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Need to file trust return?

I am looking at the requirements for filing a 1041 return for a 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.
This year (2010) Wisdom Tree killed one of their funds, and the trust I am looking at has a loss which will need to carry forward as it's far greater than the small amount of dividend it received. I've handled the return for 12 years now, and it's always been positive, a bit of interest/dividend, maybe cap gain, all flowing to the beneficiary via K-1.
Should I complete the return along with state to document the carry forward and submit? Or just store them for next year?
Joe
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Reply to
JoeTaxpayer
My sense is that filing a non-required return, simply to document a carry-forward amount, is nice but not necessary. In an audit, the IRS can ask for (and dis-allow if not provided) original records documenting the carry-forward amount -- filing the return does not start a statute of limitations for carry-forwards. (Not sure if this applies to all carry-forwards, but an IRS presenter has stated for sure it applies to NOL's. Not authority, but an indication of the IRS position).
I have helped clients file non-required returns for capital loss carryovers after I explained the choice to them -- and it is their choice.
-Mark B.
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Mark Bole
makbo at pacbell dot net
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Mark Bole
For a grantor trust that distributes all income to the beneficiary, how is gross income calculated? Does the above requirement for filing 1041 imply that a grantor trust that has $10K of income - and distributes $10K on schedule K-1 to the beneficiary - still has to file a 1041?
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W
Reply to
W
Legally you may not be required to actually file the return. Logistically, I'm not sure how if you don't prepare the return your software will carryforward anything.
Additionally, if you've issued K-1s in the past to the recipient, why would you NOT pass this loss onto the K-1 recipient now? And as an aside, since you have to do all the work anyway - if for no other reason than to get carryforward info - why would you not charge for the work AND if you're charging for the work, why would you not file return?
I'm also assuming there are other items/issues in the 1041, otherwise the killing of the ONE fund would result in the dissolution of the trust - if the only asset it held was a fund that was liquidated at a loss how/why would the trust live on? And consider that the statute of limitations does NOT start until a signed return is filed, so filing now starts the clock ticking while not filing gives the IRS unfettered access forever.
If it were me, I'd file the returns, Gene E. Utterback, EA, RFC, ABA
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Gene E. Utterback, EA, RFC, AB

is
imply
Grantor trusts don't file 1041s. Their income and expenses are reported on the grantor's 1040.
See the TRs under section 671-679.
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Reply to
D. Stussy

D. Stussy - I seem to have gotten lost somewhere between A and Z. The OP was about a trust that has been filing a return for 12 years and the word Grantor isn't mentioned anywhere. Then I saw your response to W saying Grantor trusts don't file returns, which is absolutely correct. Am I correct in assuming that W drew the topic a bit away from where it started and your response was directed at him OR have I missed something and you're responding to the OP?
Gene E. Utterback, EA, RFC, ABA
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Gene E. Utterback, EA, RFC, AB

trust.
how
reported
started
you're
W's reply stated "grantor trust" in it. I was addressing that.
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Reply to
D. Stussy
The trust contained other assets. If the one fund were it, it wouldnow contain cash to be invested, but the trust lives on.
As I described in the original post, for the first 12 years, the trust has a positive return, I mean it had realized gains that were distributable to the beneficiary. In this case, for the first time, it has a loss. I understood that the trust cannot distribute a loss via K-1, but even if it could, the beneficiary is a minor and has no need for such a loss. So by carrying forward, it will offset any 2011 gains, if any.
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JoeTaxpayer

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