Here's another one I hope someone has some input from.
An irrevocable trust has taxable income, which is recognizes and is
included on a 1041. All income is distributed to the beneficiaries so
the trust gets a deduction in the amount of the distribution and ends
up with no taxable income. Ok so far?
But take a slightly different situation. The trust does not distribute
the income in the current year, but retains it. Then it distributes
the income the following year. Assuming that the money became part of
the principal, is it deducted from the trust's income the following
year and included in the beneficiary's? Or is it treated as a gift or
distribution of principal?
To confuse this a bit further, what happens if the trust recognizes the
trust income, distributes the income but does not take the deduction in
the current year?
Thanks for your insight.
- posted 12 years ago