Enter amounts that were paid for a charitable purpose out of the estate's or trust's gross income, including any capital gains that are attributable to income under the governing instrument or local law. Include amounts paid during the tax year from gross income received in a prior tax year, but only if no deduction was allowed for any prior tax year for these amounts.

Estates, and certain trusts, may claim a deduction for amounts permanently set aside for a charitable purpose from gross income. Such amounts must be permanently set aside during the tax year to be used exclusively for religious, charitable, scientific, literary, or educational purposes, or for the prevention of cruelty to children or animals, or for the establishment, acquisition, maintenance, or operation of a public cemetery not operated for profit.

For a trust to qualify, the trust may not be a simple trust, and the set aside amounts must be required by the terms of a trust instrument that was created on or before October 9, 1969.

Further, the trust instrument must provide for an irrevocable remainder interest to be transferred to or for the use of an organization described in section 170(c); or the trust must have been created by a grantor who was at all times after October 9, 1969, under a mental disability to change the terms of the trust.

Also, certain testamentary trusts that were established by a will that was executed on or before October 9, 1969, may qualify. See Regulations section 1.642(c)-2(b).

Do not include any capital gains for the tax year allocated to corpus and paid or permanently set aside for charitable purposes. Instead, enter these amounts on line 4.

Any estate or trust that pays or sets aside any part of its income for a charitable purpose must reduce the deduction by the portion allocable to any tax-exempt income. If the governing instrument specifically provides as to the source from which amounts are paid, permanently set aside, or to be used for charitable purposes, the specific provisions control. In all other cases, determine the amount of tax-exempt income allocable to charitable contributions by multiplying line 1 by a fraction, the numerator of which is the total tax-exempt income of the estate or trust, and the denominator of which is the gross income of the estate or trust. Do not include in the denominator any losses allocated to corpus.

Enter the total of all capital gains for the tax year that are:

If the exclusion of gain from the sale or exchange of qualified small business stock was claimed, enter the part of the gain included on Schedule A, lines 1 and 4, that was excluded under section 1202.

Generally, enter on line 1, Schedule B, the amount from line 17 on page 1 of Form 1041. However, if both line 4 and line 17 on page 1 of Form 1041 are losses, enter on line 1, Schedule B, the smaller of those losses. If line 4 is zero or a gain and line 17 is a loss, enter zero on line 1, Schedule B.

If you are filing for a simple trust, subtract from adjusted total income any extraordinary dividends or taxable stock dividends included on page 1, line 2, and determined under the governing instrument and applicable local law to be allocable to corpus.

To figure the adjusted tax-exempt interest:

Step 1. Add tax-exempt interest income on line 2 of Schedule A, any expenses allowable under section 212 allocable to tax-exempt interest, and any interest expense allocable to tax-exempt interest.

Step 2. Subtract the Step 1 total from the amount of tax-exempt interest (including exempt-interest dividends) received.

Section 212 expenses that are directly allocable to tax-exempt interest are allocated only to tax-exempt interest. A reasonable proportion of section 212 expenses that are indirectly allocable to both tax-exempt interest and other income must be allocated to each class of income.

Figure the interest expense allocable to tax-exempt interest according to the guidelines in Rev. Proc. 72-18, 1972-1 C.B. 740.

See Regulations sections 1.643(a)-5 and 1.265-1 for more information.

Include all capital gains, whether or not distributed, that are attributable to income under the governing instrument or local law. For example, if the trustee distributed 50% of the current year's capital gains to the income beneficiaries (and reflects this amount in column (1), line 16a of Schedule D (Form 1041)), but under the governing instrument all capital gains are attributable to income, then include 100% of the capital gains on line 3. If the amount on Schedule D (Form 1041), line 16a, column (1) is a net loss, enter zero.

If the exclusion of gain from the sale or exchange of qualified small business stock was claimed, do not reduce the gain on line 3 by any amount excluded under section 1202.

In figuring the amount of long-term and short-term capital gain for the tax year included on Schedule A, line 1, the specific provisions of the governing instrument control if the instrument specifically provides as to the source from which amounts are paid, permanently set aside, or to be used for charitable purposes.

In all other cases, determine the amount to enter by multiplying line 1 of Schedule A by a fraction, the numerator of which is the amount of net capital gains that are included in the accounting income of the estate or trust (i.e., not allocated to corpus) and are distributed to charities, and the denominator of which is all items of income (including the amount of such net capital gains) included in the DNI.

Reduce the amount on line 5 by any allocable section 1202 exclusion.

If you are filing for a decedent's estate or a simple trust, skip this line. If you are filing for a complex trust, enter the income for the tax year determined under the terms of the governing instrument and applicable local law. Do not include extraordinary dividends or taxable stock dividends determined under the governing instrument and applicable local law to be allocable to corpus.

Do not include any:

Line 9 is to be completed by all simple trusts as well as complex trusts and decedent's estates, that are required to distribute income currently, whether it is distributed or not. The determination of whether trust income is required to be distributed currently depends on the terms of the governing instrument and the applicable local law.

The line 9 distributions are referred to as first tier distributions and are deductible by the estate or trust to the extent of the DNI. The beneficiary includes such amounts in his or her income to the extent of his or her proportionate share of the DNI.

Line 10 is to be completed only by a decedent's estate or complex trust. These distributions consist of any other amounts paid, credited, or required to be distributed and are referred to as second tier distributions. Such amounts include annuities to the extent not paid out of income, mandatory and discretionary distributions of corpus, and distributions of property in kind.

If Form 1041-T was timely filed to elect to treat estimated tax payments as made by a beneficiary, the payments are treated as paid or credited to the beneficiary on the last day of the tax year and must be included on line 10.

Unless a section 643(e)(3) election is made, the value of all noncash property actually paid, credited, or required to be distributed to any beneficiaries is the smaller of:

If a section 643(e)(3) election is made by the fiduciary, then the amount entered on line 10 will be the FMV of the property.

A fiduciary of a complex trust or a decedent's estate may elect to treat any amount paid or credited to a beneficiary within 65 days following the close of the tax year as being paid or credited on the last day of that tax year. To make this election, see the instructions for Question 6 on page 24.

The beneficiary includes the amounts on line 10 in his or her income only to the extent of his or her proportionate share of the DNI.

If line 11 is more than line 8, and you are filing for a complex trust that has previously accumulated income, see the instructions on page 38 to see if you must complete Schedule J (Form 1041).

In figuring the income distribution deduction, the estate or trust is not allowed a deduction for any item of the DNI that is not included in the gross income of the estate or trust. Thus, for purposes of figuring the allowable income distribution deduction, the DNI (line 7) is figured without regard to any tax-exempt interest.

If tax-exempt interest is the only tax-exempt income included in the total distributions (line 11), and the DNI (line 7) is less than or equal to line 11, then enter on line 12 the amount from line 2.

If tax-exempt interest is the only tax-exempt income included in the total distributions (line 11), and the DNI is more than line 11 (i.e., the estate or trust made a distribution that is less than the DNI), then figure the adjustment by multiplying line 2 by a fraction, the numerator of which is the total distributions (line 11), and the denominator of which is the DNI (line 7). Enter the result on line 12.

If line 11 includes tax-exempt income other than tax-exempt interest, figure line 12 by subtracting the total of the following from tax-exempt income included on
line 11:

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.

Schedule I contains adjustments and tax preference items that are treated differently for regular tax and AMT purposes. If you, as fiduciary for the estate or trust, completed a form to figure an item for regular tax purposes, you may have to complete it a second time for AMT purposes. Generally, the difference between the amounts on the two forms is the AMT adjustment or tax preference item to enter on Schedule I. Except for Form 1116, any additional form completed for AMT purposes does not have to be filed with Form 1041.

For regular tax purposes, some deductions and credits may result in carrybacks or carryforwards to other tax years. Examples are: investment interest expense; a net operating loss deduction; a capital loss; and the foreign tax credit. Because these items may be refigured for the AMT, the carryback or carryforward amount may be different for regular and AMT purposes. Therefore, you should keep records of these different carryforward and carryback amounts for the AMT and regular tax. The AMT carryforward will be important in completing Schedule I for 2004.

Estates and trusts that paid alternative minimum tax in 2002, or had a minimum tax credit carryforward, may be eligible for a minimum tax credit in 2003. See
Form 8801.

An estate or trust that is a partner in a partnership or a shareholder in an S corporation must take into account its share of items of income and deductions that enter into the computation of its adjustments and tax preference items.

The distributable net alternative minimum taxable income (DNAMTI) of the estate or trust does not include amounts of depreciation, depletion, and amortization that are allocated to the beneficiaries, just as the distributable net income (DNI) of the estate or trust does not include these items for regular tax purposes.

Report separately on line 12 of Schedule K-1 (Form 1041) any adjustments or tax preference items attributable to depreciation, depletion, and amortization that were allocated to the beneficiaries.

There is no AMT adjustment for the following items if the estate or trust elects to deduct them ratably over the period of time shown for the regular tax:

The election must be made in the year the expenditure was made and may be revoked only with IRS consent. See section 59(e) for more details.

In determining the alternative minimum taxable income, qualified residence interest (other than qualified housing interest defined in section 56(e)) is not allowed.

If you completed Form 4952 for regular tax purposes, you may have an adjustment on this line. Refigure your investment interest expense on another Form 4952 as follows:

Step 1. On line 1 of Form 4952, add any interest expense allocable to specified private activity bonds issued after August 7, 1986, to the other interest expense. For a definition of “specified private activity bonds,” see the instructions for line 8.

Step 2. On line 2, enter the AMT disallowed investment interest expense from 2002.

Step 3. When completing Part II of Form 4952, refigure gross income from property held for investment, any net gain from the disposition of property held for investment, and any investment expenses, taking into account all AMT adjustments and tax preference items that apply. Include any interest income and investment expenses from private activity bonds issued after August 7, 1986.

To figure the adjustment for line 2, subtract the total interest allowable for AMT purposes from the interest deduction claimed on line 10 of page 1. If the total interest expense allowed for AMT purposes is more than that allowed for regular tax purposes, enter the difference as a negative amount on line 2.

Enter any state, local, or foreign real property taxes; state or local personal property taxes; and state, local, or foreign income taxes that were included on line 11 of page 1.

Enter any refunds received in 2003 of taxes described for line 3 above that were deducted in a tax year after 1986.

Refigure the depletion deduction for AMT purposes by using only the income and deductions allowed for the AMT when refiguring the limit based on taxable income from the property under section 613(a) and the limit based on taxable income, with certain adjustments, under section 613A(d)(1). Also, the depletion deduction for mines, wells, and other natural deposits under section 611 is limited to the property's adjusted basis at the end of the year, as refigured for the AMT, unless the estate or trust is an independent producer or royalty owner claiming percentage depletion for oil and gas wells. Figure this limit separately for each property. When refiguring the property's adjusted basis, take into account any AMT adjustments made this year or in previous years that affect basis (other than the current year's depletion).

Enter on line 6 the difference between the regular tax and AMT deduction. If the AMT deduction is more than the regular tax deduction, enter the difference as a negative amount.

Enter any net operating loss deduction (NOLD) from line 15a of page 1 as a positive amount.

Enter the interest earned from specified private activity bonds reduced (but not below zero) by any deduction that would have been allowable if the interest were includible in gross income for regular tax purposes. Specified private activity bonds are any qualified bonds (as defined in section 141) issued after August 7, 1986. See section 57(a)(5) for more information.

Exempt-interest dividends paid by a regulated investment company are treated as interest from specified private activity bonds to the extent the dividends are attributable to interest received by the company on the bonds, minus an allocable share of the expenses paid or incurred by the company in earning the interest.

If the estate or trust claimed the exclusion under section 1202 for gain on qualified small business stock held more than 5 years, compute the amount to enter on line 9 as follows:

For regular tax purposes, no income is recognized when an incentive stock option (as defined in section 422(b)) is exercised. However, this rule does not apply for AMT purposes. Instead, the estate or trust must generally include on line 10 the excess, if any, of:

If the estate or trust acquired stock by exercising an option and it disposed of that stock in the same year, the tax treatment under the regular tax and the AMT is the same, and no adjustment is required.

Increase the AMT basis of any stock acquired through the exercise of an incentive stock option by the amount of the adjustment.

If the estate or trust is the beneficiary of another estate or trust, enter the adjustment for minimum tax purposes from line 9, Schedule K-1 (Form 1041).

If the estate or trust is a partner in an electing large partnership, enter on line 12 the amount from Schedule K-1 (Form 1065-B), box 6. Take into account any amount from Schedule K-1 (Form 1065-B), box 5, when figuring the amount to enter on line 15.

Use this line to report any AMT adjustment related to the disposition of property resulting from refiguring:

The $3,000 capital loss limitation for the regular tax applies separately for the AMT.

First, figure any ordinary income adjustment related to 3 above. Then, refigure Form 4684, Form 4797, and Schedule D for the AMT, if applicable, by taking into account any adjustments you made this year or in previous years that affect the estate's or trust's basis or otherwise result in a different amount for AMT. If the estate or trust has a capital loss after refiguring Schedule D for the AMT, apply the $3,000 capital loss limitation separately to the AMT loss. For each of the 4 items listed above, figure the difference between the amount included in taxable income for the regular tax and the amount included in income for the AMT. Treat the difference as a negative amount if (a) both the AMT and regular tax amounts are zero or more and the AMT amount is less than the regular tax amount or (b) the AMT amount is a loss, and the regular tax amount is a smaller loss, or zero or more.

Enter on line 13 the combined adjustments for the 4 items above.

This section describes when depreciation must be refigured for the AMT and how to figure the amount to enter on line 14.

Do not include on this line any depreciation adjustment from:

How is the AMT class life determined?   The class life used for the AMT is not necessarily the same as the recovery period used for the regular tax. The class lives for the AMT are listed in Rev. Proc. 87-56, 1987-2 C.B. 674, and in Pub. 946, How To Depreciate Property. Use 12 years for any tangible personal property
not assigned a class life.

  

  See Pub. 946 for optional tables that can be used to figure AMT depreciation. Rev. Proc. 89-15, 1989-1 C.B. 816, has special rules for short tax years and for property disposed of before the end of the recovery period.

Do not enter again elsewhere on this schedule any AMT adjustment or tax preference item included on this line.

For AMT purposes, the rules described in section 469 apply, except that in applying the limitations, minimum tax rules apply.

Refigure passive activity gains and losses on an AMT basis. Refigure a passive activity gain or loss by taking into account all AMT adjustments or tax preference items that pertain to that activity.

You may complete a second Form 8582 to determine the passive activity losses allowed for AMT purposes, but do not send this AMT Form 8582 to the IRS.

Enter the difference between the loss reported on page 1, and the AMT loss, if any.

The amount of any passive activity loss that is not deductible (and is therefore carried forward) for AMT purposes is likely to differ from the amount (if any) that is carried forward for regular tax purposes. Therefore, it is essential that you retain adequate records for both AMT and regular tax purposes.

If the loss is from a passive activity, use line 15 instead. If the loss is from a tax shelter farm activity (that is not passive), use line 23.

Refigure your allowable losses for AMT purposes from activities for which you are not at risk and basis limitations applicable to interests in partnerships and stock in S corporations, by taking into account your AMT adjustments and tax preference items. See sections 59(h), 465, 704(d), and 1366(d).

Enter the difference between the loss reported for regular tax purposes and the AMT loss. If the AMT loss is more than the loss reported for regular tax purposes, enter the adjustment as a negative amount.

Do not make this adjustment for expenditures for which you elected the optional 3-year write-off period for regular tax purposes.

Circulation expenditures deducted under section 173(a) for regular tax purposes must be amortized for AMT purposes over 3 years beginning with the year the expenditures were paid or incurred.

Enter the difference between the regular tax and AMT deduction. If the AMT deduction is greater, enter the difference as a negative amount.

If the estate or trust had a loss on property for which circulation expenditures have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the amount of the loss allowable for the expenditures had they remained capitalized or (b) the remaining expenditures to be amortized for the AMT.

For AMT purposes, the percentage of completion method of accounting described in section 460(b) generally must be used. However, this rule does not apply to any home construction contract (as defined in section 460(e)(6)).

Enter the difference between the AMT and regular tax income. If the AMT income is smaller, enter the difference as a negative amount.

Do not make this adjustment for costs for which you elected the optional 10-year write-off period under section 59(e) for regular tax purposes.

Expenditures for the development or exploration of a mine or certain other mineral deposits (other than an oil, gas, or geothermal well) deducted under sections 616(a) and 617(a) for regular tax purposes must be amortized for AMT purposes over 10 years beginning with the year the expenditures were paid or incurred.

Enter the difference between the amount allowed for AMT purposes and the amount allowed for regular tax purposes. If the amount allowed for AMT purposes exceeds the amount deducted for regular tax purposes, enter the difference as a negative amount.

If the estate or trust had a loss on property for which mining expenditures have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the amount of the loss allowable for the expenditures had they remained capitalized or (b) the remaining expenditures to be amortized for the AMT.

Do not make this adjustment for costs paid or incurred in connection with an activity in which the estate or trust materially participated under the passive activity rules or for costs for which you elected the optional 10-year write-off for research and experimental expenditures under section 59(e) for regular tax purposes.

Research and experimental expenditures deducted under section 174(a) for regular tax purposes generally must be amortized for AMT purposes over 10 years beginning with the year the expenditures were paid or incurred.

Enter the difference between the amount allowed for AMT purposes and the amount allowed for regular tax purposes. If the amount for AMT purposes exceeds the amount allowed for regular tax purposes, enter the difference as a negative amount.

If the estate or trust had a loss on property for which research and experimental costs have not been fully amortized for the AMT, the AMT deduction is the smaller of (a) the loss allowable for the costs had they remained capitalized or (b) the remaining costs to be amortized for the AMT.

The installment method does not apply for AMT purposes to any nondealer disposition of property that occurred after August 16, 1986, but before the first day of your tax year that began in 1987, if an installment obligation to which the proportionate disallowance rule applied arose from the disposition. Enter on line 21 the amount of installment sale income that was reported for regular tax purposes.

Do not make this adjustment for costs for which you elected the optional 60-month write-off under section 59(e) for regular tax purposes.

IDCs from oil, gas, and geothermal wells are a preference to the extent that the excess IDCs exceed 65% of the net income from the wells. Figure the preference for all oil and gas properties separately from the preference for all geothermal properties.

Figure excess IDCs as follows:

Determine net income by reducing the gross income that the estate or trust received or accrued during the tax year from all oil, gas, and geothermal wells by the deductions allocable to those wells (reduced by the excess IDCs). When refiguring net income, use only income and deductions allowed for the AMT.

Enter on line 23 the total of any other adjustments that apply including the following.

The ATNOLD is the sum of the alternative tax net operating loss (ATNOL) carryovers and carrybacks to the tax year, subject to the limitation explained below.

For tax years beginning after 1986, the net operating loss (NOL) under section 172(c) is modified for alternative tax purposes by (a) adding the adjustments made under sections 56 and 58 (subtracting if the adjustments are negative); and (b) reducing the NOL by any item of tax preference under section 57 (except the appreciated charitable contribution preference item). For an estate or trust that held a residual interest in a real estate mortgage investment conduit (REMIC), figure the ATNOLD without regard to any excess inclusion.

If this estate or trust is the beneficiary of another estate or trust that terminated in 2003, include any ATNOL carryover that was reported on line 13e of Schedule K-1 (Form 1041).

The estate's or trust's ATNOLD may be limited. To figure the ATNOLD limitation, first figure AMTI without regard to the ATNOLD. For this purpose, figure a tentative amount for line 6 of Schedule I by treating line 24 as if it were zero. Then, figure a tentative total by combining lines 1–23 of Schedule I using the line 6 tentative amount. The ATNOLD limitation is 90% of the tentative total.

Enter on line 24 the smaller of the ATNOLD or the ATNOLD limitation.

Any ATNOL not used because of the ATNOLD limitation can be carried back or forward. See section 172(b) for details.

The treatment of ATNOLs does not affect your regular tax NOL.

For an estate or trust that held a residual interest in a REMIC, line 29 may not be less than the estate's or trust's share of the amount on Schedule E (Form 1040), line 37, column (c). If that amount is larger than the amount you would otherwise enter on line 29, enter that amount instead and write “Sch. Q” on the dotted line next to line 29.

Generally, enter on line 30, Schedule I, the amount from line 25, Schedule I. However, if both line 4 on page 1 and line 25, Schedule I, are losses, enter on line 30, Schedule I, the smaller of those losses. If line 4 is zero or a gain and line 25 is a loss, enter zero on line 30,
Schedule I.

To figure the adjusted tax-exempt interest (including exempt-interest dividends received as a shareholder in a mutual fund or other regulated investment company), subtract the total of any:

Do not subtract any deductions reported on lines 2 through 4.

Section 212 expenses that are directly allocable to tax-exempt interest are allocated only to tax-exempt interest. A reasonable proportion of section 212 expenses that are indirectly allocable to both tax-exempt interest and other income must be allocated to each class of income.

Reduce the amount on line 33 by any allocable section 1202 exclusion (as refigured for AMT purposes).

Enter any capital gains that were paid or permanently set aside for charitable purposes from the current year's income included on line 1 of Schedule A. Reduce the amount on line 34 by any allocable section 1202 exclusion (as refigured for AMT purposes).

Capital gains and losses must take into account any basis adjustments from line 13, Part I.

In figuring the income distribution deduction on a minimum tax basis, the estate or trust is not allowed a deduction for any item of DNAMTI (line 37) that is not included in the gross income of the estate or trust figured on an AMT basis. Thus, for purposes of figuring the allowable income distribution deduction on a minimum tax basis, the DNAMTI is figured without regard to any tax-exempt interest (except for amounts from line 8).

If tax-exempt interest is the only tax-exempt income included in the total distributions (line 40), and the DNAMTI (line 37) is less than or equal to line 40, then enter on line 41 the amount from line 31.

If tax-exempt interest is the only tax-exempt income included in the total distributions (line 40), and the DNAMTI is more than line 40 (i.e., the estate or trust made a distribution that is less than the DNAMTI), then figure the adjustment by multiplying line 31 by a fraction, the numerator of which is the total distributions (line 40), and the denominator of which is the DNAMTI (line 37). Enter the result on line 41.

If line 40 includes tax-exempt income other than tax-exempt interest (except for amounts from line 8), figure line 41 by subtracting the total expenses allocable to tax-exempt income that are allowable for AMT purposes from tax-exempt income included on line 40.

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.

Allocate the income distribution deduction figured on a minimum tax basis among the beneficiaries in the same manner as income was allocated for regular tax purposes. Report each beneficiary's share on line 7 of Schedule K-1 (Form 1041).

To see if you need to figure the estate's or trust's AMT foreign tax credit, fill in line 55 of Schedule I as instructed. If the amount on line 55 is greater than or equal to the amount on line 52, the estate or trust does not owe the AMT. Enter zero on line 56 and see Who Must Complete on page 24 to find out if you must file Schedule I with Form 1041. However, even if the estate or trust does not owe AMT, you may need to complete line 53 to see if you have an AMT foreign tax credit carryback or carryforward to other tax years.

To figure the AMT foreign tax credit:

Follow the instructions below to figure the amount to enter on line 53 of Schedule I of Form 1041.

If you have no entry on line 24 of Schedule I of Form 1041, and no intangible drilling costs (IDCs) (or the exception for IDCs does not apply to the estate or trust—see the instructions for line 22 on page 27), enter on line 53 of Schedule I the smaller of:

If you have an entry on line 24 or the exception for IDCs applies to the estate or trust:

If you figured the estate's or trust's tax using the Qualified Dividends Tax Worksheet (instead of Schedule D, Part V, or the Schedule D Tax Worksheet) then:

If you used Schedule D or the Schedule D Tax Worksheet, you generally may enter the amounts as instructed on Schedule I, lines 58, 59, 60, and 67. But do not use those amounts if either of the following applies:

If 1 or 2 above applies, complete a Schedule D for the AMT. If 1 above applies, refigure the amounts for Schedule D, Parts I, II, III, and IV for the AMT; otherwise, use the regular tax amounts.

Next, complete lines 19 through 23 and 28 of the AMT Schedule D (lines 2 through 13 and 20 of the AMT Schedule D Tax Worksheet, if applicable). Use amounts from the AMT Schedule D or AMT Schedule D Tax Worksheet to complete Schedule I, lines 58, 59, 60, and 67. Keep the AMT Schedule D and worksheet for your records but do not attach the AMT Schedule D to Form 1041.

If you did not complete line 27 of Schedule D (or line 19 of the Schedule D Tax Worksheet) for the regular tax, enter zero on Schedule I, line 64.

Generally, you may enter the amount from Schedule D, line 15c, column (2), on Schedule I, line 71. However, if the qualified 5-year gain is different for the AMT (for example, because of a different basis), you must complete an AMT Qualified 5-Year Gain Worksheet (on page 33). If the amount on any line of the worksheet is different for the AMT, use the AMT amount instead of the regular tax amount. Enter the estate's or trust's portion on Schedule I, line 71.

Use Schedule D (Form 1041) to report gains and losses from the sale or exchange of capital assets by an estate or trust.

To report the sale or exchange of property used in a trade or business, involuntary conversions (other than casualties and thefts), and certain ordinary gains and losses, see Form 4797 and related instructions.

If property is involuntarily converted because of a casualty or theft, use Form 4684.

Section 1256 contracts and straddles are reported on Form 6781, Gains and Losses From Section 1256 Contracts and Straddles.

Each item of property held by the estate or trust (whether or not connected with its trade or business) is a capital asset except:

You may find additional helpful information in the following publications:

Separate the capital gains and losses according to how long the estate or trust held or owned the property. The holding period for short-term capital gains and losses is 1 year or less. The holding period for long-term capital gains and losses is more than 1 year. Property acquired by a decedent's estate from the decedent is considered as held for more than 1 year.

When you figure the length of the period the estate or trust held property, begin counting on the day after the estate or trust acquired the property and include the day the estate or trust disposed of it. Use the trade dates for the date of acquisition and sale of stocks and bonds traded on an exchange or over-the- counter market.

For noncash property distributions, a fiduciary may elect to have the estate or trust recognize gain or loss in the same manner as if the distributed property had been sold to the beneficiary at its FMV. The distribution deduction is the property's FMV. This election applies to all distributions made by the estate or trust during the tax year and, once made, may be revoked only with IRS consent.

Note that section 267 does not allow a trust or a decedent's estate to claim a deduction for any loss on property to which a section 643(e)(3) election applies. In addition, when a trust or a decedent's estate distributes depreciable property, section 1239 applies to deny capital gains treatment for any gain on property to which a section 643(e)(3) election applies.

A trust cannot deduct a loss from the sale or exchange of property directly or indirectly between any of the following:

The following items may require special treatment:

Generally, the estate or trust must recognize gain (but not loss) on the date it enters into a constructive sale of any appreciated position in stock, a partnership interest, or certain debt instruments as if the position were disposed of at FMV on that date.

The estate or trust is treated as making a constructive sale of an appreciated position when it (or a related person, in some cases) does one of the following:

Exception. Generally, constructive sale treatment does not apply if:

For details and other exceptions to these rules, see Pub. 550.

Section 1202 provides for an exclusion of 50% of the gain on the sale or exchange of qualified small business (QSB) stock. The section 1202 exclusion applies only to qualified small business stock held for more than 5 years. To be qualified small business stock, the stock must meet all of the following tests:

A qualified business is any business other than the following:

For more details about limits and additional requirements that may apply, see section 1202.

Enter either the gross sales price or the net sales price from the sale. On sales of stocks and bonds, report the gross amount as reported to the estate or trust on Form 1099-B or similar statement. However, if the estate or trust was advised that gross proceeds less commissions and option premiums were reported to the IRS, enter that net amount in column (d).

Make a separate entry in this column for each transaction reported on lines 1 and 6 and any other lines that apply to the estate or trust. For lines 1 and 6, subtract the amount in column (e) from the amount in column (d). Enter negative amounts in parentheses.

Enter all gains and losses reported in column (f) from sales, exchanges, or conversions (including installment payments received) after May 5, 2003. However, do not include gain attributable to unrecaptured section 1250 gain, collectibles gains and losses, or eligible gain on qualified small business stock.

Enter as a long-term capital gain on line 9, column (f), the total capital gain distributions paid during the year, regardless of how long the estate or trust held its investment. This amount is shown in box 2a of Form 1099-DIV. If there is an amount in box 2b of Form 1099-DIV, include that amount on line 9, column (g). If there is an amount in box 2c, include that amount on line 5 of the Qualified 5-Year Gain Worksheet (below) if you are required to complete the worksheet. If there is an amount in box 2d, include that amount on line 11 of the Unrecaptured Section 1250 Gain Worksheet on page 34 if you are required to complete the worksheet. If there is an amount in box 2e, see Exclusion of Gain on Qualified Small Business (QSB) Stock on page 31.

The instructions above assume the estate or trust is a cash basis calendar year taxpayer.

Enter the amount of net short-term capital gain or loss allocable to the beneficiary or beneficiaries. Include only those short-term capital losses that are taken into account in determining the amount of gain from the sale or exchange of capital assets that is paid, credited, or required to be distributed to any beneficiary during the tax year. See Regulations section 1.643(a)-3 for more information about allocation of capital gains and losses.

If the losses from the sale or exchange of capital assets are more than the gains, all of the losses must be allocated to the estate or trust and none are allocated to the beneficiaries.

Enter the amount of the net short-term capital gain or loss allocable to the estate or trust. Include any capital gain paid or permanently set aside for a charitable purpose specified in section 642(c).

Enter the total of the amounts entered in columns (1) and (2). The amount in column (3) should be the same as the amount on line 5.

If line 5a is a gain, enter the beneficiaries' allocable share of post-May 5, 2003, net short-term gain, if any. Reduce that amount by the beneficiaries' allocable share of the loss on line 12, if any, and enter the result. If zero or less, leave line 14b(1) blank.

If line 5a is a loss, enter the estate's or trust's allocable share of post-May 5, 2003, net short-term loss. Otherwise, enter -0-.

Allocate the net long-term capital gain or loss on line 15a in the same manner as the net short-term capital gain or loss on line 14a. However, do not take the section 1202 exclusion on gain from the sale or exchange of qualified small business stock into account when figuring net long-term capital gain or loss allocable to the beneficiaries.

Qualified 5-Year Gain Worksheet—Line 15c

Keep for your Records

1.	Enter the total of all gains reported on line 6, column (f), of Schedule D from property held more than 5 years and disposed of before May 6, 2003. Do not reduce these gains by any losses							1.
2.	Enter the total of all gains from property held more than 5 years and disposed of before May 6, 2003, from Form 4797, Part I, but only if Form 4797, line 7, column (g), is more than zero. Do not reduce these gains by any losses							2.
3.	Enter the total of all capital gains from property held more than 5 years and disposed of before May 6, 2003, from Form 4684, line 4, but only if Form 4684, line 15, is more than zero. Do not reduce these gains by any losses							3.
4.	Enter the total of all capital gains from property held more than 5 years and disposed of before May 6, 2003, from Form 6252; Form 6781, Part II; and Form 8824. Do not reduce these gains by any losses							4.
5.	Enter the total of any qualified 5-year gain reported to the estate or trust on: Form 1099-DIV, box 2c; Form 2439, box 1c; and Schedule K-1 from a partnership, S corporation, estate, or trust (do not include gains from section 1231 property; take them into account on line 2 above, but only if Form 4797, line 7, column (g), is more than zero).							5.
6.	Add lines 1 through 5							6.
7.	Enter the part, if any, of the gain on line 6 that is: Attributable to 28% rate gain or Included on line 6, 10, 11, or 12 of the Unrecaptured Section 1250 Gain Worksheet on page 34.							7.
8.	Qualified 5-year gain. Subtract line 7 from line 6. Enter the result here and in the appropriate columns of Schedule D, line 15c							8.

Qualified 5-year gain is long-term capital gain (other than 28% rate gain or gain on lines 6, 10, 11, and 12 of the Unrecaptured Section 1250 Gain Worksheet) from the sale or other disposition of property before May 6, 2003, that was held more than 5 years. Qualified 5-year gain is taxed at 8% to the extent the gain would otherwise be taxed at 10%. To figure qualified 5-year gain, complete the worksheet on page 33 if any of the following apply:

Complete the worksheet on this page if any of the following apply.

28% Rate Gain Worksheet—Line 15e

Keep for your Records

1.	Enter the total of all collectibles gain or (loss) from items reported on line 6, column (f), of Schedule D							1.
2.	Enter as a positive number the amount of any section 1202 exclusion reported on line 6, column (f), of Schedule D							2.
3.	Enter the total of all collectibles gain or (loss) from Form 4684, line 4 (but only if Form 4684, line 15, is more than zero); Form 6252; Form 6781, Part II; and Form 8824							3.
4.	Enter the total of any collectibles gain reported to the estate or trust on: Form 1099-DIV, box 2f; Form 2439, box 1f; and Schedule K-1 from a partnership, S corporation, estate, or trust.							4.
5.	Enter the estate's or trust's long-term capital loss carryovers from Schedule D, line 11, and from line 13c of Schedule K-1 (Form 1041) from another estate or trust							5.	()
6.	If Schedule D, line 5b, is a (loss), enter that (loss) here. Otherwise, enter -0-							6.	()
7.	Combine lines 1 through 6. If zero or less, enter -0-. If more than zero, also enter this amount in the appropriate columns of Schedule D, line 15e							7.

Complete the 28% Rate Gain Worksheet if lines 15a and 16a for column (3) are both greater than zero and at least one of the following apply:

A collectibles gain or loss is any long-term gain or deductible long-term loss from the sale or exchange of a collectible that is a capital asset.

Collectibles includes works of art, rugs, antiques, metals (such as gold, silver, and platinum bullion), gems, stamps, coins, alcoholic beverages, and certain other tangible property.

Also include gain (but not loss) from the sale or exchange of an interest in a partnership, S corporation, or trust held for more than 1 year and attributable to unrealized appreciation of collectibles. For details, see Regulations section 1.1(h)-1. Also attach the statement required under Regulations section 1.1(h)-1(e).

If the estate or trust received capital gains or qualified dividends that were derived from income in respect of a decedent, you must reduce the amount on line 19 by the portion of the estate tax deduction claimed on Form 1041, page 1, line 19, that is attributable to the amount on Schedule D, line 19.

If the estate or trust files Form 4952, Investment Interest Expense Deduction, and the amount on line 4g is greater than the amount on line 4e of that form, use the worksheet below to figure the amount to enter on Schedule D, lines 28 and 40. Otherwise, enter on those lines the sum of lines 16b and 20 of Schedule D (unless you are skipping the line).

If the tax using the maximum capital gains rates is less than the regular tax, enter the amount from line 50 on line 1a of Schedule G, Form 1041.

If you completed the Schedule D Tax Worksheet instead of Part V of Schedule D, be sure to enter the amount from line 51 of the worksheet on line 1a of Schedule G, Form 1041.

Enter the amount from Schedule B of Form 1041, line 10, for 2003. This is the amount properly paid, credited, or required to be distributed other than the amount of income for the current tax year required to be distributed currently.

Enter the amount from Schedule B of Form 1041, line 7, for 2003. This is the amount of distributable net income (DNI) for the current tax year determined under section 643(a).

Enter the amount from Schedule B of Form 1041, line 9, for 2003. This is the amount of income for the current tax year required to be distributed currently.

If line 11, Schedule B of Form 1041 is more than line 8, Schedule B of Form 1041, complete the rest of Schedule J and file it with Form 1041, unless the trust has no previously accumulated income.

Generally, amounts accumulated before a beneficiary reaches age 21 may be excluded by the beneficiary. See sections 665 and 667(c) for exceptions relating to multiple trusts. The trustee reports to the IRS the total amount of the accumulation distribution before any reduction for income accumulated before the beneficiary reaches age 21. If the multiple trust rules do not apply, the beneficiary claims the exclusion when filing Form 4970, Tax on Accumulation Distribution of Trusts, as you may not be aware that the beneficiary may be a beneficiary of other trusts with other trustees.

For examples of accumulation distributions that include payments from one trust to another trust, and amounts distributed for a dependent's support, see Regulations section 1.665(b)-1A(b).

Enter the applicable amounts as follows:

For information about throwback years, see the instructions for line 13. For purposes of line 6, in figuring the DNI of the trust for a throwback year, subtract any estate tax deduction for income in respect of a decedent if the income is includible in figuring the DNI of the trust for that year.

Enter the applicable amounts as follows:

Enter the amount of prior accumulation distributions thrown back to the throwback years. Do not enter distributions excluded under section 663(a)(1) for gifts, bequests, etc.

Allocate the amount on line 5 that is an accumulation distribution to the earliest applicable year first, but do not allocate more than the amount on line 12 for any throwback year. An accumulation distribution is thrown back first to the earliest preceding tax year in which there is undistributed net income (UNI). Then, it is thrown back beginning with the next earliest year to any remaining preceding tax years of the trust. The portion of the accumulation distribution allocated to the earliest preceding tax year is the amount of the UNI for that year. The portion of the accumulation distribution allocated to any remaining preceding tax year is the amount by which the accumulation distribution is larger than the total of the UNI for all earlier preceding tax years.

A tax year of a trust during which the trust was a simple trust for the entire year is not a preceding tax year unless (a) during that year the trust received outside income or (b) the trustee did not distribute all of the trust's income that was required to be distributed currently for that year. In this case, UNI for that year must not be more than the greater of the outside income or income not distributed during that year.

The term “outside income” means amounts that are included in the DNI of the trust for that year but that are not “income” of the trust as defined in Regulations section 1.643(b)-1. Some examples of outside income are: (a) income taxable to the trust under section 691; (b) unrealized accounts receivable that were assigned to the trust; and (c) distributions from another trust that include the DNI or UNI of the other trust.

For each throwback year, divide line 15 by line 6 and multiply the result by the following:

Enter the applicable amounts as follows:

For each throwback year, enter the smaller of the capital gain from the two lines indicated. If there is a capital loss or a zero on either or both of the two lines indicated, enter zero on line 19.

Enter the applicable amounts as follows:

Enter the applicable amounts as follows:

Enter the applicable amounts as follows:

If there is a loss on any of the following lines, enter zero on line 27 for the applicable throwback year. Otherwise, enter the applicable amounts as follows:

Enter the applicable amounts as follows:

The fiduciary (or one of the joint fiduciaries) must file Schedule K-1. A copy of each beneficiary's Schedule K-1 is attached to the Form 1041 filed with the IRS and each beneficiary is given a copy of his or her respective Schedule K-1. One copy of each Schedule K-1 must be retained for the fiduciary's records.

As a payer of income, you are required under section 6109 to request and provide a proper identifying number for each recipient of income. Enter the beneficiary's number on the respective Schedule K-1 when you file Form 1041. Individuals and business recipients are responsible for giving you their TIN upon request. You may use Form W-9, Request for Taxpayer Identification Number and Certification, to request the beneficiary's identifying number.

If the estate or trust is a tax shelter, is involved in a tax shelter, or is considered to be the organizer of a tax shelter, there are reporting requirements under section 6111 for both the fiduciaries and the beneficiaries.

See Form 8264, Application for Registration of a Tax Shelter, and Form 8271, Investor Reporting of Tax Shelter Registration Number, and their related instructions for information regarding the fiduciary's reporting requirements.

You do not need prior IRS approval for a substitute Schedule K-1 (Form 1041) that follows the specifications for filing substitute Schedules K-1 in Pub. 1167, General Rules and Specifications for Substitute Forms and Schedules, or is an exact copy of an IRS Schedule K-1. You must request IRS approval to use other substitute Schedules K-1. To request approval,
write to:

The beneficiary's income from the estate or trust must be included in the beneficiary's tax year during which the tax year of the estate or trust ends. See Pub. 559 for more information, including the effect of the death of a beneficiary during the tax year of the estate or trust.

Enter the beneficiary's share of the taxable interest income minus allocable deductions.

Enter the beneficiary's share of ordinary dividends minus allocable deductions.

Enter the beneficiary's share of the net short-term capital gain from line 14a, column (1), Schedule D (Form 1041), minus allocable deductions. Do not enter a loss on line 3a. If, for the final year of the estate or trust, there is a capital loss carryover, enter on line 13b the beneficiary's share of short-term capital loss carryover. However, if the beneficiary is a corporation, enter on line 13b the beneficiary's share of all short- and long-term capital loss carryovers as a single item. See section 642(h) and related regulations for more information.

If you entered an amount on line 3a (above), enter the beneficiary's share of line 14b(1), if any, from Schedule D minus any allocable deductions used on line 3a (above).

Enter the beneficiary's share of the net long-term capital gain from lines 15a through 15e, column (1), Schedule D (Form 1041) minus allocable deductions.

Do not enter a loss on lines 4a through 4e. If, for the final year of the estate or trust, there is a capital loss carryover, enter on line 13c the beneficiary's share of the long-term capital loss carryover. (If the beneficiary is a corporation, see the instructions for line 3a.) See section 642(h) and related regulations for more information.

Gains or losses from the complete or partial disposition of a rental, rental real estate, or trade or business activity that is a passive activity, must be shown on an attachment to Schedule K-1.

Enter the beneficiary's share of annuities, royalties, or any other income, minus allocable deductions (other than directly apportionable deductions), that is not subject to any passive activity loss limitation rules at the beneficiary level. Use line 6a to report income items subject to the passive activity rules at the beneficiary's level.

Enter the beneficiary's share of the depreciation deductions attributable to each activity reported on lines 5a and 6a. See the instructions on page 15 for a discussion of how the depreciation deduction is apportioned between the beneficiaries and the estate or trust. Report any AMT adjustment or tax preference item attributable to depreciation separately on line 12a.

Enter the beneficiary's share of the depletion deduction under section 611 attributable to each activity reported on lines 5a and 6a. See the instructions on page 15 for a discussion of how the depletion deduction is apportioned between the beneficiaries and the estate or trust. Report any tax preference item attributable to depletion separately on line 12b.

Itemize the beneficiary's share of the amortization deductions attributable to each activity reported on lines 5a and 6a. Apportion the amortization deductions between the estate or trust and the beneficiaries in the same way that the depreciation and depletion deductions are divided. Report any AMT adjustment attributable to amortization separately on line 12c.

Enter the beneficiary's share of trade or business, rental real estate, and other rental income, minus allocable deductions (other than directly apportionable deductions). To assist the beneficiary in figuring any applicable passive activity loss limitations, also attach a separate schedule showing the beneficiary's share of income derived from each trade or business, rental real estate, and other rental activity.

The limitations on passive activity losses and credits under section 469 apply to estates and trusts. Estates and trusts that distribute income to beneficiaries are allowed to apportion depreciation, depletion, and amortization deductions to the beneficiaries. These deductions are referred to as “directly apportionable deductions.”

Rules for treating a beneficiary's income and directly apportionable deductions from an estate or trust and other rules for applying the passive loss and credit limitations to beneficiaries of estates and trusts have not yet been issued.

Any directly apportionable deduction, such as depreciation, is treated by the beneficiary as having been incurred in the same activity as incurred by the estate or trust. However, the character of such deduction may be determined as if the beneficiary incurred the deduction directly.

To assist the beneficiary in figuring any applicable passive activity loss limitations, also attach a separate schedule showing the beneficiary's share of directly apportionable deductions derived from each trade or business, rental real estate, and other rental activity.

Enter the beneficiary's share of the income distribution deduction figured on a minimum tax basis from line 44 of Schedule I.

Enter the beneficiary's share of the income distribution deduction figured on line 15 of Schedule B. This amount should equal the sum of lines 1, 2b, 3a, 4a, 5a, and 6a.

If the distribution deduction consists of any income in respect of a decedent, and the estate or trust was allowed a deduction under section 691(c) for the estate tax paid attributable to such income (see the line 19 instructions on page 18), then the beneficiary is allowed an estate tax deduction in proportion to his or her share of the distribution that consists of such income. For an example of the computation, see Regulations section 1.691(c)-2. Figure the computation on a separate sheet and attach it to the return.

List on a separate sheet the beneficiary's share of the applicable foreign taxes paid or accrued and the various foreign source figures needed to figure the beneficiary's foreign tax credit. See Pub. 514 and section 901(b)(5) for special rules about foreign taxes.

Enter any adjustments or tax preference items attributable to depreciation, depletion, or amortization that were allocated to the beneficiary. For property placed in service before 1987, report separately the accelerated depreciation of real and leased personal property.

Enter the beneficiary's share of the adjustment for minimum tax purposes from Schedule K-1, line 9, that is attributable to exclusion items (Schedule I, lines 2 through 6 and 8).

If this is the final return of the estate or trust, and there are excess deductions on termination (see the instructions for line 22 on page 17), enter the beneficiary's share of the excess deductions on line 13a. Figure the deductions on a separate sheet and attach it to the return.

Excess deductions on termination occur only during the last tax year of the trust or decedent's estate when the total deductions (excluding the charitable deduction and exemption) are greater than the gross income during that tax year.

Generally, a deduction based on an NOL carryover is not available to a beneficiary as an excess deduction. However, if the last tax year of the estate or trust is also the last year in which an NOL carryover may be taken (see section 172(b)), the NOL carryover is considered an excess deduction on the termination of the estate or trust to the extent it is not absorbed by the estate or trust during its final tax year. For more information, see Regulations section 1.642(h)-4 for a discussion of the allocation of the carryover among the beneficiaries.

Only the beneficiary of an estate or trust that succeeds to its property is allowed to deduct that entity's excess deductions on termination. A beneficiary who does not have enough income in that year to absorb the entire deduction may not carry the balance over to any succeeding year. An individual beneficiary must be able to itemize deductions in order to claim the excess deductions in determining taxable income.

Upon termination of the trust or decedent's estate, the beneficiary succeeding to the property is allowed as a deduction any unused capital loss carryover under section 1212. If the estate or trust incurs capital losses in the final year, use the Capital Loss Carryover Worksheet on page 36 to figure the amount of capital loss carryover to be allocated to the beneficiary.

Upon termination of a trust or decedent's estate, a beneficiary succeeding to its property is allowed to deduct any unused NOL (and any ATNOL) carryover for regular and AMT purposes if the carryover would be allowable to the estate or trust in a later tax year but for the termination. Enter on lines 13d and 13e the unused carryover amounts.

Itemize on line 14, or on a separate sheet if more space is needed, the beneficiary's tax information not entered elsewhere on Schedule K-1. This includes any tax withheld on distributions to foreign persons. It also includes the allocable share, if any, of: