Income Taxation of Fiduciaries and Beneficiaries (2011)

Income Taxation of Fiduciaries and Beneficiaries provides step-by-step guidance on the taxation of fiduciary income. This comprehensive guide for practitioners advising fiduciaries and beneficiaries in federal income tax matters covers the broad range of complex issues from charitable remainder trusts to nexus rules and their effect. Providing expert practical advice, Income Taxation of Fiduciaries and Beneficiaries helps the practitioner obtain the most advantageous outcomes for his/her fiduciary and beneficiary clients. Key feature: 35 case studies with filled-in forms 1041 and accompanying documents.

Highlights of the 2011 Edition include:

• Hiring Incentives to Restore Employment (HIRE) Act of 2010: foreign trust rules tightened concerning:
  • Who is a U.S. beneficiary of a foreign trust;
  • Expansion of information reporting requirements;
  • Loans of trust assets considered to be distributions;
  • Penalty applications and rates/amounts for inadequate return and /or information reporting.
• Increased use of “decanting” trusts—distribution of part or all of trust assets to another trust(s)—income tax treatment is stated
  • The transfer does not bring distribution and related subchapter J rules into effect;
  • Certain aspects, such as how to treat estimated payments by the original trust, are uncertain.
• CRTs
  • Not qualified if remainder interest guarantees annuity payments to individual donor;
  • Return of excess distribution results in trust qualification continuing;
  • Reformation for scrivener’s error accepted;
  • Rescission ab initio, when 10% test was not met at creation and trust is bankrupt.
• How to determine amount and/or allocation of DNI in special circumstances
  • Switching status [conversion] from grantor to nongrantor and vice versa does not generate income;
  • Sequential beneficial interests are not separate shares;
  • Tax basis and depreciation calculation involving contributed assets;
  • DNI is determined on full tax year [usually calendar] basis—no interim cutoffs;
  • Determining DNI in year of death of a beneficiary;
  • Simple trust status may be turned on and off, if facts so indicate.
• The IRS continues to use narrow definition of what is an active activity for trust owned entity interests.
• Source of payment to charity in effecting a “look back” election in second year is irrelevant.