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CA K-1 (541)

These are probably a few questions with an obvious answer to the professionals here, but I can't find an answer on the form or in the instructions.

I am trying to validate a return prepared by a paid preparer that contains multiple obvious errors (such as labeling all of the Capital Gains as Long Term when they are actually Short Term and not allocating/apportioning income and deductions outside of CA for nonresident trustees and beneficiaries of two trusts), and this is just one additional area I am looking at.

In the Identifying Data section at the start of the CA 541 K-1 form, does the "Name of Estate or Trust" field refer to the source of the K-1 or to the recipient? Since it is under "Beneficiaries, I would assume the recipient, but am uncertain because either might be appropriate.

In the Identifying Data section at the start of the form, does the Fiduciary Name field refer to the fiduciary of the originator of the K-1 or the recipient? My guess is recipient because the name of the originator wouldn't seem to be of much value, particularly when trying to establish residency, but might be of use if questions arose.

In the Identifying Data section at the start of the form, does the checkbox for whether or not refer to the originator or to the recipient? Again, I assume recipient because the originator has no bearing on allocation/apportionment, and I see no other use for the information.

Regards, Dan

Reply to
Dan Schumacher
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The estate or trust filing the return.

The fiduciary (or fiduciaries) of the estate or trust filing the return.

Which checkbox? Checkbox C refers to the beneficiary; D to the beneficiary (although the filer may not know), and E to the fiduciary (not the estate or trust).

I hope your former tax preparer has malpractice insurance....

-- Arthur L. Rubin CRTP, AFSP, in Brea, CA

Reply to
Arthur Rubin

Arthur,

Thank you very much for your prompt response. I apparently dropped out part of my question. I specifically was asking whether Block E, referring to residency status, applied to the fiduciary of the entity issuing the K-1, or the entity receiving it. Would you comment on that?

BTW, the preparer had a rather interesting reason for not filling out Schedule G on the 541 to allocate/apportion income and deductions not attributable to CA. He said it wouldn't change our taxes. While probably true, I like to have thinks accurately portrayed. If he was to remove all of the income (interest, dividends, etc.) attributable to my and my sister's state of residency, then there would be nothing in the Income section of the 541 because the CA Source Rental Property had a net loss, which means zero for return purposes. I am not sure whether that would have negated the need to file in CA.

I haven't asked him about the Capital Gains issue yet because I am still trying to validate entries.

Regards, Dan

Reply to
Dan Schumacher

I wonder if you understand what you think you understand. For instance, there is no distinction between short-term and long-term capital gains on a CA return. Second, there is no need to allocate income and expenses if they are all CA-source (as rental income would be). The purpose of Schedule G is to get more income into the CA tax bucket, not less. It allocates a portion of the non-CA-source income to CA based on the residency status of the trustees and beneficiaries. If it was all CA-source to begin with, nothing you could enter in Schedule G would change that.

Ira Smilovitz

Reply to
ira smilovitz

Ira,

I see where the confusion arose. The mischaracterization of the Capital Gains was on Schedule D of the Federal 1041 form, not on the CA Schedule D. I probably should have explicitly stated that rather than saying Schedule D generically.

As I said, the interest, dividends, etc. all need to be allocated because the trustees and beneficiaries of the two trusts are all CA nonresidents. The only items attributable to CA are those for the rental property, and that had a net loss. So dividends, interest, IRA distributions, etc. do need to be allocated/apportioned away from CA rather than been shown as CA source income/deductions..

Regards, Dan

Reply to
Dan Schumacher

The full picture is very different from the one you half-presented in your original post. I now agree with your analysis.

Ira Smilovitz

Reply to
ira smilovitz

Schedule K-1 block E is for the fiduciaries (trustees for a trust).

Some states have full year, part year (PY), and non-resident (NR) returns; California does not. IF no trustees nor beneficiaries are resident in California, 541 section G allocates NO non-California sourced income to either the beneficiaries nor the trust; i.e., columns columns C and E of 541 Schedule G Part II are $0, and 541 Schedule K-1 column (e) has only the California-sourced numbers.) However, a return has to be filed if gross income (not just gross California income) exceeds $10,000 or net income (not just net California income) exceeds $1,000, even if the California numbers are a loss.

I'd have to check whether the trust has a California NOL, even if Federal income is positive. I _think_ that could happen. It only makes a difference if some beneficiary has CA-sourced income in a future year....

An individual with only negative California income (that is, a non-resident with no California-sourced income other than negative numbers from a 541 K-1) need not file in California.

-- Arthur L. Rubin CRTP, AFSP, Brea, CA

Reply to
Arthur Rubin

Arthur,

I know about the $10,000 Gross income filing requirement, and that is going to get us because the two trusts with no resident trustees and no resident beneficiaries both received a $12,000 distribution from a decedent's IRA. So Schedule G will show -0- for every line in Column F, and on lines 1-9 of the Income Section on page 1 of the 541, because Column F transfers to those lines.

Interesting, because Schedule G, Column A is the only place where Gross Income will show up.

Again, thanks for you assistance in helping me get through this first tax year as a co-trustee for one parent admin trust and trustee or co-trustee for three other trusts.

Given that I am up to 15 or 16 errors on the trust tax returns, I suspect that I will be looking for another accountant to handle these returns. I have been doing my personal return for over 50 years, and now that their is no more mortgage or rental property to deal with, I am comfortable with doing that by myself; it generally takes less than 30 minutes..

Regards, Dan

Reply to
Dan Schumacher

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