Instructions for Form 1041 and Schedules A, B, D, G, I, J ... · PDF file2001 Internal Revenue...

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of 40 Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1 17:30 -17-JAN-2002

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Department of the TreasuryInternal Revenue Service2001

Instructions for Form 1041and Schedules A, B, D, G, I,J, and K-1U.S. Income Tax Return for Estates and TrustsSection references are to the Internal Revenue Code unless otherwise noted.

1. Income in respect of a decedent(IRD) that would have been includible in

Contents Page Contents Page the gross income of a specified terroristChanges To Note . . . . . . . . . . . . . . . . 1 Income . . . . . . . . . . . . . . . . . . . . . . 12 victim for the tax year in which fell thePhotographs of Missing Children . . . . 2 Deductions . . . . . . . . . . . . . . . . . . . 13 date of his or her death (determined as if

he or she had survived). A specifiedUnresolved Tax Issues . . . . . . . . . . . . 2 Tax and Payments . . . . . . . . . . . . . . 17terrorist victim is any decedent who diedHow To Get Forms and Schedule A—Charitablefrom (a) wounds or injury incurred as aPublications . . . . . . . . . . . . . . . . . . 2 Deduction . . . . . . . . . . . . . . . . . . . 17result of the terrorist attacks against theGeneral Instructions . . . . . . . . . . . . . 2 Schedule B—IncomeUnited States on April 19, 1995, orDistribution Deduction . . . . . . . . . . 18Purpose of Form . . . . . . . . . . . . . . . . 2September 11, 2001, or (b) illnessSchedule G—Tax Computation . . . 20Income Taxation of Trusts and incurred as a result of an anthrax attackDecedents’ Estates . . . . . . . . . . . . . 2 Other Information . . . . . . . . . . . . . . . 21 after September 10, 2001, and before

Abusive Trust Arrangements . . . . . . . . 3 Schedule I—Alternative January 1, 2002. The exclusion does notMinimum Tax . . . . . . . . . . . . . . . . 21Definitions . . . . . . . . . . . . . . . . . . . . . 3 apply to any deferred compensation that

Schedule D (Form 1041)—Who Must File . . . . . . . . . . . . . . . . . . 3 would have been payable after death ifCapital Gains and Losses . . . . . . . 27Special Filing Instructions for the employee had died from any other

Schedule J (Form 1041)—Grantor Type Trusts, Pooled cause or to any amount payable in suchAccumulation Distribution forIncome Funds, and Electing tax year that would not have beenCertain Complex Trusts . . . . . . . . . 33Small Business Trusts . . . . . . . . . . . 4 payable but for an action taken after

September 11, 2001. To exclude eligibleSchedule K-1 (Form 1041)—Electronic and Magnetic MediaIRD included in income in a prior tax year,Beneficiary’s Share of Income,Filing . . . . . . . . . . . . . . . . . . . . . . . 6file an amended return for the prior year.Deductions, Credits, etc. . . . . . . . . 36When To File . . . . . . . . . . . . . . . . . . . 6A refund may be claimed even if theIndex . . . . . . . . . . . . . . . . . . . . . . . . 39Period Covered . . . . . . . . . . . . . . . . . 6statute of limitations for a prior year isWhere To File . . . . . . . . . . . . . . . . . 40Who Must Sign . . . . . . . . . . . . . . . . . 7closed provided the amended return isAccounting Methods . . . . . . . . . . . . . . 7 Changes To Note filed before the close of the 1-year periodAccounting Periods . . . . . . . . . . . . . . 7 beginning on the date of the enactment of• The estate or trust may need to mail itsRounding Off to Whole Dollars . . . . . . 7 the Act. See Pub. 3920, Tax Relief forreturn to a different service center thisEstimated Tax . . . . . . . . . . . . . . . . . . 7 Victims of Terrorist Attacks, for moreyear because the IRS has changed theInterest and Penalties . . . . . . . . . . . . . 8 details.filing location for several areas. See

Other Forms That May Be 2. Benefits paid by an employerWhere To File on page 40.Required . . . . . . . . . . . . . . . . . . . . 8 (whether received in a lump sum or• For tax years beginning in 2001, the

Assembly and Attachments . . . . . . . . . 9 otherwise) in any tax year by reason ofrequirement to file a return for aAdditional Information . . . . . . . . . . . . . 9 the death of an employee who is abankruptcy estate applies only if grossOf Special Interest to Bankruptcy specified terrorist victim. Except forincome is at least $6,700.

Trustees and Debtors-in- incidental death benefits paid from a• For tax years beginning in 2002, thequalified plan exempt from tax, thePossession . . . . . . . . . . . . . . . . . . . 9 estimated tax safe harbor that is based onexclusion does not apply to amounts thatthe tax shown on the prior year tax returnSpecific Instructions . . . . . . . . . . . 10would have been payable after death ifis increased to 112% of that amount if theName of Estate or Trust . . . . . . . . . . 10the employee had died from any otheradjusted gross income on that return isName and Title of Fiduciary . . . . . . . 10cause. To exclude eligible benefits thatmore than $150,000 and less than 2/3 ofAddress . . . . . . . . . . . . . . . . . . . . . . 10were included in income in a prior taxgross income for 2001 or 2002 is fromA. Type of Entity . . . . . . . . . . . . . . . 11year, file an amended return for the priorfarming or fishing.B. Number of Schedules K-1 year. A refund may be claimed even if the• Alaska Native Settlement Trusts thatAttached . . . . . . . . . . . . . . . . . . . 11 statute of limitations for a prior year iswant to elect the special tax treatment forC. Employer Identification closed provided the amended return isthe trust and its beneficiaries provided inNumber . . . . . . . . . . . . . . . . . . . . 11 filed before the close of the 1-year periodsection 646 file new Form 1041-N, U.S.

D. Date Entity Created . . . . . . . . . . . 11 beginning on the date of the enactment ofIncome Tax Return for Electing AlaskaE. Nonexempt Charitable and the Act. See Pub. 3920 for more details.Native Settlement Trusts, to make the

Split-Interest Trusts . . . . . . . . . . . . 11 election and to report its income, tax, and 3. Income resulting from theF. Initial Return, Amended other required information. cancellation before January 1, 2002, of a

Return, Final Return; or • Under the Victims of Terrorism Tax debt of any taxpayer if the debt wasChange in Fiduciary’s Name or Relief Act of 2001 (“Act”), the following cancelled because of the death of anAddress . . . . . . . . . . . . . . . . . . . . 12 amounts are excluded from the trust’s or individual from the September 11, 2001,

G. Pooled Mortgage Account . . . . . . 12 estate’s gross income: terrorist attacks or an anthrax attack after

Cat. No. 11372D

of 40 Instructions for Form 1041 and Schedules A, B, D, G, I, J, and K-1 17:30 - 17-JAN-2002


September 10, 2001. For example, this view and will work with the estate or trust $21 (no handling fee) or callprovision would apply to an estate that to address its concerns. The estate or 1-877-CDFORMS (1-877-233-6767) tollbecame an obligor or co-obligor on the trust can expect the advocate to provide: free to buy the CD-ROM for $21 (plus adebt of a decedent who died as a result of • A “fresh look” at a new or on-going $5 handling fee).one of these attacks. problem. By Phone and in Person4. Amounts received or accrued in tax • Timely acknowledgment.

You can order forms and publications 24years ending after September 10, 2001, • The name and phone number of thehours a day, 7 days a week, by callingas disability income attributable to injuries individual assigned to its case.1-800-TAX-FORM (1-800-829-3676). Youincurred as a direct result of any (a) • Updates on progress.can also get most forms and publicationsterrorist activity directed against the • Timeframes for action.at your local IRS office.United States or any of its allies or (b) • Speedy resolution.

military action involving the U.S. Armed • Courteous service.Forces and resulting from violence or When contacting the Taxpayer General Instructionsaggression against the United States or Advocate, you should provide theany of its allies. following information:

5. Qualified disaster relief payments • The estate’s or trust’s name, address, Purpose of Formreceived or accrued in tax years ending and employer identification number. The fiduciary of a domestic decedent’safter September 10, 2001. Generally, • The name and telephone number of an estate, trust, or bankruptcy estate usessuch payments include payments authorized contact person and the hours Form 1041 to report:received as a result of a qualified disaster he or she can be reached. • The income, deductions, gains, losses,paid for the benefit of an individual (a) to • The type of tax return and year(s) etc. of the estate or trust;cover personal, family, living, or funeral involved. • The income that is either accumulatedexpenses, (b) for the repair or • A detailed description of the problem. or held for future distribution or distributedrehabilitation of a personal residence, (c) • Previous attempts to solve the problem currently to the beneficiaries;from common carriers because of the and the office that had been contacted. • Any income tax liability of the estate orphysical injuries or death of an individual, • A description of the hardship the estate trust; andor (d) from a Federal, state, or local or trust is facing (if applicable). • Employment taxes on wages paid togovernment or agency to promote the The estate or trust may contact a household employees.general welfare. However, this exclusion Taxpayer Advocate by callingdoes not apply to the extent any expense 1-877-777-4778 (toll free). Persons who Income Taxation of Trustscompensated by such payments was also have access to TTY/TDD equipment maycompensated for by insurance or call 1-800-829-4059 and ask for Taxpayer and Decedents’ Estatesotherwise. For more details, see Advocate assistance. If the estate or trust A trust (except a grantor type trust) or asection 139. prefers, it may call, write, or fax the decedent’s estate is a separate legal

6. Benefits received from the Taxpayer Advocate office in its area. See entity for Federal tax purposes. ASeptember 11th Victim Compensation Pub. 1546, The Taxpayer Advocate decedent’s estate comes into existence atFund of 2001. Service of the IRS, for a list of addresses the time of death of an individual. A trust• The Act allows certain disability trusts and fax numbers. may be created during an individual’s lifeto claim an exemption for 2001 of up to (inter vivos) or at the time of his or her$2,900. See the instructions for line 20 How To Get Forms and death under a will (testamentary). If theon page 16 for more details. trust instrument contains certainPublications provisions, then the person creating thePhotographs of Missing trust (the grantor) is treated as the ownerPersonal Computer of the trust’s assets. Such a trust is aChildren You can access the IRS web site 24 grantor type trust. See page 4 for specialThe Internal Revenue Service is a proud hours a day, 7 days a week at rules for grantor trusts.partner with the National Center for www.irs.gov to: A trust or decedent’s estate figures itsMissing and Exploited Children. • Download forms, instructions, and gross income in much the same mannerPhotographs of missing children selected publications. as an individual. Most deductions andby the Center may appear in instructions • See answers to frequently asked tax credits allowed to individuals are alsoon pages that would otherwise be blank. questions. allowed to estates and trusts. However,You can help bring these children home • Search publications on-line by topic or there is one major distinction. A trust orby looking at the photographs and calling keyword. decedent’s estate is allowed an income1-800-THE-LOST (1-800-843-5678) if you • Send us comments or request help via distribution deduction for distributions torecognize a child. e-mail. beneficiaries. To figure this deduction, the• Sign up to receive local and national fiduciary must complete Schedule B. Thetax news by e-mail.Unresolved Tax Issues income distribution deduction determinesYou can also reach us using fileIf you have attempted to deal with an IRS the amount of any distributions taxed totransfer protocol at ftp.irs.gov.problem unsuccessfully, you should the beneficiaries.contact the Taxpayer Advocate. The For this reason, a trust or decedent’sCD-ROMTaxpayer Advocate independently estate sometimes is referred to as aOrder Pub. 1796, Federal Tax Productsrepresents the estate’s or trust’s interests “pass-through” entity. The beneficiary,on CD-ROM, and get:and concerns within the IRS by protecting and not the trust or decedent’s estate,• Current year forms, instructions, andits rights and resolving problems that pays income tax on his or her distributivepublications.have not been fixed through normal share of income. Schedule K-1 (Form• Prior year forms, instructions, andchannels. 1041) is used to notify the beneficiaries ofpublications.

While Taxpayer Advocates cannot the amounts to be included on their• Frequently requested tax forms thatchange the tax law or make a technical income tax returns.may be filled in electronically, printed outtax decision, they can clear up problems for submission, and saved for Before preparing Form 1041, thethat resulted from previous contacts and recordkeeping. fiduciary must figure the accountingensure that the estate’s or trust’s case is • The Internal Revenue Bulletin. income of the estate or trust under the willgiven a complete and impartial review. Buy the CD-ROM on the Internet at or trust instrument and applicable local

The estate’s or trust’s assigned www.irs.gov/cdorders from the National law to determine the amount, if any, ofpersonal advocate will listen to its point of Technical Information Service (NTIS) for income that is required to be distributed,

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because the income distribution arrangements may be subject to civil or Deductions and credits. The followingdeduction is based, in part, on that criminal penalties in appropriate cases. deductions and credits, when paid by theamount. decedent’s estate, are allowed on FormFor more details, including the legal

1041 even though they were notprinciples that control the proper taxallowable on the decedent’s final incomeAbusive Trust treatment of these abusive trusttax return:arrangements, see Notice 97-24, 1997-1Arrangements • Business expenses deductible underC.B. 409.

Certain trust arrangements purport to section 162.reduce or eliminate Federal taxes in ways • Interest deductible under section 163.Definitionsthat are not permitted under the law. • Taxes deductible under section 164.Abusive trust arrangements typically are Beneficiary • Investment expenses described inpromoted by the promise of tax benefits section 212 (in excess of 2% of AGI).A beneficiary includes an heir, a legatee,with no meaningful change in the • Percentage depletion allowed underor a devisee.taxpayer’s control over or benefit from the section 611.taxpayer’s income or assets. The Distributable Net Income (DNI) • Foreign tax credit.promised benefits may include reduction The income distribution deduction For more information, see section 691or elimination of income subject to tax; allowable to estates and trusts for or Income in Respect of a Decedent indeductions for personal expenses paid by amounts paid, credited, or required to be Pub. 559, Survivors, Executors, andthe trust; depreciation deductions of an distributed to beneficiaries is limited to Administrators.owner’s personal residence and distributable net income (DNI). Thisfurnishings; a stepped-up basis for amount, which is figured on Schedule B, Income Required To Beproperty transferred to the trust; the line 7, is also used to determine how Distributed Currentlyreduction or elimination of much of an amount paid, credited, or

Income required to be distributedself-employment taxes; and the reduction required to be distributed to a beneficiarycurrently is income that is required underor elimination of gift and estate taxes. will be includible in his or her grossthe terms of the governing instrument andThese promised benefits are inconsistent income.applicable local law to be distributed inwith the tax rules applicable to trust

Income, Deductions, and the year it is received. The fiduciary mustarrangements.be under a duty to distribute the incomeCredits in Respect of aAbusive trust arrangements often usecurrently, even if the actual distribution isDecedenttrusts to hide the true ownership of assetsnot made until after the close of the trust’sand income or to disguise the substance Income. When completing Form 1041, tax year. See Regulations sectionof transactions. These arrangements you must take into account any items that 1.651(a)-2.frequently involve more than one trust, are income in respect of a decedent

each holding different assets of the (IRD). Fiduciarytaxpayer (e.g., the taxpayer’s business, In general, income in respect of a A fiduciary is a trustee of a trust; or anbusiness equipment, home, automobile, decedent is income that a decedent was executor, executrix, administrator,etc.). Some trusts may hold interests in entitled to receive but that was not administratrix, personal representative, orother trusts, purport to involve charities, properly includible in the decedent’s final person in possession of property of aor are foreign trusts. Funds may flow from income tax return under the decedent’s decedent’s estate.one trust to another trust by way of rental method of accounting.agreements, fees for services, purchase Note: Any reference in these instructionsIRD includes:agreements, and distributions. to “you” means the fiduciary of the estate• All accrued income of a decedent whoSome of the abusive trust or trust.reported his or her income on the cash

arrangements that have been identified method of accounting; Trustinclude unincorporated business trusts (or • Income accrued solely because of the A trust is an arrangement created eitherorganizations), equipment or service decedent’s death in the case of a by a will or by an inter vivos declarationtrusts, family residence trusts, charitable decedent who reported his or her income by which trustees take title to property fortrusts, and final trusts. In each of these on the accrual method of accounting; and the purpose of protecting or conserving ittrusts, the original owner of the assets • Income to which the decedent had a for the beneficiaries under the ordinarythat are nominally subject to the trust contingent claim at the time of his or her rules applied in chancery or probateeffectively retains the authority to cause death. courts.financial benefits of the trust to be directly Some examples of IRD of a decedentor indirectly returned or made available to who kept his or her books on the cashthe owner. For example, the trustee may method are: Who Must Filebe the promoter, or a relative or friend of • Deferred salary payments that arethe owner who simply carries out the Decedent’s Estatepayable to the decedent’s estate.directions of the owner whether or not • Uncollected interest on U.S. savings The fiduciary (or one of the jointpermitted by the terms of the trust. bonds. fiduciaries) must file Form 1041 for a

When trusts are used for legitimate • Proceeds from the completed sale of domestic estate that has:business, family, or estate planning farm produce. 1. Gross income for the tax year ofpurposes, either the trust, the beneficiary, • The portion of a lump-sum distribution $600 or more oror the transferor to the trust will pay the to the beneficiary of a decedent’s IRA that 2. A beneficiary who is a nonresidenttax on income generated by the trust equals the balance in the IRA at the time alien.property. Trusts cannot be used to of the owner’s death. This includestransform a taxpayer’s personal, living, or unrealized appreciation and income An estate is a domestic estate if it iseducational expenses into deductible accrued to that date, less the aggregate not a foreign estate. A foreign estate isitems, and will not seek to avoid tax amount of the owner’s nondeductible one the income of which, from sourcesliability by ignoring either the true contributions to the IRA. Such amounts outside the United States that is notownership of income and assets or the are included in the beneficiary’s gross effectively connected with the conduct oftrue substance of transactions. Therefore, income in the tax year that the distribution a U.S. trade or business, is not includiblethe tax results promised by the promoters is received. in gross income. If you are the fiduciary ofof abusive trust arrangements are not The IRD has the same character it a foreign estate, file Form 1040NR, U.S.allowable under the law, and the would have had if the decedent lived and Nonresident Alien Income Tax Return,participants in and promoters of these received such amount. instead of Form 1041.

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this purpose, a power does not include section 6039H information reportingTrustany power in the grantor that is treated as requirement for the trust.The fiduciary (or one of the jointheld by the grantor because it is held byfiduciaries) must file Form 1041 for a Bankruptcy Estatehis or her spouse.domestic trust taxable under section 641

The bankruptcy trustee or debtor-in-that has: Applicable date. The applicable date is possession must file Form 1041 for theeither:1. Any taxable income for the tax estate of an individual involved in• If the estate is required to file a Federalyear, bankruptcy proceedings under chapter 7estate tax return, the date that is 62. Gross income of $600 or more or 11 of title 11 of the United States Codemonths after the date of the final(regardless of taxable income), or if the estate has gross income for the taxdetermination of the Federal estate tax3. A beneficiary who is a nonresident year of $6,700 or more. See Of Specialliability oralien. Interest To Bankruptcy Trustees and• If the estate is not required to file a Debtors-in-Possession on page 9 forTwo or more trusts are treated as one Federal estate tax return, the date that is details.trust if such trusts have substantially the 2 years after the date of the decedent’ssame grantor(s) and substantially the death. Common Trust Fundssame primary beneficiary(ies) and a

Do not file Form 1041 for a common trustMaking the election. You make theprincipal purpose of such trusts isfund maintained by a bank. Instead, theelection by attaching to Form 1041 aavoidance of tax. This provision appliesfund may use Form 1065, U.S. Return ofstatement signed and dated by both anonly to that portion of the trust that isPartnership Income, for its return. Forexecutor of the estate and a trustee of theattributable to contributions to corpusmore details, see section 584 andtrust that includes the informationmade after March 1, 1984.Regulations section 1.6032-1.required by Rev. Proc. 98-13, 1998-1A trust is a domestic trust if:

C.B. 370. The original statement must be• A U.S. court is able to exercise primary Qualified Settlement Fundsattached to Form 1041 filed by the duesupervision over the administration of the The trustee of a designated or qualifieddate (including extensions) for the estatetrust (court test) and settlement fund must file Form 1120-SF,for its first tax year. If the original return• One or more U.S. persons have the U.S. Income Tax Return for Settlementwas filed on time, you may make theauthority to control all substantial Funds, rather than Form 1041.election on an amended return filed nodecisions of the trust (control test).later than 6 months after the due date ofSee Regulations section 301.7701-7the return (excluding extensions). Write Special Filing Instructionsfor more information on the court and“Filed pursuant to section 301.9100-2” atcontrol tests. for Grantor Type Trusts,the top of the amended return, and file it

Also treated as a domestic trust is a at the same address you used for the Pooled Income Funds, andtrust (other than a trust treated as wholly original return.owned by the grantor) that: Electing Small Business

If the revocable trust is required by• Was in existence on August 20, 1996, TrustsRev. Proc. 98-13 to file a Form 1041 for• Was treated as a domestic trust onthe tax year ending after the date of theAugust 19, 1996, and Grantor Type Trustsdecedent’s death, you must attach a copy• Elected to continue to be treated as aof the statement to that return. A trust is a grantor trust if the grantordomestic trust.

retains certain powers or ownershipA trust that is not a domestic trust is Also, see Notice 2001-26, 2001-13 benefits. This can also apply to only atreated as a foreign trust. If you are the I.R.B. 942. This notice allows you to use portion of a trust. See Grantor Typetrustee of a foreign trust, file Form the election and reporting procedures Trust on page 11 for details on what1040NR instead of Form 1041. Also, a found in Rev.Proc. 98-13 or the election makes a trust a grantor trust.foreign trust with a U.S. owner generally and reporting procedures in Proposedmust file Form 3520-A, Annual In general, a grantor trust is ignored forRegulations sections 1.645-1(c) andInformation Return of Foreign Trust With tax purposes and all of the income,1.645-1(d)(1). Under the proposeda U.S. Owner. deductions, etc., are treated as belongingregulations, the election is considered

If a domestic trust becomes a foreign directly to the grantor. This also applies tomade upon the filing of Form 1041 (withtrust, it is treated under section 684 as any portion of a trust that is treated as athe required election statement attached)having transferred all of its assets to a grantor trust.for the first tax year of the estate, or ifforeign trust, except to the extent a there is no personal representative, for The following instructions applygrantor or another person is treated as the first tax year of the trust filing as an only to grantor type trusts that arethe owner of the trust when the trust estate. Also, if the election is made the not using an optional filingCAUTION

!becomes a foreign trust. trust does not have to obtain an employer method.

identification number (EIN) for the trust orSpecial Rule for Certain File Form 1041 for a grantor trustfile Form 1041 for the short year. In suchRevocable Trusts unless you use an optional filing method.a situation, the trust’s income, deductions,Section 645 provides that the executor of and credits are combined with those of If the entire trust is a grantor trust, fill inan estate and the trustee of a qualified the related estate on Form 1041. only the entity portion of Form 1041. Dorevocable trust can elect to treat the trust not show any dollar amounts on the form,Alaska Native Settlement Trustsas part of the estate instead of filing a itself; show dollar amounts only on anseparate Form 1041 for the trust. The The trustee of an Alaska Native attachment to the form. Do not useelection applies to all tax years of the Settlement Trust may elect the special tax Schedule K-1 (Form 1041) as theestate ending after the date of the treatment for the trust and its attachment.decedent’s death and before the beneficiaries provided for in section 646.

If only part of the trust is treated as aapplicable date, as defined below. Once The election must be made by the duegrantor trust, report on Form 1041 onlymade, the election is irrevocable. date (including extensions) for filing thethe part of the income, deductions, etc.,Qualified revocable trusts. A qualified trust’s tax return for its first tax yearthat is taxable to the trust. The amountsrevocable trust for this purpose is any ending after June 7, 2001. Do not usethat are taxable directly to the grantor aretrust or portion of a trust that is treated Form 1041. Use Form 1041-N, U.S.shown only on an attachment to the form.under section 676 as having been owned Income Tax Return for Electing AlaskaDo not use Schedule K-1 (Form 1041) asby the decedent whose estate is making Native Settlement Trusts, to make thethe attachment.the election, because of a power in the election. Additionally, Form 1041-N is the

grantor of the trust to revoke the trust. For trust’s income tax return and satisfies the On the attachment, report:

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• The name, identifying number, and 6. A trust all of which is treated as • Explains how the grantor or otheraddress of the person(s) to whom the owned by one or more grantors or other person treated as owner of the trust takesincome is taxable; persons if at least one grantor or other those items into account when figuring• The income of the trust that is taxable person is an exempt recipient for the grantor’s or other person’s taxableto the grantor or another person under information reporting purposes, unless at income or tax; andsections 671 through 678. Report the least one grantor or other person is not an • Informs the grantor or other personincome in the same detail as it would be exempt recipient and the trustee reports treated as the owner of the trust thatreported on the grantor’s return had it without treating any of the grantors or those items must be included whenbeen received directly by the grantor; and other persons as exempt recipients. figuring taxable income and credits on his• Any deductions or credits that apply to or her income tax return. This statementthis income. Report these deductions and satisfies the requirement to give theOptional Method 1. For a trust treatedcredits in the same detail as they would recipient copies of the Forms 1099 filedas owned by one grantor or by one otherbe reported on the grantor’s return had by the trustee.person, the trustee must give all payers ofthey been received directly by the grantor. income during the tax year the name and Optional Method 3. For a trust treated

The income taxable to the grantor or taxpayer identification number (TIN) of as owned by two or more grantors oranother person under sections 671 the grantor or other person treated as the other persons, the trustee must give allthrough 678 and the deductions and owner of the trust and the address of the payers of income during the tax year thecredits that apply to that income must be trust. This method may be used only if the name, address, and TIN of the trust. Thereported by that person on their own owner of the trust provides the trustee trustee also must file with the IRS theincome tax return. with a signed Form W-9, Request for appropriate Forms 1099 to report the

Taxpayer Identification Number and income or gross proceeds paid to theExample. The John Doe Trust is aCertification. In addition, unless the trust by all payers during the tax yeargrantor type trust. During the year, thegrantor or other person treated as owner attributable to the part of the trust treatedtrust sold 100 shares of ABC stock forof the trust is the trustee or a co-trustee of as owned by each grantor or other$1,010 in which it had a basis of $10 andthe trust, the trustee must give the grantor person, showing the trust as the payer200 shares of XYZ stock for $10 in whichor other person treated as owner of the and each grantor or other person treatedit had a $1,020 basis.trust a statement that: as owner of the trust as the payee. The

The trust does not report these • Shows all items of income, deduction, trustee must report each type of incometransactions on Form 1041. Instead, a and credit of the trust; in the aggregate and each item of grossschedule is attached to the Form 1041 • Identifies the payer of each item of proceeds separately. The due date forshowing each stock transaction income; any Forms 1099 required to be filed withseparately and in the same detail as John • Explains how the grantor or other the IRS by a trustee under this method isDoe (grantor and owner) will need to person treated as owner of the trust takes February 28, 2002 (April 1, 2002, if filedreport these transactions on his Schedule those items into account when figuring electronically).D (Form 1040). The trust may not net the the grantor’s or other person’s taxable In addition, the trustee must give eachcapital gains and losses, nor may it issue income or tax; and grantor or other person treated as ownerJohn Doe a Schedule K-1 (Form 1041) • Informs the grantor or other person of the trust a statement that:showing a $10 long-term capital loss. treated as the owner of the trust that • Shows all items of income, deduction,

those items must be included when and credit of the trust attributable to theOptional Filing Methods for Certain figuring taxable income and credits on his part of the trust treated as owned by theGrantor Type Trusts or her income tax return. grantor or other person;Generally, if a trust is treated as owned • Explains how the grantor or otherGrantor trusts that have notby one grantor or other person, the person treated as owner of the trust takesapplied for an EIN and are goingtrustee may choose Optional Method 1 those items into account when figuringto file under Optional Method 1

TIPor Optional Method 2 as the trust’s the grantor’s or other person’s taxabledo not need an EIN for the trust as longmethod of reporting instead of filing Form income or tax; andas they continue to report under that1041. • Informs the grantor or other personmethod.

treated as the owner of the trust thatGenerally, if a trust is treated asOptional Method 2. For a trust treated those items must be included whenowned by two or more grantors or otheras owned by one grantor or by one other figuring taxable income and credits on hispersons, the trustee may chooseperson, the trustee must give all payers of or her income tax return. This statementOptional Method 3 as the trust’s methodincome during the tax year the name, satisfies the requirement to give theof reporting instead of filing Form 1041.address, and TIN of the trust. The trustee recipient copies of the Forms 1099 filed

Once you choose the trust’s filing also must file with the IRS the appropriate by the trustee.method, you must follow the rules under Forms 1099 to report the income or gross Changing filing methods. A trustee whoChanging filing methods if you want to proceeds paid to the trust during the tax previously had filed Form 1041 canchange to another method. year that shows the trust as the payer and change to one of the optional methods by

the grantor or other person treated as filing a final Form 1041 for the tax yearExceptions. The following trusts cannotowner as the payee. The trustee must that immediately precedes the first taxreport using the optional filing methods:report each type of income in the year for which the trustee elects to report1. A common trust fund (as defined in aggregate and each item of gross under one of the optional methods. Onsection 584(a)). proceeds separately. The due date for the front of the final Form 1041, the2. A foreign trust or a trust that has any Forms 1099 required to be filed with trustee must write “Pursuant to sectionany of its assets located outside the the IRS by a trustee under this method is 1.671-4(g), this is the final Form 1041 forUnited States. February 28, 2002 (April 1, 2002, if filed this grantor trust,” and check the “Final3. A qualified subchapter S trust (as electronically). return” box in item F.defined in section 1361(d)(3)).

For more details on changing reportingIn addition, unless the grantor or other4. A trust all of which is treated asmethods, including changes from oneperson treated as owner of the trust is theowned by one grantor or one otheroptional method to another, seetrustee or a co-trustee of the trust, theperson whose tax year is other than aRegulations section 1.671-4(g).trustee must give the grantor or othercalendar year.

person treated as owner of the trust a5. A trust all of which is treated as Backup withholding. Generally, astatement that:owned by one or more grantors or other grantor trust is considered a payor of

persons, one of which is not a U.S. • Shows all items of income, deduction, reportable payments received by the trustperson. and credit of the trust; for purposes of backup withholding.

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For 2002, the trustee must withhold • Except in figuring the maximum tax on that ends on June 30, 2002, must file30% of reportable payments made to any capital gains, the tax is 39.1% of the Form 1041 by October 15, 2002.grantor who is subject to backup separate trust’s taxable income.

Private Delivery Serviceswithholding. • You may not claim an exemptionamount in figuring the alternative You can use certain private deliveryIf the trust has 10 or fewer grantors, aminimum tax. services designated by the IRS to meetreportable payment made to the trust is

the “timely mailing as timely filing/paying”Other information. When figuring thetreated as a reportable payment of therule for tax returns and payments. Thetax and DNI on the remaining portion ofsame kind made to the grantors on themost recent list of designated privatethe trust, disregard the S corporationdate the trust received the payment.delivery services was published by theitems.If the trust has more than 10 grantors, IRS in October 2001. The list includesDo not apportion to the beneficiariesa reportable payment made to the trust is only the following:any of the S corporation items.treated as a payment of the same kind • Airborne Express (Airborne): Overnight

made by the trust to each grantor in an If the ESBT consists entirely of stock in Air Express Service, Next Afternoonamount equal to the distribution made to one or more S corporations, do not make Service, Second Day Service.each grantor on the date the grantor is any entries on lines 1–22 of page 1. • DHL Worldwide Express (DHL): DHLpaid or credited. Instead: “Same Day” Service, DHL USA• Complete the entity portion;For more information, see section Overnight.• Follow the instructions above for3406 and Temporary Regulations section • Federal Express (FedEx): FedEx

figuring the tax on the S corporation35a.9999-2, Q&A 20. Priority Overnight, FedEx Standarditems; Overnight, FedEx 2Day.Pooled Income Funds • Carry the tax from line 7 of Schedule G • United Parcel Service (UPS): UPS Nextto line 23 on page 1; andIf you are filing for a pooled income fund, Day Air, UPS Next Day Air Saver, UPS• Complete the rest of the return.attach a statement to support the 2nd Day Air, UPS 2nd Day Air A.M., UPS

following: Worldwide Express Plus, UPS WorldwideElectronic and Magnetic• The calculation of the yearly rate of Express.return. The private delivery service can tellMedia Filing• The computation of the deduction for you how to get written proof of the mailing

Qualified fiduciaries or transmitters maydistributions to the beneficiaries. date.be able to file Form 1041 and related• The computation of any charitableschedules electronically or on magnetic Extension of Time To Filededuction.media. Tax return data may be filedYou do not have to complete Estates. Use Form 2758, Application forelectronically using telephone lines or onSchedules A or B of Form 1041. Extension of Time To File Certain Excise,magnetic media using magnetic tape or

If the fund has accumulations of Income, Information, and Other Returns,floppy diskette.income, file Form 1041-A unless the fund to apply for an extension of time to file.If you wish to do this, you must fileis required to distribute all of its net

Trusts. Use Form 8736, Application forForm 9041, Application for Electronic/income to beneficiaries currently.Automatic Extension of Time To File U.S.Magnetic Media Filing of Business and

You must also file Form 5227, Return for a Partnership, REMIC, or forEmployee Benefit Plan Returns. If you fileSplit-Interest Trust Information Return, for Certain Trusts, to request an automaticForm 1041 electronically or on magneticthe pooled income fund. 3-month extension of time to file.media, you must also file Form 8453-F,

U.S. Estate or Trust Income TaxElecting Small Business Trusts If more time is needed, file Form 8800,Declaration and Signature for Electronic Application for Additional Extension ofSpecial rules apply when figuring the tax and Magnetic Media Filing. For more Time To File U.S. Return for aon the portion of an electing small details, get Pub. 1437, Procedures for Partnership, REMIC, or for Certain Trusts,business trust (ESBT) consisting of stock Electronic and Magnetic Media Filing of for an additional extension of up to 3in one or more S corporations. This tax: U.S. Income Tax Returns for Estates and months. To obtain this additional• Must be figured separately from the tax Trusts, Form 1041 for 2001, and Pub. extension of time to file, you must showon the remainder of the ESBT, 1438, File Specifications, Validation reasonable cause for the additional time• Is entered to the left of the Schedule G, Criteria, and Record Layouts for you are requesting. Form 8800 must beline 7, entry space preceded by “Sec. Electronic and Magnetic Media Filing of filed by the extended due date for Form641(c),” and Estate and Trust Returns, Form 1041. To 1041.• Is included in the total tax on Schedule order these forms and publications, or forG, line 7. more information on electronic and

The tax on the remainder of the ESBT Period Coveredmagnetic media filing of Form 1041, callis figured in the normal manner on Form the Magnetic Media Unit at the File the 2001 return for calendar year1041. Philadelphia Service Center at 2001 and fiscal years beginning in 2001Tax computation attachment. Attach to 215-516-7533 (not a toll-free number), or and ending in 2002. If the return is for athe return the tax computation for the write to: fiscal year or a short tax year (less thanportion of the ESBT consisting of one or Internal Revenue Service Center 12 months), fill in the tax year space atmore S corporations. Attention: ELF Processing Support the top of the form.

Section-DP 2720To compute the tax on the S The 2001 Form 1041 may also be11601 Roosevelt Blvd.corporation items, treat that portion of the used for a tax year beginning in 2002 if:Philadelphia, PA 19154ESBT as if it were a separate trust with 1. The estate or trust has a tax year ofthe following modifications: less than 12 months that begins and endsWhen To File• Take into account only the income, in 2002 andlosses, deductions, and credits allocated For calendar year estates and trusts, file 2. The 2002 Form 1041 is notto the ESBT as an S corporation Form 1041 and Schedules K-1 on or available by the time the estate or trust isshareholder and gain or loss from the before April 15, 2002. For fiscal year required to file its tax return. However, thedisposition of S corporation stock. estates and trusts, file Form 1041 by the estate or trust must show its 2002 tax• You may not claim a deduction for 15th day of the 4th month following the year on the 2001 Form 1041 andcapital losses in excess of capital gains. close of the tax year. If the due date falls incorporate any tax law changes that are• You may not claim an income on a Saturday, Sunday, or legal holiday, effective for tax years beginning afterdistribution deduction or an exemption file on the next business day. For December 31, 2001.amount. example, an estate that has a tax year

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before the IRS. If the fiduciary wants to 1. 90% of the tax shown on the 2002Who Must Signexpand the paid preparer’s authorization, tax return orsee Pub. 947, Practice Before the IRS 2. 100% of the tax shown on the 2001Fiduciaryand Power of Attorney. tax return (112% of that amount if theThe fiduciary, or an authorized

estate’s or trust’s adjusted gross incomerepresentative, must sign Form 1041. The authorization cannot be revoked.on that return is more than $150,000, andHowever, the authorization willA financial institution that submitted less than 2/3 of gross income for 2001 orautomatically end no later than the dueestimated tax payments for trusts for 2002 is from farming or fishing).date (without regard to extensions) forwhich it is the trustee must enter its

filing the estate’s or trust’s 2002 tax However, if a return was not filed foremployer identification number (EIN) inreturn. 2001 or that return did not cover a full 12the space provided for the EIN of the

months, item 2 does not apply.fiduciary. Do not enter the EIN of theAccounting Methodstrust. For this purpose, a financial For this purpose, include household

institution is one that maintains a Figure taxable income using the method employment taxes in the tax shown onTreasury Tax and Loan account. If you of accounting regularly used in keeping the tax return, but only if either of theare an attorney or other individual the estate’s or trust’s books and records. following is true:functioning in a fiduciary capacity, leave Generally, permissible methods include • The estate or trust will have Federalthis space blank. Do not enter your the cash method, the accrual method, or income tax withheld for 2002 (see theindividual social security number (SSN). any other method authorized by the instructions on page 17 for line 24e) or

Internal Revenue Code. In all cases, the • The estate or trust would be required toIf you, as fiduciary, fill in Form 1041,method used must clearly reflect income. make estimated tax payments for 2002leave the Paid Preparer’s space blank. If

even if it did not include householdsomeone prepares this return and does Generally, the estate or trust mayemployment taxes when figuringnot charge you, that person should not change its accounting method (for incomeestimated tax.sign the return. as a whole or for any material item) only

by getting consent on Form 3115,Paid Preparer ExceptionsApplication for Change in AccountingGenerally, anyone who is paid to prepare Estimated tax payments are not requiredMethod. For more information, see Pub.a tax return must sign the return and fill in from:538, Accounting Periods and Methods.the other blanks in the Paid Preparer’s 1. An estate of a domestic decedent

Use Only area of the return. or a domestic trust that had no tax liabilityAccounting PeriodsThe person required to sign the return for the full 12-month 2001 tax year;For a decedent’s estate, the moment ofmust complete the required preparer 2. A decedent’s estate for any taxdeath determines the end of theinformation and: year ending before the date that is 2decedent’s tax year and the beginning of• Sign it in the space provided for the years after the decedent’s death; orthe estate’s tax year. As executor orpreparer’s signature. A facsimile 3. A trust that was treated as ownedadministrator, you choose the estate’s taxsignature is acceptable if certain by the decedent if the trust will receive theperiod when you file its first income taxconditions are met. See Regulations residue of the decedent’s estate underreturn. The estate’s first tax year may besection 1.6695-1(b)(4)(iv) for details. the will (or if no will is admitted to probate,any period of 12 months or less that ends• Give you a copy of the return in the trust primarily responsible for payingon the last day of a month. If you selectaddition to the copy to be filed with the debts, taxes, and expenses ofthe last day of any month other thanIRS. administration) for any tax year endingDecember, you are adopting a fiscal tax before the date that is 2 years after thePaid Preparer Authorization year. decedent’s death.

If the fiduciary wants to allow the IRS to To change the accounting period of an For more information, see Formdiscuss the estate’s or trust’s 2001 tax estate, get Form 1128, Application To 1041-ES, Estimated Income Tax forreturn with the paid preparer who signed Adopt, Change, or Retain a Tax Year. Estates and Trusts.it, check the “Yes” box in the signatureGenerally, a trust must adopt aarea of the return. This authorization Electronic Depositscalendar year. The following trusts areapplies only to the individual whose

exempt from this requirement: A financial institution that maintains asignature appears in the “Paid Preparer’s• A trust that is exempt from tax under Treasury Tax and Loan (TT&L) account,Use Only” section of the estate’s or trust’ssection 501(a); and acts as a fiduciary for at least 200return. It does not apply to the firm, if any,• A charitable trust described in section taxable trusts that are required to payshown in that section.4947(a)(1); and estimated tax, may be required to depositIf the “Yes” box is checked, the • A trust that is treated as wholly owned the estimated tax payments electronicallyfiduciary is authorizing the IRS to call the by a grantor under the rules of sections using the Electronic Federal Tax Paymentpaid preparer to answer any questions 671 through 679. System (EFTPS). The electronic depositthat may arise during the processing of requirement applies in 2002 if:the estate’s or trust’s return. The fiduciary • The total deposits of depository taxesRounding Off to Wholeis also authorizing the paid preparer to: (such as estimated, employment, or• Give the IRS any information that is Dollars excise tax) in 2000 were more thanmissing from the estate’s or trust’s return, You may show the money items on the $200,000 or• Call the IRS for information about the return and accompanying schedules as • The fiduciary (on behalf of a trust) wasprocessing of the estate’s or trust’s return whole-dollar amounts. To do so, drop required to use EFTPS in 2001.or the status of its refund or payment(s), amounts less than 50 cents and increase If the fiduciary is required to useand any amounts from 50 to 99 cents to the EFTPS on behalf of a trust and fails to do• Respond to certain IRS notices that the next dollar. so, it may be subject to a 10% penalty.fiduciary has shared with the preparer

about math errors, offsets, and return A fiduciary that is not required to makeEstimated Taxpreparation. The notices will not be sent electronic deposits of estimated tax onto the preparer. Generally, an estate or trust must pay behalf of a trust may either use the

The fiduciary is not authorizing the estimated income tax for 2002 if it payment vouchers (see Form 1041-ES)paid preparer to receive any refund expects to owe, after subtracting any or voluntarily participate in EFTPS. Tocheck, bind the estate or trust to anything withholding and credits, at least $1,000 in enroll in or get more information about(including any additional tax liability), or tax, and it expects the withholding and EFTPS, call 1-800-555-4477 orotherwise represent the estate or trust credits to be less than the smaller of: 1-800-945-8400.

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Depositing on time. For deposits made penalty may be imposed with regard to Form 720, Quarterly Federal Excise Taxby EFTPS to be on time, the fiduciary each Schedule K-1 for which a failure Return. Use Form 720 to reportmust initiate the transaction at least 1 occurs. The maximum penalty is environmental excise taxes,business day before the date the deposit $100,000 for all such failures during a communications and air transportationis due. calendar year. If the requirement to report taxes, fuel taxes, luxury tax on passenger

information is intentionally disregarded, vehicles, manufacturers’ taxes, shipSection 643(g) Election each $50 penalty is increased to $100 or, passenger tax, and certain other exciseFiduciaries of trusts that pay estimated if greater, 10% of the aggregate amount taxes.tax may elect under section 643(g) to of items required to be reported, and the Caution: See Trust Fund Recoveryhave any portion of their estimated tax $100,000 maximum does not apply. Penalty above.payments allocated to any of the

The penalty will not be imposed if thebeneficiaries. Form 926, Return by a U.S. Transferor offiduciary can show that not providing Property to a Foreign Corporation. UseThe fiduciary of a decedent’s estate information timely was due to reasonable this form to report certain informationmay make a section 643(g) election only cause and not due to willful neglect. required under section 6038B.for the final year of the estate.Underpaid Estimated Tax Form 940 or Form 940-EZ, Employer’sSee the instructions for line 24b onIf the fiduciary underpaid estimated tax, Annual Federal Unemployment (FUTA)page 17 for more details.use Form 2210, Underpayment of Tax Return. The estate or trust may beEstimated Tax by Individuals, Estates, liable for FUTA tax and may have to fileInterest and Penaltiesand Trusts, to figure any penalty. Enter Form 940 or 940-EZ if it paid wages ofthe amount of any penalty on line 26, $1,500 or more in any calendar quarterInterestForm 1041. during the calendar year (or the precedingInterest is charged on taxes not paid by

calendar year) or one or more employeesthe due date, even if an extension of time Trust Fund Recovery Penalty worked for the estate or trust for someto file is granted.This penalty may apply if certain excise, part of a day in any 20 different weeks

Interest is also charged on the income, social security, and Medicare during the calendar year (or the precedingfailure-to-file penalty, the accuracy-related taxes that must be collected or withheld calendar year).penalty, and the fraud penalty. The are not collected or withheld, or these

Form 941, Employer’s Quarterly Federalinterest charge is figured at a rate taxes are not paid. These taxes areTax Return. Employers must file this formdetermined under section 6621. generally reported on Forms 720, 941,quarterly to report income tax withheld on943, or 945. The trust fund recoveryLate Filing of Return wages and employer and employee socialpenalty may be imposed on all personsThe law provides a penalty of 5% of the security and Medicare taxes. Agriculturalwho are determined by the IRS to havetax due for each month, or part of a employers must file Form 943,been responsible for collecting,month, the return is not filed up to a Employer’s Annual Tax Return foraccounting for, and paying over thesemaximum of 25% of the tax due. If the Agricultural Employees, instead of Formtaxes, and who acted willfully in not doingreturn is more than 60 days late, the 941, to report income tax withheld andso. The penalty is equal to the unpaidminimum penalty is the smaller of $100 or employer and employee social securitytrust fund tax. See the instructions forthe tax due. The penalty will not be and Medicare taxes on farmworkers.Form 720, Pub. 15 (Circular E),imposed if you can show that the failure Employer’s Tax Guide, or Pub. 51 Caution: See Trust Fund Recoveryto file on time was due to reasonable (Circular A), Agricultural Employer’s Tax Penalty above.cause. If the failure is due to reasonable Guide, for more details, including the Form 945, Annual Return of Withheldcause, attach an explanation to the definition of responsible persons. Federal Income Tax. Use this form toreturn.report income tax withheld fromOther PenaltiesLate Payment of Tax nonpayroll payments, including pensions,Other penalties can be imposed forGenerally, the penalty for not paying tax annuities, IRAs, gambling winnings, andnegligence, substantial understatement ofwhen due is 1/2 of 1% of the unpaid backup withholding.tax, and fraud. See Pub. 17, Your Federalamount for each month or part of a month

Income Tax, for details on these Caution: See Trust Fund Recoveryit remains unpaid. The maximum penaltypenalties. Penalty above.is 25% of the unpaid amount. The penalty

Form 1040, U.S. Individual Income Taxapplies to any unpaid tax on the return. Other Forms That May Be Return.Any penalty is in addition to interestcharges on late payments. Required Form 1040NR, U.S. Nonresident Alien

If you include interest or either of Income Tax Return.Forms W-2 and W-3, Wage and Taxthese penalties with your Statement; and Transmittal of Wage and Form 1041-A, U.S. Information Return—payment, identify and enter theseTIP

Tax Statements. Trust Accumulation of Charitableamounts in the bottom margin of FormAmounts.Form 56, Notice Concerning Fiduciary1041, page 1. Do not include the interest

Relationship.or penalty amount in the balance of tax Forms 1042 and 1042-S, Annualdue on line 27. Form 706, United States Estate (and Withholding Tax Return for U.S. Source

Generation-Skipping Transfer) Tax Income of Foreign Persons; and ForeignFailure To Provide InformationReturn; or Form 706-NA, United States Person’s U.S. Source Income Subject toTimely Estate (and Generation-Skipping Withholding. Use these forms to report

You must provide Schedule K-1 (Form Transfer) Tax Return, Estate of and transmit withheld tax on payments or1041), on or before the day you are nonresident not a citizen of the United distributions made to nonresident alienrequired to file Form 1041, to each States. individuals, foreign partnerships, orbeneficiary who receives a distribution of foreign corporations to the extent suchForm 706-GS(D), Generation-Skippingproperty or an allocation of an item of the payments or distributions constitute grossTransfer Tax Return For Distributions.estate. income from sources within the United

Form 706-GS(D-1), Notification ofFor each failure to provide Schedule States that is not effectively connectedDistribution From a Generation-SkippingK-1 to a beneficiary when due and each with a U.S. trade or business. For moreTrust.failure to include on Schedule K-1 all the information, see sections 1441 and 1442,

information required to be shown (or the Form 706-GS(T), Generation-Skipping and Pub. 515, Withholding of Tax oninclusion of incorrect information), a $50 Transfer Tax Return for Terminations. Nonresident Aliens and Foreign Entities.

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Forms 1099-A, B, INT, LTC, MISC, 3. Had an acquisition, disposition, orArcher MSA, OID, R, and S. You may change in proportional interest in a Of Special Interest tohave to file these information returns to foreign partnership that: Bankruptcy Trustees andreport acquisitions or abandonments of a. Increased its direct interest to atsecured property; proceeds from broker least 10%; Debtors-in-Possessionand barter exchange transactions; b. Reduced its direct interest of atinterest payments; payments of long-term Taxation of Bankruptcy Estatesleast 10% to less than 10%; orcare and accelerated death benefits; of an Individualc. Changed its direct interest by atmiscellaneous income payments;

A bankruptcy estate is a separate taxableleast a 10% interest.distributions from an Archer MSA orentity created when an individual debtor4. Contributed property to a foreignMedicare + Choice MSA; original issuefiles a petition under either chapter 7 orpartnership in exchange for a partnershipdiscount; distributions from pensions,11 of title 11 of the U.S. Code. The estateinterest if:annuities, retirement or profit-sharingis administered by a trustee or aplans, IRAs (including SEPs, SIMPLEs, a. Immediately after the contribution, debtor-in-possession. If the case is laterRoth IRAs, Roth Conversions, and IRA the estate or trust owned, directly or dismissed by the bankruptcy court, therecharacterizations), Coverdell ESAs, indirectly, at least a 10% interest in the debtor is treated as if the bankruptcyinsurance contracts, etc.; and proceeds foreign partnership or petition had never been filed. Thisfrom real estate transactions. b. The fair market value of the provision does not apply to partnerships

Also, use certain of these returns to property the estate or trust contributed to or corporations.report amounts received as a nominee on the foreign partnership in exchange for a

Who Must Filebehalf of another person, except amounts partnership interest, when added to otherreported to beneficiaries on Schedule K-1 Every trustee (or debtor-in-possession)contributions of property made to the(Form 1041). for an individual’s bankruptcy estateforeign partnership during the preceding

under chapter 7 or 11 of title 11 of the12-month period, exceeds $100,000.Form 8275, Disclosure Statement. FileU.S. Code must file a return if theForm 8275 to disclose items or positions, Also, the estate or trust may have to bankruptcy estate has gross income ofexcept those contrary to a regulation, that file Form 8865 to report certain $6,700 or more for tax years beginning inare not otherwise adequately disclosed dispositions by a foreign partnership of 2001.on a tax return. The disclosure is made to property it previously contributed to thatavoid parts of the accuracy-related Failure to do so may result in anforeign partnership if it was a partner atpenalty imposed for disregard of rules or estimated Request for Administrativethe time of the disposition.substantial understatement of tax. Form Expenses being filed by the IRS in the

8275 is also used for disclosures relating bankruptcy proceeding or a motion toFor more details, including penaltiesto preparer penalties for understatements compel filing of the return.for failing to file Form 8865, see Formdue to unrealistic positions or disregard of 8865 and its separate instructions. The filing of a tax return for therules. bankruptcy estate does not relieveForm 8275-R, Regulation Disclosure the individual debtor of his or herCAUTION

!Assembly andStatement, is used to disclose any item (or their) individual tax obligations.

on a tax return for which a position has Attachments Employer Identification Numberbeen taken that is contrary to TreasuryAssemble any schedules, forms and/or Every bankruptcy estate of an individualregulations.attachments behind Form 1041 in the required to file a return must have its ownForms 8288 and 8288-A, U.S. following order: EIN. The SSN of the individual debtorWithholding Tax Return for Dispositions

1. Schedule D (Form 1041), cannot be used as the EIN for theby Foreign Persons of U.S. Real Propertybankruptcy estate.2. Schedule H (Form 1040),Interests; and Statement of Withholding

3. Form 4136,on Dispositions by Foreign Persons of Accounting PeriodU.S. Real Property Interests. Use these 4. All other schedules and forms, and A bankruptcy estate is allowed to have aforms to report and transmit withheld tax 5. All attachments. fiscal year. The period can be no longeron the sale of U.S. real property by a than 12 months.foreign person. Also, use these forms to

Attachmentsreport and transmit tax withheld from When To Fileamounts distributed to a foreign If you need more space on the forms or File Form 1041 on or before the 15th daybeneficiary from a “U.S. real property schedules, attach separate sheets. Use of the 4th month following the close of theinterest account” that a domestic estate or the same size and format as on the tax year. Use Form 2758 to apply for antrust is required to establish under printed forms. But show the totals on extension of time to file.Regulations section 1.1445-5(c)(1)(iii). the printed forms. Disclosure of ReturnForm 8300, Report of Cash Payments

InformationAttach these separate sheets after allOver $10,000 Received in a Trade orthe schedules and forms. Enter the Under section 6103(e)(5), tax returns ofBusiness. Generally, this form is used toestate’s or trust’s EIN on each sheet. individual debtors who have filed forreport the receipt of more than $10,000 in

bankruptcy under chapters 7 or 11 of titlecash or foreign currency in oneDo not file a copy of the decedent’s will 11 are, upon written request, open totransaction (or a series of related

or the trust instrument unless the IRS inspection by or disclosure to the trustee.transactions).requests it. The returns subject to disclosure to theForm 8865, Return of U.S. Persons With

trustee are those for the year theRespect to Certain Foreign Partnerships.bankruptcy begins and prior years. UseThe estate or trust may have to file Form Additional InformationForm 4506, Request for Copy or8865 if it: The following publications may assist youTranscript of Tax Form, to request copies1. Controlled a foreign partnership in preparing Form 1041. of the individual debtor’s tax returns.(i.e., owned more than a 50% direct or

indirect interest in a foreign partnership). Pub. 550, Investment Income and If the bankruptcy case was not2. Owned at least a 10% direct or voluntary, disclosure cannot be madeExpenses, and

indirect interest in a foreign partnership before the bankruptcy court has enteredPub. 559, Survivors, Executors, andwhile U.S. persons controlled that an order for relief, unless the court rulesAdministrators.partnership. that the disclosure is needed for

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Carryback of net operating losses anddetermining whether relief should be filed. If the return is selected forcredits. If the bankruptcy estate itselfordered. examination, it will be examined as soonincurs a net operating loss (apart from as possible. The IRS will notify the trustee

Transfer of Tax Attributes From losses carried forward to the estate from or debtor-in-possession of any tax duethe Individual Debtor to the the individual debtor), it can carry back its within 180 days from receipt of the

net operating losses not only to previous application or within any additional timeBankruptcy Estatetax years of the bankruptcy estate, but permitted by the bankruptcy court.The bankruptcy estate succeeds to thealso to tax years of the individual debtorfollowing tax attributes of the individual See Rev. Proc. 81-17, 1981-1 C.B.prior to the year in which the bankruptcydebtor: 688.proceedings began. Excess credits, such1. Net operating loss (NOL) as the foreign tax credit, also may be Special Filing Instructions forcarryovers; carried back to pre-bankruptcy years of Bankruptcy Estates2. Charitable contributions carryovers; the individual debtor.3. Recovery of tax benefit items; Use Form 1041 only as a transmittal forExemption. For tax years beginning in4. Credit carryovers; Form 1040. In the top margin of Form2001, a bankruptcy estate is allowed a5. Capital loss carryovers; 1040 write “Attachment to Form 1041. DOpersonal exemption of $2,900.6. Basis, holding period, and NOT DETACH.” Attach Form 1040 to

character of assets; Form 1041. Complete only theStandard deduction. For tax years7. Method of accounting; identification area at the top of Formbeginning in 2001, a bankruptcy estate8. Unused passive activity losses; 1041. Enter the name of the individualthat does not itemize deductions is9. Unused passive activity credits; debtor in the following format: “John Q.allowed a standard deduction of $3,800.and Public Bankruptcy Estate.” Beneath, enterDischarge of indebtedness. In a title 1110. Unused section 465 losses. the name of the trustee in the followingcase, gross income does not include format: “Avery Snow, Trustee.” In item D,amounts that normally would be includedIncome, Deductions, and enter the date the petition was filed or thein gross income resulting from the date of conversion to a chapter 7 or 11Creditsdischarge of indebtedness. However, any case.Under section 1398(c), the taxable amounts excluded from gross income

income of the bankruptcy estate generally Enter on Form 1041, line 23, the totalmust be applied to reduce certain taxis figured in the same manner as an tax from line 58 of Form 1040. Completeattributes in a certain order. Attach Formindividual. The gross income of the lines 24 through 29 of Form 1041, and982, Reduction of Tax Attributes Due tobankruptcy estate includes any income sign and date it.Discharge of Indebtedness, to show theincluded in property of the estate as reduction of tax attributes.defined in Bankruptcy Code section 541.Also included is gain from the sale of Tax Rate Scheduleproperty. To figure gain, the trustee or Specific InstructionsFigure the tax for the bankruptcy estatedebtor-in-possession must determine the using the tax rate schedule below. Entercorrect basis of the property. the tax on Form 1040, line 40.

To determine whether any amountIf taxable income is: Name of Estate or Trustpaid or incurred by the bankruptcy estate Of theBut notis allowable as a deduction or credit, or is Over — The tax is: amount Copy the exact name of the estate or trustover — over —treated as wages for employment tax from the Form SS-4, Application for

$0 $22,600 15% $0purposes, treat the amount as if it were Employer Identification Number, that you22,600 54,625 $3,390.00 + 27.5% 22,600paid or incurred by the individual debtor in 54,625 83,250 12,196.88 + 30.5% 54,625 used to apply for the EIN.

83,250 148,675 20,927.50 + 35.5% 83,250the same trade or business or other148,675 ------ 44,153.38 + 39.1% 148,675 If a grantor type trust (discussed onactivity the debtor engaged in before the

page 11), write the name, identificationbankruptcy proceedings began.number, and address of the grantor(s) orPrompt Determination of Tax

Administrative expenses. The other owner(s) in parentheses after theLiabilitybankruptcy estate is allowed a deduction name of the trust.To request a prompt determination of thefor any administrative expense allowedtax liability of the bankruptcy estate, theunder section 503 of title 11 of the U.S. Name and Title oftrustee or debtor-in-possession must file aCode, and any fee or charge assessedwritten application for the determinationunder chapter 123 of title 28 of the U.S. Fiduciarywith the IRS. Send the request to theCode, to the extent not disallowed under Enter the name and title of the fiduciary. IfSmall Business/Self-Employed Insolvencyan Internal Revenue Code provision (e.g., the name entered is different than theTerritory Manager for the territory in whichsection 263, 265, or 275). name on the prior year’s return, seethe bankruptcy case is pending. The Change in Fiduciary’s Name onAdministrative expense loss. When application must be submitted in duplicate page 12.figuring a net operating loss, nonbusiness and executed under the penalties ofdeductions (including administrative perjury. The trustee orexpenses) are limited under section Addressdebtor-in-possession must submit with172(d)(4) to the bankruptcy estate’s the application an exact copy of the Include the suite, room, or other unitnonbusiness income. The excess return (or returns) filed by the trustee with number after the street address.nonbusiness deductions are an the IRS for a completed tax period, and aadministrative expense loss that may be If the Post Office does not deliver mailstatement of the name and location of thecarried back to each of the 3 preceding to the street address and the fiduciary hasoffice where the return was filed. Thetax years and forward to each of the 7 a P.O. box, show the box number insteadenvelope should be marked, “Request forsucceeding tax years of the bankruptcy of the street address.Prompt Determination. DO NOT OPEN INestate. The amount of an administrative MAILROOM.” If you change your address after filingexpense loss that may be carried to any Form 1041, use Form 8822, Change oftax year is determined after the net The IRS will notify the trustee or Address, to notify the IRS.operating loss deductions allowed for that debtor-in-possession within 60 days from

year. An administrative expense loss is receipt of the application whether the If you have a new address and haveallowed only to the bankruptcy estate and return filed by the trustee or not filed Form 8822, be sure to check thecannot be carried to any tax year of the debtor-in-possession has been selected box in F for “Change in fiduciary’sindividual debtor. for examination or has been accepted as address.”

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certificate holder is treated as the owner a Business and Keeping Records, forA. Type of Entityof an undivided interest in the entire trust more information.Check the appropriate box that describes under the grantor trust rules. Certificate If you are filing a return for athe entity for which you are filing the holders must report their proportionate mortgage pool, such as one createdreturn. share of the mortgage interest and other under the mortgage-backed securityNote: There are special filing items of income on their individual tax programs administered by the Federalrequirements for grantor type trusts, returns. National Mortgage Association (“Fanniepooled income funds, electing small

Mae”) or the Government NationalPre-need funeral trusts. Thebusiness trusts, and bankruptcy estates.Mortgage Association (“Ginnie Mae”), thepurchasers of pre-need funeral servicesSee Special Filing Instructions forEIN stays with the pool if that pool isare the grantors and the owners ofGrantor Type Trusts, Pooled Incometraded from one financial institution topre-need funeral trusts established underFunds, and Electing Small Businessanother.state laws. See Rev. Rul. 87-127, 1987-2Trusts on page 4, or Of Special Interest

C.B. 156. However, the trustees ofto Bankruptcy Trustees and D. Date Entity Createdpre-need funeral trusts can elect to fileDebtors-in-Possession on page 9.the return and pay the tax for qualified Enter the date the trust was created, or, if

Decedent’s Estate funeral trusts. For more information, see a decedent’s estate, the date of theForm 1041-QFT, U.S. Income Tax Return decedent’s death.An estate of a deceased person is afor Qualified Funeral Trusts.taxable entity separate from the

decedent. It generally continues to exist E. Nonexempt CharitableNonqualified deferred compensationuntil the final distribution of the assets of plans. Taxpayers may adopt and and Split-Interest Truststhe estate is made to the heirs and other maintain grantor trusts in connection withbeneficiaries. The income earned from nonqualified deferred compensation plans Section 4947(a)(1) Trustthe property of the estate during the (sometimes referred to as “rabbi trusts”).

Check this box if the trust is a nonexemptperiod of administration or settlement Rev. Proc. 92-64, 1992-2 C.B. 422,charitable trust within the meaning ofmust be accounted for and reported by provides a “model grantor trust” for use insection 4947(a)(1).the estate. rabbi trust arrangements. The procedure

A nonexempt charitable trust is a trust:also provides guidance for requestingSimple Trust • That is not exempt from tax underrulings on the plans that use these trusts.A trust may qualify as a simple trust if: section 501(a);

Bankruptcy Estate1. The trust instrument requires that • In which all of the unexpired interestsall income must be distributed currently; are devoted to one or more charitableA chapter 7 or 11 bankruptcy estate is a

2. The trust instrument does not purposes described in sectionseparate and distinct taxable entity fromprovide that any amounts are to be paid, 170(c)(2)(B); andthe individual debtor for Federal incomepermanently set aside, or used for • For which a deduction was allowedtax purposes. See Of Special Interest tocharitable purposes; and under section 170 (for individualBankruptcy Trustees and

3. The trust does not distribute taxpayers) or similar Code section forDebtors-in-Possession on page 9.amounts allocated to the corpus of the personal holding companies, foreignFor more information, see sectiontrust. personal holding companies, or estates or1398 and Pub. 908, Bankruptcy Tax trusts (including a deduction for estate orGuide. gift tax purposes).Complex Trust

Pooled Income Fund Nonexempt charitable trust treated asA complex trust is any trust that does nota private foundation. If a nonexemptqualify as a simple trust as explained A pooled income fund is a split-interestcharitable trust is treated as though itabove. trust with a remainder interest for a publicwere a private foundation under sectioncharity and a life income interest retainedGrantor Type Trust 509, then the fiduciary must file Formby the donor or for another person. The

A grantor type trust is a legal trust under 990-PF, Return of Private Foundation, inproperty is held in a pool with otherapplicable state law that is not recognized addition to Form 1041.pooled income fund property and doesas a separate taxable entity for income not include any tax-exempt securities. If a nonexempt charitable trust istax purposes because the grantor or other The income for a retained life interest is treated as though it were a privatesubstantial owners have not relinquished figured using the yearly rate of return foundation, and it has no taxable incomecomplete dominion and control over the earned by the trust. See section 642(c) under Subtitle A, it may file Form 990-PFtrust. and the related regulations for more instead of Form 1041 to meet its section

Generally, for transfers made in trust information. 6012 filing requirement. But, be sure toafter March 1, 1986, the grantor is treated answer Statement 13, on Part VII-A ofas the owner of any portion of a trust in Form 990-PF.B. Number of Scheduleswhich he or she has a reversionary Excise taxes. If a nonexemptK-1 Attachedinterest in either the income or corpus charitable trust is treated as a privatetherefrom, if, as of the inception of that Every trust or decedent’s estate claiming foundation, then it is subject to the sameportion of the trust, the value of the an income distribution deduction on page excise taxes under chapters 41 and 42reversionary interest is more than 5% of 1, line 18, must enter the number of that a private foundation is subject to. Ifthe value of that portion. Also, the grantor Schedules K-1 (Form 1041) that are the nonexempt charitable trust is liable foris treated as holding any power or interest attached to Form 1041. any of these taxes (except the sectionthat was held by either the grantor’s 4940 tax), then it reports these taxes onspouse at the time that the power or C. Employer Identification Form 4720, Return of Certain Exciseinterest was created or who became the Taxes on Charities and Other PersonsNumbergrantor’s spouse after the creation of that Under Chapters 41 and 42 of the Internalpower or interest. Every estate or trust that is required to file Revenue Code. Taxes paid by the trustMortgage pools. The trustee of a Form 1041 must have an EIN. To apply on Form 4720 or on Form 990-PF (themortgage pool, such as the Federal for one, use Form SS-4. Form SS-4 has section 4940 tax) cannot be taken as aNational Mortgage Association, collects information on how to apply for an EIN by deduction on Form 1041.principal and interest payments on each mail or by telephone. If the estate or trust

Not a Private Foundationmortgage and makes distributions to the has not received its EIN by the time thecertificate holders. Each pool is return is due, write “Applied for” in the Check this box if the nonexemptconsidered a grantor type trust, and each space for the EIN. See Pub. 583, Starting charitable trust (section 4947(a)(1)) is not

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treated as a private foundation under Attach a sheet that explains the reason Extraterritorial Incomesection 509. For more information, see for the amendments and identifies the ExclusionRegulations section 53.4947-1. lines and amounts being changed on the The estate or trust may excludeamended return.Other returns that must be filed. If a extraterritorial income to the extent ofnonexempt charitable trust is not treated qualifying foreign trade income. ForAmended Schedule K-1 (Form 1041). Ifas though it were a private foundation, the details and to figure the amount of thethe amended return results in a change tofiduciary must file, in addition to Form exclusion, see Form 8873, Extraterritorialincome, or a change in distribution of any1041, Form 990 (or Form 990-EZ), Income Exclusion, and its separateincome or other information provided to aReturn of Organization Exempt From instructions. The estate or trust mustbeneficiary, an amended Schedule K-1Income Tax, and Schedule A (Form report the extraterritorial income exclusion(Form 1041) must also be filed with the990), Organization Exempt Under Section on line 15a of Form 1041, page 1.amended Form 1041 and given to each501(c)(3), if the trust’s gross receipts are beneficiary. Check the “Amended K-1” Although the extraterritorial incomenormally more than $25,000. box at the top of the amended Schedule exclusion is entered on line 15a, it is an

If a nonexempt charitable trust is not K-1. exclusion from income and should betreated as though it were a private treated as tax-exempt income whenfoundation, and it has no taxable income Final Return completing other parts of the return.under Subtitle A, it can file either Form Check this box if this is a final return Line 1— Interest Income990 or Form 990-EZ instead of Form because the estate or trust has1041 to meet its section 6012 filing Report the estate’s or trust’s share of allterminated. Also, check the “Final K-1”requirement. taxable interest income that was receivedbox at the top of Schedule K-1.

during the tax year. Examples of taxableSection 4947(a)(2) Trust If, on the final return, there are excess interest include interest from:Check this box if the trust is a deductions, an unused capital loss • Accounts (including certificates ofsplit-interest trust described in section carryover, or a net operating loss deposit and money market accounts) with4947(a)(2). carryover, see the instructions for banks, credit unions, and thrifts.

A split-interest trust is a trust that: Schedule K-1, lines 13a through 13e, on • Notes, loans, and mortgages.• Is not exempt from tax under section page 38. • U.S. Treasury bills, notes, and bonds.501(a); • U.S. savings bonds.• Has some unexpired interests that are Change in Fiduciary’s Name • Original issue discount.devoted to purposes other than religious, • Income received as a regular interestIf the fiduciary’s name entered is differentcharitable, or similar purposes described holder of a real estate mortgagethan the name on the prior year’s returnin section 170(c)(2)(B); and investment conduit (REMIC).(or the Form 56 if no prior return), be sure• Has amounts transferred in trust after For taxable bonds acquired after 1987,to check this box. Also, file Form 56 if youMay 26, 1969, for which a deduction was amortizable bond premium is treated aschecked this box and you have not filed aallowed under section 170 (for individual an offset to the interest income instead ofForm 56 or otherwise notified the IRS thattaxpayers) or similar Code section for as a separate interest deduction. Seeyou are a fiduciary for the estate or trust.personal holding companies, foreign Pub. 550.personal holding companies, or estates or Change in Fiduciary’s Address For the year of the decedent’s death,trusts (including a deduction for estate or Forms 1099-INT issued in the decedent’sCheck this box if the fiduciary’s address isgift tax purposes). name may include interest income earneddifferent than the one entered on the priorOther returns that must be filed. The after the date of death that should bereturn (or Form 56 if no prior return) andfiduciary of a split-interest trust must file reported on the income tax return of theyou have not filed Form 8822. If theForm 5227 (for amounts transferred in decedent’s estate. When preparing thefiduciary’s address changed after filingtrust after May 26, 1969); and Form decedent’s final income tax return, reportForm 1041, use Form 8822 to notify the1041-A if the trust’s governing instrument on line 1 of Schedule B (Form 1040) orIRS unless the change was due to thedoes not require that all of the trust’s Schedule 1 (Form 1040A) the totalcreation or termination of a fiduciaryincome be distributed currently. interest shown on Form 1099-INT. Underrelationship in which case a Form 56

the last entry on line 1, subtotal all theIf a split-interest trust has any should be filed.interest reported on line 1. Below theunrelated business taxable income,subtotal, write “Form 1041” and the namehowever, it must file Form 1041 to report G. Pooled Mortgage and address shown on Form 1041 for theall of its income and to pay any tax due.decedent’s estate. Also, show the part ofAccountthe interest reported on Form 1041 andF. Initial Return, Amended If you bought a pooled mortgage account subtract it from the subtotal.during the year and still have that pool atReturn, Final Return; or

the end of the tax year, check the Line 2—Ordinary DividendsChange in Fiduciary’s “Bought” box and enter the date of Report the estate’s or trust’s share of allpurchase. If you sold a pooled mortgage ordinary dividends received during the taxName or Address account that was purchased during this, year.or a previous, tax year, check the “Sold”Amended Return For the year of the decedent’s death,box and enter the date of sale. If you

If you are filing an amended Form 1041: Forms 1099-DIV issued in the decedent’sneither bought nor sold a pooled• Check the “Amended return” box, name may include dividends earned aftermortgage account, skip this item.• Complete the entire return, the date of death that should be reported• Correct the appropriate lines with the on the income tax return of theIncomenew information, and decedent’s estate. When preparing the• Refigure the estate’s or trust’s tax decedent’s final income tax return, reportSpecial Rule for Blind Trustliability. on line 5 of Schedule B (Form 1040) or

If you are reporting income from aIf the total tax on line 23 is larger on Schedule 1 (Form 1040A) the ordinaryqualified blind trust (under the Ethics inthe amended return than on the original dividends shown on Form 1099-DIV.Government Act of 1978), do not identifyreturn, you generally should pay the Under the last entry on line 5, subtotal allthe payer of any income to the trust butdifference with the amended return. the dividends reported on line 5. Belowcomplete the rest of the return asHowever, you should adjust this amount if the subtotal, write “Form 1041” and theprovided in the instructions. Also writethere is any increase or decrease in the name and address shown on Form 1041“Blind Trust” at the top of page 1.total payments shown on line 25. for the decedent’s estate. Also, show the

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part of the ordinary dividends reported on income. For more information, see the Allocation of Deductions forForm 1041 and subtract it from the separate instructions for Form 4972, Tax Tax-Exempt Incomesubtotal. on Lump-Sum Distributions.

Generally, no deduction that wouldNote: Report capital gain distributions on otherwise be allowable is allowed for anyDeductionsSchedule D (Form 1041), line 9. expense (whether for business or for the

production of income) that is allocable toLine 3—Business Income or Depreciation, Depletion, andtax-exempt income. Examples of(Loss) Amortization tax-exempt income include:

If the estate or trust operated a business, A trust or decedent’s estate is allowed a • Certain death benefits (section 101);report the income and expenses on deduction for depreciation, depletion, and • Interest on state or local bonds (sectionSchedule C (Form 1040), Profit or Loss amortization only to the extent the 103);From Business (or Schedule C-EZ (Form deductions are not apportioned to the • Compensation for injuries or sickness1040), Net Profit From Business). Enter beneficiaries. An estate or trust is not (section 104); andthe net profit or (loss) from Schedule C allowed to make an election under section • Income from discharge of indebtedness(or Schedule C-EZ) on line 3. 179 to expense certain tangible property. in a title 11 case (section 108).

The estate’s or trust’s share ofLine 4—Capital Gain or (Loss) Exception. State income taxes anddepreciation, depletion, and amortization business expenses that are allocable toEnter the gain from Schedule D (Form should be reported on the appropriate tax-exempt interest are deductible.1041), Part III, line 16, column (3); or the lines of Schedule C (or C-EZ), E, or Floss from Part IV, line 17. Expenses that are directly allocable to(Form 1040), the net income or loss from

tax-exempt income are allocated only toDo not substitute Schedule D which is shown on line 3, 5, or 6 of Formtax-exempt income. A reasonable(Form 1040) for Schedule D (Form 1041. If the deduction is not related to aproportion of expenses indirectly allocable1041). specific business or activity, then report itCAUTION

!to both tax-exempt income and otheron line 15a.Line 5—Rents, Royalties, income must be allocated to each class of

Depreciation. For a decedent’s estate, income.Partnerships, Other Estates and the depreciation deduction is apportionedTrusts, etc. between the estate and the heirs, Deductions That May BeUse Schedule E (Form 1040), legatees, and devisees on the basis of Allowable for Estate TaxSupplemental Income and Loss, to report the estate’s income allocable to each. Purposesthe estate’s or trust’s share of income or For a trust, the depreciation deduction Administration expenses and casualty(losses) from rents, royalties, is apportioned between the income and theft losses deductible on Form 706partnerships, S corporations, other beneficiaries and the trust on the basis of may be deducted, to the extent otherwiseestates and trusts, and REMICs. Enter the trust income allocable to each, unless deductible for income tax purposes, onthe net profit or (loss) from Schedule E on the governing instrument (or local law) Form 1041 if the fiduciary files aline 5. See the instructions for Schedule E requires or permits the trustee to maintain statement waiving the right to deduct the(Form 1040) for reporting requirements. a depreciation reserve. If the trustee is expenses and losses on Form 706. The

If the estate or trust received a required to maintain a reserve, the statement must be filed before theSchedule K-1 from a partnership, S deduction is first allocated to the trust, up expiration of the statutory period ofcorporation, or other flow-through entity, to the amount of the reserve. Any excess limitations for the tax year the deductionuse the corresponding lines on Form is allocated among the beneficiaries in the is claimed. See Pub. 559 for more1041 to report the interest, dividends, same manner as the trust’s accounting information.capital gains, etc., from the flow-through income. See Regulations sectionentity. 1.167(h)-1(b). Accrued Expenses

Depletion. For mineral or timber property Generally, an accrual basis taxpayer canLine 6—Farm Income or (Loss)held by a decedent’s estate, the depletion deduct accrued expenses in the tax yearIf the estate or trust operated a farm, use deduction is apportioned between the that: (a) all events have occurred thatSchedule F (Form 1040), Profit or Loss estate and the heirs, legatees, and determine the liability; and (b) the amountFrom Farming, to report farm income and devisees on the basis of the estate’s of the liability can be figured withexpenses. Enter the net profit or (loss) income from such property allocable to reasonable accuracy. However, all thefrom Schedule F on line 6. each. events that establish liability are treated

as occurring only when economicLine 7—Ordinary Gain or For mineral or timber property held inperformance takes place. There aretrust, the depletion deduction is(Loss)exceptions for recurring items. Seeapportioned between the incomeEnter from line 18, Form 4797, Sales of section 461(h).beneficiaries and the trust based on theBusiness Property, the ordinary gain or

trust income from such property allocableloss from the sale or exchange of Limitations on Deductionsto each, unless the governing instrumentproperty other than capital assets and(or local law) requires or permits thealso from involuntary conversions (other At-Risk Loss Limitationstrustee to maintain a reserve forthan casualty or theft).depletion. If the trustee is required to Generally, the amount the estate or trust

Line 8—Other Income maintain a reserve, the deduction is first has “at risk” limits the loss it can deductallocated to the trust, up to the amount of for any tax year. Use Form 6198, At-RiskEnter other items of income not includedthe reserve. Any excess is allocated Limitations, to figure the deductible losson lines 1 through 7. List the type andamong the beneficiaries in the same for the year and file it with Form 1041. Foramount on an attached schedule if themanner as the trust’s accounting income. more information, see Pub. 925, Passiveestate or trust has more than one item.See Regulations section 1.611-1(c)(4). Activity and At-Risk Rules.Items to be reported on line 8 include:Amortization. The deduction for• Unpaid compensation received by the Passive Activity Loss andamortization is apportioned between andecedent’s estate that is income in Credit Limitationsestate or trust and its beneficiaries underrespect of a decedent.the same principles for apportioning the• Any part of a total distribution shown on In general. Section 469 and thedeductions for depreciation and depletion.Form 1099-R, Distributions From regulations thereunder generally limit

Pensions, Annuities, Retirement or The deduction for the amortization of losses from passive activities to theProfit-Sharing Plans, IRAs, Insurance reforestation expenditures under section amount of income derived from allContracts, etc., that is treated as ordinary 194 is allowed only to an estate. passive activities. Similarly, credits from

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passive activities are generally limited to 1. A grantor and a fiduciary of any property for the period during which anthe tax attributable to such activities. trust; extension of time for payment of such taxThese limitations are first applied at the is in effect.2. A fiduciary of a trust and a fiduciaryestate or trust level. of another trust, if the same person is a

grantor of both trusts; Investment interest. Generally,Generally, an activity is a passive3. A fiduciary of a trust and a investment interest is interest (includingactivity if it involves the conduct of any

beneficiary of such trust; amortizable bond premium on taxabletrade or business, and the taxpayer doesbonds acquired after October 22, 1986,4. A fiduciary of a trust and anot materially participate in the activity.but before January 1, 1988) that is paid orbeneficiary of another trust, if the samePassive activities do not include workingincurred on indebtedness that is properlyperson is a grantor of both trusts;interests in oil and gas properties. Seeallocable to property held for investment.5. A fiduciary of a trust and asection 469(c)(3).Investment interest does not include anycorporation more than 50% in value of theNote: Material participation standards forqualified residence interest, or interestoutstanding stock of which is owned,estates and trusts have not beenthat is taken into account under sectiondirectly or indirectly, by or for the trust orestablished by regulations.469 in figuring income or loss from aby or for a person who is a grantor of the

For a grantor trust, material passive activity.trust; andparticipation is determined at the grantor 6. An executor of an estate and a Generally, net investment income islevel. beneficiary of that estate, except for a the excess of investment income overIf the estate or trust distributes an sale or exchange to satisfy a pecuniary investment expenses. Investmentinterest in a passive activity, the basis of bequest (i.e., a bequest of a sum of expenses are those expenses (other thanthe property immediately before the money). interest) allowable after application of thedistribution is increased by the passive

2% floor on miscellaneous itemizedactivity losses allocable to the interest, Line 10— Interest deductions.and such losses cannot be deducted. SeeEnter the amount of interest (subject tosection 469(j)(12). The amount of the investment interestlimitations) paid or incurred by the estateNote: Losses from passive activities are deduction may be limited. Use Formor trust on amounts borrowed by thefirst subject to the at-risk rules. When the 4952, Investment Interest Expenseestate or trust, or on debt acquired by thelosses are deductible under the at-risk Deduction, to figure the allowableestate or trust (e.g., outstandingrules, the passive activity rules then investment interest deduction.obligations from the decedent) that is notapply.claimed elsewhere on the return. If you must complete Form 4952,Rental activities. Generally, rental check the box on line 10 and attach Formactivities are passive activities, whether or If the proceeds of a loan were used for 4952. Then, add the deductiblenot the taxpayer materially participates. more than one purpose (e.g., to purchase investment interest to the other types ofHowever, certain taxpayers who a portfolio investment and to acquire an deductible interest and enter the total onmaterially participate in real property interest in a passive activity), the fiduciary line 10.trades or businesses are not subject to must make an interest allocation

the passive activity limitations on losses according to the rules in Temporary Qualified residence interest. Interestfrom rental real estate activities in which Regulations section 1.163-8T. paid or incurred by an estate or trust onthey materially participate. For more indebtedness secured by a qualified

Do not include interest paid ondetails, see section 469(c)(7). residence of a beneficiary of an estate orindebtedness incurred or continued to trust is treated as qualified residenceFor tax years of an estate ending less purchase or carry obligations on which interest if the residence would be athan 2 years after the decedent’s date of the interest is wholly exempt from income qualified residence (i.e., the principaldeath, up to $25,000 of deductions and tax. residence or the second residencededuction equivalents of credits from

selected by the beneficiary) if owned byrental real estate activities in which the Personal interest is not deductible.the beneficiary. The beneficiary mustdecedent actively participated are Examples of personal interest includehave a present interest in the estate orallowed. Any excess losses and/or credits interest paid on:trust or an interest in the residuary of theare suspended for the year and carried • Revolving charge accounts used toestate or trust. See Pub. 936, Homeforward. purchase personal use property.Mortgage Interest Deduction, for anPortfolio income. Portfolio income is not • Personal notes for money borrowedexplanation of the general rules fortreated as income from a passive activity, from a bank, credit union, or other person.deducting home mortgage interest.and passive losses and credits generally • Installment loans on personal use

may not be applied to offset it. Portfolio property. See section 163(h)(3) for a definition ofincome generally includes interest, • Underpayments of Federal, state, or qualified residence interest and fordividends, royalties, and income from local income taxes. limitations on indebtedness.annuities. Portfolio income of an estate or Interest that is paid or incurred ontrust must be accounted for separately. indebtedness allocable to a trade or Line 11—Taxes

business (including a rental activity)Forms to file. See Form 8582, Passive Enter any deductible taxes paid orshould be deducted on the appropriateActivity Loss Limitations, to figure the incurred during the tax year that are notline of Schedule C (or C-EZ), E, or Famount of losses allowed from passive deductible elsewhere on Form 1041.(Form 1040), the net income or loss fromactivities. See Form 8582-CR, Passivewhich is shown on line 3, 5, or 6 of Form Deductible taxes include:Activity Credit Limitations, to figure the1041. • State and local income or real propertyamount of credit allowed for the current

taxes.year.Types of interest to include on line 10 • The generation-skipping transfer (GST)Transactions Between Related are: tax imposed on income distributions.

Taxpayers 1. Any investment interest (subject to Do not deduct:limitations—see below);Under section 267, a trust that uses the • Federal income taxes.

2. Any qualified residence interestaccrual method of accounting may only • Estate, inheritance, legacy, succession,(see below); anddeduct business expenses and interest and gift taxes.

owed to a related party in the year the 3. Any interest payable under section • Federal duties and excise taxes.payment is included in the income of the 6601 on any unpaid portion of the estate • State and local sales taxes. Instead,related party. For this purpose, a related tax attributable to the value of a treat these taxes as part of the cost of theparty includes: reversionary or remainder interest in property.

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report them on the appropriate line of AMID = Total miscellaneous itemizedLine 12—Fiduciary FeesSchedule K-1 (Form 1041). deductions – (.02(AGI))Enter the deductible fees paid or incurred

The following example illustrates howto the fiduciary for administering the Line 15b—Allowablealgebraic equations can be used to solveestate or trust during the tax year. Miscellaneous Itemized for these unknown amounts.Fiduciary fees deducted on Form Deductions Subject to the 2% Example. The Malcolm Smith Trust, a706 cannot be deducted on Floor complex trust, earned $20,000 of dividendForm 1041.

TIP

Miscellaneous itemized deductions are income, $20,000 of capital gains, and adeductible only to the extent that the fully deductible $5,000 loss from XYZLine 15a—Other Deductionsaggregate amount of such deductions partnership (chargeable to corpus) inNot Subject to the 2% Floorexceeds 2% of adjusted gross income 2001. The trust instrument provides that

Attach your own schedule, listing by type (AGI). capital gains are added to corpus. 50% ofand amount, all allowable deductions that the fiduciary fees are allocated to incomeAmong the miscellaneous itemizedare not deductible elsewhere on Form and 50% to corpus. The trust claimed adeductions that must be included on line1041. $2,000 deduction on line 12 of Form15b are expenses for the production or

Do not include any losses on worthless 1041. The trust incurred $1,500 ofcollection of income under section 212,bonds and similar obligations and miscellaneous itemized deductionssuch as investment advisory fees,nonbusiness bad debts. Report these (chargeable to income), which are subjectsubscriptions to investment advisorylosses on Schedule D (Form 1041). to the 2% floor. There are no otherpublications, and the cost of safe deposit

deductions. The trustee made aboxes.Do not deduct medical or funeraldiscretionary distribution of theexpenses on Form 1041. Medical Miscellaneous itemized deductions do accounting income of $17,500 to theexpenses of the decedent paid by the not include deductions for: trust’s sole beneficiary.estate may be deductible on the • Interest under section 163. Because the actual distribution candecedent’s income tax return for the year • Taxes under section 164. reasonably be expected to exceed theincurred. See section 213(c). Funeral • The amortization of bond premium DNI, the trust must figure the DNI, takingexpenses are deductible only on Form under section 171. into account the allowable miscellaneous706. • Estate taxes attributable to income in itemized deductions, to determine therespect of a decedent under sectionThe following are examples of amount to enter on line 15b.691(c).deductions that are reported on line 15a.

The trust also claims an exemption of• Expenses paid or incurred inBond premium(s). For taxable bonds $100 on line 20.connection with the administration of theacquired before October 23, 1986, if theestate or trust that would not have been Using the facts in this example:fiduciary elected to amortize the premium,incurred if the property were not held in AMID = 1,500 – (.02(AGI))report the amortization on this line. Youthe estate or trust.cannot deduct the amortization for In all situations, use the followingFor other exceptions, see sectiontax-exempt bonds. In all cases where the equation to compute the AGI:67(b).fiduciary has made an election to AGI = (line 9) – (the total of lines 12,amortize the premium, the basis must be How to figure AGI for estates and 14, and 15a to the extent they are costsreduced by the amount of amortization. trusts. You figure AGI by subtracting the incurred in the administration of the estatefollowing from total income on line 9 ofFor more information, see section 171 or trust that would not have been incurredpage 1:and Pub. 550. if the property were not held by the estate

1. The administration costs of the or trust) – (line 18) – (line 20).If you claim a bond premium deduction estate or trust (the total of lines 12, 14, Note: There are no other deductionsfor the estate or trust, figure the deduction and 15a to the extent they are costs claimed by the trust on line 15a that areon a separate sheet and attach it to incurred in the administration of the estate deductible in arriving at AGI.Form 1041. or trust) that would not have beenFiguring AGI in this example, we get:Casualty and theft losses. Use Form incurred if the property were not held by

4684, Casualties and Thefts, to figure any the estate or trust; AGI = 35,000 – 2,000 – DNI – 100deductible casualty and theft losses. 2. The income distribution deduction Since the value of line 18 is not known

(line 18);Deduction for clean-fuel vehicles. because it is limited to the DNI, you are3. The amount of the exemption (lineSection 179A allows a deduction for part left with the following:

20);of the cost of qualified clean-fuel vehicle AGI = 32,900 – DNI4. The deduction for clean-fuelproperty. See Pub. 535, BusinessSubstitute the value of AGI in thevehicles claimed on line 15a; andExpenses, for more details.

equation:5. The net operating loss deductionNet operating loss deduction (NOLD). claimed on line 15a. AMID = 1,500 – (.02(32,900 – DNI))An estate or trust is allowed the netThe equation cannot be solved untilFor those estates and trusts whoseoperating loss deduction (NOLD) under

the value of DNI is known. The DNI canincome distribution deduction is limited tosection 172.be expressed in terms of the AMID. To dothe actual distribution, and not the DNIIf you claim an NOLD for the estate or this, compute the DNI using the known(i.e., the income distribution is less thantrust, figure the deduction on a separate values. In this example, the DNI is equalthe DNI), when computing the AGI, usesheet and attach it to this return. to the total income of the trust (less anythe amount of the actual distribution.

Estate’s or trust’s share of capital gains allocated to corpus; or plusFor those estates and trusts whoseamortization, depreciation, and any capital loss from line 4); less totalincome distribution deduction is limited todepletion not claimed elsewhere. If you deductions from line 16 (excluding anythe DNI (i.e., the actual distributioncannot deduct the amortization, miscellaneous itemized deductions); lessexceeds the DNI), the DNI must bedepreciation, and depletion as rent or the AMID.figured taking into account the allowableroyalty expenses on Schedule E (Form Thus, DNI = (line 9) – (line 16, columnmiscellaneous itemized deductions1040), or as business or farm expenses (2) of Schedule D (Form 1041)) – (line(AMID) after application of the 2% floor. Inon Schedule C, C-EZ, or F (Form 1040), 16) – (AMID)this situation there are two unknownitemize the fiduciary’s share of theamounts: (a) the AMID; and (b) the DNI. Substitute the known values:deductions on an attached sheet and

include them on line 15a. Itemize each Computing line 15b. To compute line DNI = 35,000 – 20,000 – 2,000 –beneficiary’s share of the deductions and 15b, use the equation below: AMID

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DNI = 13,000 – AMID • Schedule K-1 (Form 1041) for each Line 20—Exemptionbeneficiary to which a distribution wasSubstitute the value of DNI in the Decedents’ estates. A decedent’s estatemade or required to be made.equation to solve for AMID: is allowed a $600 exemption.Cemetery perpetual care fund. On lineAMID = 1,500 – (.02(32,900 – (13,000

Trusts required to distribute all income18, deduct the amount, not more than $5– AMID)))currently. A trust whose governingper gravesite, paid for maintenance ofAMID = 1,500 – (.02(32,900 – 13,000 instrument requires that all income becemetery property. To the right of the+ AMID)) distributed currently is allowed a $300entry space for line 18, enter the numberexemption, even if it distributed amountsAMID = 1,500 – (658 – 260 + of gravesites. Also write “Section 642(i)other than income during the tax year..02AMID) trust” in parentheses after the trust’s

name at the top of Form 1041. You do notAMID = 1,102 – .02AMID Qualified disability trusts. A qualifiedhave to complete Schedules B of Form disability trust is allowed a $2,9001.02AMID = 1,102 1041 and K-1 (Form 1041). exemption if the trust’s modified AGI isAMID = 1,080 less than or equal to $132,950. If itsDo not enter less than zero on line 18.DNI = 11,920 (i.e., 13,000 – 1,080) modified AGI exceeds $132,950,

complete the worksheet below to figureAGI = 20,980 (i.e., 32,900 – 11,920) Line 19—Estate Tax Deductionthe amount of the trust’s exemption. To(Including Certain Generation-Note: The income distribution deduction figure modified AGI, follow the

Skipping Transfer Taxes)is equal to the smaller of the distribution instructions for figuring AGI for line 15b($17,500) or the DNI ($11,920). If the estate or trust includes income in on page 15, except use zero as the

respect of a decedent (IRD) in its gross amount of the trust’s exemption whenEnter the value of AMID on line 15bincome, and such amount was included in figuring AGI. The new exemption amount(the DNI should equal line 7 of Schedulethe decedent’s gross estate for estate tax applies to tax years ending afterB) and complete the rest of Form 1041purposes, the estate or trust is allowed to September 10, 2001.according to the instructions.deduct in the same tax year the income isIf the 2% floor is more than the A qualified disabilty trust is any trust:included, that portion of the estate taxdeductions subject to the 2% floor, no imposed on the decedent’s estate that is 1. Described in 42 U.S.C.deductions are allowed. attributable to the inclusion of the IRD in 1396p(c)(2)(B)(iv) and established solelythe decedent’s estate. For an example of for the benefit of an individual under 65Line 18— Income Distributionthe computation, see Regulations section years of age who is disabled andDeduction1.691(c)-1 and Pub. 559. 2. All of the beneficiaries of which areIf the estate or trust was required to

determined by the Commissioner ofdistribute income currently or if it paid, If any amount properly paid, credited, Social Security to have been disabled forcredited, or was required to distribute any or required to be distributed by an estate some part of the tax year within theother amounts to beneficiaries during the or trust to a beneficiary consists of IRD meaning of 42 U.S.C. 1382c(a)(3).tax year, complete Schedule B to received by the estate or trust, do notdetermine the estate’s or trust’s income A trust will not fail to meet 2 above justinclude such amounts in determining thedistribution deduction. However, if you are because the trust’s corpus may revert to aestate tax deduction for the estate orfiling for a pooled income fund, do not person who is not disabled after the trusttrust. Figure the deduction on a separatecomplete Schedule B. Instead, attach a ceases to have any disabledsheet. Attach the sheet to your return.statement to support the computation of beneficiaries.the income distribution deduction. If the Also, a deduction is allowed for the

A qualified disability trust mustestate or trust claims an income GST tax imposed as a result of a taxableenter ‘‘Section 642(b)(2)(C)’’ to thedistribution deduction, complete and termination or a direct skip occurring as aleft of the entry space for line 20.attach: result of the death of the transferor. See CAUTION

!• Part I (through line 9) and Part II of section 691(c)(3). Enter the estate’s orSchedule I to refigure the deduction on a trust’s share of these deductions on All other trusts. A trust not describedminimum tax basis and line 19. above is allowed a $100 exemption.

Exemption Worksheet for Qualified Disability Trusts Only—Line 20 Keep for Your Records

Maximum exemption

Enter the trust’s modified AGI*

Threshold amount

Divide line 4 by $2,500. If result is not a whole number, increase it to thenext higher whole number (e.g., increase 0.0004 to 1)

2.

3.

4.

5.

1.

2.

3.

4.

5.

Subtract line 3 from line 2

1.

Multiply line 5 by 2% (.02) and enter the result as a decimal6.

Multiply line 1 by line 67.

6.

7.

8. Exemption. Subtract line 7 from line 1. Enter the result here and on Form 1041, line 20

*Figure the trust’s modified AGI in the same manner as AGI is figured in the line 15b instructionson page 15, except use zero when figur ing the amount of the trust’s exemption.

8.

Note: If line 4 is more than $122,500, stop here. The trust’s exemption is zero.

Note: If the trust’s modified AGI* is less than or equal to $132,950, enter $2,900 on Form 1041,line 20. Otherwise, complete the worksheet below to figure the trust’s exemption.

$2,900

$132,950

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Do not include on Form 1041 Line 24f—Credit For Tax PaidTax and Paymentsestimated tax paid by an individual on Undistributed Capital Gainsbefore death. Instead, include theLine 22—Taxable Income CAUTION

!Attach copy B of Form 2439, Notice topayments on the decedent’s final incomeShareholder of Undistributed Long-TermNet operating loss. If line 22 is a loss, tax return.Capital Gains.the estate or trust may have a net

operating loss (NOL). Do not include the Line 24b—Estimated Tax Line 24g—Credit for Federaldeductions claimed on lines 13, 18, and Payments Allocated to Tax on Fuels20 when figuring the amount of the NOL. Beneficiaries Enter any credit for Federal excise taxesAn NOL generally may be carried back to

The trustee (or executor, for the final year paid on fuels that are ultimately used forthe 2 prior tax years and forward to the 20of the estate) may elect under section nontaxable purposes (e.g., an off-highwayfollowing tax years. However, if the estate643(g) to have any portion of its business use). Attach Form 4136, Creditor trust has:estimated tax treated as a payment of for Federal Tax Paid on Fuels. See Pub.• A casualty or theft loss for the tax year,estimated tax made by a beneficiary or 378, Fuel Tax Credits and Refunds, forthe part of the NOL attributable tobeneficiaries. The election is made on more information.casualty or theft losses may be carriedForm 1041-T, Allocation of Estimated Taxback to the 3 prior tax years and forward Line 26—Estimated Tax PenaltyPayments to Beneficiaries, which must beto the 20 following tax years.filed by the 65th day after the close of the If line 27 is at least $1,000 and more than• A farming loss for the tax year, the parttrust’s tax year. Form 1041-T shows the 10% of the tax shown on Form 1041, orof the NOL attributable to the farming lossamounts to be allocated to each the estate or trust underpaid its 2001may be carried back to the 5 prior taxbeneficiary. This amount is reported on estimated tax liability for any paymentyears and forward to the 20 following taxthe beneficiary’s Schedule K-1, line 14a. period, it may owe a penalty. See Formyears.

2210 to determine whether the estate orComplete Schedule A of Form 1045, Failure to file Form 1041-T by the duetrust owes a penalty and to figure theApplication for Tentative Refund, to figure date (March 6, 2002, for calendar yearamount of the penalty.the amount of the NOL that is available estates and trusts) will result in an invalidNote: The penalty may be waived underfor carryback or carryover. Use Form election. An invalid election will requirecertain conditions. See Pub. 505, Tax1045 or file an amended return to apply the filing of amended Schedules K-1 forWithholding and Estimated Tax, forfor a refund based on an NOL carryback. each beneficiary who was allocated adetails.For more details, see Pub. 536, Net payment of estimated tax.

Operating Losses. Attach Form 1041-T to your return Line 27—Tax DueOn the termination of the estate or only if you have not yet filed it. If you You must pay the tax in full when the

trust, any unused NOL carryover that have already filed Form 1041-T, do not return is filed. Make the check or moneywould be allowable to the estate or trust attach a copy to your return. order payable to the “United Statesin a later tax year, but for the termination, Treasury.” Write the EIN and “2001 FormLine 24d—Tax Paid Withis allowed to the beneficiaries succeeding 1041” on the payment. Enclose, but doExtension of Time To Fileto the property of the estate or trust. See not attach, the payment with Form 1041.the instructions for Schedule K-1, lines If you filed either Form 2758 (for estates You may use EFTPS to pay the13d and 13e. only), Form 8736, or Form 8800 to tax due for a trust. See Electronicrequest an extension of time to file FormExcess deductions on termination. If Deposits on page 7.

TIP1041, enter the amount that you paid withthe estate or trust has for its final yearthe extension request and check thedeductions (excluding the charitable Line 29a—Credited to 2002appropriate box(es).deduction and exemption) in excess of its Estimated Tax

gross income, the excess is allowed asEnter the amount from line 28 that youLine 24e—Federal Income Taxan itemized deduction to the beneficiarieswant applied to the estate’s or trust’sWithheldsucceeding to the property of the estate2002 estimated tax.or trust. Use line 24e to claim a credit for any

Federal income tax withheld (and notIn general, an unused NOL carryoverrepaid) by: (a) an employer on wages andthat is allowed to beneficiaries (as Schedule A—Charitablesalaries of a decedent received by theexplained above) cannot also be treateddecedent’s estate; (b) a payer of certain Deductionas an excess deduction. However, if thegambling winnings (e.g., state lotteryfinal year of the estate or trust is also thewinnings); or (c) a payer of distributions General Instructionslast year of the NOL carryover period, thefrom pensions, annuities, retirement orNOL carryover not absorbed in that tax Generally, any part of the gross income ofprofit-sharing plans, IRAs, insuranceyear by the estate or trust is included as an estate or trust (other than a simplecontracts, etc., received by a decedent’san excess deduction. See the instructions trust) that, under the terms of the will orestate or trust. Attach a copy of Formfor Schedule K-1, line 13a. governing instrument, is paid (or treatedW-2, Form W-2G, or Form 1099-R to the as paid) during the tax year for aLine 24a—2001 Estimated Tax front of the return. Except for backup charitable purpose specified in sectionwithholding (as explained below),Payments and Amount Applied 170(c) is allowed as a deduction to thewithheld income tax may not be passedFrom 2000 Return estate or trust. It is not necessary that thethrough to beneficiaries on either charitable organization be created orEnter the amount of any estimated tax Schedule K-1 or Form 1041-T. organized in the United States.payment you made with Form 1041-ESBackup withholding. If the estate orfor 2001 plus the amount of any A pooled income fund, a nonexempttrust received a 2001 Form 1099 showingoverpayment from the 2000 return that charitable trust treated as a privateFederal income tax withheld (i.e., backupwas applied to the 2001 estimated tax. foundation, or a trust with unrelatedwithholding) on interest income, business income should attach aIf the estate or trust is the beneficiarydividends, or other income, check the box separate sheet to Form 1041 instead ofof another trust and received a paymentand include the amount withheld on using Schedule A of Form 1041 to figureof estimated tax that was credited to theincome retained by the estate or trust in the charitable deduction.trust (as reflected on the Schedule K-1the total for line 24e.issued to the trust), then report this Additional return to be filed by trusts.

amount separately with the notation Report on Schedule K-1 (Form 1041), Trusts that claim a charitable deduction“section 643(g)” in the space next to line 14, any credit for backup withholding must also file Form 1041-A. See Formline 24a. on income distributed to the beneficiary. 1041-A for exceptions.

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Election to treat contributions as paid prevention of cruelty to children orin the prior tax year. The fiduciary of an animals, or for the establishment, Schedule B—Incomeestate or trust may elect to treat as paid acquisition, maintenance, or operation of Distribution Deductionduring the tax year any amount of gross a public cemetery not operated for profit.income received during that tax year or

General InstructionsFor a trust to qualify, the trust may notany prior tax year that was paid in thebe a simple trust, and the set asidenext tax year for a charitable purpose. If the estate or trust was required toamounts must be required by the terms of distribute income currently or if it paid,For example, if a calendar year estatea trust instrument that was created on or credited, or was required to distribute anyor trust makes a qualified charitablebefore October 9, 1969. other amounts to beneficiaries during thecontribution on February 9, 2002, from

tax year, complete Schedule B toincome earned in 2001 or prior, then the Further, the trust instrument must determine the estate’s or trust’s incomefiduciary can elect to treat the contribution provide for an irrevocable remainder distribution deduction. However, if you areas paid in 2001. interest to be transferred to or for the use filing for a pooled income fund, do notTo make the election, the fiduciary of an organization described in section complete Schedule B. Instead, attach a

must file a statement with Form 1041 for 170(c); or the trust must have been statement to support the computation ofthe tax year in which the contribution is created by a grantor who was at all times the income distribution deduction.treated as paid. This statement must after October 9, 1969, under a mental Note: Use Schedule I to compute theinclude: disability to change the terms of the trust. DNI and income distribution deduction on

1. The name and address of the a minimum tax basis.Also, certain testamentary trusts thatfiduciary;

Separate share rule. If a single trust orwere established by a will that was2. The name of the estate or trust;an estate has more than one beneficiary,executed on or before October 9, 1969,3. An indication that the fiduciary isand if different beneficiaries havemay qualify. See Regulations sectionmaking an election under sectionsubstantially separate and independent1.642(c)-2(b).642(c)(1) for contributions treated as paidshares, their shares are treated asduring such tax year;separate trusts or estates for the soleDo not include any capital gains for the4. The name and address of eachpurpose of determining the DNI allocabletax year allocated to corpus and paid ororganization to which any suchto the respective beneficiaries.permanently set aside for charitablecontribution is paid; and

purposes. Instead, enter these amounts If the separate share rule applies,5. The amount of each contributionon line 4. figure the DNI allocable to eachand date of actual payment or, if

beneficiary on a separate sheet andapplicable, the total amount ofattach the sheet to this return. AnyLine 2—Tax-Exempt Incomecontributions paid to each organizationdeduction or loss that is applicable solelyduring the next tax year, to be treated as Allocable to Charitableto one separate share of the trust orpaid in the prior tax year. Contributionsestate is not available to any other shareAny estate or trust that pays or sets asideThe election must be filed by the due of the same trust or estate.any part of its income for a charitabledate (including extensions) for Form 1041

For more information, see sectionpurpose must reduce the deduction byfor the next tax year. If the original return663(c) and related regulations.the portion allocable to any tax-exemptwas filed on time, you may make the

income. If the governing instrumentelection on an amended return filed no The separate share rule does notspecifically provides as to the source fromlater than 6 months after the due date of apply to the estates of decedents

the return (excluding extensions). Write which amounts are paid, permanently set dying before August 6, 1997.CAUTION!

“Filed pursuant to section 301.9100-2” at aside, or to be used for charitableSpecific Instructionsthe top of the amended return, and file it purposes, the specific provisions control.

at the same address you used for your In all other cases, determine the amountLine 1—Adjusted Total Incomeoriginal return. of tax-exempt income allocable toGenerally, enter on line 1, Schedule B,charitable contributions by multiplying lineFor more information about thethe amount from line 17 on page 1 of1 by a fraction, the numerator of which ischaritable deduction, see section 642(c)Form 1041. However, if both line 4 andthe total tax-exempt income of the estateand related regulations.line 17 on page 1, of Form 1041 areor trust, and the denominator of which is

Specific Instructions losses, enter on line 1, Schedule B, thethe gross income of the estate or trust. Dosmaller of those losses. If line 4 is zero ornot include in the denominator any losses

Line 1—Amounts Paid or a gain and line 17 is a loss, enter zero onallocated to corpus.Permanently Set Aside for line 1, Schedule B.Charitable Purposes From Gross Line 4—Capital Gains for the Tax If you are filing for a simple trust,Income Year Allocated to Corpus and Paid subtract from adjusted total income any

extraordinary dividends or taxable stockor Permanently Set Aside forEnter amounts that were paid for adividends included on page 1, line 2, andcharitable purpose out of the estate’s or Charitable Purposesdetermined under the governingtrust’s gross income, including any capital Enter the total of all capital gains for theinstrument and applicable local law to begains that are attributable to income tax year that are:allocable to corpus.under the governing instrument or local • Allocated to corpus and

law. Include amounts paid during the tax Line 2—Adjusted Tax-Exempt• Paid or permanently set aside foryear from gross income received in a Interestcharitable purposes.prior tax year, but only if no deductionTo figure the adjusted tax-exemptwas allowed for any prior tax year for

Line 6—Section 1202 Exclusion interest:these amounts.Allocable to Capital Gains Paid or Step 1. Add tax-exempt interestEstates, and certain trusts, may claim Permanently Set Aside for income on line 2 of Schedule A, anya deduction for amounts permanently setCharitable Purposes expenses allowable under section 212aside for a charitable purpose from gross

allocable to tax-exempt interest, and anyIf the exclusion of gain from the sale orincome. Such amounts must beinterest expense allocable to tax-exemptexchange of qualified small businesspermanently set aside during the tax yearinterest.stock was claimed, enter the part of theto be used exclusively for religious,

gain included on Schedule A, lines 1 andcharitable, scientific, literary, or Step 2. Subtract the Step 1 total from4, that was excluded under section 1202.educational purposes, or for the the amount of tax-exempt interest

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(including exempt-interest dividends) A fiduciary of a complex trust or aLines 9 and 10received. decedent’s estate may elect to treat anyDo not include any:

amount paid or credited to a beneficiary• Amounts deducted on prior year’sSection 212 expenses that are directly within 65 days following the close of thereturn that were required to be distributedallocable to tax-exempt interest are tax year as being paid or credited on thein the prior year.allocated only to tax-exempt interest. A last day of that tax year. To make thisreasonable proportion of section 212 • Amount that is properly paid or credited election, see the instructions for Questionexpenses that are indirectly allocable to as a gift or bequest of a specific amount 6 on page 21.both tax-exempt interest and other of money or specific property. (To qualifyincome must be allocated to each class of as a gift or bequest, the amount must be The beneficiary includes the amountsincome. paid in three or fewer installments.) An on line 10 in his or her income only to the

amount that can be paid or credited only extent of his or her proportionate share ofFigure the interest expense allocable from income is not considered a gift or the DNI.to tax-exempt interest according to the bequest.guidelines in Rev. Proc. 72-18, 1972-1 • Amount paid or permanently set aside Complex trusts. If the second tierC.B. 740.for charitable purposes or otherwise distributions exceed the DNI allocable to

See Regulations sections 1.643(a)-5 qualifying for the charitable deduction. the second tier, the trust may have anand 1.265-1 for more information. accumulation distribution. See the line 11

Line 9— Income Required To Be instructions below.Line 3 Distributed CurrentlyInclude all capital gains, whether or not Line 11—Total DistributionsLine 9 is to be completed by all simpledistributed, that are attributable to income trusts as well as complex trusts and If line 11 is more than line 8, and you areunder the governing instrument or local decedent’s estates, that are required to filing for a complex trust that haslaw. For example, if the trustee distributed distribute income currently, whether it is previously accumulated income, see the50% of the current year’s capital gains to distributed or not. The determination of instructions on page 33 to see if you mustthe income beneficiaries (and reflects this whether trust income is required to be complete Schedule J (Form 1041).amount in column (1), line 16 of Schedule distributed currently depends on theD (Form 1041)), but under the governing terms of the governing instrument and the Line 12—Adjustment forinstrument all capital gains are applicable local law. Tax-Exempt Incomeattributable to income, then include 100%

In figuring the income distributionof the capital gains on line 3. If the The line 9 distributions are referred todeduction, the estate or trust is notamount on Schedule D (Form 1041), line as first tier distributions and areallowed a deduction for any item of the16, column (1) is a net loss, enter zero. deductible by the estate or trust to theDNI that is not included in the grossextent of the DNI. The beneficiaryIf the exclusion of gain from the sale or income of the estate or trust. Thus, forincludes such amounts in his or herexchange of qualified small business purposes of figuring the allowable incomeincome to the extent of his or herstock was claimed, do not reduce the distribution deduction, the DNI (line 7) isproportionate share of the DNI.gain on line 3 by any amount excluded figured without regard to any tax-exemptunder section 1202. interest.Line 10—Other Amounts Paid,

Line 5 Credited, or Otherwise Required If tax-exempt interest is the onlyIn figuring the amount of long-term and To Be Distributed tax-exempt income included in the totalshort-term capital gain for the tax year distributions (line 11), and the DNI (line 7)Line 10 is to be completed only by aincluded on Schedule A, line 1, the is less than or equal to line 11, then enterdecedent’s estate or complex trust. Thesespecific provisions of the governing on line 12 the amount from line 2.distributions consist of any other amountsinstrument control if the instrument paid, credited, or required to bespecifically provides as to the source from If tax-exempt interest is the onlydistributed and are referred to as secondwhich amounts are paid, permanently set tax-exempt income included in the totaltier distributions. Such amounts includeaside, or to be used for charitable distributions (line 11), and the DNI isannuities to the extent not paid out ofpurposes. more than line 11 (i.e., the estate or trustincome, mandatory and discretionary

made a distribution that is less than thedistributions of corpus, and distributionsIn all other cases, determine theDNI), then figure the adjustment byof property in kind.amount to enter by multiplying line 1 ofmultiplying line 2 by a fraction, theSchedule A by a fraction, the numeratornumerator of which is the totalIf Form 1041-T was filed to elect toof which is the amount of net capital gainsdistributions (line 11), and thetreat estimated tax payments as made bythat are included in the accountingdenominator of which is the DNI (line 7).a beneficiary, the payments are treatedincome of the estate or trust (i.e., notEnter the result on line 12.as paid or credited to the beneficiary onallocated to corpus) and are distributed to

the last day of the tax year and must becharities, and the denominator of which is If line 11 includes tax-exempt incomeincluded on line 10.all items of income (including the amount other than tax-exempt interest, figure lineof such net capital gains) included in the 12 by subtracting the total of the followingUnless a section 643(e)(3) election isDNI. from tax-exempt income included onmade, the value of all noncash propertyReduce the amount on line 5 by any line 11:actually paid, credited, or required to be

allocable section 1202 exclusion. distributed to any beneficiaries is the 1. The charitable contributionsmaller of: deduction allocable to such tax-exemptLine 8—Accounting Income income and1. The estate’s or trust’s adjusted

If you are filing for a decedent’s estate or basis in the property immediately before 2. Expenses allocable to tax-exempta simple trust, skip this line. If you are distribution, plus any gain or minus any income.filing for a complex trust, enter the income loss recognized by the estate or trust on Expenses that are directly allocable tofor the tax year determined under the the distribution (basis of beneficiary) or tax-exempt income are allocated only toterms of the governing instrument and 2. The fair market value (FMV) of tax-exempt income. A reasonableapplicable local law. Do not include such property. proportion of expenses indirectly allocableextraordinary dividends or taxable stock

to both tax-exempt income and otherdividends determined under the If a section 643(e)(3) election is madeincome must be allocated to each class ofgoverning instrument and applicable local by the fiduciary, then the amount enteredincome.law to be allocable to corpus. on line 10 will be the FMV of the property.

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Recapture of low-income housingthe empowerment zone employmentcredit. If the estate or trust disposed ofcredit).Schedule G—Taxproperty (or there was a reduction in the2. The estate or trust has generalComputation qualified basis of the property) on whichcredits from an electing large partnershipthe low-income housing credit wasshown in box 7 of Schedule K-1 (Form

Line 1a claimed, see Form 8611, Recapture of1065-B).Low-Income Housing Credit, to figure any3. The estate or trust has a carryback2001 tax rate schedule. For tax yearsrecapture tax allocable to the estate oror carryforward of any of these creditsbeginning in 2001, figure the tax using thetrust.(other than the empowerment zoneTax Rate Schedule below. Enter the tax

employment credit).on line 1a and check the “Tax rate Recapture of qualified electric vehicle4. Any of these credits (other than theschedule” box. credit. If the estate or trust claimed thelow-income housing credit or thequalified electric vehicle credit in a priorempowerment zone employment credit) is2001 Tax Rate Schedule tax year for a vehicle that ceased tofrom a passive activity.

If taxable qualify for the credit, part or all of theincome is: Enter the amount from Form 3800 on line credit may have to be recaptured. See

Of the 2c. Also, be sure to check the box for Pub. 535 for details. If the estate or trustBut notOver — Its tax is: amountover — Form 3800. owes any recapture tax, include it on lineover —Do not include any amounts that are 5 and write “QEVCR” on the dotted line to$0 $1,800 15% $0

allocated to a beneficiary. Credits that are the left of the entry space.1,800 4,250 $270.00 + 27.5% 1,800allocated between the estate or trust and4,250 6,500 943.75 + 30.5% 4,250 Recapture of the Indian employmentthe beneficiaries are listed in the

6,500 8,900 1,630.00 + 35.5% 6,500 credit. Generally, if the estate or trustinstructions for Schedule K-1, line 14, on8,900 ----- 2,482.00 + 39.1% 8,900 terminates a qualified employee less thanpage 38. Generally, these credits are

1 year after the date of initial employment,apportioned on the basis of the incomeany Indian employment credit allowed forSchedule D. If the estate or trust had allocable to the estate or trust and thea prior tax year by reason of wages paidboth net capital gain and any taxable beneficiaries. Report the estate’s oror incurred to that employee must beincome, complete the applicable lines of trust’s share of the following generalrecaptured. See Form 8845 for details. IfPart V of Schedule D (Form 1041), enter business credits on Schedule G, line 2c.the estate or trust owes any recapturethe tax from line 38 of Schedule D, and • Investment credit (Form 3468).tax, include it on line 5 and write “IECR”check the “Schedule D” box. • Work opportunity credit (Form 5884).on the dotted line to the left of the entry• Welfare-to-work credit (Form 8861).Line 2a—Foreign Tax Credit space.• Credit for alcohol used as fuel (Form

Attach Form 1116, Foreign Tax Credit 6478).(Individual, Estate, Trust, or Nonresident Line 6—Household• Credit for increasing research activitiesAlien Individual), if you elect to claim Employment Taxes(Form 6765).credit for income or profits taxes paid or • Low-income housing credit (Form If any of the following apply, getaccrued to a foreign country or a U.S. 8586). Schedule H (Form 1040), Householdpossession. The estate or trust may claim • Enhanced oil recovery credit (Form Employment Taxes, and its instructions,credit for that part of the foreign taxes not 8830). to see if the estate or trust owes theseallocable to the beneficiaries (including • Disabled access credit (Form 8826). taxes.charitable beneficiaries). Enter the • Renewable electricity production credit 1. The estate or trust paid any oneestate’s or trust’s share of the credit on (Form 8835). household employee cash wages ofline 2a. See Pub. 514, Foreign Tax Credit • Empowerment zone employment credit $1,300 or more in 2001. Cash wagesfor Individuals, for details. (Form 8844). include wages paid by checks, money• Indian employment credit (Form 8845).Line 2b—Other Nonbusiness orders, etc. When figuring the amount of• Credit for employer social security and cash wages paid, combine cash wagesCredits

Medicare taxes paid on certain employee paid by the estate or trust with cashNonconventional source fuel credit. If tips (Form 8846). wages paid to the household employee inthe estate or trust claims any section 29 • Orphan drug credit (Form 8820). the same calendar year by the householdcredit for producing fuel from a • New markets credit (Form 8874). of the decedent or beneficiary for whomnonconventional source, figure the credit • Credit for contributions to selected the administrator, executor, or trustee ofon a separate sheet and attach it to the community development corporations the estate or trust is acting.return. Include the credit on line 2b. (Form 8847). 2. The estate or trust withheld Federal• General credits from an electing largeQualified electric vehicle credit. income tax during 2001 at the request ofpartnership. Report these credits on FormComplete and attach Form 8834, any household employee.3800, line 1p.Qualified Electric Vehicle Credit, if the

3. The estate or trust paid total cashestate or trust claims a credit for thewages of $1,000 or more in any calendarLine 2d—Credit for Prior Yearpurchase of a new qualified electricquarter of 2000 or 2001 to householdMinimum Taxvehicle. Include the credit on line 2b.employees.

An estate or trust that paid alternativeLine 2c—General Businessminimum tax in a previous year may beCredit Line 7—Total Taxeligible for a minimum tax credit in 2001.

Complete this line if the estate or trust is See Form 8801, Credit for Prior Year Interest on tax deferred under theclaiming any of the credits listed below. Minimum Tax— Individuals, Estates, and installment method for certainUse the appropriate credit form to figure Trusts. nondealer real property installmentthe credit. If the estate or trust does not obligations. If an obligation arising fromhave to file Form 3800, General Business Line 5—Recapture Taxes the disposition of real property to whichCredit, enter the form number and the Recapture of investment credit. If the section 453A applies is outstanding at theamount of the credit in the space estate or trust disposed of investment close of the year, the estate or trust mustprovided. credit property or changed its use before include the interest due under sectionThe estate or trust must file Form 3800 the end of the recapture period, see Form 453A(c) in the amount to be entered on

if any of the following apply. 4255, Recapture of Investment Credit, to line 7 of Schedule G, Form 1041, with the1. The estate or trust has more than figure the recapture tax allocable to the notation “Section 453A(c) interest.” Attach

one of the credits listed below (other than estate or trust. a schedule showing the computation.

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Form 4970, Tax on Accumulation Note: An owner of a foreign trust mustQuestion 2Distribution of Trusts. Include on this ensure that the trust files an annualAll salaries, wages, and otherline any tax due on an accumulation information return on Form 3520-A,compensation for personal services mustdistribution from a trust. To the left of the Annual Information Return of Foreignbe included on the return of the personentry space, write “From Form 4970” and Trust With a U.S. Owner.who earned the income, even if thethe amount of the tax. income was irrevocably assigned to a Question 5Form 8697, Interest Computation trust by a contract assignment or similar An estate or trust claiming an interestUnder the Look-Back Method for arrangement. deduction for qualified residence interestCompleted Long-Term Contracts.

(as defined in section 163(h)(3)) onThe grantor or person creating theInclude the interest due under theseller-provided financing, must include ontrust is considered the owner if he or shelook-back method of section 460(b)(2).an attachment to the 2001 Form 1041 thekeeps “beneficial enjoyment” of orTo the left of the entry space, write “Fromname, address, and taxpayer identifyingsubstantial control over the trust property.Form 8697” and the amount of interestnumber of the person to whom theThe trust’s income, deductions, anddue.interest was paid or accrued (i.e., thecredits are allocable to the owner.Form 8866, Interest Computation seller).Under the Look-Back Method for If you checked “Yes” for Question 2,

Property Depreciated Under the see Special Filing Instructions for If the estate or trust received orIncome Forecast Method. Include the Grantor Type Trusts, Pooled Income accrued such interest, it must provideinterest due under the look-back method Funds, and Electing Small Business identical information on the person liableof section 167(g)(2). To the left of the Trusts on page 4. for such interest (i.e., the buyer). Thisentry space, write “From Form 8866” and information does not need to be reported

Question 3the amount of interest due. if it duplicates information alreadyreported on Form 1098.Check the “Yes” box and enter the nameInterest on deferral of gain from

of the foreign country if either 1 or 2certain constructive ownershipQuestion 6below applies.transactions. Include the interest due

under section 1260(b) on any deferral of To make the section 663(b) election to1. At any time during the year thegain from certain constructive ownership treat any amount paid or credited to aestate or trust had an interest in ortransactions. To the left of the entry beneficiary within 65 days following thesignature or other authority over a bank,space, write “1260(b)” and the amount of close of the tax year as being paid orsecurities, or other financial account in ainterest due. credited on the last day of that tax year,foreign country.

check the box. This election can be madeForm 5329, Additional Taxes on Exception. Check “No” if either of theby the fiduciary of a complex trust or theQualified Plans (Including IRAs) and following applies to the estate or trust:executor of a decedent’s estate. For theOther Tax-Favored Accounts. If the • The combined value of the accountselection to be valid, you must file Formestate or trust fails to receive the was $10,000 or less during the whole1041 by the due date (includingminimum distribution under section 4974, year orextensions). Once made, the election isuse Form 5329 to pay the excise tax. To • The accounts were with a U.S.irrevocable.the left of the entry space, write “From military banking facility operated by a U.S.

Form 5329” and the amount of the tax. financial institution. Question 72. The estate or trust owns more thanTax on electing small business trustsTo make the section 643(e)(3) election to50% of the stock in any corporation that(ESBTs). Attach the tax computation torecognize gain on property distributed inowns one or more foreign bank accounts.the return. To the left of the line 7 entrykind, check the box and see thespace, write “Sec. 641(c)” and the amount Get Form TD F 90-22.1, Report of instructions for Schedule D (Form 1041).of tax on the S corporation items. Include Foreign Bank and Financial Accounts, to

this amount in the total tax on line 7. see if the estate or trust is considered to Question 9See Special Filing Instructions for have an interest in or signature or other Generally, a beneficiary is a skip person ifGrantor Type Trusts, Pooled Income authority over a bank, securities, or other the beneficiary is in a generation that isFunds, and Electing Small Business financial account in a foreign country. two or more generations below theTrusts on page 4 for the special tax

generation of the transferor to the trust.If you checked “Yes” for Question 3,computation rules that apply to the portionfile Form TD F 90-22.1 by June 30, 2002,of an ESBT consisting of stock in one or To determine if a beneficiary that is awith the Department of the Treasury atmore S corporations. trust is a skip person, and for exceptionsthe address shown on the form.

to the general rules, see the definition of aForm TD F 90-22.1 is not a tax return, skip person in the instructions for

Other Information so do not file it with Form 1041. Schedule R of Form 706.

You may order Form TD F 90-22.1 byQuestion 1calling 1-800-829-3676If the estate or trust received tax-exempt Schedule I—Alternative(1-800-TAX-FORM).income, figure the allocation of expenses

Minimum Taxbetween tax-exempt and taxable income Question 4on a separate sheet and attach it to the The estate or trust may be required to file A Change To Notereturn. Enter only the deductible amounts Form 3520, Annual Return To Reporton the return. Do not figure the allocation An 8% capital gains tax rate applies toTransactions With Foreign Trusts andon the return itself. For more information, qualified 5-year gain that would otherwiseReceipt of Certain Foreign Gifts, if:see the instructions for Allocation of be taxed at 10%.• It directly or indirectly transferredDeductions for Tax-Exempt Income on property or money to a foreign trust. Forpage 13. General Instructionsthis purpose, any U.S. person who

Report the amount of tax-exempt Use Schedule I to compute:created a foreign trust is considered ainterest income received or accrued in the transferor. 1. The estate’s or trust’s alternativespace provided below Question 1. • It is treated as the owner of any part of minimum taxable income;

Also, include any exempt-interest the assets of a foreign trust under the 2. The income distribution deductiondividends the estate or trust received as a grantor trust rules. on a minimum tax basis; andshareholder in a mutual fund or other • It received a distribution from a foreign 3. The estate’s or trust’s alternativeregulated investment company. trust. minimum tax (AMT).

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AMT purposes from the interest deductionWho Must Complete Optional Write-Off for Certainclaimed on line 10 of page 1. If the totalExpenditures• Complete Schedule I, Parts I and II, ifinterest expense allowed for AMTthe estate or trust is required to complete There is no AMT adjustment for thepurposes is more than that allowed forSchedule B. following items if the estate or trust electsregular tax purposes, enter the difference• Complete Schedule I if the estate’s or to deduct them ratably over the period ofas a negative amount on line 4a.trust’s share of alternative minimum time shown for the regular tax:

taxable income (Part I, line 12) exceeds • Circulation expenditures—3 years Line 4b—Taxes$22,500. (section 173). Enter any state, local, or foreign real• Complete Schedule I if the estate or • Research and experimental property taxes; state or local personaltrust claims a credit on line 2b, 2c, or 2d expenditures—10 years (section 174). property taxes; and state, local, or foreignof Schedule G. • Intangible drilling costs—60 months income taxes that were included on line

(section 263(c)). 11 of page 1.Recordkeeping • Mining exploration and developmentSchedule I contains adjustments and tax Line 4d—Refund of Taxescosts—10 years (sections 616(a) andpreference items that are treated 617(a)). Enter any refunds received in 2001 ofdifferently for regular tax and AMT The election must be made in the year taxes described for line 4b above thatpurposes. If you, as fiduciary for the the expenditure was made and may be were deducted in a tax year after 1986.estate or trust, completed a form to figure revoked only with IRS consent. See

Line 4e—Depreciation of Propertyan item for regular tax purposes, you may section 59(e) for more details.Placed in Service After 1986have to complete it a second time for

Specific InstructionsAMT purposes. Generally, the difference This section describes when depreciationbetween the amounts on the two forms is must be refigured for the AMT and how toPart I—Estate’s or Trust’s Share ofthe AMT adjustment or tax preference figure the amount to enter on line 4e.Alternative Minimum Taxableitem to enter on Schedule I. Except for Do not include on this line anyIncomeForm 1116, any additional form depreciation adjustment from:completed for AMT purposes does not • An activity for which the estate or trustLine 1—Adjusted Total Income orhave to be filed with Form 1041. is not at risk;(Loss) • A partnership or an S corporation if theFor regular tax purposes, some Enter the amount from line 17 of page 1. basis limitations under section 704(d) ordeductions and credits may result in If the adjusted total income includes the 1366(d) apply;carrybacks or carryforwards to other tax amount of the alcohol fuel credit as • A tax shelter farm activity; oryears. Examples are: investment interest required under section 87, reduce the • A passive activity.expense; a net operating loss deduction; adjusted total income by the credit Instead, take these depreciationa capital loss; and the foreign tax credit. included in income. adjustments into account when figuringBecause these items may be refigured for

the adjustments on line 4l, 4m, or 4n,Line 2—Net Operating Lossthe AMT, the carryback or carryforwardwhichever applies.amount may be different for regular and Deduction

AMT purposes. Therefore, you should What depreciation must be refiguredEnter any net operating loss deductionkeep records of these different for the AMT? Generally, you must(NOLD) from line 15a of page 1 as acarryforward and carryback amounts for refigure depreciation for the AMT,positive amount.the AMT and regular tax. The AMT including depreciation allocable to

Line 4a— Interestcarryforward will be important in inventory costs, for:completing Schedule I for 2002. In determining the alternative minimum • Property placed in service after 1998

taxable income, qualified residence that is depreciated for the regular taxCredit for Prior Year Minimum Tax interest (other than qualified housing using the 200% declining balance methodEstates and trusts that paid alternative interest defined in section 56(e)) is not (generally 3-, 5-, 7-, or 10-year propertyminimum tax in 2000, or had a minimum allowed. under the modified cost recovery systemtax credit carryforward, may be eligible for (MACRS)),If you completed Form 4952 for regulara minimum tax credit in 2001. See • Section 1250 property placed in servicetax purposes, you may have anForm 8801. after 1998 that is not depreciated for theadjustment on this line. Refigure your

regular tax using the straight line method,investment interest expense on anotherPartners, Shareholders, etc. andForm 4952 as follows:An estate or trust that is a partner in a • Tangible property placed in serviceStep 1. On line 1 of Form 4952, addpartnership or a shareholder in an S after 1986 and before 1999. If theany interest expense allocable tocorporation must take into account its transitional election was made underspecified private activity bonds issuedshare of items of income and deductions section 203(a)(1)(B) of the Tax Reformafter August 7, 1986, to the other interestthat enter into the computation of its Act of 1986, this rule applies to propertyexpense. For a definition of “specifiedadjustments and tax preference items. placed in service after July 31, 1986.private activity bonds,” see the

What depreciation is not refigured forAllocation of Deductions to instructions for line 4p.the AMT? Do not refigure depreciationBeneficiaries Step 2. On line 2, enter the AMT for the AMT for:disallowed investment interest expenseThe distributable net alternative minimum • Residential rental property placed infrom 2000.taxable income (DNAMTI) of the estate or service after 1998.trust does not include amounts of Step 3. When completing Part II of • Nonresidential real property with adepreciation, depletion, and amortization Form 4952, refigure gross income from class life of 27.5 years or more placed inthat are allocated to the beneficiaries, just property held for investment, any net gain service after 1998 that is depreciated foras the distributable net income (DNI) of from the disposition of property held for the regular tax using the straight linethe estate or trust does not include these investment, and any investment method.items for regular tax purposes. expenses, taking into account all AMT • Other section 1250 property placed in

adjustments and tax preference items thatReport separately on line 12 of service after 1998 that is depreciated forapply. Include any interest income andSchedule K-1 (Form 1041) any the regular tax using the straight lineinvestment expenses from private activityadjustments or tax preference items method.bonds issued after August 7, 1986.attributable to depreciation, depletion, and • Property (other than section 1250

amortization that were allocated to the To figure the adjustment for line 4a, property) placed in service after 1998 thatbeneficiaries. subtract the total interest allowable for is depreciated for the regular tax using

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the 150% declining balance method or short tax years and for property disposed the year the expenditures were paid orthe straight line method. of before the end of the recovery period. incurred.• Property for which you elected to use Enter the difference between theHow is the line 4e adjustment figured?the alternative depreciation system (ADS) amount allowed for AMT purposes andSubtract the AMT deduction forof section 168(g) for the regular tax. the amount allowed for regular taxdepreciation from the regular tax• Motion picture films, videotapes, or purposes. If the amount allowed for AMTdeduction and enter the result. If the AMTsound recordings. purposes exceeds the amount deducteddeduction is more than the regular tax• Property depreciated under the for regular tax purposes, enter thededuction, enter the difference as aunit-of-production method or any other difference as a negative amount.negative amount.method not expressed in a term of years.

See section 56(a)(2)(B) for aIn addition to the AMT adjustment to• Qualified Indian reservation property.discussion of the rules for lossesyour deduction for depreciation, you must

How is depreciation refigured for the sustained on properties for which aalso adjust the amount of depreciationAMT? deduction was allowed under sectionthat was capitalized, if any, to account for

616(a) or 617(a).the difference between the rules for theProperty placed in service beforeregular tax and the AMT. Include on this1999. Refigure depreciation for the AMT Line 4h—Long-Term Contractsline the current year adjustment to taxableusing ADS with the same convention Entered Into After February 28,income, if any, resulting from theused for the regular tax. See the table 1986difference.below for the method and recovery period

For AMT purposes, the percentage ofto use. Line 4f—Circulation and Research completion method of accountingand Experimental Expenditures described in section 460(b) generally

must be used. However, this rule doesDo not make this adjustment fornot apply to any home constructionexpenditures for which youcontract (as defined in section 460(e)(6)).elected the optional 3-yearCAUTION

!Note: Contracts described in sectionwrite-off period (10-year for research and460(e)(1) are subject to the simplifiedexperimental expenditures) under sectionmethod of cost allocation of section59(e) for regular tax purposes.460(b)(4).Circulation expenditures. Circulation

Enter the difference between the AMTexpenditures deducted under sectionand regular tax income. If the AMT173(a) for regular tax purposes must beincome is smaller, enter the difference asamortized for AMT purposes over 3 yearsa negative amount.beginning with the year the expenditures

were paid or incurred. Line 4i—Amortization of PollutionResearch and experimental Control Facilitiesexpenditures. Research and The amortization deduction under sectionexperimental expenditures deducted 169 must be refigured for the AMT. Forunder section 174(a) for regular tax facilities placed in service after 1986 andpurposes generally must be amortized for before 1999, figure the amortizationAMT purposes over 10 years beginning deduction for the AMT using the ADSwith the year the expenditures were paid described in section 168(g). For facilitiesor incurred. However, do not make an placed in service after 1998, figure the

THEN use the . . .

Section 1250property.

Straight line methodover 40 years.

Tangible property(other than section1250 property)depreciated usingstraight line for theregular tax.

Straight line methodover the property’sAMT class life.

Any other tangibleproperty.

150% decliningbalance method,switching to straightline the first tax yearit gives a largerdeduction, over theproperty’s AMTclass life.

IF the property is . . .

Property Placed in Service Before 1999

adjustment for expenditures paid or AMT deduction under MACRS using theincurred in connection with an activity inProperty placed in service after straight line method. Enter the differencewhich the estate or trust materially1998. Use the same convention and between the regular tax and AMTparticipated under the passive activityrecovery period used for the regular tax. deduction. If the AMT amount is greater,rules.For property other than section 1250 enter the difference as a negative

property, use the 150% declining balance Enter the difference between the amount.method, switching to straight line the first amount allowed for AMT purposes and Line 4j— Installment Sales oftax year it gives a larger deduction. For the amount allowed for regular tax

Certain Propertysection 1250 property, use the straight purposes. If the amount for AMTline method. The installment method does not apply forpurposes exceeds the amount allowed for

AMT purposes to any nondealerregular tax purposes, enter the differenceNote: If you did not make this adjustmentdisposition of property that occurred afteras a negative amount.in 1999 or 2000 for section 1250 propertyAugust 16, 1986, but before the first dayplaced in service after 1998 that was not See section 56(b)(2)(B) for a of your tax year that began in 1987, if andepreciated for the regular tax using the discussion of the rules for losses on installment obligation to which thestraight line method, file an amended properties for which a deduction was proportionate disallowance rule appliedreturn if you are required to complete allowed under section 173(a) or 174(a). arose from the disposition. Enter as aSchedule I for that year (after taking thisnegative adjustment on line 4j the amountLine 4g—Mining Exploration andadjustment into account).of installment sale income that wasDevelopment CostsHow is the AMT class life determined? reported for regular tax purposes.

The class life used for the AMT is not Do not make this adjustment forLine 4k—Adjusted Gain or Lossnecessarily the same as the recovery costs for which you elected the

period used for the regular tax. The class (Including Incentive Stock Options)optional 10-year write-off periodCAUTION!

lives for the AMT are listed in Rev. Proc. under section 59(e) for regular tax Adjusted gain or loss. If the estate or87-56, 1987-2 C.B. 674, and in Pub. 946, purposes. trust sold or exchanged property, or had aHow To Depreciate Property. Use 12 Expenditures for the development or casualty gain or loss to business oryears for any tangible personal property exploration of a mine or certain other income-producing property, it may havenot assigned a class life. mineral deposits (other than an oil, gas, an adjustment. The gain or loss on theSee Pub. 946 for optional tables or geothermal well) deducted under disposition of certain assets is refiguredthat can be used to figure AMT sections 616(a) and 617(a) for regular tax for AMT purposes. Use this line if thedepreciation. Rev. Proc. 89-15, purposes must be amortized for AMT estate or trust reported a gain or loss on

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1989-1 C.B. 816, has special rules for purposes over 10 years beginning with Form 4797, Schedule D (Form 1041), or

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Form 4684 (Section B). When figuring the stock in S corporations, by taking into The amount of any passive activityadjusted basis for those forms, take into account your AMT adjustments and tax loss that is not deductible (and isaccount any AMT adjustments made this preference items. See sections 59(h), therefore carried forward) for AMT

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year, or in previous years, for items 465, 704(d), and 1366(d). purposes is likely to differ from therelated to lines 4e, 4f, 4g, and 4i of amount (if any) that is carried forward for

Enter the difference between the lossSchedule I. For example, to figure the regular tax purposes. Therefore, it isreported for regular tax purposes and theadjusted basis for AMT purposes, reduce essential that you retain adequate recordsAMT loss. If the AMT loss is more thanthe cost of an asset only by the for both AMT and regular tax purposes.the loss reported for regular tax purposes,depreciation allowed for AMT purposes. Publicly traded partnerships (PTPs). Ifenter the adjustment as a negative

the estate or trust had a loss from a PTP,The $3,000 capital loss limitation amount.refigure the loss using any AMTfor the regular tax appliesadjustments and tax preference items.separately to any capital loss as Line 4m—Tax Shelter FarmCAUTION

!refigured for the AMT. Activities Line 4o—Beneficiaries of Other

Enter the difference between the gain Trusts or Decedent’s EstatesUse this line only if the tax shelteror loss reported for regular tax purposes, farm activity is not a passive If the estate or trust is the beneficiary ofand that figured for AMT purposes. If the activity. Otherwise, use line 4n. another estate or trust, enter the

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AMT gain is less than the gain reported adjustment for minimum tax purposesfor regular tax purposes, enter the For AMT purposes, no loss is allowed from line 9, Schedule K-1 (Form 1041).adjustment as a negative amount. If the from any tax shelter farm activity as

Line 4p—Tax-Exempt InterestAMT loss is more than the loss allowed defined in section 58(a)(2).From Specified Private Activityfor regular tax purposes, enter the

An excess farm loss from one farmadjustment as a negative amount. Bondsactivity cannot be netted against income

Enter the interest earned from specifiedIncentive stock options (ISOs). For from another farm activity. Any disallowedprivate activity bonds reduced (but notregular tax purposes, no income is loss (for AMT purposes) is carried forwardbelow zero) by any deduction that wouldrecognized when an incentive stock until offset by income from the samehave been allowable if the interest wereoption (as defined in section 422(b)) is activity or when the entire activity is sold.includible in gross income for regular taxexercised. However, this rule does not

Include any other adjustment or tax purposes. Specified private activity bondsapply for AMT purposes. Instead, thepreference item and your prior year AMT are any qualified bonds (as defined inestate or trust must generally include onunallowed loss when refiguring the farm section 141) issued after August 7, 1986.line 4k the excess, if any, of:loss. For example, if depreciation must be See section 57(a)(5) for more information.1. The FMV of the stock acquiredrefigured for AMT purposes, include thethrough exercise of the option Exempt-interest dividends paid by aadjustment on this line. Do not include it(determined without regard to any lapse regulated investment company areagain on line 4e, 4r, or 4s.restriction) when its rights in the acquired treated as interest from specified private

stock first become transferable or when activity bonds to the extent the dividendsDetermine your tax shelter farmthese rights are no longer subject to a are attributable to interest received by theactivity gain or loss for AMT purposessubstantial risk of forfeiture, over company on the bonds, minus anusing the same rules you used for regular

2. The amount paid for the stock, allocable share of the expenses paid ortax purposes except that any AMT loss isincluding any amount paid for the option incurred by the company in earning theallowed only to the extent that a taxpayerused to acquire the stock. interest.is insolvent (see section 58(c)(1)). An

AMT loss may not be used in the current Line 4q—DepletionNote: Even if the estate’s or trust’s rights tax year to offset gains from other tax Refigure the depletion deduction for AMTin the stock are not transferable and are shelter farm activities. Instead, it must be purposes by using only the income andsubject to a substantial risk of forfeiture, suspended and carried forward deductions allowed for the AMT whenyou may elect to include in AMT income indefinitely until either you have a gain in refiguring the limit based on taxablethe excess of the stock’s FMV a subsequent tax year from that same tax income from the property under section(determined without regard to any lapse shelter farm activity or the activity is 613(a) and the limit based on taxablerestriction) over the exercise price upon disposed of. income, with certain adjustments, underthe transfer to the estate or trust of thesection 613A(d)(1). Also, the depletionstock acquired through exercise of the Line 4n—Passive Activitiesdeduction for mines, wells, and otheroption. See section 83(b) for more details.

Do not enter again elsewhere on natural deposits under section 611 isThe election must be made no later thanthis schedule any AMT adjustment limited to the property’s adjusted basis at30 days after the date of transfer.or tax preference item included on the end of the year, as refigured for theCAUTION

!If the estate or trust acquired stock by this line. AMT, unless the estate or trust is anexercising an option and it disposed of

independent producer or royalty ownerthat stock in the same year, the tax For AMT purposes, the rules described claiming percentage depletion for oil andtreatment under the regular tax and the in section 469 apply, except that in gas wells. Figure this limit separately forAMT is the same, and no adjustment is applying the limitations, minimum tax each property. When refiguring therequired. rules apply. property’s adjusted basis, take intoIncrease the AMT basis of any stock account any AMT adjustments made thisRefigure passive activity gains and

acquired through the exercise of an year or in previous years that affect basislosses on an AMT basis. Refigure aincentive stock option by the amount of (other than the current year’s depletion).passive activity gain or loss by taking intothe adjustment. account all AMT adjustments or tax Enter on line 4q the difference

preference items that pertain to that between the regular tax and AMTLine 4l—Certain Loss Limitationsactivity. deduction. If the AMT deduction is more

If the loss is from a passive than the regular tax deduction, enter theYou may complete a second Formactivity, use line 4n instead. If the difference as a negative amount.8582 to determine the passive activityloss is from a tax shelter farmCAUTION!

losses allowed for AMT purposes, but do Line 4r—Accelerated Depreciationactivity (that is not passive), use line 4m.not send this AMT Form 8582 to the IRS. of Real Property Placed in ServiceRefigure your allowable losses for

Before 1987AMT purposes from activities for which Enter the difference between the lossyou are not at risk and basis limitations reported on page 1, and the AMT loss, if For AMT purposes, use the straight lineapplicable to interests in partnerships and any. method to figure depreciation. Use a

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recovery period of 19 years for 19-year 291(b)(4)). However, this benefit may be When figuring an NOL from a loss yearreal property and 15 years for low-income limited. First, figure the IDC preference as prior to 1987, the rules in effect beforehousing. Enter the excess of depreciation if this exception did not apply. Then, for enactment of the Tax Reform Act (TRA)claimed for regular tax purposes over purposes of this exception, complete of 1986 apply. The NOL under sectiondepreciation refigured using the straight Schedule I through line 6, including the 172(c) is reduced by the amount of theline method. Figure this amount IDC preference. If the amount of the IDC tax preference items that were taken intoseparately for each property and include preference exceeds 40% of the amount account in figuring the NOL. In addition,on line 4r only positive amounts. figured for line 6, enter the excess on line the NOL is figured by taking into account

4t (the benefit of this exception is limited). only itemized deductions that wereLine 4s—Accelerated Depreciation If the amount of the IDC preference is alternative tax itemized deductions for theof Leased Personal Property equal to or less than 40% of the amount tax year and that were a modification toPlaced in Service Before 1987 figured for line 6, do not enter an amount the NOL under section 172(d). SeeFor leased personal property other than on line 4t (the benefit of this exception is sections 55(d) and 172 as in effect beforerecovery property, enter the amount by not limited). the TRA of 1986.which the regular tax depreciation using

If this estate or trust is the beneficiaryLine 4u—Other Adjustmentsthe pre-1987 rules exceeds theof another estate or trust that terminateddepreciation allowable using the straight Include on this line: in 2001, include any AMT NOL carryoverline method. • Net AMT adjustment from an that was reported on line 13e of Schedule

For leased 10-year recovery property electing large partnership. If the estate K-1 (Form 1041).and leased 15-year public utility property, or trust is a partner in an electing large

The ATNOLD may be limited. To figureenter the amount by which the partnership, include on line 4u the amountthe ATNOLD limitation, first figure AMTIdepreciation deduction determined for from Schedule K-1 (Form 1065-B), box 6.without regard to the ATNOLD. For thisregular tax purposes is more than the Take into account any amount frompurpose, figure a tentative amount for linededuction allowable using the straight line Schedule K-1 (Form 1065-B), box 5,4q of Schedule I by treating line 7 as if itmethod with a half-year convention, no when figuring the amount to enter on linewere zero. Then, figure a tentativesalvage value, and the following recovery 4n.amount for line 6 of Schedule I. Theperiod: • Patron’s adjustment. Distributions theATNOLD limitation is 90% of the tentativeestate or trust received from aline 6 amount. Enter on line 7 the smaller10-year property . . . . . . . . . . . . 15 years cooperative may be includible in income.of the ATNOLD or the ATNOLD limitation.15-year public utility property . . . . 22 years Unless the distributions are nontaxable,Any alternative tax NOL not usedinclude on line 4u the total AMTFigure this amount separately for each because of the ATNOLD limitation can bepatronage dividend adjustment reportedproperty and include on line 4s only carried back or forward. See sectionto the estate or trust from the cooperative.positive amounts. 172(b) for details. The treatment of• Section 1202 exclusion. If the estatealternative tax NOLs does not affect yourLine 4t— Intangible Drilling Costs or trust claimed the exclusion underregular tax NOL.section 1202 for gain on qualified smallDo not make this adjustment for

business stock, multiply the amount of the Note: If you elected under sectioncosts for which you elected thegain excluded from income (as shown on 172(b)(3) to forego the carryback periodoptional 60-month write-off underCAUTION

!line 6 of Schedule D (Form 1041)) by for regular tax purposes, the election willsection 59(e) for regular tax purposes.42% (.42). Enter the result as a positive also apply for the AMT.Except as provided below, intangible number.

drilling costs (IDCs) from oil, gas, and Line 12—Estate’s or Trust’s Share• Related adjustments. AMTgeothermal wells are a tax preference of Alternative Minimum Taxableadjustments and tax preference itemsitem to the extent that the excess IDCs Incomemay affect deductions that are based onexceed 65% of the net income from the an income limit other than AGI or For an estate or trust that held a residualwells. Figure the tax preference item for modified AGI (e.g., farm conservation interest in a REMIC, line 12 may not beall geothermal properties separately from expenses). Refigure these deductions less than the estate’s or trust’s share ofthe preference for all oil and gas using the income limit as modified for the the amount on Schedule E (Form 1040),properties. AMT. Include the difference between the line 37, column (c). If that amount is

Excess IDCs are figured by taking the regular tax and AMT deduction on line 4u. larger than the amount you wouldamount of your IDCs allowed for regular If the AMT deduction is more than the otherwise enter on line 12, enter thattax purposes under section 263(c) (not regular tax deduction, include the amount instead and write “Sch. Q” on theincluding any section 263(c) deduction for difference as a negative amount. dotted line next to line 12.nonproductive wells) minus the amount

Note: Do not make an adjustment on linethat would have been allowed if that Part II— Income Distribution4u for an item you refigured on anotheramount had been amortized over a Deduction on a Minimum Taxline of Schedule I (e.g., line 4q).120-month period starting with the month Basis

the well was placed in production. Line 7—Alternative Tax NetNote: Cost depletion can be substituted Line 13—Adjusted AlternativeOperating Loss Deductionfor the amount allowed using amortization Minimum Taxable Income(ATNOLD)over 120 months. Generally, enter on line 13, Schedule I,For tax years beginning after 1986, the

Net income is determined by taking the the amount from line 8, Schedule I.net operating loss (NOL) under sectiongross income from all oil, gas, and However, if both line 4 on page 1 and line172(c) is modified for alternative taxgeothermal wells reduced by the 8, Schedule I, are losses, enter on linepurposes by (a) adding the adjustmentsdeductions allocable to those properties 13, Schedule I, the smaller of thosemade under sections 56 and 58(determined without regard to excess losses. If line 4 is zero or a gain and line 8(subtracting if the adjustments areIDCs). When figuring net income, use is a loss, enter zero on line 13,negative); and (b) reducing the NOL byonly income and deductions allowed for Schedule I.any item of tax preference under sectionthe AMT. 57 (except the appreciated charitable

Line 14—Adjusted Tax-ExemptException. The preference for IDCs from contribution preference item). For anInterestoil and gas wells does not apply to estate or trust that held a residual interest

taxpayers who are independent in a real estate mortgage investment To figure the adjusted tax-exempt interestproducers (i.e., not integrated oil conduit (REMIC), figure the ATNOLD (including exempt-interest dividendscompanies as defined in section without regard to any excess inclusion. received as a shareholder in a mutual

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fund or other regulated investment AMT purposes from tax-exempt income 5. If you did not complete Schedule Dcompany), subtract the total of any: included on line 23. (Form 1041) for the regular tax and did

not complete Part IV of Schedule I of1. Tax-exempt interest from line 2 of Expenses that are directly allocable to Form 1041, enter the AMTI fromSchedule A of Form 1041 figured for AMT tax-exempt income are allocated only to Schedule I, line 12, on line 17 of the AMTpurposes and tax-exempt income. A reasonable Form 1116 and go to 6 below. Otherwise,2. Section 212 expenses allowable for proportion of expenses indirectly allocable follow these steps to complete, for theAMT purposes allocable to tax-exempt to both tax-exempt income and other AMT, the Worksheet for line 17 in theinterest, from the amount of tax-exempt income must be allocated to each class of Form 1116 instructions:interest received. income.a. Enter the amount from Schedule IDo not subtract any deductions of Form 1041, line 12, on line 1 of theLine 27— Income Distributionreported on lines 4a through 4c. AMT Worksheet for line 17.Deduction on a Minimum TaxSection 212 expenses that are directly b. Complete a Schedule D for theBasisallocable to tax-exempt interest are AMT as explained in the instructions for

Allocate the income distribution deductionallocated only to tax-exempt interest. A lines 41, 42, 44, and 48 on page 27 (or, iffigured on a minimum tax basis amongreasonable proportion of section 212 you already completed an AMT Schedulethe beneficiaries in the same manner asexpenses that are indirectly allocable to D to complete Part IV of Schedule I, useincome was allocated for regular taxboth tax-exempt interest and other that Schedule D). Next, enter the amountpurposes. Report each beneficiary’sincome must be allocated to each class of from Schedule I, line 34, on line 18 ofshare on line 7 of Schedule K-1 (Formincome. your AMT Schedule D or line 1 of the1041). AMT Schedule D Tax Worksheet. Then,Line 16

complete lines 22 through 34 of the AMTPart III—Alternative MinimumReduce the amount on line 16 by any Schedule D (you may skip lines 23, 29,allocable section 1202 exclusion (as Tax Computation and 31) or lines 10 through 33 of the AMTrefigured for AMT purposes). Schedule D Tax Worksheet (you may skipLine 36—Alternative Minimum lines 15, 19, 21, 25, and 31).Line 17 Foreign Tax Credit c. Complete the rest of the AMTEnter any capital gains that were paid or

Worksheet for Line 17 using amountsTo see if you need to figure thepermanently set aside for charitablefrom the AMT Schedule D.estate’s or trust’s AMT foreign taxpurposes from the current year’s income

6. Enter the amount from Schedule I,credit, fill in line 38 of Schedule Iincluded on line 1 of Schedule A. ReduceTIP

line 35, on the AMT Form 1116, line 19.as instructed. If the amount on line 38 isthe amount on line 17 by any allocableComplete lines 18, 20, and 21 of the AMTgreater than or equal to the amount onsection 1202 exclusion (as refigured forForm 1116.line 35, the estate or trust does not oweAMT purposes).

7. Complete Part IV of the first AMTthe AMT. Enter zero on line 39 and seeLines 18 and 19 Form 1116.Who Must Complete on page 22 to findCapital gains and losses must take into out if you must file Schedule I with Form Follow the instructions below to figureaccount any basis adjustments from line 1041. However, even if the estate or trust the amount to enter on line 36 of4k, Part I. does not owe AMT, you may need to Schedule I of Form 1041.

complete line 36 to see if you have anLine 24—Adjustment for If you have no entry on line 7 ofAMT foreign tax credit carryback orTax-Exempt Income Schedule I of Form 1041, and nocarryforward to other tax years.intangible drilling costs (IDCs) (or theIn figuring the income distribution

To figure the AMT foreign tax credit: exception for IDCs does not apply to thededuction on a minimum tax basis, theestate or trust—see the instructions forestate or trust is not allowed a deduction 1. Complete and attach a separateline 4t on page 25), enter on line 36 offor any item of DNAMTI (line 20) that is AMT Form 1116, with the notation at theSchedule I the smaller of:not included in the gross income of the top, “Alt Min Tax” for each separate• 90% of line 35 of Schedule I orestate or trust figured on an AMT basis. limitation category specified at the top of• The amount from line 33 of the firstThus, for purposes of figuring the Form 1116.AMT Form 1116.allowable income distribution deduction Note: When applying the separate If you have an entry on line 7 or theon a minimum tax basis, the DNAMTI is limitation categories, use the applicable exception for IDCs applies to the estate orfigured without regard to any tax-exempt AMT rate instead of the regular tax rate to trust:interest (except for amounts from line 4p). determine if any income is “high-taxed.”

1. Figure the amount of tax that wouldIf tax-exempt interest is the only 2. If you previously made or are be on line 35 if line 7 were zero and thetax-exempt income included in the total making the simplified limitation election exception did not apply.distributions (line 23), and the DNAMTI (see below), skip Part I and enter on the 2. Multiply the amount from 1 above(line 20) is less than or equal to line 23, AMT Form 1116, line 16, the same by 10%.then enter on line 24 the amount from line amount you entered on that line for the 3. Subtract the amount from 2 above14. regular tax. from the tax on line 35.If tax-exempt interest is the only Otherwise, complete Part I, using only 4. Enter on Schedule I, line 36, thetax-exempt income included in the total income and deductions allowed for the smaller of the amount from 3 above ordistributions (line 23), and the DNAMTI is AMT that are attributable to sources the amount from line 33 of the first AMTmore than line 23 (i.e., the estate or trust outside the United States. If the Form 1116.made a distribution that is less than the Instructions for Form 1116 require you toDNAMTI), then figure the adjustment by complete Worksheet A or B, you must AMT foreign tax credit carrybackmultiplying line 14 by a fraction, the first complete an AMT Worksheet for line and carryforward. If the AMT foreign taxnumerator of which is the total 17, following the Instructions under 5 credit is limited, any unused amount candistributions (line 23), and the below. be carried back or forward in accordancedenominator of which is the DNAMTI (line 3. Complete Part II and lines 9 with sections 59(a)(2)(B) and 904(c).20). Enter the result on line 24. through 13 of the AMT Form 1116. Use

Note: The election to forego theIf line 23 includes tax-exempt income the estate’s or trust’s AMT foreign taxcarryback period for regular tax purposesother than tax-exempt interest (except for credit carryover, if any, on line 10.also applies for the AMT.amounts from line 4p), figure line 24 by 4. If the simplified limitation election

subtracting the total expenses allocable to does not apply, complete lines 14 through Simplified limitation election. Thetax-exempt income that are allowable for 16 of the AMT Form 1116. estate or trust may elect to use a

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simplified section 904 limitation to figure for the AMT, use the AMT amount instead • Certain hedging transactions enteredits AMT foreign tax credit. To do so, use of the regular tax amount. Enter the into in the normal course of a trade orthe estate’s or trust’s regular tax income amount from line 7c of that worksheet on business (see section 1221(a)(7)); andfor Form 1116, Part I, instead of refiguring Schedule I, line 50. • Supplies regularly used in the yourthe estate’s or trust’s foreign source trade or business.income for the AMT, as described in 2 on You may find additional helpfulpage 26. The estate or trust must make information in the following publications:Schedule D (Form 1041)—the election for the first tax year after • Pub. 544, Sales and Other Dispositions

Capital Gains and Losses1997 for which it claims an alternative of Assets, andminimum tax foreign tax credit. If it does • Pub. 551, Basis of Assets.

Changes To Notenot make the election for that year, it mayShort-Term or Long-Termnot make it for a later year. Once made, • We have simplified the tax computation

the election applies to all later tax years Separate the capital gains and lossesin Part V for most estates and trusts byand may be revoked only with IRS according to how long the estate or trusteliminating 15 lines. Because of thisconsent. held or owned the property. The holdingchange, estates and trusts with

period for short-term capital gains andunrecaptured section 1250 gain or 28%Part IV—Line 35 Computation losses is 1 year or less. The holdingrate gain must complete a new worksheet

period for long-term capital gains andon page 34 to figure the tax on line 38 ofUsing Maximum Capital Gainslosses is more than 1 year. PropertyPart V.Ratesacquired by a decedent’s estate from the• For 2001 and later years, qualifieddecedent is considered as held for more5-year gain is taxed at 8% to the extent itLines 41, 42, 44, and 48than 1 year.otherwise would have been taxed at 10%.You generally may enter the amounts

See the instructions for line 27 onfrom Schedule D or the Schedule D Tax When you figure the length of thepage 32.Worksheet as instructed on Schedule I, period the estate or trust held property,• The estate or trust may make anlines 41, 42, and 44. But do not use begin counting on the day after the estateelection to recognize gain on certainthose amounts if either of the following or trust acquired the property and includeassets held on January 1, 2001. Seeapplies: the day the estate or trust disposed of it.below for details. Use the trade dates for the date of1. Any gain or loss on Schedule D isacquisition and sale of stocks and bondsdifferent for the AMT (for example, General Instructionstraded on an exchange or over-the-because the AMT basis was different duecounter market.to depreciation adjustments or an Purpose of Form

incentive stock option adjustment or the Use Schedule D (Form 1041) to report Section 643(e)(3) ElectionAMT capital loss carryover from 2000 was gains and losses from the sale orFor noncash property distributions, adifferent). exchange of capital assets by an estatefiduciary may elect to have the estate or2. You did not complete Part V of or trust.trust recognize gain or loss in the sameSchedule D because Form 1041, line 22,

To report the sale or exchange of manner as if the distributed property hadwas zero or less.property used in a trade or business, been sold to the beneficiary at its FMV.

If 1 or 2 above applies, complete a involuntary conversions (other than The distribution deduction is theSchedule D for the AMT. If 1 above casualties and thefts), and certain property’s FMV. This election applies toapplies, refigure the amounts for ordinary gains and losses, see Form 4797 all distributions made by the estate orSchedule D, Parts I, II, III, and IV for the and related instructions. trust during the tax year and, once made,AMT; otherwise, use the regular tax may be revoked only with IRS consent.If property is involuntarily convertedamounts. Next, complete lines 19 through

because of a casualty or theft, use Form Note that section 267 does not allow a21 of the AMT Schedule D (lines 24684. trust or a decedent’s estate to claim athrough 9 of the AMT Schedule D Tax

deduction for any loss on property toWorksheet, if applicable). Use amounts Section 1256 contracts and straddleswhich a section 643(e)(3) electionfrom the AMT Schedule D or AMT are reported on Form 6781, Gains andapplies. In addition, when a trust or aSchedule D Tax Worksheet to complete Losses From Section 1256 Contracts anddecedent’s estate distributes depreciableSchedule I, lines 41, 42, and 44. Keep the Straddles.property, section 1239 applies to denyAMT Schedule D and worksheet for your

Capital Asset capital gains treatment for any gain onrecords but do not attach the AMTproperty to which a section 643(e)(3)Schedule D to Form 1041. Each item of property held by the estateelection applies.or trust (whether or not connected with its

Do not refigure the amount from trade or business) is a capital assetSchedule D, line 26 (Schedule D Tax Election To Recognize Gain onexcept:Worksheet line 16), when completing Assets Held on January 1, 2001• Inventoriable assets or property heldSchedule I, line 48. If you did not primarily for sale to customers; Estates or trusts may elect to treat certaincomplete Part V of Schedule D (or the • Depreciable or real property used in a assets held on January 1, 2001, asSchedule D Tax Worksheet) for the trade or business, even if it is fully having been sold and then reacquired onregular tax, enter zero on Schedule I, line depreciated; the same date. The purpose of the48. • Certain copyrights, literary, musical, or election is to make future gain on the

artistic compositions, letters or asset eligible for an 18% (instead of 20%)Note: Do not decrease the estate’s ormemoranda, or similar property; capital gain tax rate upon futuretrust’s section 1202 exclusion by the• Accounts or notes receivable acquired disposition. The 18% rate is applicable toamount, if any, included on line 4u.in the ordinary course of a trade or the extent the gain would otherwise be

Line 50 business for services rendered or from taxed at 20% if the holding period of theGenerally, you may enter the amount the sale of inventoriable assets or asset begins after December 31, 2000,from Schedule D, line 27, on Schedule I, property held primarily for sale to and the asset is held for more than 5line 50. However, if the qualified 5-year customers; years. The holding period of any asset forgain is different for the AMT (for example, • Certain U.S. Government publications which this election is made begins on thebecause of a different basis), you must not purchased at the public sale price; date of the deemed sale andcomplete an AMT Qualified 5-Year Gain • Certain “commodities derivative reacquisition. For grantor trusts, theWorksheet (on page 33). If the amount financial instruments” held by a dealer grantor of the trust must make theon any line of the worksheet is different (see section 1221(a)(6)); election.

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Any gain on the deemed sale must be was filed. Once made, an election for any The estate or trust is treated asrecognized without regard to any asset is irrevocable. making a constructive sale of anprovision of the Internal Revenue Code. A appreciated position when it (or a related

Related Personsloss from a deemed sale is not allowed person, in some cases) does one of thefor any tax year, but the asset will be following:A trust cannot deduct a loss from the saleeligible for the 18% rate on future gain. or exchange of property directly or • Enters into a short sale of the same orThe estate’s or trust’s basis in the indirectly between any of the following: substantially identical property (i.e., areacquired asset is its closing market • A grantor and a fiduciary of a trust; “short sale against the box”).price or fair market value, whichever • A fiduciary and a fiduciary or • Enters into an offsetting notionalapplies, on the date of the deemed sale, beneficiary of another trust created by the principal contract relating to the same orwhether the deemed sale results in a gain same grantor; substantially identical property.or unallowed loss. • A fiduciary and a beneficiary of the • Enters into a futures or forward contract

same trust; to deliver the same or substantiallyAny readily tradeable stock (that is a • A trust fiduciary and a corporation of identical property.capital asset) not sold before January 2, which more than 50% in value of the • Acquires the same or substantially2001, for which the election is made is outstanding stock is owned directly or identical property (if the appreciateddeemed to have been sold on January 2, indirectly by or for the trust or by or for the position is a short sale, offsetting notional2001, at its closing market price on that grantor of the trust; or principal contract, or a futures or forwarddate and reacquired on that date for the • An executor of an estate and a contract).same amount. For this purpose, readily beneficiary of that estate, except when Exception. Generally, constructivetradable stock includes shares issued by the sale or exchange is to satisfy a sale treatment does not apply if:an open-end mutual fund. Any other pecuniary bequest (i.e., a bequest of a • The estate or trust closed thecapital asset held on January 1, 2001, for sum of money). transaction before the end of the 30th daywhich the election is made is deemed toafter the end of the year in which it washave been sold and reacquired on Items for Special Treatmententered into,January 1, 2001, for its fair market value The following items may require special • The estate or trust held the appreciatedon that date. treatment: position to which the transaction relates• Wash sales of stock or securitiesIf you make the election with respect to throughout the 60-day period starting on

(including contracts or options to acquirean interest in a pass-through entity and the date the transaction was closed, andor sell stock or securities) (section 1091).that pass-through entity makes the • At no time during that 60-day period• Gain or loss on options to buy or sellelection with respect to assets it holds, was the estate’s or trust’s risk of loss(section 1234).the pass-through entity’s election will be reduced by holding certain other• Certain real estate subdivided for saleconsidered to immediately precede the positions.that may be considered a capital assetestate’s or trust’s election for deemed For details and other exceptions to(section 1237).sales that occur on the same day. For these rules, see Pub. 550.• Gain on disposition of stock in anpurposes of this election, pass-throughinterest charge domestic internationalentities include mutual funds (or other Exclusion of Gain on Qualifiedsales corporation (section 995(c)).regulated investment companies), real Small Business Stock (Section• Gain on the sale or exchange of stockestate investment trusts, S corporations, 1202)in certain foreign corporations (sectionpartnerships, other estates and trusts,

Section 1202 provides for an exclusion of1248).and common trust funds.50% of the gain on the sale or exchange• Sales of stock received under a

Note: You may not make this election for of qualified small business (QSB) stock.qualified public utility dividendany asset that the estate or trust disposed The section 1202 exclusion applies onlyreinvestment plan. See Pub. 550 forof (in a transaction in which gain or loss is to qualified small business stock held fordetails.recognized in whole or part) before the more than 5 years. To be qualified small• Transfer of appreciated property to aclose of the 1-year period beginning on business stock, the stock must meet allpolitical organization (section 84).the date that the asset would have been of the following tests:• Disposition of market discount bondstreated as sold under this election. • It must be stock in a C corporation (i.e.,(section 1276).

not S corporation stock).• Gains from certain constructiveHow to make the election. To make theownership transactions. Gain in excess of • It must have been originally issuedelection for capital assets, report thethe gain the estate or trust would have after August 10, 1993.deemed sale(s) on Schedule D (Formrecognized if the estate or trust had held • As of the date the stock was issued,1041) for your tax year that includes thea financial asset directly during the term the corporation was a qualified smalldate of the deemed sale (calendar yearof a derivative contract must be treated as business. A qualified small business is aestates and trusts make the election onordinary income. See section 1260 for domestic C corporation with total grosstheir 2001 tax returns). If the deemed saledetails. assets of $50 million or less (a) at allresults in a loss, enter zero instead of the• The sale of qualified empowerment times after August 9, 1993, and beforeamount of the loss. Make the election onzone assets acquired after December 21, the stock was issued, and (b) immediatelya share-by-share or asset-by-asset basis.2000, that the estate or trust held for after the stock was issued. Gross assetsAttach a statement to the return statingmore than 1 year, if you elect to postpone include those of any predecessor of thethat the estate or trust is making angain by purchasing other qualified corporation. All corporations that areelection under section 311 of theempowerment zone assets during the members of the same parent-subsidiaryTaxpayer Relief Act of 1997 and60-day period that began on the date of controlled group are treated as onespecifying the assets for which thethe sale. See Pub. 550 and Pub. 954. corporation.election is being made. You must file the

• The estate or trust acquired the stocktax return no later than its due dateConstructive Sales Treatment for at its original issue (either directly or(including extensions). However, if theCertain Appreciated Positions through an underwriter), either inreturn was filed without making the

exchange for money or other property orelection for any asset, the election can Generally, the estate or trust mustas pay for services (other than as anstill be made by filing an amended return recognize gain (but not loss) on the date itunderwriter) to the corporation. In certainwithin 6 months of the original due date enters into a constructive sale of anycases, the estate or trust may meet the(excluding extensions). Write “Election appreciated position in stock, atest if it acquired the stock from anotherUnder Section 311 of the Taxpayer Relief partnership interest, or certain debtperson who met this test (such as by giftAct of 1997” at the top of the amended instruments as if the position wereor at death) or through a conversion orreturn and file it where the original return disposed of at FMV on that date.

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Redemption of stock to pay deathexchange of qualified small business was sold. In column (f), enter the amounttaxes. If stock is redeemed under thestock the estate or trust held. of the allowable exclusion as a (loss). Inprovisions of section 303, list and identify• During substantially all the time the column (g), enter the amount of theit on line 6 and give the name of theestate or trust held the stock: allowable exclusion as a gain.decedent and the IRS office where the1. The corporation was a C Gain from Form 2439. If the estate or estate tax or generation-skipping transfercorporation, trust received a Form 2439, Notice to tax return was filed.2. At least 80% of the value of the Shareholder of Undistributed Long-Term

If you are reporting capital gain from acorporation’s assets were used in the Capital Gains, with a gain in box 1e, partlump-sum distribution, see theactive conduct of one or more qualified or all of that gain (which is also includedinstructions for Form 4972 for informationbusinesses (defined below), and in box 1a) may be eligible for the sectionabout the Federal estate tax.3. The corporation was not a foreign 1202 exclusion. In column (a) of line 6,

corporation, DISC, former DISC, enter the name of the corporation whose Column (d)—Sales Pricecorporation that has made (or that has a stock was sold. In column (f), enter the Enter either the gross sales price or thesubsidiary that has made) a section 936 amount of the allowable exclusion as a net sales price from the sale. On sales ofelection, regulated investment company, (loss). In column (g), enter the amount of stocks and bonds, report the grossreal estate investment trust, REMIC, the allowable exclusion as a gain. amount as reported to the estate or trustFASIT, or cooperative.Gain from an installment sale of on Form 1099-B or similar statement.Note: A specialized small business QSB stock. If all payments are not However, if the estate or trust wasinvestment company (SSBIC) is treated received in the year of sale, a sale of advised that gross proceeds lessas having met test 2 above. QSB stock that is not traded on an commissions and option premiums were

A qualified business is any business established securities market generally is reported to the IRS, enter that net amountother than the following: treated as an installment sale and is in column (d).• One involving services performed in the reported on Form 6252. Part or all of any Column (e)—Cost or Other Basisfields of health, law, engineering, gain from the sale that is reported onarchitecture, accounting, actuarial Basis of trust property. Generally, theForm 6252 for the current year may bescience, performing arts, consulting, basis of property acquired by gift is theeligible for the section 1202 exclusion. Inathletics, financial services, or brokerage same as the basis in the hands of thecolumn (a) of line 6, enter the name of theservices. donor. If the FMV of the property at thecorporation whose stock was sold. In• One whose principal asset is the time it was transferred to the trust is lesscolumn (f), enter the amount of yourreputation or skill of one or more than the transferor’s basis, then the FMVallowable exclusion as a loss. In columnemployees. is used for determining any loss on(g), enter the amount of your allowable• Any banking, insurance, financing, disposition.exclusion as a gain.leasing, investing, or similar business.

If the property was transferred to theRollover of gain from qualified small• Any farming business (including thetrust after 1976, and a gift tax was paidbusiness stock. If the estate or trustraising or harvesting of trees).under Chapter 12, then increase theheld qualified small business stock (as• Any business involving the productiondonor’s basis as follows:defined above) for more than 6 months, itof products for which percentage

may elect to postpone gain if it purchased Multiply the amount of the gift tax paiddepletion can be claimed.other qualified small business stock by a fraction, the numerator of which is• Any business of operating a hotel,during the 60-day period that began on the net appreciation in value of the giftmotel, restaurant, or similar business.the date of the sale. (defined below), and the denominator ofFor more details about limits and

which is the amount of the gift. For thisadditional requirements that may apply, The estate or trust must recognize purpose, the net appreciation in valuesee section 1202. gain to the extent the sale proceeds of the gift is the amount by which thePass-through entities. If the estate or exceed the cost of the replacement stock. FMV of the gift exceeds the donor’strust held an interest in a pass-through Reduce the basis of the replacement adjusted basis.entity (a partnership, S corporation, stock by any postponed gain.Basis of decedent’s estate property.mutual fund, or other regulated

The estate or trust must make the Generally, the basis of property acquiredinvestment company) that sold qualifiedelection no later than the due date by a decedent’s estate is the FMV of thesmall business stock, the estate or trust(including extensions) for filing Form 1041 property at the date of the decedent’sgenerally must have held the interest onfor the tax year in which the stock was death, or the alternate valuation date ifthe date the pass-through entity acquiredsold. If the original Form 1041 was filed the executor elected to use an alternatethe qualified small business stock and aton time, the election may be made on an valuation under section 2032.all times thereafter until the stock wasamended return filed no later than 6sold to qualify for the exclusion. See Pub. 551 for a discussion of themonths after the due date of the original valuation of qualified real property underHow to report. Report in column (f) of return (excluding extensions). Write “Filed section 2032A.line 6 the entire gain realized on the sale pursuant to section 301.9100-2” at the topof qualified small business stock. In Adjustments to basis. Before figuringof the amended return, and file it at thecolumn (g) of line 6, report as 28% rate any gain or loss on the sale, exchange, orsame address used for the original Formgain an amount equal to the section 1202 other disposition of property owned by the1041.exclusion. Complete all other columns as estate or trust, adjustments to the

To make the election, report the entireindicated. Directly below the line on which property’s basis may be required.gain realized on the sale on line 1 or 6.you reported the gain, enter in column (a) Some items that may increase theDirectly below the line on which you“Section 1202 exclusion,” and enter as a basis include:reported the gain, enter in column (a)(loss) in column (f) the amount of the

1. Broker’s fees and commissions.“Section 1045 Rollover” and enter as aallowable exclusion. Also include 42% of2. Reinvested dividends that were(loss) in column (f) the amount of thethe exclusion as a positive amount on

previously reported as income.postponed gain.Schedule I, line 4u.3. Reinvested capital gains that wereGain from Form 1099-DIV. If the previously reported as income.Specific Instructionsestate or trust received a Form 1099-DIV 4. Costs that were capitalized.with a gain in box 2e, part or all of that Lines 1 and 6 5. Original issue discount that hasgain (which is also included in box 2a) been previously included in income.may be eligible for the section 1202 Short-term and long-term capital gains

exclusion. In column (a) of line 6, enter and losses. Enter all sales of stocks, Some items that may decrease thethe name of the corporation whose stock bonds, etc. basis include:

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1. Nontaxable distributions that Unrecaptured Section 1250 Gain 5-Year Gain Worksheet on page 33 ifconsist of return of capital. Worksheet on page 31 if you are required you are required to complete line 27 of

2. Deductions previously allowed or to complete column (2) of Schedule D, Schedule D. If there is an amount in boxallowable for depreciation. line 15b. If there is an amount in box 1e of 2d, include that amount on line 11 of the

3. Casualty or theft loss deductions. Form 2439, see Exclusion of Gain on Unrecaptured Section 1250 GainQualified Small Business Stock Worksheet on page 31 if you areSee Pub. 551 for additional (Section 1202) on page 28. required to complete line 15b of Scheduleinformation. D, column (2). If there is an amount in boxEnter on Form 1041, line 24f, the taxSee section 852(f) for treatment of 2e, see Exclusion of Gain on Qualifiedpaid as shown in box 2 of Form 2439.load charges incurred in acquiring stock Small Business (QSB) Stock onAdd to the basis of your stock the excessin a regulated investment company. page 28.of the amount included in income over the

Carryover basis. Carryover basis The instructions above assumeamount of the credit for tax paid. Seedetermined under repealed section 1023 the estate or trust is a cash basisPub. 550 for more details.applies to property acquired from a calendar year taxpayer.CAUTION

!The instructions above assume

decedent who died after December 31, the estate or trust is a cash basis Line 14, Column (1)—1976, and before November 7, 1978, only calendar year taxpayerCAUTION!

Beneficiaries’ Net Short-Termif the executor elected it on a FormInstallment sales. If the estate or trust5970-A, Election of Carryover Basis, that Capital Gain or Losssold property (other than publicly tradedwas filed on time. Enter the amount of net short-term capitalstocks or securities) at a gain during the gain or loss allocable to the beneficiary orColumn (f)—Gain or (Loss) tax year, and will receive a payment in a beneficiaries. Except in the final year,

Make a separate entry in this column for later tax year, you generally report the include only those short-term capitaleach transaction reported on lines 1 and sale on the installment method and file losses that are taken into account in6 and any other lines that apply to the Form 6252, Installment Sale Income, determining the amount of gain from theestate or trust. For lines 1 and 6, subtract unless you elect not to do so. sale or exchange of capital assets that isthe amount in column (e) from the amount Also, use Form 6252 to report any paid, credited, or required to bein column (d). Enter negative amounts in payment received in 2001 from a sale distributed to any beneficiary during theparentheses. made in an earlier tax year that was tax year. See Regulations section

reported on the installment method. 1.643(a)-3 for more information aboutColumn (g)—28% Rate Gain orallocation of capital gains and losses.(Loss) To elect out of the installment method,

Except in the final year, if the lossesreport the full amount of the gain on aEnter in column (g) only the amount, iffrom the sale or exchange of capitaltimely filed return (including extensions).any, from Part II, column (f), that is equalassets are more than the gains, all of theIf the original return was filed on time, theto the amount of the estate’s or trust’slosses must be allocated to the estate orelection may be made on an amendedsection 1202 exclusion from the eligibletrust and none are allocated to thereturn filed no later than 6 months aftergain on qualified small business stockbeneficiaries.the due date of the original return(see page 27) or from collectibles gains

(excluding extensions). Write “Filedand losses. A collectibles gain or loss is Line 14, Column (2)—Estate’s orpursuant to section 301.9100-2” at the topany long-term gain or deductible Trust’s Net Short-Term Capitalof the amended return, and file it at thelong-term loss from the sale or exchange Gain or Losssame address used for the originalof a collectible that is a capital asset.Enter the amount of the net short-termForm 1041.

Collectibles includes works of art, capital gain or loss allocable to the estateExchange of “like-kind” property.rugs, antiques, metals (such as gold, or trust. Include any capital gain paid orGenerally, no gain or loss is recognizedsilver, and platinum bullion), gems, permanently set aside for a charitablewhen property held for productive use in astamps, coins, alcoholic beverages, and purpose specified in section 642(c).trade or business or for investment iscertain other tangible property.exchanged solely for property of a Line 14, Column (3)—TotalAlso include gain (but not loss) from like-kind to be held either for productive Enter the total of the amounts entered inthe sale or exchange of an interest in a use in a trade or business or for columns (1) and (2). The amount inpartnership, S corporation, or trust held investment. However, if a trust exchanges column (3) should be the same as thefor more than 1 year and attributable to like-kind property with a related person amount on line 5.unrealized appreciation of collectibles. (see Related Persons on page 28), and

For details, see Regulations section Line 15—Net Long-Term Capitalbefore 2 years after the date of the last1.1(h)-1. Also attach the statement transfer that was part of the exchange the Gain or Lossrequired under Regulations section related person disposes of the property, Allocate the net long-term capital gain or1.1(h)-1(e). or the trust disposes of the property loss on line 15 in the same manner as the

received in exchange from the relatedLines 2 and 7 net short-term capital gain or loss on lineperson, then the original exchange will 14. However, do not take the sectionUndistributed capital gains. Include on not qualify for nonrecognition. See section 1202 exclusion on gain from the sale orline 7, column (f), the amount from box 1a 1031(f) for exceptions. exchange of qualified small businessof Form 2439. This represents the stock into account when figuring netComplete and attach Form 8824,estate’s or trust’s share of the long-term capital gain or loss allocable toLike-Kind Exchanges, to Form 1041 forundistributed long-term capital gains of the beneficiaries.each exchange.the regulated investment company

(mutual fund) or real estate investment Line 15b—Unrecaptured SectionLine 9—Capital Gain Distributionstrust. 1250 GainEnter as a long-term capital gain on line

Include on line 7, column (g), the 9, column (f), the total capital gain Complete the worksheet on page 31 ifamount, if any, from box 1b of Form 2439. distributions paid during the year, any of the following apply.If there is an amount in box 1c of Form regardless of how long the estate or trust • During the tax year, the estate or trust2439, include that amount on line 4 of the held its investment. This amount is shown sold or otherwise disposed of sectionQualified 5-Year Gain Worksheet on in box 2a of Form 1099-DIV. If there is an 1250 property (generally, real propertypage 33 if you are required to complete amount in box 2b of Form 1099-DIV, that was depreciated) held more than 1line 27 of Schedule D. If there is an include that amount on line 9, column (g). year.amount in box 1d of Form 2439, include If there is an amount in box 2c, include • The estate or trust received installmentthat amount on line 11 of the that amount on line 2 of the Qualified payments during the tax year for section

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9.

Unrecaptured Section 1250 Gain Worksheet—Line 15b Keep for Your Records

If the estate or trust has a section 1250 property in Part III of Form 4797 for which you made anentry in Part I of Form 4797 (but not on Form 6252), enter the smaller of line 22 or line 24 of Form4797 for that property. If the estate or trust did not have any such property, go to line 4. If it hadmore than one such property, see instructions

Enter the amount from Form 4797, line 26g, for the property for which you made an entry on line 1

Subtract line 2 from line 1

Enter the total of any amounts reported to the estate or trust on a Schedule K-1 from a partnershipor an S corporation as “unrecaptured section 1250 gain”

Add lines 3 through 5

Enter the smaller of line 6 or the gain from Form 4797, line 7

Enter the amount, if any, from Form 4797, line 8

Subtract line 8 from line 7. If zero or less, enter -0-

Enter the total of any amounts reported to the estate or trust on a Schedule K-1, Form 1099-DIV,or Form 2439 as “unrecaptured section 1250 gain” from an estate, trust, real estate investmenttrust, or mutual fund (or other regulated investment company)

Unrecaptured section 1250 gain. Subtract line 16 from line 13. If zero or less, enter -0-. Enter theresult in the appropriate columns of Schedule D, line 15b

2.

3.

4.

5.

6.

7.

8.

9.

1.

2.

3.

4.

5.

7.

10.

11.

10.

11.

12.

13.

12.

13.

14.

6.

8.

Enter the total of any unrecaptured section 1250 gain from sales (including installment sales) orother dispositions of section 1250 property held more than 1 year for which you did not make anentry in Part I of Form 4797 for the year of sale (see instructions)


14. Enter the gain or (loss) from Schedule D, line 12

Combine lines 14 and 15. If the result is zero or a gain, enter -0-. If the result is a (loss), enter it asa positive amount

Enter the total unrecaptured section 1250 gain included on line 26 or line 37 of Form(s) 6252 frominstallment sales of trade or business property held more than 1 year (see instructions)

Enter the amount of any gain from the sale or exchange of an interest in a partnership attributableto unrecaptured section 1250 gain (see instructions)

16.

17.

16.

17.

If the estate or trust is not reporting a gain on Form 4797, line 7, skip lines 1 through 9 and go to line 10.

15.15. Enter the (loss), if any, from Schedule D, line 5. If Schedule D, line 5, is zero

or a gain, enter -0-

1.

1250 property held more than 1 year for installment sale of trade or business whichever applies, or (b) the amount ofwhich it is reporting gain on the property held more than 1 year. unrecaptured section 1250 gaininstallment method. remaining to be reported. This amount isStep 1. Figure the smaller of (a) the

generally the total unrecaptured section• The estate or trust received a Schedule depreciation allowed or allowable or (b)1250 gain for the sale reduced by all gainK-1 from an estate or trust, partnership, or the total gain for the sale. This is thereported in prior years (excluding sectionS corporation that shows “unrecaptured smaller of line 22 or line 24 of the 20011250 ordinary income recapture).section 1250 gain” reportable for the tax Form 4797 (or the comparable lines of

year. However, if you chose not to treat all ofForm 4797 for the year of sale) for thatthe gain from payments received after• The estate or trust received a Form property.May 6, 1997, and before August 24,1099-DIV or Form 2439 from a real estate Step 2. Reduce the amount figured in 1999, as unrecaptured section 1250 gain,investment trust or regulated investment step 1 by any section 1250 ordinary use only the amount you chose to treat ascompany (including a mutual fund) that income recapture for the sale. This is the unrecaptured section 1250 gain for thosereports “unrecaptured section 1250 gain” amount from line 26g of the 2001 Form payments to reduce the totalfor the tax year. 4797 (or the comparable line of Form unrecaptured section 1250 gain• The estate or trust reported a long-term 4797 for the year of sale) for that remaining to be reported for the sale.capital gain from the sale or exchange of property. The result is the total Include this amount on line 4.an interest in a partnership that owned unrecaptured section 1250 gain that must

section 1250 property. be allocated to the installment payments Line 10. Include on line 10 the estate’s orreceived from the sale. trust’s share of the partnership’sInstructions for the Unrecaptured unrecaptured section 1250 gain thatStep 3. Generally, the amount ofSection 1250 Gain Worksheet would result if the partnership hadsection 1231 gain on each installment

transferred all of its section 1250 propertypayment is treated as unrecapturedLines 1 through 3. If the estate or trustin a fully taxable transaction immediatelysection 1250 gain until the totalhad more than one property described onbefore the estate or trust sold orunrecaptured section 1250 gain figured inline 1, complete lines 1 through 3 for eachexchanged its interest in that partnership.step 2 has been used in full. Figure theproperty on a separate worksheet. EnterIf the estate or trust recognized less thanamount of gain treated as unrecapturedthe total of the line 3 amounts for allall of the realized gain, the partnership willsection 1250 gain for installmentproperties on line 3 and go to line 4.be treated as having transferred only apayments received during the tax year, asproportionate amount of each sectionLine 4. To figure the amount to enter on the smaller of (a) the amount from line 261250 property.line 4, follow the steps below for each or line 37 of the 2001 Form 6252,

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6.

Capital Loss Carryover Worksheet

Enter taxable income (or loss) from Form 1041, line 22Enter loss from line 17 of Schedule D as a positive amountEnter amount from Form 1041, line 20Adjusted taxable income. Combine lines 1, 2, and 3, but do not enter less than zeroEnter the smaller of line 2 or line 4

Enter loss from Schedule D, line 5, as a positive amountEnter gain, if any, from Schedule D, line 13. If that line is blank or shows aloss, enter -0-Add lines 5 and 7Short-term capital loss carryover to 2002. Subtract line 8 from line 6. If zero or less, enter -0-.If this is the final return of the estate or trust, also enter on Schedule K-1 (Form 1041), line 13b

Enter loss from Schedule D, line 13, as a positive amountEnter gain, if any, from Schedule D, line 5. If that line is blank or shows a loss,enter -0-Subtract line 6 from line 5. If zero or less, enter -0-Add lines 11 and 12

Use this worksheet to figure the estate’s or trust’s capital loss carryovers from 2001 to 2002 if Schedule D, line 17, is a lossand (a) the loss on Schedule D, line 16, column (3), is more than $3,000, or (b) Form 1041, page 1, line 22 is a loss.

1.2.3.4.5.

6.7.

8.9.

1.2.3.4.5.

7.8.

9.

10.11.

12.13.

10.

12.11.

13.

Note: If line 5 of Schedule D is a loss, go to line 6; otherwise, enter -0- on line 6 and go to line 10.

Note: If line 13 of Schedule D is a loss, go to line 10; otherwise, skip lines 10 through 14.

Long-term capital loss carryover to 2002. Subtract line 13 from line 10. If zero or less, enter -0-.If this is the final return of the estate or trust, also enter on Schedule K-1 (Form 1041), line 13c

14.14.

Keep for Your Records

Line 12. An example of an amount to 2001 Form 6252, whichever applies, or For any year (including the final year)include on line 12 is unrecaptured section in which capital losses exceed capital(b) the amount of unrecaptured section1250 gain from the sale of a vacation gains, the estate or trust may have a1250 gain remaining to be reported. Thishome previously used as a rental property capital loss carryover. Use the Capitalamount is generally the totalbut converted to personal use prior to the Loss Carryover Worksheet above tounrecaptured section 1250 gain for thesale. To figure the amount to enter on line figure any capital loss carryover. A capitalsale reduced by all gain reported in prior12, follow the applicable instructions loss carryover may be carried forwardyears (excluding section 1250 ordinarybelow. indefinitely. Capital losses keep theirincome recapture). However, if you chose

character as either short-term ornot to treat all of the gain from paymentsInstallment sales. To figure thelong-term when carried over to thereceived after May 6, 1997, and beforeamount to include on line 12, follow thefollowing year.August 24, 1999, as unrecaptured sectionsteps below for each installment sale of

1250 gain, use only the amount youproperty held more than 1 year for which Part V—Tax Computationchose to treat as unrecaptured sectionyou did not make an entry in Part I of Using Maximum Capital Gains1250 gain for those payments to reduceForm 4797 for the year of sale.the total unrecaptured section 1250 gain Rates• Step 1. Figure the smaller of (a) theremaining to be reported for the sale.depreciation allowed or allowable or (b)

Line 21Include this amount on line 12.the total gain for the sale. This is thesmaller of line 22 or line 24 of the 2001 If the estate or trust received capital gainsOther sales or dispositions ofForm 4797 (or comparable lines of Form that were derived from income in respectsection 1250 property. For each sale of4797 for the year of sale) for that of a decedent, and a section 691(c)(4)property held more than 1 year (for whichproperty. deduction was claimed, then line 21 mustan entry was not made in Part I of Form• Step 2. Reduce the amount figured in be reduced by the portion of the section4797), figure the smaller of (a) thestep 1 by any section 1250 ordinary 691(c)(4) deduction claimed on Formdepreciation allowed or allowable or (b)income recapture for the sale. This is the 1041, page 1, line 19.the total gain for the sale. This is theamount from line 26g of the 2001 Form smaller of line 22 or line 24 of Form 4797 Line 27–Qualified 5-Year Gain4797 (or the comparable line of Form

for that property. Next, reduce that4797 for the year of sale) for that Qualified 5-year gain is long-term capitalamount by any section 1250 ordinaryproperty. The result is the total gain (other than 28% rate gain or gain onincome recapture for the sale. This is theunrecaptured section 1250 gain that must lines 6 and 10 through 12 of theamount from line 26g of Form 4797 forbe allocated to the installment payments Unrecaptured Section 1250 Gainthat property. The result is the totalreceived from the sale. Worksheet) from the sale or otherunrecaptured section 1250 gain for the• Step 3. Generally, the amount of disposition of property held more than 5sale. Include this amount on line 12.capital gain on each installment payment years. Qualified 5-year gain is taxed at

is treated as unrecaptured section 1250 8% to the extent the gain would otherwisePart IV—Capital Lossgain until the total unrecaptured section be taxed at 10%. To figure qualifiedLimitation1250 gain figured in step 2 has been 5-year gain, complete the worksheetIf the sum of all the capital losses is moreused in full. Figure the amount of gain below if any of the following apply to thethan the sum of all the capital gains, thentreated as unrecaptured section 1250 estate or trust for the 2001 tax year.these capital losses are allowed as again for installment payments received • The estate or trust sold or otherwisededuction only to the extent of the smallerduring the tax year, as the smaller of (a) disposed of property at a gain that it hadof the net loss or $3,000.the amount from line 26 or line 37 of the held for more than 5 years.

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Qualified 5-Year Gain Worksheet—Line 27 Keep for Your Records

Enter the total of all gains reported on line 6, column (f), of Schedule D from dispositions of propertyheld more than 5 years. Do not reduce these gains by any losses

Enter the total of all gains from dispositions of property held more than 5 years from Form 4797,Part I, but only if Form 4797, line 7, is more than zero. Do not reduce these gains by any losses

Enter the total of all capital gains from dispositions of property held more than 5 years from Form4684, line 4; Form 6252; Form 6781, Part II; and Form 8824. Do not reduce these gains by anylosses


2.

3.

4.

5.

1.

2.

3.

4.

5.

Enter the total of any qualified 5-year gain reported to the estate or trust on:

1.

Enter the part, if any, of the gain on line 5 that is:● Attributable to 28% rate gain or● Included on line 6, 10, 11, or 12 of the Unrecaptured

Section 1250 Gain Worksheet on page 31.

6.

Qualified 5-year gain. Subtract line 6 from line 57a.

6.

7a.

�7b.

7c.

Beneficiaries’ allocable portion of line 7a

Estate’s or trust’s allocable portion of line 7a. Enter here and on Schedule D, line 27

7b.

7c.

● Schedule K-1 from a partnership, S corporation, estate, or trust (do notinclude gains from section 1231 property; take them into account on line2 above, but only if Form 4797, line 7, is more than zero).

● Form 2439, box 1c; and● Form 1099-DIV, box 2c;

�

• The estate or trust received a Schedule accumulation distribution, the distribution accumulation distribution before anyK-1 from an estate, trust, partnership, or must exceed the accounting income of reduction for income accumulated beforeS corporation that reports “qualified the trust. the beneficiary reaches age 21. If the5-year gain.” multiple trust rules do not apply, the

Specific Instructions• The estate or trust received a Form beneficiary claims the exclusion when1099-DIV (or Form 2439) with “qualified filing Form 4970, Tax on Accumulation

Part I—Accumulation Distribution5-year gain” reported in box 2c (box 1c of Distribution of Trusts, as you may not bein 2001Form 2439). aware that the beneficiary may be a

• The estate or trust received payments beneficiary of other trusts with otherLine 1—Distribution Under Sectionfrom an installment sale of property that it trustees.661(a)(2)had held for more than 5 years when it

For examples of accumulationentered into the installment sale. Enter the amount from Schedule B of distributions that include payments fromForm 1041, line 10, for 2001. This is the one trust to another trust, and amountsLine 38 amount properly paid, credited, or distributed for a dependent’s support, seeIf the tax using the maximum capital gains required to be distributed other than the Regulations section 1.665(b)-1A(b).rates is less than the regular tax, enter amount of income for the current tax yearthe amount from line 38 on line 1a of required to be distributed currently. Part II—Ordinary IncomeSchedule G, Form 1041, and check the

Accumulation DistributionLine 2—Distributable Net Income“Schedule D” box.Enter the applicable year at the top ofEnter the amount from Schedule B ofeach column for each throwback year.Form 1041, line 7, for 2001. This is the

amount of distributable net income (DNI)Schedule J (Form 1041) — Line 6—Distributable Net Incomefor the current tax year determined underfor Earlier YearsAccumulation Distribution section 643(a).Enter the applicable amounts as follows:for Certain Complex Trusts Line 3—Distribution Under SectionThrowback year(s) Amount from line661(a)(1)General Instructions 1969 – 1977 . . . . . . . . . . Schedule C, Form 1041, line 5Enter the amount from Schedule B of 1978 – 1979 . . . . . . . . . . Form 1041, line 61Use Schedule J (Form 1041) to report an Form 1041, line 9, for 2001. This is the 1980 . . . . . . . . . . . . . . Form 1041, line 60accumulation distribution for a domestic 1981 – 1982 . . . . . . . . . . Form 1041, line 58amount of income for the current tax yearcomplex trust that was: 1983 – 1996 . . . . . . . . . . Schedule B, Form 1041, line 9required to be distributed currently. 1997 – 2000 . . . . . . . . . . Schedule B, Form 1041, line 7• Previously treated at any time as a

foreign trust (unless an exception is Line 5—Accumulation Distribution For information about throwbackprovided in future regulations) or If line 11, Schedule B of Form 1041 is years, see the instructions for line 13. For• Created before March 1, 1984, unless more than line 8, Schedule B of Form purposes of line 6, in figuring the DNI ofthat trust would not be aggregated with 1041, complete the rest of Schedule J the trust for a throwback year, subtractother trusts under the rules of section and file it with Form 1041, unless the trust any estate tax deduction for income in643(f) if that section applied to the trust. has no previously accumulated income. respect of a decedent if the income isAn accumulation distribution is theincludible in figuring the DNI of the trustexcess of amounts properly paid, Generally, amounts accumulatedfor that year.credited, or required to be distributed before a beneficiary reaches age 21 may

(other than income required to be be excluded by the beneficiary. SeeLine 7—Distributions Made Duringdistributed currently) over the DNI of the sections 665 and 667(c) for exceptionsEarlier Yearstrust reduced by income required to be relating to multiple trusts. The trustee

distributed currently. To have an reports to the IRS the total amount of the Enter the applicable amounts as follows:

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9.

Schedule D Tax Worksheet Keep for Your Records

Enter your taxable income from Form 1041, line 22

Subtract line 3 form line 2. If zero or less, enter -0-Combine lines 14 and 15a, column (2) of Schedule D. Ifzero or less, enter -0-

Enter the amount from Schedule D, line 15b, column (2)Add lines 6 and 7Subtract line 8 from line 4. If zero or less, enter -0-Subtract line 9 from line 1. If zero or less, enter -0-

Subtract line 12 from line 11 �

Enter the estate’s or trust’s allocable portion of qualified5-year gain, if any, from the worksheet on page 33. Alsoenter this amount on Schedule D, line 27

2.

3.

4.5.

6.

7.8.9.

1.

2.

3.

8.

5.

14.

10.

19.

10.11.

12.13.

25.

6.

Enter the smaller of line 16 above or line 17 aboveMultiply line 18 by 8% (.08)

14.

Enter the smaller of line 5 above or Schedule D, line15a, column (2), but not less than zero

Figure the tax on the amount on line 14. Use the 2001 Tax Rate Schedule on page 20

31.

16.17.

Complete this worksheet only if line 15a, column (2), or line 15b, column (2), of Schedule D is more than zero.Otherwise, complete Part V of Schedule D to figure the estate’s or trust’s tax. Exception: Do not use Schedule D, Part V, orthis worksheet to figure the estate’s or trust’s tax if line 15c, column (2), or line 16, column (2), of Schedule D or Form 1041,line 22, is zero or less; instead, see the instructions for Schedule G, line 1a of Form 1041.

15.

1.Enter the smaller of line 15c or line 16 in column (2) ofSchedule DIf you are filing Form 4952, enter the amount from line4e of that form. Otherwise, enter -0-. Also enter thisamount on Schedule D, line 20

Enter the smaller of:● The amount on line 1 or

Enter the smaller of line 10 or line 11Subtract line 4 from line 1. If zero or less, enter -0-Enter the larger of line 12 or line 13 �

If lines 11 and 12 are the same, skip lines 16 through 21 and go to line 22. Otherwise, go toline 16.

Subtract line 18 from line 16Multiply line 20 by 10% (.10)If lines 1 and 11 are the same, skip lines 22 through 34 and go to line 35. Otherwise, go toline 22.Enter the smaller of line 1 or line 9Enter the amount from line 16. If blank, enter -0-Subtract line 23 from line 22 �

Multiply line 24 by 20% (.20)If line 7 is zero or blank, skip lines 26 through 31 and go to line 32. Otherwise, go to line 26.Enter the smaller of line 4 or line 7Add lines 4 and 14Enter the amount from line 1Subtract line 28 from line 27. If zero or less, enter -0-Subtract line 29 from line 26. If zero or less, enter -0- �

Multiply line 30 by 25% (.25)If line 6 is zero, skip lines 32 through 34 and go to line 35. Otherwise, go to line 32.Add lines 14, 16, 24, and 30Subtract line 32 from line 1Multiply line 33 by 28% (.28)Add lines 15, 19, 21, 25, 31, and 34Figure the tax on the amount on line 1. Use the 2001 Tax Rate Schedule on page 20Tax on all taxable income (including capital gains). Enter the smaller of line 35 or line 36. Also,enter this amount on Schedule D, line 38, and line 1a of Schedule G, Form 1041

12.

18.19.20.21.

22.23.24.25.

26.27.28.29.30.31.

32.33.34.35.36.37.

7.

13.

11.

15.

16.

17.18.

21.20.

22.23.

24.

26.27.28.

29.30.

32.33.

34.35.36.

37.

4.

● $1,800 �

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Throwback Amount from line Part III—Taxes Imposed onyear(s) Throwback year(s) Amount from lineUndistributed Net Income1969 – 1977 . . . . . . . . . . Schedule C, Form 1041, line 8 1969 – 1970 . . . . . . . . . . . 50% of Schedule D, line 13(e)

1978 . . . . . . . . . . . . . . Form 1041, line 64 For the regular tax computation, if there is 1971 – 1977 . . . . . . . . . . . 50% of Schedule D, line 17(e)1979 . . . . . . . . . . . . . . Form 1041, line 65 a capital gain, complete lines 18 through 1978 . . . . . . . . . . . . . . . Schedule D, line 17(e), or line1980 . . . . . . . . . . . . . . Form 1041, line 64

25 for each throwback year. If the trustee 31, whichever is applicable,1981 – 1982 . . . . . . . . . . Form 1041, line 62less Form 1041, line 231983 – 1996 . . . . . . . . . . Schedule B, Form 1041, line 13 elected the alternative tax on capital

1997 – 2000 . . . . . . . . . . Schedule B, Form 1041, line 11 gains, complete lines 26 through 311979 . . . . . . . . . . . . . . . Schedule D, line 25 or line 27,instead of lines 18 through 25 for each

whichever is applicable, lessapplicable year. If there is no capital gainLine 11—Prior Accumulation Form 1041, line 23for any year, or there is a capital loss forDistribution Thrown Back to any

1980 – 1981 . . . . . . . . . . . Schedule D, line 21, lessevery year, enter on line 9 the amount ofThrowback YearSchedule D, line 22the tax for each year identified in theEnter the amount of prior accumulation instruction for line 18 and do not completedistributions thrown back to the throwback 1982 . . . . . . . . . . . . . . . Schedule D, line 23, lessPart III. If the trust received an Schedule D, line 24years. Do not enter distributions excluded accumulation distribution from another

under section 663(a)(1) for gifts, trust, see Regulations section 1983 – 1986 . . . . . . . . . . . Schedule D, line 22, lessbequests, etc.Schedule D, line 231.665(b)-1A.

Note: The alternative tax on capital gainsLine 13—Throwback Years 1987 – 1996 . . . . . . . . . . . Schedule D, the smallerwas repealed for tax years beginning afterof any gain on line 16 orAllocate the amount on line 5 that is an December 31, 1978. The maximum rate line 17, column (b)

accumulation distribution to the earliest on net capital gain for 1981, 1987, and 1997 – 2000 . . . . . . . . . . . Schedule D, the smallerapplicable year first, but do not allocate of any gain on line 15c or1991 through 2000 is not an alternativeline 16, column (2)more than the amount on line 12 for any tax for this purpose.

throwback year. An accumulationLine 18—Regular Tax Line 22—Taxable Incomedistribution is thrown back first to theEnter the applicable amounts as follows:earliest preceding tax year in which there Enter the applicable amounts as follows:

is undistributed net income (UNI). Then, itThrowback year(s) Amount from line Throwback year(s) Amount from lineis thrown back beginning with the next1969 – 1976 . . . . . . . . . Form 1041, page 1, line 24 1969 – 1976 . . . . . . . . . . . . Form 1041, page 1, line 23earliest year to any remaining preceding 1977 . . . . . . . . . . . . . Form 1041, page 1, line 26 1977 . . . . . . . . . . . . . . . . Form 1041, page 1, line 251978 – 1979 . . . . . . . . . Form 1041, line 27tax years of the trust. The portion of the 1978 – 1979 . . . . . . . . . . . . Form 1041, line 261980 – 1984 . . . . . . . . . Form 1041, line 26c 1980 – 1984 . . . . . . . . . . . . Form 1041, line 25accumulation distribution allocated to the1985 – 1986 . . . . . . . . . Form 1041, line 25c 1985 – 1986 . . . . . . . . . . . . Form 1041, line 24earliest preceding tax year is the amount 1987 . . . . . . . . . . . . . Form 1041, line 22c 1987 . . . . . . . . . . . . . . . . Form 1041, line 211988 – 2000 . . . . . . . . . Schedule G, Form 1041, line 1a 1988 – 1996 . . . . . . . . . . . . Form 1041, line 22of the UNI for that year. The portion of the

1997 . . . . . . . . . . . . . . . . Form 1041, line 23accumulation distribution allocated to any1998 – 2000 . . . . . . . . . . . . Form 1041, line 22Line 19—Trust’s Share of Netremaining preceding tax year is the

Short-Term Gainamount by which the accumulation Line 26—Tax on Income Otherdistribution is larger than the total of the For each throwback year, enter the Than Long-Term Capital GainUNI for all earlier preceding tax years. smaller of the capital gain from the two

Enter the applicable amounts as follows:lines indicated. If there is a capital loss orA tax year of a trust during which the a zero on either or both of the two lines Throwback year(s) Amount from line

trust was a simple trust for the entire year indicated, enter zero on line 19. 1969 . . . . . . . . . . . . . . . . . . . Schedule D, line 20is not a preceding tax year unless (a) 1970 . . . . . . . . . . . . . . . . . . . Schedule D, line 19

1971 . . . . . . . . . . . . . . . . . . . Schedule D, line 50during that year the trust received outside Throwback year(s) Amount from line 1972 – 1975 . . . . . . . . . . . . . . . Schedule D, line 48income or (b) the trustee did not distribute 1976 – 1978 . . . . . . . . . . . . . . . Schedule D, line 271969 – 1970 . . . . . . . . Schedule D, line 10, column 2, orall of the trust’s income that was required Schedule D, line 12, column 2

to be distributed currently for that year. In Line 27—Trust’s Share of Net1971 – 1978 . . . . . . . . Schedule D, line 14, column 2, orthis case, UNI for that year must not be Short-Term Gain

Schedule D, line 16, column 2more than the greater of the outside If there is a loss on any of the followingincome or income not distributed during1979 . . . . . . . . . . . . Schedule D, line 18, column (b), or lines, enter zero on line 27 for thethat year. Schedule D, line 20, column (b) applicable throwback year. Otherwise,

enter the applicable amounts as follows:The term “outside income” means 1980 – 1981 . . . . . . . . Schedule D, line 14, column (b), orSchedule D, line 16, column (b)amounts that are included in the DNI of Throwback year(s) Amount from line

the trust for that year but that are not 1969 – 1970 . . . . . . . . . . Schedule D, line 10, column 21982 . . . . . . . . . . . . Schedule D, line 16, column (b), or 1971 – 1978 . . . . . . . . . . Schedule D, line 14, column 2“income” of the trust as defined in

Schedule D, line 18, column (b)Regulations section 1.643(b)-1. SomeLine 28—Trust’s Share of Taxableexamples of outside income are: (a) 1983 – 1996 . . . . . . . . Schedule D, line 15, column (b), or Income Less Section 1202income taxable to the trust under section Schedule D, line 17, column (b)

Deduction691; (b) unrealized accounts receivable 1997 – 2000 . . . . . . . . Schedule D, line 14, column (2), orSchedule D, line 16, column (2)that were assigned to the trust; and (c) Enter the applicable amounts as follows:

distributions from another trust thatThrowback year(s) Amount from lineLine 20—Trust’s Share of Netinclude the DNI or UNI of the other trust.1969 . . . . . . . . . . . . . . . . . . . . Schedule D, line 19Long-Term Gain1970 . . . . . . . . . . . . . . . . . . . . Schedule D, line 18

Enter the applicable amounts as follows:Line 16—Tax-Exempt Interest 1971 . . . . . . . . . . . . . . . . . . . . Schedule D, line 381972 – 1975 . . . . . . . . . . . . . . . . Schedule D, line 39Included on Line 131976 – 1978 . . . . . . . . . . . . . . . . Schedule D, line 21

For each throwback year, divide line 15by line 6 and multiply the result by the Part IV—Allocation tofollowing: BeneficiaryThrowback year(s) Amount from line Complete Part IV for each beneficiary. If1969 – 1977 . . . . . . . . . Schedule C, Form 1041, line 2(a) the accumulation distribution is allocated1978 – 1979 . . . . . . . . . Form 1041, line 58(a) to more than one beneficiary, attach an1980 . . . . . . . . . . . . . Form 1041, line 57(a) additional copy of Schedule J with Part IV1981 – 1982 . . . . . . . . . Form 1041, line 55(a)1983 – 2000 . . . . . . . . . Schedule B, Form 1041, line 2 completed for each additional beneficiary.

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Give each beneficiary a copy of his or her beneficiaries have substantially separateTax Shelter’s Identification Numberrespective Part IV information. If more and independent shares, their shares areIf the estate or trust is a tax shelter, isthan 5 throwback years are involved, use treated as separate trusts for the soleinvolved in a tax shelter, or is consideredanother Schedule J, completing Parts II purpose of determining the amount of DNIto be the organizer of a tax shelter, thereand III for each additional throwback year. allocable to the respective beneficiaries.are reporting requirements under section

For the estates of decedents dying after6111 for both the fiduciaries and theIf the beneficiary is a nonresident alien August 5, 1997, a similar rule applies tobeneficiaries.individual or a foreign corporation, see treat substantially separate andsection 667(e) about retaining the See Form 8264, Application for independent shares of differentcharacter of the amounts distributed to Registration of a Tax Shelter, and Form beneficiaries of an estate as separatedetermine the amount of the U.S. 8271, Investor Reporting of Tax Shelter estates. For examples of the applicationwithholding tax. Registration Number, and their related of the separate share rule, see theinstructions for information regarding the regulations under section 663(c).The beneficiary uses Form 4970 tofiduciary’s reporting requirements.figure the tax on the distribution. The Character of income. The beneficiary’s

beneficiary also uses Form 4970 for the income is considered to have the sameSubstitute Formssection 667(b)(6) tax adjustment if an proportion of each class of items enteringYou do not need prior IRS approval for aaccumulation distribution is subject to into the computation of DNI that the totalsubstitute Schedule K-1 (Form 1041) thatestate or generation-skipping transfer tax. of each class has to the DNI (e.g., halffollows the specifications for filingThis is because the trustee may not be dividends and half interest if the incomesubstitute Schedules K-1 in Pub. 1167,the estate or generation-skipping transfer of the estate or trust is half dividends andSubstitute Printed, Computer-Prepared,tax return filer. half interest).and Computer-Generated Tax Forms and

Allocation of deductions. Generally,Schedules, or is an exact copy of an IRSitems of deduction that enter into theSchedule K-1. You must request IRSSchedule K-1 (Form computation of DNI are allocated amongapproval to use other substitutethe items of income to the extent suchSchedules K-1. To request approval,1041)— Beneficiary’sallocation is not inconsistent with the ruleswrite to:

Share of Income, set out in section 469 and its regulations,Internal Revenue Servicerelating to passive activity loss limitations,Attention: Substitute Forms UnitDeductions, Credits, etc. in the following order.W:CAR:MP:FP:S:SP

1111 Constitution Avenue, NW First, all deductions directly attributableGeneral Instructions Washington, DC 20224 to a specific class of income are deductedUse Schedule K-1 (Form 1041) to report from that income. For example, rentalInclusion of Amounts inthe beneficiary’s share of income, expenses, to the extent allowable, aredeductions, and credits from a trust or a Beneficiaries’ Income deducted from rental income.decedent’s estate. Simple trust. The beneficiary of a simple Second, deductions that are nottrust must include in his or her grossGrantor type trusts do not use directly attributable to a specific class ofincome the amount of the incomeSchedule K-1 (Form 1041) to income generally may be allocated to anyrequired to be distributed currently,report the income, deductions, orCAUTION

!class of income, as long as a reasonable

whether or not distributed, or if thecredits of the grantor (or other person portion is allocated to any tax-exemptincome required to be distributedtreated as owner). See Special Filing income. Deductions considered notcurrently to all beneficiaries exceeds theInstructions for Grantor Type Trusts, directly attributable to a specific class ofdistributable net income (DNI), his or herPooled Income Funds, and Electing income under this rule include fiduciaryproportionate share of the DNI. TheSmall Business Trusts on page 4. fees, safe deposit box rental charges, anddetermination of whether trust income is state income and personal property taxes.Who Must File required to be distributed currently The charitable deduction, however, must

The fiduciary (or one of the joint depends on the terms of the trust be ratably apportioned among each classfiduciaries) must file Schedule K-1. A instrument and applicable local law. See of income included in DNI.copy of each beneficiary’s Schedule K-1 Regulations section 1.652(c)-4 for a

Finally, any excess deductions that areis attached to the Form 1041 filed with the comprehensive example.directly attributable to a class of incomeIRS and each beneficiary is given a copy Estates and complex trusts. The may be allocated to another class ofof his or her respective Schedule K-1. beneficiary of a decedent’s estate or income. However, in no case can excessOne copy of each Schedule K-1 must be complex trust must include in his or her deductions from a passive activity beretained for the fiduciary’s records. gross income the sum of: allocated to income from a nonpassive

1. The amount of the income required activity, or to portfolio income earned byBeneficiary’s Identifying Numberto be distributed currently, or if the income the estate or trust. Excess deductionsAs a payer of income, you are requiredrequired to be distributed currently to all attributable to tax-exempt income cannotunder section 6109 to request andbeneficiaries exceeds the DNI (figured offset any other class of income.provide a proper identifying number forwithout taking into account the charitable In no case can deductions be allocatedeach recipient of income. Enter thededuction), his or her proportionate share to an item of income that is not includedbeneficiary’s number on the respectiveof the DNI (as so figured) and in the computation of DNI, or attributableSchedule K-1 when you file Form 1041.

2. All other amounts properly paid, to corpus.Individuals and business recipients arecredited, or required to be distributed, or ifresponsible for giving you their TIN upon Except for the final year, and forthe sum of the income required to berequest. You may use Form W-9, depreciation or depletion allocations indistributed currently and other amountsRequest for Taxpayer Identification excess of income (see Rev. Rul. 74-530,properly paid, credited, or required to beNumber and Certification, to request the 1974-2 C.B. 188), you may not show anydistributed to all beneficiaries exceeds thebeneficiary’s identifying number. negative amounts for any class ofDNI, his or her proportionate share of the

income, because the beneficiaryPenalty. Under section 6723, the payer excess of DNI over the income requiredgenerally may not claim losses oris charged a $50 penalty for each failure to be distributed currently.deductions from the estate or trust.to provide a required TIN, unless

See Regulations section 1.662(c)-4 forreasonable cause is established for not Gifts and bequests. Do not include ina comprehensive example.providing it. Explain any reasonable the beneficiary’s income any gifts or

cause in a signed affidavit and attach it to For complex trusts that have more bequests of a specific sum of money or ofthis return. than one beneficiary, and if different specific property under the terms of the

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governing instrument that are paid or deductions are referred to as “directlyLine 5a—Annuities, Royalties, andcredited in three installments or less. apportionable deductions.”Other Nonpassive Income

Enter the beneficiary’s share of annuities, Rules for treating a beneficiary’sAmounts that can be paid or creditedroyalties, or any other income, minus income and directly apportionableonly from income of the estate or trust doallocable deductions (other than directly deductions from an estate or trust andnot qualify as a gift or bequest of aapportionable deductions), that is not other rules for applying the passive lossspecific sum of money.subject to any passive activity loss and credit limitations to beneficiaries oflimitation rules at the beneficiary level. estates and trusts have not yet beenPast years. Do not include in theUse line 6a to report income items subject issued.beneficiary’s income any amountsto the passive activity rules at thededucted on Form 1041 for an earlier Any directly apportionable deduction,beneficiary’s level.year that were credited or required to be such as depreciation, is treated by the

distributed in that earlier year. beneficiary as having been incurred in theLines 5b and 6b—Depreciationsame activity as incurred by the estate orBeneficiary’s Tax Year Enter the beneficiary’s share of the trust. However, the character of such

depreciation deductions attributable toThe beneficiary’s income from the estate deduction may be determined as if theeach activity reported on lines 5a and 6a.or trust must be included in the beneficiary incurred the deductionSee the instructions on page 12 for abeneficiary’s tax year during which the tax directly.discussion of how the depreciationyear of the estate or trust ends. See Pub.

To assist the beneficiary in figuring anydeduction is apportioned between the559 for more information, including theapplicable passive activity loss limitations,beneficiaries and the estate or trust.effect of the death of a beneficiary duringalso attach a separate schedule showingReport any AMT adjustment or taxthe tax year of the estate or trust.the beneficiary’s share of directlypreference item attributable toapportionable deductions derived fromdepreciation separately on line 12a.Specific Instructionseach trade or business, rental real estate,

Note: An estate or trust cannot make an and other rental activity.Line 1— Interest election under section 179 to expenseEnter the beneficiary’s share of the Line 7— Income for Minimum Taxcertain tangible property.taxable interest income minus allocable PurposesLines 5c and 6c—Depletiondeductions. Enter the beneficiary’s share of theEnter the beneficiary’s share of the income distribution deduction figured on adepletion deduction under section 611Line 2—Ordinary Dividends minimum tax basis from line 27 ofattributable to each activity reported onEnter the beneficiary’s share of ordinary Schedule I.lines 5a and 6a. See the instructions ondividends minus allocable deductions.

page 13 for a discussion of how the Line 8— Income for Regular Taxdepletion deduction is apportioned PurposesLine 3—Net Short-Term Capitalbetween the beneficiaries and the estateGain Enter the beneficiary’s share of theor trust. Report any tax preference item income distribution deduction figured onEnter the beneficiary’s share of the net attributable to depletion separately on line line 15 of Schedule B. This amountshort-term capital gain from line 14, 12b. should equal the sum of lines 1 through 3,column (1), Schedule D (Form 1041),

4c, 5a, and 6a.minus allocable deductions. Do not enter Lines 5d and 6d—Amortizationa loss on line 3. If, for the final year of the Itemize the beneficiary’s share of the Line 10—Estate Tax Deductionestate or trust, there is a capital loss amortization deductions attributable to (Including Certaincarryover, enter on line 13b the each activity reported on lines 5a and 6a. Generation-Skipping Transferbeneficiary’s share of short-term capital Apportion the amortization deductions Taxes)loss carryover. However, if the beneficiary between the estate or trust and theis a corporation, enter on line 13b the If the distribution deduction consists ofbeneficiaries in the same way that thebeneficiary’s share of all short- and any income in respect of a decedent, anddepreciation and depletion deductions arelong-term capital loss carryovers as a the estate or trust was allowed adivided. Report any AMT adjustmentsingle item. See section 642(h) and deduction under section 691(c) for theattributable to amortization separately onrelated regulations for more information. estate tax paid attributable to suchline 12c.

income (see the line 19 instructions onLines 4a through 4d—Net page 16), then the beneficiary is allowedLine 6a—Trade or Business,

an estate tax deduction in proportion toLong-Term Capital Gain Rental Real Estate, and Otherhis or her share of the distribution thatRental IncomeEnter the beneficiary’s share of the netconsists of such income. For an examplelong-term capital gain from lines 15a Enter the beneficiary’s share of trade or of the computation, see Regulationsthrough 15c, column (1), Schedule D business, rental real estate, and other section 1.691(c)-2. Figure the(Form 1041) and line 7b of the Qualified rental income, minus allocable deductions computation on a separate sheet and5-Year Gain Worksheet on page 33, (other than directly apportionable attach it to the return.minus allocable deductions. deductions). To assist the beneficiary in

figuring any applicable passive activity Line 11—Foreign TaxesDo not enter a loss on lines 4a through loss limitations, also attach a separate List on a separate sheet the beneficiary’s4d. If, for the final year of the estate or schedule showing the beneficiary’s share share of the applicable foreign taxes paidtrust, there is a capital loss carryover, of income derived from each trade or or accrued and the various foreign sourceenter on line 13c the beneficiary’s share business, rental real estate, and other figures needed to figure the beneficiary’sof the long-term capital loss carryover. (If rental activity. foreign tax credit. See Pub. 514 andthe beneficiary is a corporation, see thesection 901(b)(5) for special rules aboutinstructions for line 3.) See section 642(h) Lines 6b Through 6dforeign taxes.and related regulations for more

The limitations on passive activityinformation. Lines 12a through 12closses and credits under sectionGains or losses from the complete or 469 apply to estates and trusts. Enter any adjustments or tax preferenceCAUTION

!partial disposition of a rental, rental real Estates and trusts that distribute income items attributable to depreciation,estate, or trade or business activity that is to beneficiaries are allowed to apportion depletion, or amortization that werea passive activity, must be shown on an depreciation, depletion, and amortization allocated to the beneficiary. For propertyattachment to Schedule K-1. deductions to the beneficiaries. These placed in service before 1987, report

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separately the accelerated depreciation of final year, use the Capital Loss • Gross farming and fishing income;real and leased personal property. Carryover Worksheet on page 32 to • Credit for backup withholding (section

figure the amount of capital loss carryover 3406);Line 12d—Exclusion Items to be allocated to the beneficiary. • The information a beneficiary will needEnter the beneficiary’s share of the to figure any investment credit;adjustment for minimum tax purposes Lines 13d and 13e—Net Operating • The work opportunity credit;from Schedule K-1, line 9, that is Loss (NOL) Carryover • The welfare-to-work credit;attributable to exclusion items (Schedule Upon termination of a trust or decedent’s • The alcohol fuel credit;I, lines 4a through 4d, 4p, and 4q). estate, a beneficiary succeeding to its • The credit for increasing research

property is allowed to deduct any unusedLine 13a—Excess Deductions on activities;NOL (and any AMT NOL) carryover for • The low-income housing credit;Terminationregular and AMT purposes if the • The renewable electricity productionIf this is the final return of the estate orcarryover would be allowable to the credit;trust, and there are excess deductions onestate or trust in a later tax year but for • The empowerment zone employmenttermination (see the instructions for linethe termination. Enter on lines 13d and credit;22 on page 17), enter the beneficiary’s13e the unused carryover amounts. • The Indian employment credit;share of the excess deductions on line

• The orphan drug credit;13a. Figure the deductions on a separate Line 14—Other • New markets credit;sheet and attach it to the return.Itemize on line 14, or on a separate sheet • The information a beneficiary will needExcess deductions on termination if more space is needed, the beneficiary’s to figure any recapture taxes; andoccur only during the last tax year of the tax information not entered elsewhere on • Foreign trading gross receipts astrust or decedent’s estate when the total Schedule K-1. This includes the allocable defined in section 942(a).deductions (excluding the charitable share, if any, of:

deduction and exemption) are greater Note: Upon termination of an estate or• Payment of estimated tax to bethan the gross income during that tax trust, any suspended passive activitycredited to the beneficiary (sectionyear. losses (PALs) relating to an interest in a643(g));

Generally, a deduction based on an passive activity cannot be allocated to the• Tax-exempt interest income received orNOL carryover is not available to a beneficiary. Instead, the basis in suchaccrued by the trust (includingbeneficiary as an excess deduction. activity is increased by the amount of anyexempt-interest dividends from a mutualHowever, if the last tax year of the estate PALs allocable to the interest, and nofund or other regulated investmentor trust is also the last year in which an losses are allowed as a deduction on thecompany);NOL carryover may be taken (see section estate’s or trust’s final Form 1041.• Investment income (section 163(d));172(b)), the NOL carryover is consideredan excess deduction on the termination of

Paperwork Reduction Act Notice. We ask for the information on this form to carrythe estate or trust to the extent it is notout the Internal Revenue laws of the United States. You are required to give us theabsorbed by the estate or trust during itsinformation. We need it to ensure that you are complying with these laws and to allowfinal tax year. For more information, seeus to figure and collect the right amount of tax.Regulations section 1.642(h)-4 for a

You are not required to provide the information requested on a form that is subjectdiscussion of the allocation of theto the Paperwork Reduction Act unless the form displays a valid OMB control number.carryover among the beneficiaries.Books or records relating to a form or its instructions must be retained as long as theirOnly the beneficiary of an estate orcontents may become material in the administration of any Internal Revenue law.trust that succeeds to its property isGenerally, tax returns and return information are confidential, as required by Codeallowed to deduct that entity’s excesssection 6103.deductions on termination. A beneficiary

The time needed to complete and file this form and related schedules will varywho does not have enough income in thatdepending on individual circumstances. The estimated average times are:year to absorb the entire deduction may

not carry the balance over to anyForm 1041 Schedule D Schedule D Tax Schedule J Schedule

succeeding year. An individual beneficiary Worksheet K-1must be able to itemize deductions in Recordkeeping 49 hr., 14 min. 26 hr., 32 min. 8 hr., 51 min. 39 hr., 27 min. 9 hr., 5 min.

Learning about the laworder to claim the excess deductions inor the form 19 hr., 58 min. 2 hr., 34 min. - - - - 1 hr., 17 min. 1 hr., 23 min.determining taxable income.Preparing the form 37 hr., 27 min. 3 hr., 7 min. 8 min. 1 hr., 59 min. 1 hr., 36 min.Copying, assembling, andLines 13b and 13c—Unusedsending the form to the IRS 4 hr., 33 min. - - - - - - - - - - - - - - - -Capital Loss Carryover

If you have comments concerning the accuracy of these time estimates orUpon termination of the trust orsuggestions for making this form and related schedules simpler, we would be happy todecedent’s estate, the beneficiaryhear from you. You can write to the Tax Forms Committee, Western Area Distributionsucceeding to the property is allowed as aCenter, Rancho Cordova, CA 95743-0001. Do not send the tax form to this address.deduction any unused capital lossInstead, see Where To File on page 40.carryover under section 1212. If the

estate or trust incurs capital losses in the

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Index

A Elections: Income in respect of a decedent Electronic and magnetic643(e)(3) . . . . . . . . . . . . . 19 (See IRD) media . . . . . . . . . . . . . . 6Accounting income . . . . . . . . 2Out of installment method . . . Final . . . . . . . . . . . . . . . . 12Installment sales . . . . . . . . . 30AGI . . . . . . . . . . . . . . . . . . 15

. . . . . . . . . . . . . . . . . 30 Nonexempt charitableInstallment sales:Alaska Native SettlementRecognize gain on assets trust . . . . . . . . . . . . 11-12Elect out of . . . . . . . . . . . 30Trusts . . . . . . . . . . . . . . . . 4

held on January 1, Qualified settlement funds . . 4Inter vivos . . . . . . . . . . . . . 2-3Allowable miscellaneous2001 . . . . . . . . . . . . . . 27 Split-interest trust . . . . . . . 12itemized deductions Interest income . . . . . . . . . . 12

Rollover of gain from When to file . . . . . . . . . . . . 6(AMID) . . . . . . . . . . . . . . 15 IRD . . . . . . . . . . . . . . . . . . . 3qualified small business Who must file . . . . . . . . . . . 3Alternative minimum tax . . . . 21 IRD:stock . . . . . . . . . . . . . . 29Amended return . . . . . . . . . 12 Deduction . . . . . . . . . . . . 16Section 643(e)(3) . . . . . . . 27 SAmounts paid or Section 643(g) . . . . . . . . . . 8

Schedule D Tax Worksheet . . 34permanently set aside . . . . 18 Special rule for qualified LSecond tier distributions . . . . 19Assembly . . . . . . . . . . . . . . . 9 revocable trusts . . . . . . . . 4 Like-kind exchange . . . . . . . 30Separate share rule . . . . . . . 18Attachments . . . . . . . . . . . . . 9 Treating contributions asSpecial filing instructions:paid in prior tax year . . . 18

M Bankruptcy estates . . . . . . 10Electronic deposits . . . . . . . . . 7B Mortgage pools . . . . . . . . 11-12 Electing small businessESBTs (See Electing smallBankruptcy estate . . . . . . . 4, 11 Mortgage pools: trusts . . . . . . . . . . . . . . . 6business trusts)Bankruptcy information . . . . . . 9 Employer Identification Grantor trusts . . . . . . . . . . . 4Estate . . . . . . . . . . . . . . . 3, 36Basis . . . . . . . . . . . . . . . . . 29 number . . . . . . . . . . . . 11 Pooled income funds . . . . . . 6Estate tax deduction . . . . . . . 16Beneficiary . . . . . . . . . . . . . . 3 Split-interest trust . . . . . . . . 12Estate:Beneficiary: Substitute forms . . . . . . . . . 36NBankruptcy . . . . . . . . . . 4, 11Allocation of estimated Net operating loss . . . . . . . . 17Exemption for . . . . . . . . . 16tax payment . . . . . . . . 8, 17

Foreign . . . . . . . . . . . . . . . 3 Nonexempt charitable TComplex trust . . . . . . . . . 36Who must file . . . . . . . . . . . 3 deduction . . . . . . . . . . . . 11 Taxable income . . . . . . . . . . 17Estate . . . . . . . . . . . . . . . 36

Estimated tax . . . . . . . . . . 7, 17 Nonexempt charitable Testamentary . . . . . . . . . . . 2-3Simple trust . . . . . . . . . . . 36trust . . . . . . . . . . . . . . 11, 17Estimated tax: Throwback years . . . . . . . . . 35Tax year for inclusion . . . . 37

Allocation of payments Nonqualified deferred Trusts:Blind trust . . . . . . . . . . . . . . 12to beneficiaries . . . . . . 7, 17 compensation plans . . . . . 11 Alaska Native Settlement . . . 4

Penalty . . . . . . . . . . . . . . 17 Blind . . . . . . . . . . . . . . . 12C Excess deductions . . . . . . . . 17 Common trust fund . . . . . . . 4PCapital asset . . . . . . . . . . . . 27 Exemption . . . . . . . . . . . . . 16 Complex . . . . . . . . . . . . . 36Paid preparer . . . . . . . . . . . . 7Capital loss limitation . . . . . . 32 Domestic . . . . . . . . . . . . . 4Extension for filing . . . . . . . . . 6 Paid preparer authorization . . . 7Cemetery perpetual care Exemption for . . . . . . . . . 16Extraterritorial income Penalties:fund . . . . . . . . . . . . . . . . 16 Foreign . . . . . . . . . . . . . . 21exclusion . . . . . . . . . . . . 12 Estimated tax . . . . . . . . . . 17Charitable deduction . . . . . . 17 Grantor . . . . . . . . . . . . . . . 2

Failure to provide a Inter vivos . . . . . . . . . . . . 2-3Collectibles . . . . . . . . . . . . . 30 required TIN . . . . . . . . . 36F Nonexempt charitable . . 11, 17Common trust fund . . . . . . . . 4 Failure to provideFiduciary . . . . . . . . . . . . . 4, 7 Pre-need funeral . . . . . . . 11information timely . . . . . . 8Fiduciary accounting income (FAI) Qualified disability . . . . . . . 16

Late filing of return . . . . . . . 8D (See Accounting income) Qualified revocable . . . . . . . 4Late payment of tax . . . . . . 8Definitions: Final return . . . . . . . . . . . . . 12 Simple . . . . . . . . . . . . . . 36Other . . . . . . . . . . . . . . . . 8Accumulation distribution . . 33 Split-interest . . . . . . . . . . 12First tier distributions . . . . . . 19 Trust fund recovery . . . . . . . 8Beneficiary . . . . . . . . . . . . 3 Testamentary . . . . . . . . . . 2-3Foreign tax credit . . . . . . . . . 20 Underpaid estimated tax . . . 8Complex trust . . . . . . . . . 11 Who must file . . . . . . . . . 4, 36

Pooled income fund . . . . . . . 17Decedent’s estate . . . . . . . 11GDNI . . . . . . . . . . . . . . . . . 3 Pooled income funds . . 6, 11, 18

UFiduciary . . . . . . . . . . . . . . 3 General business credit . . . . 20 Pre-need funeral trusts . . . . . 11Undistributed capital gains . . 30Grantor trusts . . . . . . . . . . 11 Grantor trusts . . . . . . . . 2, 4, 11Unrecaptured section 1250Income in respect of a Grantor trusts: Q gain . . . . . . . . . . . . . . . . 30decedent . . . . . . . . . . . . 3 Backup withholding . . . . . . . 5 Qualified 5-year gain . . . . . . 32Outside income . . . . . . . . 35 Mortgage pools . . . . . . . . 11

Qualified disability trust . . . . . 16Pooled income fund . . . . . 11 Nonqualified deferred WQualified revocable trust . . . . . 4Simple trust . . . . . . . . . . . 11 compensation plans . . . . 11 Who must file:

Trust . . . . . . . . . . . . . . . . 3 Qualified settlement funds . . . . 4Optional filing methods . . . . 5 Bankruptcy estate . . . . . . . . 9Distributable net income (See Qualified small businessPre-need funeral trusts . . . 11 Decedent’s estate . . . . . . . . 3

DNI) stock . . . . . . . . . . . . . 19, 28Special filing instructions . . . 4 Trust . . . . . . . . . . . . . . . . 4DNI . . . . . . . . . . . . . . . . . 3, 18 GST tax deduction . . . . . . . . 16

■RE Returns:I

Amended . . . . . . . . . . . . 12Electing small business Income distributionCommon trust fund . . . . . . . 4trusts . . . . . . . . . . . . . . 6, 21 deduction . . . . . . . . 2, 16, 18

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Transcript of Instructions for Form 1041 and Schedules A, B, D, G, I, J ... · PDF file2001 Internal Revenue...