (if any) have decided to make a section 645 election, then the QRT is not required to file a Form 1041 for the short tax year beginning with the decedent's death and ending on December 31 of that year. However, if a valid election is not subsequently made, the QRT may be subject to penalties and interest for failure to file and failure to pay.

If the QRT files a Form 1041 for this short period, and a valid section 645 election is subsequently made, then the trustee must file an amended Form 1041 for the electing trust, excluding all items of income, deduction, and credit of the electing trust. These amounts are then included on the first Form 1041 filed by the executor for the related estate (or the filing trustee for the electing trust filing as an estate).

Later appointed executor.

If an executor for the related estate is not appointed until after the trustee has made a valid section 645 election, the executor must agree to the trustee's election and they must file a revised Form 8855 within 90 days of the appointment of the executor. If the executor does not agree to the election, the election terminates as of the date of appointment of the executor.

If the executor agrees to the election, the trustee must amend any Form 1041 filed under the name and TIN of the electing trust for the period beginning with the decedent's death. The amended returns are still filed under the name and TIN of the electing trust, and they must include the items of income, deduction, and credit for the related estate for the periods covered by the returns. Also, attach a statement to the amended Forms 1041 identifying the name and TIN of the related estate, and the name and address of the executor. Check the Final return box on the amended return for the tax year that ends with the appointment of the executor. Except for this amended return, all returns filed for the combined entity after the appointment of the executor must be filed under the name and TIN of the related estate.

If the election terminates as the result of a later appointed executor, the executor of the related estate must file Forms 1041 under the name and TIN of the related estate for all tax years of the related estate beginning with the decedent's death. The electing trust's election period and tax year terminate the day before the appointment of the executor. The trustee is not required to amend any of the returns filed by the electing trust for the period prior to the appointment of the executor. The trust must file a final Form 1041 following the instructions above for completing Form 1041 in the year in which the election terminates and there is no executor.

Termination of the trust during the election period.

If an electing trust terminates during the election period, the trustee of that trust must file a final Form 1041 by completing the entity information (using the trust's EIN), checking the Final return box, and signing and dating the form. Do not report items of income, deduction, and credit. These items are reported on the related estate's return.

Alaska Native Settlement Trusts

The trustee of an Alaska Native Settlement Trust may elect the special tax treatment for the trust and its beneficiaries provided for in section 646. The election must be made by the due date (including extensions) for filing the trust's tax return for its first tax year ending after June 7, 2001. Do not use Form 1041. Use Form 1041-N, U.S. Income Tax Return for Electing Alaska Native Settlement Trusts, to make the election. Additionally, Form 1041-N is the trust's income tax return and satisfies the section 6039H information reporting requirement for the trust.

Bankruptcy Estate

The bankruptcy trustee or debtor-in- possession must file Form 1041 for the estate of an individual involved in bankruptcy proceedings under chapter 7 or 11 of title 11 of the United States Code if the estate has gross income for the tax year of $9,750 or more. See Bankruptcy Estates, later, for details.

Charitable Remainder Trusts

A section 664 charitable remainder trust (CRT) does not file Form 1041. Instead, a CRT files Form 5227, Split-Interest Trust Information Return. If the CRT has any unrelated business taxable income, it also must file Form 4720, Return of Certain Excise Taxes Under Chapters 41 and 42 of the Internal Revenue Code.

Common Trust Funds

Do not file Form 1041 for a common trust fund maintained by a bank. Instead, the fund may use Form 1065, U.S. Return of Partnership Income, for its return. For more details, see section 584 and Regulations section 1.6032-1.

Electing Small Business Trusts

Electing small business trusts file Form 1041. However, see Electing Small Business Trusts (ESBTs), later, for a discussion of the special reporting requirements for these trusts.

Pooled Income Funds

Pooled income funds file Form 1041. See Pooled Income Funds, later, for the special reporting requirements for these trusts. Additionally, pooled income funds must file Form 5227, Split-Interest Trust Information Return.

Qualified Funeral Trusts

Trustees of pre-need funeral trusts who elect treatment under section 685 file Form 1041-QFT, U.S. Income Tax Return for Qualified Funeral Trusts. All other pre-need funeral trusts, see Grantor Type Trusts, later, for Form 1041 reporting requirements.

Qualified Settlement Funds

The trustee of a designated or qualified settlement fund (QSF) generally must file Form 1120-SF, U.S. Income Tax Return for Settlement Funds, instead of Form 1041.

Special election. If a QSF has only one transferor, the transferor may elect to treat the QSF as a grantor type trust.

To make the grantor trust election, the transferor must attach an election statement to a timely filed Form 1041, including extensions, that the administrator files for the QSF for the tax year in which the settlement fund is established. If Form 1041 is not filed because Optional Method 1 or 2 was chosen, attach the election statement to a timely filed income tax return, including extensions, of the transferor for the tax year in which the settlement fund is established.

Election statement.

The election statement may be made separately or, if filed with Form 1041, on the attachment described under Grantor Type Trusts, later. At the top of the election statement, write “Section 1.468B-1(k) Election” and include the transferor's:

  • Name,

  • Address,

  • TIN, and

  • A statement that he or she will treat the qualified settlement fund as a grantor type trust.

Widely Held Fixed Investment Trust (WHFITs)

Trustees and middlemen of WHFITs do not file Form 1041. Instead, they report all items of gross income and proceeds on the appropriate Form 1099. For the definition of a WHFIT, see Regulations section 1.671-5(b)(22). A tax information statement that includes the information given to the IRS on Forms 1099, as well as additional information identified in Regulations section 1.671-5(e) must be given to trust interest holders. See the General Instructions for Certain Information Returns for more information.