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Major Changes to the 2007 Instructions for Form 1041

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Major Changes to the 2007 Instructions for Form 1041 Userid: SD_PSWJB DTD INSTR04 Leadpct: 0% Pt. size: 9.5 ❏ Draft ❏ Ok to Print PAGER/SGML Fileid: D:\Users\pswjb\documents\F1041 -- 2007\I1041v10292007.sgm (Init. & date) Page 1 of 52 Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-117:41 - 29-OCT-2007 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. Department of the Treasury 2007 Internal Revenue Service Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1 U.S. Income Tax Return for Estates and Trusts Section references are to the Internal Contents Page • A section 664 charitable reminder Revenue Code unless otherwise noted. G. Section 645 Election ..........16 trust (CRT) no longer files Form 1041 if Contents Page Income ......................16 the CRT has any unrelated business What’s New ....................1 Deductions ...................17 taxable income. Instead, the CRT files Photographs of Missing Tax and Payments .............22 Form 4720, Return of Certain Excise Children .....................1 Schedule A—Charitable Taxes Under Chapters 41 and 42 of the Internal Revenue Code if the CRT has Unresolved Tax Issues ...........1 Deduction ..................23 any unrelated business taxable income. How To Get Forms and Schedule B—Income Publications ..................2 Distribution Deduction .........24 General Instructions ............2 Schedule G—Tax Reminder Purpose of Form ................2 Computation ................26 Widely held fixed investment trusts Income Taxation of Trusts and Other Information ..............28 (WHFITs) are not required to file Form Decedents’ Estates ............2 Schedule I—Alternative 1041 after December 31, 2006. A 2006 Abusive Trust Arrangements . .....2 Minimum Tax ................28 Form 1041 filed for a WHFIT should Definitions .....................3 Schedule D (Form 1041)— have indicated that it was a final return. Who Must File ..................3 Capital Gains and Losses . ....36 Instead of filing Forms 1041, WHFITs Special Filing Instructions for must now report under Regulations Schedule J (Form 1041)— section 1.671–5. However, generally Grantor Type Trusts, Pooled Accumulation Distribution for Income Funds, and Electing penalties will not be imposed for failure Certain Complex Trusts ........44 to comply with the WHFIT reporting Small Business Trusts ..........6 Schedule K-1 (Form 1041)— Electronic Filing .................8 rules for 2007. If a WHFIT does file a Beneficiary’s Share of 2007 Form 1041, instead of following When To File ..................8 Income, Deductions, Credits, the regulations, be sure to: Period Covered .................8 etc. .......................46 • Write “BOUGHT” at the top of page 1 Who Must Sign .................9 Index .......................51 followed by the purchase date if a Accounting Methods .............9 Where To File .................52 pooled mortgage account was Accounting Periods ..............9 purchased during the year and you still Rounding Off to Whole Dollars .....9 have the pool at the end of the year. Estimated Tax ..................9 What’s New • Write “SOLD” at the top of page 1 Interest and Penalties ...........10 • For tax years beginning in 2007, the followed by the sale’s date if a pool was Other Forms That May Be requirement to file a return for a sold during the year including a pool Required ...................10 bankruptcy estate applies only if gross that was purchased during the year. Additional Information ...........12 income is at least $8,750. Assembly and Attachments . ....12 • For tax years beginning in 2007, Photographs of Missing Of Special Interest to electing small business trusts can Bankruptcy Trustees and deduct interest expense on Children Debtors-in-Possession .........12 indebtedness incurred to acquire stock The Internal Revenue Service is a in an S corporation. Specific Instructions ...........14 • proud partner with the National Center Name of Estate or Trust ..........14 For 2007, qualified disability trusts for Missing and Exploited Children. Name and Title of Fiduciary . ....14 can claim an exemption of up to Photographs of missing children Address .....................14 $3,400. A trust with modified adjusted selected by the Center may appear in gross income above $156,400 loses A. Type of Entity ...............14 instructions on pages that would part of the exemption deduction. See otherwise be blank. You can help bring B. Number of Schedules K-1 the instructions for line 20 on page 22 Attached ...................15 these children home by looking at the for more details. In addition, the photographs and calling C. Employer Identification reduction of the phaseout of the Number ....................15 1-800-THE-LOST (1-800-843-5678) if exemption for the qualified disability you recognize a child. D. Date Entity Created ...........15 trusts remains at 2/3 for 2007. E. Nonexempt Charitable and • Include farm rental income and Split-Interest Trusts ...........15 expenses based on crops or livestock Unresolved Tax Issues F. Initial Return, Amended produced by a tenant on line 5 and not If you have attempted to deal with an Return, Final Return; or on line 6 of Form 1041. Report the IRS problem unsuccessfully, you Change in Fiduciary’s Name income and expenses on Part I of should contact the Taxpayer Advocate. or Address ..................16 Schedule E (Form 1040). The Taxpayer Advocate independently Cat. No. 11372D Page 2 of 52 Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1 17:41 - 29-OCT-2007 The type and rule above prints on all proofs including departmental reproduction proofs. MUST be removed before printing. represents the estate’s or trust’s • Search publications online by topic or decedent’s estate comes into existence interests and concerns within the IRS keyword; at the time of death of an individual. A by protecting its rights and resolving • View Internal Revenue Bulletins trust may be created during an problems that have not been fixed (IRBs) published in the last few years; individual’s life (inter vivos) or at the through normal channels. and time of his or her death under a will • While Taxpayer Advocates cannot Sign up to receive local and national (testamentary). If the trust instrument change the tax law or make a technical tax news by email. contains certain provisions, then the tax decision, they can clear up person creating the trust (the grantor) is problems that resulted from previous IRS Tax Products CD treated as the owner of the trust’s contacts and ensure that the estate’s or You can order Publication 1796, IRS assets. Such a trust is a grantor type trust’s case is given a complete and Tax Products CD, and get: trust. See page 6 for special rules for impartial review. • Current-year forms, instructions, and grantor trusts. publications. The estate’s or trust’s assigned • Prior-year forms, instructions, and A trust or decedent’s estate figures personal advocate will listen to its point publications. its gross income in much the same of view and will work with the estate or • Bonus: Historical Tax Products manner as an individual. Most trust to address its concerns. The DVD—Ships with the final release. deductions and credits allowed to estate or trust can expect the advocate • Tax Map: an electronic research tool individuals are also allowed to estates to provide: and trusts. However, there is one major • and finding aid. A “fresh look” at a new or ongoing • Tax Law frequently asked questions distinction. A trust or decedent’s estate problem, (FAQs). is allowed an income distribution • Timely acknowledgment, deduction for distributions to • • Tax Topics from the IRS telephone The name and phone number of the response system. beneficiaries. To figure this deduction, individual assigned to its case, the fiduciary must complete Schedule • • Fill-in, print, and save features for Updates on progress, most tax forms. B. The income distribution deduction • Timeframes for action, determines the amount of any • • Internal Revenue Bulletins. Speedy resolution, and • Toll-free and email technical support. distributions taxed to the beneficiaries. • Courteous service. The CD is released twice during the For this reason, a trust or decedent’s When contacting the Taxpayer year. The first release will ship the estate sometimes is referred to as a Advocate, you should provide the beginning of January and the final “pass-through” entity. The beneficiary, following information. release will ship the beginning of and not the trust or decedent’s estate, • The estate’s or trust’s name, March. Buy the CD from National pays income tax on his or her address, and employer identification Technical Information Service at distributive share of income. Schedule number. www.irs.gov/cdorders for $35 (no K-1 (Form 1041) is used to notify the • The name and telephone number of handling fee) or call 1-877-CDFORMS beneficiaries of the amounts to be an authorized contact person and the (1-877-233-6767) toll-free to buy the included on their income tax returns. hours he or she can be reached. CD for $35 (plus a $5 handling fee). • The type of tax return and year(s) Before preparing Form 1041, the involved. By Phone and in Person fiduciary must figure the accounting • A detailed description of the problem. income of the estate or trust under the You can order forms and publications • Previous attempts to solve the will or trust instrument and applicable by calling 1-800-TAX-FORM problem and the office that had been local law to determine
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