B. Number of Schedules K-1 Attached

Every trust or decedent's estate claiming an income distribution deduction on page 1, line 18, must enter the number of Schedules K-1 (Form 1041) that are attached to Form 1041.

C. Employer Identification Number

Every estate or trust that is required to file Form 1041 must have an EIN. To apply for one, use Form SS-4. Form SS-4 has information on how to apply for an EIN by mail or by telephone. If the estate or trust has not received its EIN by the time the return is due, write Applied for in the space for the EIN. See Pub. 583, Starting a Business and Keeping Records, for more information.

If you are filing a return for a mortgage pool, such as one created under the mortgage-backed security programs administered by the Federal National Mortgage Association (Fannie Mae) or the Government National Mortgage Association (Ginnie Mae), the EIN stays with the pool if that pool is traded from one financial institution to another.

D. Date Entity Created

Enter the date the trust was created, or, if a decedent's estate, the date of the decedent's death.

E. Nonexempt Charitable and Split-Interest Trusts

Section 4947(a)(1) Trust

Check this box if the trust is a nonexempt charitable trust within the meaning of section 4947(a)(1).

A nonexempt charitable trust is a trust:

• That is not exempt from tax under section 501(a);
• In which all of the unexpired interests are devoted to one or more charitable purposes described in section 170(c)(2)(B); and
• For which a deduction was allowed under section 170 (for individual taxpayers) or similar Code section for personal holding companies, foreign personal holding companies, or estates or trusts (including a deduction for estate or gift tax purposes).

Nonexempt charitable trust treated as a private foundation.   If a nonexempt charitable trust is treated as though it were a private foundation under section 509, then the fiduciary must file Form 990-PF, Return of Private Foundation, in addition to Form 1041.

If a nonexempt charitable trust is treated as though it were a private foundation, and it has no taxable income under Subtitle A, it may file Form 990-PF instead of Form 1041 to meet its section 6012 filing requirement. But, be sure to answer Statement 13, on Part VII-A of Form 990-PF.

Excise taxes.   If a nonexempt charitable trust is treated as a private foundation, then it is subject to the same excise taxes under chapters 41 and 42 that a private foundation is subject to. If the nonexempt charitable trust is liable for any of these taxes (except the section 4940 tax), then it reports these taxes on Form 4720, Return of Certain Excise Taxes on Charities and Other Persons Under Chapters 41 and 42 of the Internal Revenue Code. Taxes paid by the trust on Form 4720 or on Form 990-PF (the section 4940 tax) cannot be taken as a deduction on Form 1041.

Not a Private Foundation

Check this box if the nonexempt charitable trust (section 4947(a)(1)) is not treated as a private foundation under section 509. For more information, see Regulations section 53.4947-1.

Other returns that must be filed.   If a nonexempt charitable trust is not treated as though it were a private foundation, the fiduciary must file, in addition to Form 1041, Form 990 (or Form 990-EZ), Return of Organization Exempt From Income Tax, and Schedule A (Form 990), Organization Exempt Under Section 501(c)(3), if the trust's gross receipts are normally more than $25,000.

If a nonexempt charitable trust is not treated as though it were a private foundation, and it has no taxable income under Subtitle A, it can file either Form 990 or Form 990-EZ instead of Form 1041 to meet its section 6012 filing requirement.

Section 4947(a)(2) Trust

Check this box if the trust is a split-interest trust described in section 4947(a)(2).

A split-interest trust is a trust that:

• Is not exempt from tax under section 501(a);
• Has some unexpired interests that are devoted to purposes other than religious, charitable, or similar purposes described in section 170(c)(2)(B); and
• Has amounts transferred in trust after May 26, 1969, for which a deduction was allowed under section 170 (for individual taxpayers) or similar Code section for personal holding companies, foreign personal holding companies, or estates or trusts (including a deduction for estate or gift tax purposes).

Other returns that must be filed.   The fiduciary of a split-interest trust must file Form 5227 (for amounts transferred in trust after May 26, 1969); and Form 1041-A if the trust's governing instrument does not require that all of the trust's income be distributed currently.

If a split-interest trust has any unrelated business taxable income, however, it must file Form 1041 to report all of its income and to pay any tax due.

F. Initial Return, Amended Return, Final Return; or Change in Fiduciary's Name or Address

Amended Return

If you are filing an amended Form 1041:

• Check the Amended return box,
• Complete the entire return,
• Correct the appropriate lines with the new information, and
• Refigure the estate's or trust's tax liability.

If the total tax on line 23 is larger on the amended return than on the original return, you generally should pay the difference with the amended return. However, you should adjust this amount if there is any increase or decrease in the total payments shown on line 25.

Attach a sheet that explains the reason for the amendments and identifies the lines and amounts being changed on the amended return.

Amended Schedule K-1 (Form 1041).   If the amended return results in a change to income, or a change in distribution of any income or other information provided to a beneficiary, an amended Schedule K-1 (Form 1041) must also be filed with the amended Form 1041 and given to each beneficiary. Check the Amended K-1 box at the top of the amended Schedule K-1.

Final Return

Check this box if this is a final return because the estate or trust has terminated. Also, check the Final K-1 box at the top of Schedule K-1.

If, on the final return, there are excess deductions, an unused capital loss carryover, or a net operating loss carryover, see the instructions for Schedule K-1, lines 13a through 13e, on page 40.

Change in Fiduciary's Name

If the fiduciary's name entered is different than the name on the prior year's return (or the Form 56 if no prior return), be sure to check this box. Also, file Form 56 if you checked this box and you have not filed a Form 56 or otherwise notified the IRS that you are a fiduciary for the estate or trust.

Change in Fiduciary's Address

Check this box if the fiduciary's address is different than the one entered on the prior return (or Form 56 if no prior return) and you have not filed Form 8822. If the fiduciary's address changed after filing Form 1041, use Form 8822 to notify the IRS unless the change was due to the creation or termination of a fiduciary relationship, in which case you should file a Form 56.

G. Pooled Mortgage Account

If you bought a pooled mortgage account during the year and still have that pool at the end of the tax year, check the Bought box and enter the date of purchase. If you sold a pooled mortgage account that was purchased during this, or a previous, tax year, check the Sold box and enter the date of sale. If you neither bought nor sold a pooled mortgage account, skip this item.

Income

Special Rule for Blind Trust

If you are reporting income from a qualified blind trust (under the Ethics in Government Act of 1978), do not identify the payer of any income to the trust but complete the rest of the return as provided in the instructions. Also write Blind Trust at the top of page 1.

Extraterritorial Income Exclusion

The estate or trust may exclude extraterritorial income to the extent of qualifying foreign trade income. For details and to figure the amount of the exclusion, see Form 8873, Extraterritorial Income Exclusion, and its separate instructions. The estate or trust must report the extraterritorial income exclusion on line 15a of Form 1041, page 1.

Although the extraterritorial income exclusion is entered on line 15a, it is an exclusion from income and should be treated as tax-exempt income when completing other parts of the return.

Line 1 - Interest Income

Report the estate's or trust's share of all taxable interest income that was received during the tax year. Examples of taxable interest include interest from:

• Accounts (including certificates of deposit and money market accounts) with banks, credit unions, and thrift institutions.
• Notes, loans, and mortgages.
• U.S. Treasury bills, notes, and bonds.
• U.S. savings bonds.
• Original issue discount.
• Income received as a regular interest holder of a real estate mortgage investment conduit (REMIC).

For taxable bonds acquired after 1987, amortizable bond premium is treated as an offset to the interest income instead of as a separate interest deduction. See Pub. 550.

For the year of the decedent's death, Forms 1099-INT issued in the decedent's name may include interest income earned after the date of death that should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report on line 1 of Schedule B (Form 1040) or Schedule 1 (Form 1040A) the total interest shown on Form 1099-INT. Under the last entry on line 1, subtotal all the interest reported on line 1. Below the subtotal, write Form 1041 and the name and address shown on Form 1041 for the decedent's estate. Also, show the part of the interest reported on Form 1041 and subtract it from the subtotal.

Line 2 - Ordinary Dividends

Report the estate's or trust's share of all ordinary dividends received during the tax year.

For the year of the decedent's death, Forms 1099-DIV issued in the decedent's name may include dividends earned after the date of death that should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report on line 5 of Schedule B (Form 1040) or Schedule 1 (Form 1040A) the ordinary dividends shown on Form 1099-DIV. Under the last entry on line 5, subtotal all the dividends reported on line 5. Below the subtotal, write Form 1041 and the name and address shown on Form 1041 for the decedent's estate. Also, show the part of the ordinary dividends reported on Form 1041 and subtract it from the subtotal.

Note:   Report capital gain distributions on Schedule D (Form 1041), line 9.

Line 3 - Business Income or (Loss)

If the estate or trust operated a business, report the income and expenses on Schedule C (Form 1040), Profit or Loss From Business (or Schedule C-EZ (Form 1040), Net Profit From Business). Enter the net profit or (loss) from Schedule C (or Schedule C-EZ) on line 3.

Line 4 - Capital Gain or (Loss)

Enter the gain from Schedule D (Form 1041), Part III, line 16, column (3); or the loss from Part IV, line 17.

Do not substitute Schedule D (Form 1040) for Schedule D (Form 1041).

Line 5 - Rents, Royalties, Partnerships, Other Estates and Trusts, etc.

Use Schedule E (Form 1040), Supplemental Income and Loss, to report the estate's or trust's share of income or (losses) from rents, royalties, partnerships, S corporations, other estates and trusts, and REMICs. Enter the net profit or (loss) from Schedule E on line 5. See the instructions for Schedule E (Form 1040) for reporting requirements.

If the estate or trust received a Schedule K-1 from a partnership, S corporation, or other flow-through entity, use the corresponding lines on Form 1041 to report the interest, dividends, capital gains, etc., from the flow-through entity.

Line 6 - Farm Income or (Loss)

If the estate or trust operated a farm, use Schedule F (Form 1040), Profit or Loss From Farming, to report farm income and expenses. Enter the net profit or (loss) from Schedule F on line 6.

Line 7 - Ordinary Gain or (Loss)

Enter from line 18, Form 4797, Sales of Business Property, the ordinary gain or loss from the sale or exchange of property other than capital assets and also from involuntary conversions (other than casualty or theft).

Line 8 - Other Income

Enter other items of income not included on lines 1 through 7. List the type and amount on an attached schedule if the estate or trust has more than one item.

Items to be reported on line 8 include:

• Unpaid compensation received by the decedent's estate that is income in respect of a decedent.
• Any part of a total distribution shown on Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc., that is treated as ordinary income. For more information, see the separate instructions for Form 4972, Tax on Lump-Sum Distributions.

Deductions

Depreciation, Depletion, and Amortization

A trust or decedent's estate is allowed a deduction for depreciation, depletion, and amortization only to the extent the deductions are not apportioned to the beneficiaries. An estate or trust is not allowed to make an election under section 179 to expense certain tangible property.

The estate's or trust's share of depreciation, depletion, and amortization should be reported on the appropriate lines of Schedule C (or C-EZ), E, or F (Form 1040), the net income or loss from which is shown on line 3, 5, or 6 of Form 1041. If the deduction is not related to a specific business or activity, then report it on line 15a.

Depreciation.   For a decedent's estate, the depreciation deduction is apportioned between the estate and the heirs, legatees, and devisees on the basis of the estate's income allocable to each.

For a trust, the depreciation deduction is apportioned between the income beneficiaries and the trust on the basis of the trust income allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a depreciation reserve. If the trustee is required to maintain a reserve, the deduction is first allocated to the trust, up to the amount of the reserve. Any excess is allocated among the beneficiaries in the same manner as the trust's accounting income. See Regulations section 1.167(h)-1(b).

Depletion.   For mineral or timber property held by a decedent's estate, the depletion deduction is apportioned between the estate and the heirs, legatees, and devisees on the basis of the estate's income from such property allocable to each.

For mineral or timber property held in trust, the depletion deduction is apportioned between the income beneficiaries and the trust based on the trust income from such property allocable to each, unless the governing instrument (or local law) requires or permits the trustee to maintain a reserve for depletion. If the trustee is required to maintain a reserve, the deduction is first allocated to the trust, up to the amount of the reserve. Any excess is allocated among the beneficiaries in the same manner as the trust's accounting income. See Regulations section 1.611-1(c)(4).

Amortization.   The deduction for amortization is apportioned between an estate or trust and its beneficiaries under the same principles for apportioning the deductions for depreciation and depletion.

The deduction for the amortization of reforestation expenditures under section 194 is allowed only to an estate.

Allocation of Deductions for Tax-Exempt Income

Generally, no deduction that would otherwise be allowable is allowed for any expense (whether for business or for the production of income) that is allocable to tax-exempt income. Examples of tax-exempt income include:

• Certain death benefits (section 101);
• Interest on state or local bonds (section 103);
• Compensation for injuries or sickness (section 104); and
• Income from discharge of indebtedness in a title 11 case (section 108).

Exception.   State income taxes and business expenses that are allocable to tax-exempt interest are deductible.

Expenses that are directly allocable to tax-exempt income are allocated only to tax-exempt income. A reasonable proportion of expenses indirectly allocable to both tax-exempt income and other income must be allocated to each class of income.

Deductions That May Be Allowable for Estate Tax Purposes

Administration expenses and casualty and theft losses deductible on Form 706 may be deducted, to the extent otherwise deductible for income tax purposes, on Form 1041 if the fiduciary files a statement waiving the right to deduct the expenses and losses on Form 706. The statement must be filed before the expiration of the statutory period of limitations for the tax year the deduction is claimed. See Pub. 559 for more information.

Accrued Expenses

Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year that: (a) all events have occurred that determine the liability; and (b) the amount of the liability can be figured with reasonable accuracy. However, all the events that establish liability are treated as occurring only when economic performance takes place. There are exceptions for recurring items. See section 461(h).

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