us internal revenue service: i1041--1993

8/14/2019 US Internal Revenue Service: i1041--1993

1/28

Cat. No. 11372D

Changes To Note The Revenue Reconciliation Act of1993 (the 1993 Act) provides for:

1. An increase in income tax rates fortrusts and decedents estates effectivefor tax years beginning after 1992.

2. New rules that limit the amount ofcapital gains that are eligible for themaximum capital gains rate on ScheduleD (Form 1041) if the gain is treated asinvestment income.

3. A waiver of any estimated taxpenalties for 1993 with respect to anyunderpayment for any period before

April 16, 1994, that was attributable tochanges under the 1993 Act.

The Energy Policy Act of 1992provides for:

1. A new deduction for the cost ofclean-fuel vehicles and certain refuelingproperty. See instructions for line 15a,page 1.

2. A new qualified electric vehiclecredit. See instructions for Schedule G,line 2.

3. A new renewable electricityproduction credit that is part of the

General Business Credit. Seeinstructions for Schedule G, line 2c.

For tax years beginning in 1993, thefiling requirement for bankruptcy estatesis increased to $5,450.

All bankruptcy trustees anddebtors-in-possession in a chapter 7 or11 case should read the new section onpage 5 devoted to topics of specialinterest for trustees of bankruptcyestates.

ContentsPurpose of Form 1

Income Taxation of Trusts andDecedents Estates 1

Who Must File 2

Definitions 2

Additional Returns and Documents YouMay Have To File 2

Period Covered by the Return 3

Decedents Final Income Tax Return 3

Accounting Methods 3

When To File 3

Extension of Time To File 3

Where To File 4

Electronic Filing of Form 1041 4

Estimated Income Tax Payments 4

Income and Deductions In Respect ofa Decedent 4

Interest 5

Penalties 5

Attachments 5

Of Special Interest to BankruptcyTrustees and Debtors-in-Possession 5

Type of Entity 7

Employer Identification Number 8

Nonexempt Charitable andSplit-Interest Trusts 8

Initial Return, Amended Return, FinalReturn; or Change of Name orAddress 8

Income 9

Deductions 9

Limitations on Deductions 10

Schedule ACharitable Deduction 14

Schedule BIncome DistributionDeduction 14

Schedule GTax Computation 15

Signature 17Schedule HAlternative Minimum

Tax 17

Other Information 22

Schedule DCapital Gains andLosses 22

Schedule JAccumulation Distributionfor a Complex Trust 24

Schedule K-1Beneficiarys Share ofIncome, Deductions, Credits, etc. 26

General Instructions

Purpose of FormThe fiduciary of a domestic decedentsestate, trust, or bankruptcy estate usesForm 1041 to report: (1) the incomereceived by the estate or trust; (2) theincome that is either accumulated orheld for future distribution or distributedcurrently to the beneficiaries; and (3) anyapplicable tax liability of the estate ortrust.

Income Taxation of Trustsand Decedents EstatesA trust (except a grantor type trust) or a

decedents estate is a separate legalentity for Federal tax purposes. Adecedents estate is created upon thedeath of an individual. A trust may becreated during an individuals life (intervivos) or upon his or her death under awill (testamentary). If the trust instrumentcontains certain provisions, then theperson creating the trust (the grantor) isdeemed to be the owner of the trustsassets and the trust is treated as agrantor type trust.

Instructions for Form 1041and Schedules A, B, D, G,

H, J, and K-1U.S. Fiduciary Income Tax ReturnSection references are to the Internal Revenue Code unless otherwise noted.Paperwork Reduction Act Notice

The time needed to complete and file this form and related schedules will varydepending on individual circumstances. The estimated average times are:

Schedule K-1Schedule JSchedule DForm 1041

8 hr. 22 min.39 hr. 28 min.16 hr. 1 min.41 hr. 51 min.Recordkeeping

Learning about the

law or the form 1 hr. 17 min.1 hr. 5 min.1 hr. 59 min.17 hr. 43 min.Preparing the form 1 hr. 29 min.1 hr. 47 min.2 hr. 20 min.34 hr. 4 min.

Copying,assembling, andsending the formto the IRS 4 hr. 17 min.

If you have comments concerning the accuracy of these time estimates orsuggestions for making these forms more simple, we would be happy to hear fromyou. You can write to both the Internal Revenue Service, Attention: ReportsClearance Officer, PC:FP, Washington, DC 20224; and the Office of Managementand Budget, Paperwork Reduction Project (1545-0092), Washington, DC 20503. DONOT send the tax form to either of these offices. Instead, see Where To File onpage 4.

Department of the TreasuryInternal Revenue Service

We ask for the information on this form to carry out the Internal Revenue laws of theUnited States. You are required to give us the information. We need it to ensure thatyou are complying with these laws and to allow us to figure and collect the rightamount of tax.


2/28

Page 2

A trust or decedents estate computesits gross income in much the samemanner as an individual. Generally, thedeductions and credits allowed toindividuals are also allowed to estatesand trusts. However, there is one majordistinction. A trust or decedents estateis allowed an income distributiondeduction for distributions tobeneficiaries. To compute this deduction,the fiduciary must complete Schedule B.The income distribution deductiondetermines the amount of thedistribution that is to be taxed to thebeneficiary.

For this reason, sometimes a trust ordecedents estate is referred to as apass-through entity because it maydistribute its income and apportioncertain deductions among the incomebeneficiaries and the estate or trust. It isthe beneficiary, and not the trust ordecedents estate, that pays the incometax on his or her distributive share ofincome. Schedule K-1 (Form 1041) isused to notify the beneficiaries of theamounts to be included on theirrespective tax returns.

Before preparing Form 1041, thefiduciary must compute the accountingincome of the estate or trust under thewill or trust instrument to determine theamount, if any, of income that isrequired to be distributed since theincome distribution deduction is based,in part, on that amount.

Additional InformationThe following publications may assistyou in preparing Form 1041.

Publication 448, Federal Estate and GiftTaxes;

Publication 550, Investment Income andExpenses; and

Publication 559, Survivors, Executors,and Administrators.

These and other publications may beobtained at most IRS offices. To orderpublications and forms, call our toll-freenumber 1-800-TAX-FORM(1-800-829-3676).

Who Must File

Decedents Estate

The fiduciary (or one of the jointfiduciaries) must file Form 1041 for the

estate of a domestic decedent that has:1. Gross income for the tax year of

$600 or more, or

2. A beneficiary who is a nonresidentalien.

Trust

The fiduciary (or one of the jointfiduciaries) must file Form 1041 for adomestic trust taxable under section 641that has:

1. Any taxable income for the tax year,or

2. Gross income of $600 or moreregardless of the taxable income, or

3. A beneficiary who is a nonresidentalien.

If you are a fiduciary of a nonresidentalien estate or foreign trust with U.S.source income, you should file Form1040NR, U.S. Nonresident Alien IncomeTax Return.

Bankruptcy Estate

The bankruptcy trustee or

debtor-in-possession must file Form1041 for the estate of an individualinvolved in bankruptcy proceedingsunder chapter 7 or 11 of title 11 of theUnited States Code if the estate hasgross income for the tax year of $5,450or more. See Of Special Interest ToBankruptcy Trustees andDebtors-in-Possession on page 5 forother details.

Qualified Settlement Funds

The trustee of a designated or qualifiedsettlement fund should use Form1120-SF, U.S. Income Tax Return for

Settlement Funds. See Regulationssection 1.468B-5.

Definitions

Fiduciary

The term fiduciary includes a trusteeof a trust or the executor, executrix,administrator, administratrix, personalrepresentative, or a person inpossession of property of a decedentsestate.

Note: Throughout these instructions, anyreference to you means the fiduciary ofthe estate or trust.

TrustThe term trust refers to anarrangement created either by a will orby an inter vivos declaration by whichtrustees take title to property for thepurpose of protecting or conserving itfor the beneficiaries under the ordinaryrules applied in chancery or probatecourts.

Beneficiary

The term beneficiary includes heir,legatee, or devisee.

Income Required To Be

Distributed CurrentlyThe term income required to bedistributed currently means income thatis required to be distributed in the year itis received. The fiduciary must be undera duty to distribute the income currently,even if the actual distribution is notmade until after the close of the truststax year. See Regulations section1.651(a)-2.

Distributable Net Income

The income distribution deductionallowable to estates and trusts foramounts paid, credited, or required tobe distributed to beneficiaries is limitedto the distributable net income (DNI).This limit is also used to determine howmuch of an amount paid, credited, orrequired to be distributed to abeneficiary will be includible in his or hergross income.

Additional Returns andDocuments You May HaveTo FileForms W-2 and W-3, Wage and TaxStatement and Transmittal of Incomeand Tax Statements.

Form 1040, U.S. Individual Income TaxReturn.

Form 1040NR, U.S. Nonresident AlienIncome Tax Return.

Form 1041-A, U.S. Information ReturnTrust Accumulation of CharitableAmounts.

Form 1041-ES, Estimated Income Taxfor Fiduciaries.

Form 1041-T, Allocation of EstimatedTax Payments to Beneficiaries.

Form 56, Notice Concerning FiduciaryRelationship.

Form 706, United States Estate (andGeneration-Skipping Transfer) TaxReturn; or Form 706NA, United StatesEstate (and Generation-SkippingTransfer) Tax Return, Estate ofNonresident Not a Citizen of the UnitedStates.

Form 706GS(D), Generation-SkippingTransfer Tax Return for Distributions.

Form 706GS(D-1), Notification ofDistribution From A Generation-SkippingTrust.

Form 706GS(T), Generation-SkippingTransfer Tax Return for Terminations.

Form 940 or Form 940-EZ, EmployersAnnual Federal Unemployment (FUTA)Tax Return. The fiduciary may be liablefor FUTA tax and may have to file Form940 or 940-EZ if it paid wages of $1,500or more in any calendar quarter duringthe calendar year (or the precedingcalendar year) or one or moreemployees worked for the estate or trustfor some part of a day in any 20

different weeks during the calendar year.Form 941, Employers Quarterly FederalTax Return. Employers must file thisform quarterly to report income taxwithheld and employer and employeesocial security and Medicare taxes.Agricultural employers must file Form943, Employers Annual Tax Return forAgricultural Employees, instead of Form941, to report income tax withheld andemployer and employee social securityand Medicare taxes on farmworkers.


3/28

Page 3

Caution: A Trust Fund Recovery Penaltymay apply where income, social security,and Medicare taxes that should bewithheld are not withheld or are not paidto the IRS. Under this penalty, certainemployees of the estate or trust becomepersonally liable for payment of the taxesand may be penalized in an amountequal to the unpaid taxes. SeeCircularE, Employers Tax Guide (orCircular A,Agricultural Employers Tax Guide), formore details concerning who may beliable for the Trust Fund RecoveryPenalty.

Forms 1042 and 1042-S, AnnualWithholding Tax Return for U.S. SourceIncome of Foreign Persons; and ForeignPersons U.S. Source Income Subject toWithholding. Use these forms to reportand transmit withheld tax on paymentsor distributions made to nonresidentalien individuals, foreign partnerships, orforeign corporations to the extent suchpayments or distributions constitutegross income from sources within theUnited States that is not effectivelyconnected with a U.S. trade or business.For more information, see sections 1441

and 1442, and Publication 515,Withholding of Tax on NonresidentAliens and Foreign Corporations.

Forms 1099-A, B, INT, MISC, OID, R,and S.You may have to file theseinformation returns to reportabandonments, acquisitions throughforeclosure, proceeds from broker andbarter exchange transactions, interestpayments, medical and dental healthcare payments, miscellaneous income,original issue discount, distributions frompensions, annuities, retirement orprofit-sharing plans, individual retirementarrangements, insurance contracts, andproceeds from real estate transactions.

Also, use these returns to reportamounts that were received as anominee on behalf of another person.

Some of the above 1099 forms do nothave to be filed if it would result in theduplication of income informationrequired to be reported on Schedule K-1(Form 1041).

Form 8275, Disclosure Statement, isused by taxpayers and income taxreturn preparers to disclose items orpositions, except those contrary to aregulation, that are not otherwiseadequately disclosed on a tax return.The disclosure is made to avoid parts ofthe accuracy-related penalty imposed fornegligence, disregard of rules, orsubstantial understatement of tax. Form8275 is also used for disclosures relatingto preparer penalties forunderstatements due to unrealisticpositions or for willful or recklessconduct.

Form 8275-R, Regulation DisclosureStatement, is used to disclose any itemon a tax return for which a position hasbeen taken that is contrary to Treasuryregulations.

Form 8300, Report of Cash PaymentsOver $10,000 Received in a Trade orBusiness. Generally, this form is used toreport the receipt of more than $10,000in cash or foreign currency in onetransaction (or a series of relatedtransactions).

Decedents will and trustinstrument.You do not have to file acopy of the decedents will or the trustinstrument unless the IRS requests it. Ifthe IRS requests it, file a copy (including

any amendments) with the following:1. A signed statement that, under the

penalties of perjury, the copy of the willor the trust instrument is true andcomplete.

2. A statement naming the provisionsof the will or the trust instrument thatyou believe determines how the incomeis to be split up among the decedentsestate or trust, the grantor (if applicable),and the beneficiaries.

Period Covered by theReturnFor a decedents estate, the moment ofdeath determines the end of thedecedents tax year and the beginning ofthe estates tax year. As executor oradministrator, you choose the estatestax period when you file its first incometax return. The estates first tax yearmay be any period of 12 months or lessthat ends on the last day of a month. Ifyou select the last day of any monthother than December, then you areadopting a fiscal tax year.

Generally, a trust must adopt acalendar year. The following trusts areexempt from this requirement:

A trust that is exempt from tax under

section 501(a); A charitable trust described in section4947(a)(1); and

A trust that is treated as wholly ownedby a grantor under the rules of sections671 through 679.

File Form 1041 for the calendar year1993 (if this is the initial year of theestate or trust, the tax period that endson December 31, 1993), or for a fiscalyear beginning in 1993. To change theaccounting period of an estate, getForm 1128, Application To Adopt,Change, or Retain a Tax Year.

Decedents Final Income TaxReturnWhen reporting interest or dividendincome on Form 1041 for the first yearof the decedents estate and on thedecedents final income tax return,Forms 1099-DIV and 1099-INT issued inthe name of the decedent may reflectearnings for the entire year. Thefiduciary, when preparing the finalincome tax return of the decedent,should indicate on Schedule B (Form

1040) or Schedule 1 (Form 1040A), thatthe balance of any interest or dividendincome is reported on Form 1041. Thename and address of the fidiciary return,Form 1041, should also be shown.

Accounting MethodsTaxable income must be computedusing the method of accounting regularlyused in keeping the estates or trustsbooks and records. Generally,permissible methods include the cash

method, the accrual method, or anyother method authorized by the InternalRevenue Code. The method used mustclearly reflect income.

Unless otherwise allowed by law, theestate or trust may not change theaccounting method used to reportincome in earlier years (for income as awhole or for any material item) withoutfirst getting consent on Form 3115,Application for Change in AccountingMethod. See Publication 538,Accounting Periods and Methods, formore information.

When To FileFile Form 1041 by the 15th day of the4th month following the close of the taxyear of the estate or trust. For calendaryear trusts, file Form 1041 andSchedules K-1 on or before April 15,1994. If the due date for a return falls ona Saturday, Sunday, or legal holiday, thereturn is due on the next regularworkday. For example, a fiscal yearestate would file Form 1041 by October17, 1994, for an estate that has a taxyear that ends on June 30, 1994.

Note: The 1993 Form 1041 may also beused for a tax year beginning in 1994 if:

1. The estate or trust has a tax year ofless than 12 months that begins andends in 1994; and

2. The 1994 Form 1041 is notavailable by the time the estate or trustis required to file its tax return. However,the estate or trust must show its 1994tax year on the 1993 Form 1041 andincorporate any tax law changes that areeffective for tax years beginning afterDecember 31, 1993.

Extension of Time To File

Estates

Use Form 2758, Application forExtension of Time To File Certain Excise,Income, Information, and Other Returns,to apply for an extension of time to file.

Trusts

Use Form 8736, Application forAutomatic Extension of Time To File U.S.Return for a Partnership, REMIC, or forCertain Trusts, to request an automatic3-month extension of time to file. If moretime is needed, file Form 8800,Application for Additional Extension of


4/28

Page 4

Time To File a U.S. Return for aPartnership, REMIC, or for CertainTrusts. For more information, seeRegulations section 1.6081-3T.

Where To FileExcept for charitable and split-interesttrusts and pooled income funds:

If you are located in

Please mail to thefollowing InternalRevenue Service

Center

New Jersey, New York (NewYork City and counties ofNassau, Rockland, Suffolk,and Westchester)

Holtsville, NY 00501

New York (all othercounties), Connecticut,Maine, Massachusetts, NewHampshire, Rhode Island,Vermont

Andover, MA 05501

Florida, Georgia,South Carolina

Atlanta, GA 39901

Indiana, Kentucky, Michigan,Ohio, West Virginia

Cincinnati, OH 45999

Kansas, New Mexico,Oklahoma, Texas

Austin, TX 73301

Alaska, Arizona, California(counties of Alpine, Amador,Butte, Calaveras, Colusa,Contra Costa, Del Norte, ElDorado, Glenn, Humboldt,Lake, Lassen, Marin,Mendocino, Modoc, Napa,Nevada, Placer, Plumas,Sacramento, San Joaquin,Shasta, Sierra, Siskiyou,Solano, Sonoma, Sutter,Tehama, Trinity, Yolo, andYuba), Colorado, Idaho,Montana, Nebraska, Nevada,North Dakota, Oregon, SouthDakota, Utah, Washington,Wyoming

Ogden, UT 84201

California (all other counties),Hawaii Fresno, CA 93888

Illinois, Iowa, Minnesota,Missouri, Wisconsin

Kansas City, MO 64999

Alabama, Arkansas,Louisiana, Mississippi,North Carolina, Tennessee

Memphis, TN 37501

Delaware, District ofColumbia, Maryland,Pennsylvania, Virginia, anyU.S. possession, or foreigncountry

Philadelphia, PA 19255

For a charitable or split-interest trustdescribed in section 4947(a) and apooled income fund defined in section

642(c)(5):

If you are located in

Please mail to thefollowing InternalRevenue Service

Center

Alabama, Arkansas, Florida,Georgia, Louisiana,Mississippi, North Carolina,South Carolina, Tennessee

Atlanta, GA 39901

Arizona, Colorado, Kansas,New Mexico, Oklahoma,Texas, Utah, Wyoming

Austin, TX 73301

Indiana, Kentucky, Michigan,Ohio, West Virginia

Cincinnati, OH 45999

Alaska, California, Hawaii,Idaho, Nevada, Oregon,Washington

Fresno, CA 93888

Connecticut, Maine,Massachusetts, NewHampshire, New York,Rhode Island, Vermont

Holtsville, NY 00501

Illinois, Iowa, Minnesota,Missouri, Montana,Nebraska, North Dakota,South Dakota, Wisconsin

Kansas City, MO 64999

Delaware, District ofColumbia, Maryland,New Jersey, Pennsylvania,Virginia, any U.S. possession,or foreign country

Philadelphia, PA 19255

Electronic Filing of Form1041Qualified tax return filers can file Form1041 and related schedules via magneticmedia (magnetic tapes, floppy diskettes)or electronically. If the fiduciary files theestates or trusts return electronically oron magnetic tape, he or she must also

file Form 8453-F, U.S. Fiduciary IncomeTax Declaration and Signature forElectronic and Magnetic Media Filing.See Publication 1437, Procedures forElectronic and Magnetic Media Filing ofU.S. Fiduciary Income Tax Returns,Form 1041, for Tax Year 1993, for moreinformation.

An application form to participate inthe electronic filing program andPublication 1437 may be obtained bycalling the Magnetic Media Unit at thePhiladelphia Service Center at (215)969-7533 (not a toll-free number) or bywriting to:

Internal Revenue ServicePhiladelphia Service Center11601 Roosevelt Blvd.ATTN: Magnetic Media UnitDP 115Philadelphia, PA 19154

Estimated Income TaxPaymentsGenerally, you must pay estimatedincome tax if the estate or trust expectsto owe, after subtracting any withholdingand credits, at least $500 in tax for1993, and it expects the withholding andcredits to be less than:

1. 90% of the tax shown on the 1993

tax return, or2. 100% of the tax shown on the 1992

tax return (assuming the return coveredall 12 months).

Note: Certain estates and trusts may notbe able to use the 100% of the previousyears tax. See Form 1041-ES.

Estates (and any trust that wastreated as owned by the decedent andthat received the residue of a decedentsestate under the will, or if no will isadmitted to probate, a trust primarilyresponsible for paying debts, taxes, and

other expenses of administration) areonly required to make estimated taxpayments for any tax year ending 2 ormore years after the decedents death.

Exceptions

Generally, the estate or trust will nothave to pay estimated tax if its 1994income tax return will show:

1. A tax balance due of less than$500; or

2. The estate or trust had no tax

liability in the preceding tax year and thepreceding tax year was a full 12 months.

For more information, see Form1041-ES.

Section 643(g) Election

Fiduciaries of both estates and truststhat pay estimated tax may elect to haveany portion of their estimated taxpayments allocated to any of thebeneficiaries. You must file Form 1041-Tto make a section 643(g) election toshow the allocation of any estimated taxpayments among the beneficiaries.

Note: The fiduciary of a decedents

estate may make a section 643(g)election only for the last tax year of theestate.

Amounts applied to each beneficiaryare treated as paid or credited to thebeneficiary on the last day of the truststax year and should be reported onSchedule K-1 (Form 1041) and Form1041-T. On Form 1041-T be sure tocopy the name, address, and EIN of theestate or trust exactly as reported onForm 1041. See section 643(g) andinstructions for line 24b.

Magnetic Tape FilingRequirements

Under the provisions of Rev. Proc.89-49, 1989-2 C.B. 615, fiduciaries thathave a Treasury Tax and Loan (TT&L)Account for deposited Federal taxes andadminister at least 200 taxable trusts arerequired to submit the data on estimatedtax payments on magnetic tape. SeeRev. Proc. 89-49 for details on this filingrequirement.

Income and Deductions inRespect of a DecedentWhen completing Form 1041, thefiduciary should take into account any

items that are income in respect of adecedent (IRD).

In general, the term income inrespect of a decedent means incomethat a decedent was entitled to receivebut that was not properly includible inthe decedents final Form 1040 underthe decedents method of accounting.

IRD includes: (1) all accrued income ofa decedent who reported his or herincome on a cash method ofaccounting; (2) income accrued solelyby reason of the decedents death in the


5/28

Page 5

case of a decedent who reported his orher income on an accrual method ofaccounting; and (3) income to which thedecedent had a contingent claim at thetime of his or her death.

Some examples of IRD of a decedentwho kept his or her books on a cashmethod are:

Deferred salary payments that arepayable to the decedents estate.

Uncollected interest on U.S. savingsbonds.

Proceeds from the completed sale offarm produce.

The character of the IRD is the samein the hands of the estate as if thedecedent had lived and received suchamount.

Section 691(b) allows the followingdeductions and credits, when paid bythe decedents estate, on Form 1041that were not allowable on thedecedents final Form 1040:

Business expenses deductible undersection 162.

Interest deductible under section 163.

Taxes deductible under section 164.

Investment expenses described insection 212 (in excess of 2% of AGI).

Percentage depletion allowed undersection 611.

Foreign tax credit.

For more information, see section 691.

Individual retirement accounts.Theportion of a lump sum distribution to thebeneficiary of a decedents IRA thatequals the amount of the balance in theIRA at the time of the owners death isincome in respect of a decedent. Thisincludes unrealized appreciation andincome accrued to that date, less the

aggregate amount of the ownersnondeductible contributions to the IRA.Such amounts are included in thebeneficiarys gross income in the taxyear that the distribution is received.

Special Rule for Blind TrustIf you are reporting income from aqualified blind trust (under the Ethics inGovernment Act of 1978), do not identifythe payer of any income to the trust butcomplete the rest of the return asprovided in the instructions. Also writeBlind Trust at the top of page 1.

Multiple Trust RulesTwo or more trusts are treated as onetrust if such trusts have substantially thesame grantor(s) and substantially thesame primary beneficiary(ies), and aprincipal purpose of such trusts isavoidance of tax. This provision appliesonly to that portion of the trust that isattributable to contributions to corpusmade after March 1, 1984.

InterestInterest will be charged on taxes notpaid by their due date, even if anextension of time to file is granted.

Interest is also charged on penaltiesimposed for failure to file, negligence,substantial understatement of tax,substantial valuation overstatement, andfraud.

Penalties

Late Filing of Return

The law provides a penalty of 5% of thetax due for each month, or part of amonth, that the return is late (maximum25%) unless you can show reasonablecause for the delay. If you file a returnlate, attach a full explanation to yourreturn. If your return is more than 60days late, the minimum penalty is thesmaller of $100 or the tax due on yourreturn.

Late Payment of Tax

Generally, the penalty for not paying taxwhen due is 12 of 1% of the unpaid

amount for each month or part of amonth it remains unpaid. The maximumpenalty is 25% of the unpaid amount.The penalty applies to any unpaid taxshown on a return. Any penalty is inaddition to interest charges on latepayments.

Note: If you include interest or either ofthese penalties with your payment,identify and enter these amounts in thebottom margin of Form 1041, page 1.Do not include the interest or penaltyamount in the balance of tax due online 27.

Failure To Supply Schedule K-1

The fiduciary must provide Schedule K-1(Form 1041) to each beneficiary whoreceives a distribution of property or anallocation of an item of the estate. Apenalty of $50 (not to exceed $100,000for any calendar year) will be imposedon the fiduciary for each failure tofurnish Schedule K-1 to each beneficiaryunless reasonable cause for each failureis established.

Underpaid Estimated Tax

If the fiduciary underpaid estimated tax,attach Form 2210, Underpayment ofEstimated Tax by Individuals andFiduciaries, to compute any penalties.Enter the amount of any penalties online 26, Form 1041.

Other Penalties

Other penalties can be imposed fornegligence and substantialunderpayment of tax. See Publication17, Your Federal Income Tax, for detailson these penalties.

AttachmentsIf you need more space on the forms orschedules, attach separate sheetsshowing the same information in thesame order as on the printed forms.Show the totals on the printed forms.

Enter the estates or trusts employeridentification number on each sheet.Also, use sheets that are the same sizeas the forms and schedules and indicateclearly the line of the printed form towhich the information relates.

Rounding Off to WholeDollarsYou may show the money items on thereturn and accompanying schedules aswhole-dollar amounts. To do so, dropamounts less than 50 cents andincrease any amounts from 50 to 99cents to the next dollar.

Unresolved Tax ProblemsThe IRS has a Problem ResolutionProgram for taxpayers who have beenunable to resolve their problems with theIRS. If you have a tax problem you havebeen unable to resolve through normalchannels, write to your local IRS DistrictDirector, or call your local IRS office andask for Problem Resolution assistance.

The Problem Resolution Office willensure that your problem receivesproper attention. Although the officecannot change the tax law or maketechnical decisions, it can help you clearup problems that resulted from previouscontacts.

Hearing-impaired taxpayers who haveaccess to TDD equipment may call1-800-829-4059 to ask for help from

Problem Resolution.

Of Special Interest toBankruptcy Trustees andDebtors-in-Possession

Taxation of Bankruptcy Estates ofan Individual

Under section 1398(a), a bankruptcyestate is a separate tax entity createdwhen an individual debtor files a petitionunder either chapter 7 or 11 of title 11 ofthe United States Code. The estate is

administered by a trustee, or adebtor-in-possession. If the case is laterdismissed by the bankruptcy court, thedebtor is treated as if the bankruptcypetition had never been filed. Thisprovision does NOT apply topartnerships and corporations.

Who Must File

Every trustee (or debtor-in-possession)for an individuals bankruptcy estateunder chapter 7 or 11 of title 11 of theUnited States Code must file a return if


6/28

Page 6

the bankruptcy estate has gross incomefor the tax year beginning in 1993 of$5,450 or more.

Failure to do so may result in anestimated Request for AdministrativeExpenses being filed by the IRS in thebankruptcy proceeding or a motion tocompel filing of the return.

Form 1041 is used ONLY as atransmittal for Form 1040, U.S.Individual Income Tax Return. Figure thetax for the bankruptcy estate on Form

1040 using the tax rate schedule (shownbelow) for a married person filingseparately. Enter the tax on page 2 ofForm 1040. Attach Form 1040 to Form1041. In the top margin of Form 1040write Attachment to Form 1041. DONOT DETACH.

If taxable income is:Of the

But not The tax amount Over over is: over

$0 $18,450 15% $018,450 44,575 $2,767.50 + 28% 18,45044,575 70,000 10,082.50 + 31% 44,57570,000 125,000 17,964.25 + 36% 70,000

125,000 - - - - - 37,964.25 + 39.6% 125,000

Complete only the identification areaat the top of Form 1041, enter any taxdue from line 53 of Form 1040 to line 23of Form 1041. Sign and date the Form1041.

Note: The filing of a tax return for thebankruptcy estate does not relieve theindividual debtor of his or her (or their)individual tax obligations.

Employer Identification Number(EIN)

Every bankruptcy estate of an individualrequired to file a return must have its

own employer identification number. Youmay apply for one on Form SS-4,Application for Employer IdentificationNumber. The social security number(SSN) of the individual debtor cannot beused as the EIN for the bankruptcyestate.

Identification Area

Enter the name of the individual debtorin the following format:John Q. Public Bankruptcy Estate.Beneath, enter the name of the trusteein the following format:Avery Snow, trustee.

Date Entity Created

Enter the date the petition was filed; orthe date of conversion to a chapter 7 or11 case.

Period Covered by Return

A bankruptcy estate is allowed to have afiscal year. The period can be no longerthan 12 months; and the tax return mustbe filed on or before the 15th day of the4th month following the close of thefiscal year.

Extension of Time To File

The trustee or debtor-in-possession for abankruptcy estate should use Form2758 to apply for an extension of time tofile.

Disclosure of Return Information

Under section 6103(e)(5), tax returns ofindividual debtors who have filed forbankruptcy under chapters 7 or 11 oftitle 11 are, upon written request, opento inspection by or disclosure to the

trustee.The returns subject to disclosure to

the trustee are those for the year thebankruptcy begins and prior years. UseForm 4506, Request for Copy of TaxForm, to request copies of the individualdebtors tax returns.

If the bankruptcy case was notvoluntary, disclosure cannot be madebefore the bankruptcy court has enteredan order for relief, unless the court rulesthat the disclosure is needed fordetermining whether relief should beordered.

Transfer of Tax Attributes Fromthe Individual Debtor to theBankruptcy Estate

Under section 1398(g), the bankruptcyestate succeeds to the following taxattributes of the individual debtor:

1. Net operating loss (NOL)carryovers;

2. Charitable contributions carryovers;

3. Recovery of tax benefit items;

4. Credit carryovers;

5. Capital loss carryovers;

6. Basis, holding period, and characterof assets;

7. Method of accounting; and8. Other tax attributes that may be

prescribed by the IRS.

Income and Deductions

Under section 1398(c), the taxableincome of the bankruptcy estate iscomputed in the same manner as anindividual. The gross income of thebankruptcy estate includes any incomeas defined in Bankruptcy Code section541. Also included is gain from the saleof property. To compute gain, the trusteeor debtor-in-possession must determinethe correct basis of the property.

Amounts paid or incurred by thebankruptcy estate are allowable asdeductions or credits; or treated aswages, as if the individual debtor werestill engaged in the trades andbusinesses, or activities, that theindividual debtor was engaged in beforethe bankruptcy proceedings began.

Exemption.For tax years beginning in1993, a bankruptcy estate is allowed apersonal exemption of $2,350.

Standard deduction.For tax yearsbeginning in 1993, a bankruptcy estate

that does not itemize deductions isallowed a standard deduction of $3,100.

Net operating loss (NOL).Thebankruptcy estate may have a netoperating loss (NOL) for the tax year ifthe estates administrative expensesexceed the estates gross income. TheNOL created may be carried back toeach of the 3 preceding tax years, andcarried forward to each of the 7succeeding tax years.

The 3 tax years preceding the loss

year may include tax years of theindividual debtor before the year inwhich the bankruptcy estate wascreated. For example, if the bankruptcyestate was created on June 1, 1993,and generates an NOL for the tax yearending on December 31, 1993, the NOLcan be carried back to the individuals1990 Form 1040.

Discharge of indebtedness.In a title11 case, gross income does not includeamounts that normally would beincluded in gross income resulting fromthe discharge of indebtedness. However,any amounts excluded from grossincome must be applied to reducecertain tax attributes in a certain order.Use Form 982, Reduction of TaxAttributes Due to Discharge ofIndebtedness, to show the reduction oftax attributes.

Prompt Determination of TaxLiability

To request a prompt determiniation ofthe tax liability of the bankruptcy estate,the trustee or debtor-in-possession mustfile a written application for thedetermination with the IRS DistrictDirector for the district in which thebankruptcy case is pending. The

application must be submitted induplicate and executed under thepenalties of perjury. The trustee ordebtor-in-possession must submit withthe application an exact copy of thereturn (or returns) filed by the trusteewith the IRS for a completed tax period,and a statement of the name andlocation of the office where the returnwas filed. The envelope should bemarked, Personal Attention of theSpecial Procedures Function(Bankruptcy Section). DO NOT OPEN INMAILROOM.

The Examination Function will notifythe trustee or debtor-in-possessionwithin 60 days from receipt of theapplication whether the return filed bythe trustee or debtor-in-possession hasbeen selected for examination or hasbeen accepted as filed. If the return isselected for examination, it will beexamined as soon as possible. TheExamination Function will notify thetrustee or debtor-in-possession of anytax due within 180 days from receipt ofthe application or within any additionaltime permitted by the bankruptcy court.


7/28

Page 7

See Rev. Proc. 81-17, 1981-1 C.B.688.

Specific Instructions

Identification AreaPlease copy the exact name of theestate or trust from the Form SS-4,Application for Employer IdentificationNumber, that you used to apply for theemployer identification number.

Fill in the information called for at thetop of the form and check theappropriate entity box. See Type ofEntity below for descriptions of thetypes of trusts and estates.

Address

Include the suite, room, or other unitnumber after the street address.

If the postal service does not delivermail to the street address and thefiduciary has a P.O. box, show the boxnumber instead of the street address.

If the fiduciary changes its addressafter filing its return, use Form 8822,Change of Address, to notify the IRS.

A. Type of EntityCheck the appropriate box thatdescribes the entity for which you arefiling the return.

Note: There are special filingrequirements for Grantor Type Trusts andBankruptcy Estates (discussed below).

Decedents Estate

An estate of a deceased person is ataxable entity separate from the

decedent. It generally continues to existuntil the final distribution of the assets ofthe estate is made to the heirs and otherbeneficiaries. The income earned by theproperty of the estate during the periodof administration or settlement must beaccounted for and reported by theestate.

Simple Trust

A trust may qualify as a simple trust ifthe trust instrument:

1. Requires that all income must bedistributed currently;

2. Does not allow amounts to be paid,

permanently set aside, or used in thetax year for charitable purposes; and

3. The trust does not distributeamounts allocated to the corpus of thetrust.

Complex Trust

A complex trust is any trust that doesnot qualify as a simple trust as explainedabove.

Grantor Type Trust

A grantor type trust is a legal trustunder applicable state law that is notrecognized as a separate taxable entityfor income tax purposes because thegrantor or other substantial owners havenot relinquished complete dominion andcontrol over the trust.

Generally, transfers made in trust afterMarch 1, 1986, are subject to section673(a). This section treats the grantor asthe owner of any portion of a trust in

which he or she has a reversionaryinterest in either the income or corpustherefrom, if, as of the inception of thatportion of the trust, the value of thatinterest is more than 5% of the value ofthat portion.

Further, section 672(e) treats thegrantor as holding any power or interestthat was held by either the grantorsspouse at the time that the power orinterest was created or who became thegrantors spouse subsequent to thecreation of that power or interest.

Report on Form 1041 the part of theincome that is taxable to the trust. Do

not report on Form 1041 the income thatis taxable to the grantor or anotherperson. Instead, attach a separate sheetto report the following:

The income of the trust that is taxableto the grantor or another person undersections 671 through 678;

The name, identifying number, andaddress of the person(s) to whom theincome is taxable; and

Any deductions or credits applied tothis income.

On page 1 at the top of Form 1041,write the name, identification number,and address of the grantor(s) or other

person(s) in parentheses after the nameof the trust.

The income taxable to the grantor oranother person under sections 671through 678 and the deductions andcredits applied to the income must bereported on the income tax return thatperson files.

Family estate trust.A family estatetrust is also known as a family, familyestate, pure, equity, equity pure, prime,or constitutional trust.

In most cases, the grantor transfersproperty to the trust or assigns to thetrust the income for services the grantor

performs. The trust instrument usuallyprovides:

Evidence of ownership, such ascertificates of beneficial interest in thetrust.

That the grantor is a trustee andexecutive officer.

That the trust pays the living expensesfor the grantor and the grantors family.

That the corpus and undistributedincome are distributed to the ownersafter the trust is terminated.

For more information, see Rev. Rul.75-257, 1975-2 C.B. 251.

Mortgage pools.The trustee of amortgage pool, such as the FederalNational Mortgage Association, collectsprincipal and interest payments on eachmortgage and makes distributions to thecertificate holders. Each pool isconsidered a grantor type trust, andeach certificate holder is treated as theowner of an undivided interest in theentire trust under the grantor trust rules.

Certificate holders must report theirproportionate share of the mortgageinterest and other items of income ontheir individual tax returns.

Pre-need funeral trusts.Thepurchasers of pre-need funeral servicesare the grantors and the owners ofpre-need funeral trusts establishedunder state laws. See Rev. Rul. 87-127,1987-2 C.B. 156.

Nonqualified deferred compensationplans.Taxpayers may adopt andmaintain grantor trusts in connectionwith nonqualified deferred compensationplans (sometimes referred to as rabbitrusts). Rev. Proc. 92-64, 1992-2 C.B.422, provides a model grantor trust foruse in rabbi trust arrangements. Theprocedure also provides guidance forrequesting rulings on the plans that usethese trusts.

Simplified filing requirement forcertain grantor type trusts.Thegrantor/trustee for a trust describedbelow that was created in a tax yearbeginning on or after January 1, 1981,should not file Form 1041 and thereforewill not need an EIN for the trust. Thegrantor/trustee must furnish his or hersocial security number (SSN) to payersof income and report all items of

income, deduction, and credit from thetrust on his or her Form 1040.

This special rule applies to certainrevocable trusts that are located in theUnited States and have all assetslocated in the United States if:

The same individual is both grantorand trustee (or co-trustee) of the trust;and

The individual is treated as owner ofall trust assets under section 676 (powerto revoke) for the tax year.

These rules also apply to certain otherrevocable trusts in which:

A husband and wife are the solegrantors; One spouse is trustee or co-trusteewith a third party or both spouses aretrustees or co-trustees with a third party;

One or both spouses are treated asowners of all trust assets under section676 (power to revoke) for the tax year;and

The husband and wife file a jointincome tax return for the tax year.

Grantor trusts created in tax yearsbeginning before 1981.The


8/28

Page 8

grantor/trustee for a trust describedabove who has previously filed Form1041 can take advantage of thesimplified reporting requirements in thefuture by filing a Form 1041 for thecurrent year, writing on it Pursuant tosection 1.671-4(b), this is the final returnfor this grantor trust, and checking theFinal return box.

A grantor/trustee who chooses thisoption must furnish his or her SSN topayers of income for the next year and

report the trust income on his or herForm 1040 for the next tax year and forfuture years. The grantor/trustee mustnot file Form 1041 for future years.

Backup withholding.Generally, agrantor trust with 10 or more grantors isconsidered a payor of reportablepayments received by the trust forpurposes of backup withholding. Thetrustee is required to withhold 20% ofamounts paid or credited to any grantorwho is subject to backup withholding.See Regulations section 35a.9999-2Q/A-20.

Bankruptcy Estate

A chapter 7 or 11 bankruptcy estate isa separate and distinct taxable entityfrom the individual debtor for Federalincome tax purposes. See Of SpecialInterest to Bankruptcy Trustees andDebtors-in-Possession on page 5.

For more information, see section1398 and Publication 908, Bankruptcyand Other Debt Cancellation.

Pooled Income Fund

A pooled income fund is asplit-interest trust with a remainderinterest for a public charity and a lifeincome interest retained by the donor or

for another person. The property is heldin a pool with other pooled income fundproperty and does not include anytax-exempt securities. The income for aretained life interest is figured using theyearly rate of return earned by the trust.See section 642(c) and the relatedregulations for more information.

If you are filing for a pooled incomefund, attach a statement to support thefollowing:

The calculation of the yearly rate ofreturn. (See Regulations section1.642(c)-6(c) for the calculation rules.)

The computation of the deduction for

distributions to the beneficiaries. The computation of any charitablededuction.

You do not have to completeSchedules A or B of Form 1041.

If the fund has accumulations ofincome, file Form 1041-A unless thefund is required to distribute all of its netincome to beneficiaries currently.

You must also file Form 5227,Split-Interest Trust Information Return,for the pooled income fund.

B. Number of Schedules K-1Attached

Every trust or decedents estate claimingan income distribution deduction onpage 1, line 18, must enter the numberof Schedules K-1 (Form 1041) that areattached to Form 1041.

C. Employer Identification Number(EIN)

Every estate or trust must have anemployer identification number (EIN). Toapply for one, use Form SS-4. You mayget this form from the IRS or the SocialSecurity Administration. See Publication583, Taxpayers Starting a Business, formore information.

If you are filing a return for a mortgagepool, such as one created under themortgage-backed security programsadministered by the Federal NationalMortgage Association (Fannie Mae) orthe Government National MortgageAssociation (Ginnie Mae), the EINstays with the pool if that pool is tradedfrom one financial institution to another.

D. Date Entity CreatedEnter the date the trust was created, or,if a decedents estate, the date of thedecedents death.

E. Nonexempt Charitable andSplit-Interest Trusts

Section 4947(a)(1) Trust

Check this box if the trust is anonexempt charitable trust within themeaning of section 4947(a)(1). Anonexempt charitable trust is a trustthat is not exempt from tax undersection 501(a); all of the unexpiredinterests are devoted to one or morecharitable purposes described in section170(c)(2)(B); and for which a deductionwas allowed under section 170 (forindividual taxpayers) or similar Codesection for personal holding companies,foreign personal holding companies, orestates or trusts (including a deductionfor estate or gift tax purposes).

Not a Private Foundation

Check this box if the charitable trust isnot treated as a private foundation undersection 509. For more information, seeRegulations section 53.4947-1.

If a nonexempt charitable trust is not

treated as though it were a privatefoundation, the fiduciary must file Form990 (or Form 990-EZ), Return ofOrganization Exempt From Income Tax,and Schedule A (Form 990),Organization Exempt Under Section501(c)(3), in addition to Form 1041 if thetrusts gross receipts are normally morethan $25,000.

If a nonexempt charitable trust is nottreated as though it were a privatefoundation, and doesnt have anytaxable income under Subtitle A, it can

file either Form 990 or Form 990-EZinstead of Form 1041 to meet its section6012 filing requirement.

Section 4947(a)(2) Trust

Check this box if the trust is asplit-interest trust described in section4947(a)(2). A split-interest trust is atrust that is not exempt from tax undersection 501(a); has some unexpiredinterests that are devoted to purposesother than religious, charitable, or similar

purposes described in section170(c)(2)(B); and has amountstransferred in trust after May 26, 1969,for which a deduction was allowedunder section 170 (for individualtaxpayers) or similar Code section forpersonal holding companies, foreignpersonal holding companies, or estatesor trusts (including a deduction forestate or gift tax purposes).

The fiduciary of a split-interest trustmust also file Form 5227 (for amountstransferred in trust after May 26, 1969);and Form 1041-A if the trusts governinginstrument does not require that all ofthe trusts income be distributed

currently. Use Form 1041 to report anyunrelated business taxable income andto pay any tax that may be due.

Nonexempt Charitable TrustTreated as a Private Foundation

If a nonexempt charitable trust is treatedas though it were a private foundationunder section 509, then the fiduciarymust file Form 990-PF, Return of PrivateFoundation, in addition to Form 1041.

If a nonexempt charitable trust issubject to any of the private foundationexcise taxes, then it must also file Form4720, Return of Certain Excise Taxes on

Charities and Other Persons UnderChapters 41 and 42 of the InternalRevenue Code. Any private foundationtaxes paid by the trust cannot be takenas a deduction on Form 1041.

If a nonexempt charitable trust istreated as though it were a privatefoundation, and doesnt have anytaxable income under Subtitle A, it mayfile Form 990-PF instead of Form 1041to meet its section 6012 filingrequirement.

F. Initial Return, Amended Return,Final Return; or Change inFiduciarys Name or Address

Initial Return

Check this box if this is the initial returnfor the estate or trust. Also, be sure toenter the date the entity was created inItem D.

Amended Return

If you are filing an amended Form 1041,check the Amended return box.Complete the entire return, correct theappropriate line(s) with the newinformation, and recompute the estates


9/28

Page 9

or trusts tax liability. On an attachedsheet explain the reason for theamendment(s) and identify the line(s)and amount(s) being changed on theamended return.

If the amended return results in achange to income, or a change indistribution of any income or otherinformation provided to a beneficiary, anamended Schedule K-1 (Form 1041)must also be filed with the amendedForm 1041 and given to each

beneficiary. Check the Amended K-1box at the top of the amended ScheduleK-1.

Final Return

Check this box if this is a final returnbecause the estate or trust hasterminated. Also, check the Final K-1box at the top of Schedule K-1.

On the final return, neither an estatenor a trust is allowed an exemption. Ifthere is an unused capital loss carryoveror excess deductions on the final return,see the discussion in the Schedule K-1instructions on page 28. Figure thedeductions on an attached sheet.Although Schedule B is not required tobe completed in the final year, you maywant to complete it to determine theDNI of the trust or decedents estate.

Change in Fiduciarys Name orAddress

If there has been a change in thefiduciarys name or address, pleasecheck the appropriate box.

G. Pooled Mortgage Account

If you bought a pooled mortgageaccount during the year, and still havethat pool at the end of the tax year,

check the Bought box and enter thedate of purchase.

If you sold a pooled mortgage accountthat was purchased during this, or aprevious, tax year, check the Sold boxand enter the date of sale.

If you neither bought nor sold apooled mortgage account, skip this item.

Income

Line 1Interest Income

Report the estates or trusts share of alltaxable interest income that wasreceived during the tax year. Examples

of taxable interest include interest from: Accounts (including certificates ofdeposit and money market accounts)with banks, credit unions, and thrifts.

Notes, loans, and mortgages.

U.S. Treasury bills, notes, and bonds.

U.S. savings bonds.

Original Issue Discount.

Income received as a regular interestholder of a Real Estate MortgageInvestment Conduit (REMIC).

For taxable bonds acquired afterDecember 31, 1987, amortizable bondpremium is treated as an offset to theinterest income instead of as a separateinterest deduction. See Publication 550.

Line 2Dividends

Report the estates or trusts share of alltaxable dividends received during thetax year.

Line 3Business Income or (Loss)

If the estate or trust operated abusiness, report the income andexpenses on Schedule C (Form 1040),Profit or Loss From Business (orSchedule C-EZ (Form 1040), Net ProfitFrom Business). Enter the net profit or(loss) from Schedule C (or ScheduleC-EZ) on line 3.

Line 4Capital Gain or (Loss)

Enter the net capital gain or (loss) fromSchedule D (Form 1041), Part III.

Note: Schedule D (Form 1040) cannotbe substituted for Schedule D (Form1041).

Line 5Rents, Royalties,Partnerships, Other Estates andTrusts, etc.

Use Schedule E (Form 1040),Supplemental Income and Loss, toreport the estates or trusts share ofincome or (losses) from rents, royalties,partnerships, S corporations, otherestates and trusts, and REMICs. Enterthe net profit or (loss) from Schedule Eon line 5. See the instructions forSchedule E (Form 1040) for reportingrequirements.

If the estate or trust received aSchedule K-1 from a partnership, Scorporation, or other flow-through entity,use the corresponding lines on Form1041 to report the interest, dividends,capital gains, etc., from the flow-throughentity.

Line 6Farm Income or (Loss)

If the estate or trust operated a farm,use Schedule F (Form 1040), Profit orLoss From Farming, to report farmincome and expenses. Enter the netprofit or (loss) from Schedule F on line 6.

Line 7Ordinary Gain or (Loss)

Enter from Form 4797, Sales of

Business Property, the gain or loss fromthe sale or exchange of property otherthan capital assets and also frominvoluntary conversions (other thancasualty or theft). For more information,see the instructions for Form 4797.

Line 8Other Income

Enter the total taxable income notreportable elsewhere. State the type andamount of the income. Attach a separatesheet if necessary.

Examples of income to be reported online 8 are:

Unpaid compensation received by thedecedents estate that is income inrespect of a decedent.

Any part of a total distribution shownon Form 1099-R, Distributions FromPensions, Annuities, Retirement orProfit-Sharing Plans, IRAs, InsuranceContracts, etc., that is treated asordinary income.

For more information, see the

separate instructions for Form 4972, Taxon Lump-Sum Distributions.

Deductions

Amortization, Depletion, andDepreciation

A trust or decedents estate is allowed adeduction for amortization, depletion,and depreciation only to the extent thedeductions are not apportioned to thebeneficiaries.

For property held by a decedentsestate, the allowable deduction isapportioned between the estate and the

heirs, legatees, and devisees on thebasis of the income allocable to each.

For property held by a trust, theallowable deduction is apportionedbetween the income beneficiaries andthe trust on the basis of the trustincome allocable to each, unless thegoverning instrument (or local law)requires or permits the trustee tomaintain a depreciation reserve. If thetrustee is required to maintain adepreciation reserve, the deduction isfirst allocated to the trust, up to theamount of the reserve. Any excess isallocated among the beneficiaries in the

same manner as the trusts accountingincome. See Regulations section1.167(h)-1.

An estate or trust is not allowed tomake an election under section 179 toexpense certain tangible property.

The deduction for the amortization ofreforestation expenditures under section194 is allowed only to an estate.

The estates or trusts share ofamortization, depletion, and depreciationshould be reported on the appropriatelines of Schedule C (or C-EZ), E, or F(Form 1040) whose net amounts areshown on line 3, 5, or 6 of Form 1041. If

the deduction is not related to a specificbusiness or activity, then report it on line15a.

Allocation of Deductions forTax-Exempt Income

Generally, no deduction that wouldotherwise be allowable is allowed forany expense (whether for business or forthe production of income) that isattributable to tax-exempt income.Examples of tax-exempt income include:

Certain death benefits (section 101);


10/28

Page 10

Interest on state or local bonds(section 103);

Compensation for injuries or sickness(section 104); and

Income from discharge ofindebtedness in a title 11 case (section108).

Note: A business expense that is directlyattributable to tax-exempt interest isdeductible.

A nonbusiness expense, which wouldotherwise be deductible under section212 (e.g., investment advisory fees) andwhich is attributable to both taxableincome and tax-exempt interest, mustbe allocated on a proportionate basis.Only that portion that is attributable totaxable income is allowable as adeduction.

All deductions entered on lines 11, 12,14, and 15 must include only thefiduciarys share of deductions related totaxable income. If the estate or trust hastax-exempt income, the amountincluded on lines 11, 12, 14, and 15must be reduced by the allocableportion attributed to tax-exempt income.

State income taxes that are directlyattributable to tax-exempt interest arededucted in full on line 11. The allocableamounts can be determined as follows:

Step 1. Determine the percentage oftax-exempt income to gross income bydividing the total tax-exempt incomereceived by the total of all items of grossincome (including tax-exempt income)included in the DNI.

Step 2. Determine the excludableamount of each specific deduction bymultiplying the percentage oftax-exempt income by each specificdeduction.

Step 3. Determine the amountdeductible on lines 11, 12, 14, and 15by subtracting the excludable amount ofeach specific deduction from thespecific deduction and enter the balanceon the appropriate line.

Deductions That May BeAllowable for Estate Tax Purposes

Administration expenses and lossesdeductible on Form 706 may bededucted on Form 1041 if the fiduciaryfiles a statement waiving the right todeduct the expenses and losses onForm 706. The statement must be filedbefore the expiration of the statutoryperiod of limitations applicable to the taxyear for which the deduction is claimed.You cannot deduct on Form 1041 adecedents medical and dental expensesthat are paid by the fiduciary. SeePublication 559 for more information.

Accrued Expenses

Generally, an accrual basis taxpayer candeduct accrued expenses in the tax yearthat: (1) all events have occurred thatdetermine the liability; and (2) theamount of the liability can be figured

with reasonable accuracy. However, allthe events that establish liability aretreated as occurring only wheneconomic performance takes place.There are exceptions for recurring items.See section 461(h).

Limitations on Deductions

At-Risk Loss Limitations

Generally, the amount the estate or trusthas at risk limits the loss it can deduct

for any tax year. Use Form 6198,At-Risk Limitations, to figure thedeductible loss for the year and file itwith Form 1041. For more information,see Publication 559 and Publication925, Passive Activity and At-Risk Rules.

Passive Activity Loss and CreditLimitations

Section 469 and the regulationsthereunder limit losses from passiveactivities to the amount of incomederived from all passive activities.Similarly, credits from passive activitiesare limited to the tax attributable to suchactivities. These limitations are firstapplied at the estate or trust level.

Generally, an activity is deemed to bea passive activity if it involves theconduct of any trade or business, andthe taxpayer does not materiallyparticipate in the activity. Passiveactivities do not include workinginterests in oil and gas properties. Seesection 469(c).

In the case of a grantor trust, materialparticipation is determined at the grantorlevel.

Rental activities are passive activities,whether or not the taxpayer materiallyparticipates.

Note: Material participation standards forestates and trusts had not beenestablished by regulations at the timethese instructions went to print.

In the case of taxable years of anestate ending less than 2 years after thedecedents date of death, up to $25,000of deductions and deduction equivalentsof credits attributable to all rental realestate activities in which the decedentactively participated is allowed. Anyunused losses and/or credits aredeemed suspended passive activitylosses for the year, and are carriedforward.

If the estate or trust distributes anyinterest in a passive activity, the basis ofthe property immediately before thedistribution is increased by the passiveactivity losses allocable to the interest;and such losses are not allowable as adeduction. See section 469(j).

Note: Losses from passive activities arefirst subject to the at-risk rules. Whenthe losses are deductible under theat-risk rules, the passive activity rulesthen apply.

Portfolio income is not treated asincome from a passive activity, andpassive losses and credits generally maynot be applied to offset it. Portfolioincome generally includes interest,dividends, royalties, and income fromannuities. Portfolio income of an estateor trust must be accounted forseparately. See Form 8582, PassiveActivity Loss Limitations, to compute theamount of allowable passive activityloss. See Form 8582-CR, PassiveActivity Credit Limitations, to computethe amount of credit allowed for thecurrent year.

Transactions Between RelatedTaxpayers

Under section 267, a trust that uses theaccrual method of accounting may onlydeduct business expenses and interestowed to a related party in the year thepayment is included in the income of therelated party. For this purpose, arelated party includes:

1. A grantor and a fiduciary of anytrust;

2. A fiduciary of a trust and a fiduciaryof another trust, if the same person is agrantor of both trusts;

3. A fiduciary of a trust and abeneficiary of such trust;

4. A fiduciary of a trust and abeneficiary of another trust, if the sameperson is a grantor of both trusts; and

5. A fiduciary of a trust and acorporation more than 50% in value ofthe outstanding stock of which isowned, directly or indirectly, by or for thetrust or by or for a person who is agrantor of the trust.

Line 10Interest

Enter the amount of interest (subject tolimitations) paid by the estate or trust onamounts borrowed by the estate ortrust, or on debt acquired by the estateor trust (e.g., outstanding obligationsfrom the decedent) that is not claimedelsewhere on the return.

If the proceeds of a loan were usedfor more than one purpose (e.g., topurchase a portfolio investment and toacquire an interest in a passive activity),the fiduciary must make an interestallocation according to the rules inTemporary Regulations section 1.163-8T.

Do not include interest paid onindebtedness incurred or continued topurchase or carry obligations on whichthe interest is wholly exempt fromincome tax.

If interest paid is attributable to bothtaxable and tax-exempt income, youmay use the procedure outlined in thediscussion of Allocation of Deductionsfor Tax-Exempt Income on page 9 todetermine the deductible portion.

Personal interest is not deductible.This includes interest paid on:


11/28

Page 11

Revolving charge accounts.

Personal notes for money borrowedfrom a bank, credit union, or otherperson.

Installment loans on personal property.

Taxes.

Interest that is paid or accrued onindebtedness incurred in connectionwith the conduct of a trade or business(including a rental activity) by the estateor trust should be deducted on theappropriate line of Schedule C (or C-EZ),E, or F (Form 1040) whose net amountis shown on line 3, 5, or 6 of Form 1041.

Types of interest to include on line 10are:

1. Any investment interest (subject tolimitations);

2. Any qualified residence interest;and

3. Any interest payable under section6601 on any unpaid portion of the estatetax attributable to the value of areversionary or remainder interest inproperty, or an interest in a closely heldbusiness for the period during which an

extension of time for payment of suchtax is in effect.

Generally, investment interest isinterest (including amortizable bondpremium on taxable bonds acquiredafter October 22, 1986, but beforeJanuary 1, 1988) that is paid or accruedon indebtedness that is properlyallocable to property held for investment.Investment interest does not include anyqualified residence interest, or interestthat is taken into account under section469 in computing income or loss from apassive activity.

Generally, net investment income isthe excess of investment income over

investment expenses. Investmentexpenses are those expenses (otherthan interest) allowable after applicationof the 2% floor on miscellaneousitemized deductions.

The amount of the investment interestdeduction may be limited. Use Form4952, Investment Interest ExpenseDeduction, to compute the allowableinvestment interest deduction.

Any disallowed investment interestexpense is allowed as a carryforward tothe next tax year. See Publication 550for more information.

If the allowable part of the excess

investment interest expense isdeductible and Form 4952 is required tobe completed, check the box on line 10to indicate that Form 4952 is attached.Then add the deductible interest to theother types of deductible interest andenter the total on line 10.

Interest paid or accrued by an estateor trust on indebtedness secured by aqualified residence of a beneficiary of anestate or trust is treated as qualifiedresidence interest if the residence wouldbe a qualified residence (i.e., the

principal residence or the secondresidence selected by the beneficiary) ifowned by the beneficiary. Thebeneficiary must have a present interestin the estate or trust or an interest in theresiduary of the estate or trust. SeePublication 936, Home MortgageInterest Deduction, for an explanation ofthe general rules for deducting homemortgage interest.

See section 163(h)(3) for a definition ofqualified residence interest and for

limitations on indebtedness.Seller-provided financing.An estateor trust claiming an interest deductionfor qualified residence interest onseller-provided financing, must includeon an attachment to the 1993 Form1041 the name, address, and taxpayeridentifying number of the person towhom the interest was paid (i.e., theseller).

If the estate or trust received suchinterest, it must provide identicalinformation on the person liable for suchinterest (i.e., the buyer).

This information does not need to be

reported if it duplicates informationalready reported on Form 1098.

See Question 6 under OtherInformation on page 2 of Form 1041.

Line 11Taxes

Enter any deductible taxes paid oraccrued during the tax year that are notdeductible elsewhere on Form 1041.

Deductible taxes include:

State and local income or realproperty tax.

The Generation-Skipping Transfer(GST) tax imposed on incomedistributions.

Nondeductible taxes include: Federal income taxes.

Estate, inheritance, legacy,succession, and gift taxes.

Federal duties and excise taxes.

State and local sales taxes that aretreated as part of the cost of theproperty upon acquisition, or as areduction in the amount realized upondisposition.

Line 12Fiduciary Fees

Enter the deductible fees paid to thefiduciary for administering the estate or

trust during the tax year.Note: Fiduciary fees deducted on Form706 cannot be deducted on Form 1041.

Line 13Charitable Deduction

Enter the total from Schedule A of Form1041, line 7.

Line 14Attorney, Accountant,and Return Preparer Fees

Enter the deductible attorney,accountant, and return preparer fees

paid by the estate or trust during the taxyear.

Line 15aOther Deductions NOTSubject to the 2% Floor

Attach your own schedule, listing bytype and amount, all allowabledeductions that are not deductibleelsewhere on Form 1041.

Do not include on line 15a any losseson worthless bonds and similarobligations and nonbusiness bad debts.

These items are reported on Schedule D(Form 1041).

The following are examples ofdeductions that are reported on line 15a.

Bond premium(s).For taxable bondsacquired before October 23, 1986, if thefiduciary elected to amortize thepremium, report the amortization on thisline. For tax-exempt bonds, theamortization cannot be deducted. In allcases where the fiduciary has made anelection to amortize the premium, thebasis must be reduced by the amount ofamortization.

For more information, see section 171

and Publication 550.If you claim a bond premium

deduction for the estate or trust, figurethe deduction on a separate sheet andattach it to Form 1041.

Casualty and theft losses.Use Form4684, Casualties and Thefts, to figureany deductible casualty and theft losses.

Deduction for clean-fuel vehicles andcertain refueling property.Section179A allows a deduction for part of thecost of qualified clean-fuel vehicleproperty and qualified clean-fuel vehiclerefueling property placed in service afterJune 30, 1993. See Publication 535,

Business Expenses, for more details.Net operating loss deduction.Anestate or trust is allowed the netoperating loss deduction (NOLD) undersection 172. In computing the netoperating loss, exclude that portion ofthe income and deductions attributableto the grantor under sections 671through 678. Also, the charitablecontribution deduction under section642(c) and the income distributiondeductions under sections 651 and 661are not allowed.

The estate or trust is allowed thecarryback and carryforward period for

the NOLD.For more information, see Publication536, Net Operating Losses, and Form1045, Application for Tentative Refund. Ifyou claim a NOLD for the estate or trust,figure the deduction on a separate sheetand attach it to this return.

Fiduciarys share of amortization,depreciation, and depletion notclaimed elsewhere.If you cannotdeduct the amortization, depreciation,and depletion as rent or royaltyexpenses on Schedule E (Form 1040), or


12/28

Page 12

as business or farm expenses onSchedules C (or C-EZ) and F (Form1040), itemize the fiduciarys share of thedeductions on an attached sheet. Theninclude them on line 15a. Itemize eachbeneficiarys share of the deductionsand report them on the appropriate lineof Schedule K-1 (Form 1041).

Line 15bAllowableMiscellaneous ItemizedDeductions Subject to the 2%

FloorMiscellaneous itemized deductions aredeductible only to the extent that theaggregate amount of such deductionsexceeds 2% of adjusted gross income(AGI).

The term miscellaneous itemizeddeductions does not include deductionsrelating to:

Interest under section 163.

Taxes under section 164.

The amortization of bond premiumunder section 171.

Estate taxes in the case of income inrespect of a decedent under section691(c).

For more exceptions, see section67(b).

For estates and trusts, the AGI iscomputed by subtracting the followingfrom total income on line 9 of page 1:

1. The administration costs of theestate or trust (the total of lines 12, 14,and 15a to the extent they are costsincurred in the administration of theestate or trust);

2. The income distribution deductionunder section 651 or 661 (line 18);

3. The amount of the exemption under

section 642(b) (line 20); and4. Other deductions claimed on lines

10 through 15a that were incurred in theconduct of a trade or business, or theproduction of income.

Allowable administration costs arethose costs incurred with theadministration of the estate or trust thatwould not have been incurred if theproperty were not held in such estate ortrust. These administration costs are notsubject to the 2% floor.

For those estates and trusts whoseincome distribution deduction is limitedto the actual distribution, and NOT the

DNI (i.e., the income distribution is lessthan the DNI), when computing the AGI,use the amount of the actualdistribution.

For those estates and trusts whoseincome distribution deduction is limitedto the DNI (i.e., the actual distributionexceeds the DNI), the DNI must becomputed taking into account theallowable miscellaneous itemizeddeductions (AMID) after application ofthe 2% floor. In this situation there are

two unknown amounts: (1) the AMID;and (2) the DNI.

The following example illustrates howan algebraic equation can be used tosolve for these unknown amounts:

The Malcolm Smith Trust, a complextrust, earned $20,000 of dividendincome, $20,000 of capital gains, and afully deductible $5,000 loss from XYZpartnership (chargeable to corpus) in1993. The trust instrument provides thatcapital gains be added to corpus. 50%

of the fiduciary fees were allocated toincome and 50% to corpus. The trustclaimed a $2,000 deduction on line 12 ofForm 1041. The trust incurred $1,500 ofmiscellaneous itemized deductions(chargeable to income), which aresubject to the 2% floor. There are noother deductions. The trustee made adiscretionary distribution of theaccounting income of $17,500 to thetrusts sole beneficiary.

Because the actual distribution canreasonably be expected to exceed theDNI, the trust must compute the DNI,taking into account the allowablemiscellaneous itemized deductions, todetermine the amount to be entered online 15b.

The trust also claims an exemption of$100 on line 20.

To compute line 15b, use the equationbelow:

AMID = total miscellaneous itemizeddeductions (.02(AGI))

In the above example:

AMID = 1,500 (.02(AGI))

In all situations, use the followingequation to compute the AGI:

AGI = (line 9) (the total of lines 12,14, and 15a to the extent they are costs

incurred in the administration of theestate or trust) (line 18) (line 20)Note: There are no other deductionsclaimed by the trust on lines 10 through15a that were incurred in the conduct ofa trade or business, or for the productionof income.

In the above example:

AGI = 35,000 2,000 DNI 100

Since the value of line 18 is notknown because it is limited to the DNI,you are left with the following:

AGI = 32,900 DNI

Substitute the value of AGI in the

equation:AMID = 1,500 (.02(32,900 DNI))

The equation cannot be solved untilthe value of DNI is known. The DNI canbe expressed in terms of the AMID. Todo this, compute the DNI using theknown values. In this example, the DNIis equal to the total income of the trust(less any capital gains allocated tocorpus; or plus any loss from line 4);less total deductions from line 16(computed without regard to any

miscellaneous itemized deductions); lessthe AMID.

Thus, DNI = (line 9) (line 17 column(b) of Schedule D (Form 1041)) (line 16)

(AMID)

Substitute the known values:

DNI = 35,000 20,000 2,000 AMID

DNI = 13,000 AMID

Substitute the value of DNI in theequation to solve for AMID:

AMID = 1,500 (.02(32,900 (13,000

AMID)))AMID = 1,500 (.02(32,900 13,000 +

AMID))

AMID = 1,500 (658 260 + .02AMID)

AMID = 1,102 .02AMID

AMID = 1,080

DNI = 11,920 (i.e., 13,000 1,080)

AGI = 20,980 (i.e., 32,900 11,920)

Note: The income distr ibution deductionis equal to the smaller of the distribution($17,500) or the DNI ($11,920).

Enter the value of AMID on line 15b(the DNI should equal line 9 of Schedule

B) and complete the rest of Form 1041according to the instructions.

If the 2% floor is more than thedeductions subject to the 2% floor, nodeductions are allowed.

Line 17Adjusted Total Income or(Loss)

If you are filing for a year other than thefinal year, and line 16 is more than line9, you may have a net operating loss(NOL). Use Form 1045 to determinewhether you have an NOL that you cancarry back or forward.

If you are filing for the final year, and

the amount on line 16 is more than theamount on line 9, then you have excessdeductions. Excess deductions can onlybe distributed to a beneficiary on thefinal return of the estate or trust. Formore information, see the instructionsfor Schedule K-1, line 12a.

Line 18Income DistributionDeduction

Complete Schedule B of Form 1041 todetermine the amount of the incomedistribution deduction. If you claim anincome distribution deduction, completeand attach:

Parts I and II of Schedule H torecompute the deduction on a minimum

tax basis; AND

Schedule K-1 (Form 1041) for eachbeneficiary to which a distribution wasmade.

If this trust was identified as a trustother than a Pooled Income Fund onpage 1, Form 1041, complete ScheduleB on page 2. However, if line 17 is equalto or less than zero and no distributionswere actually made or available on


13/28

Page 13

demand to the beneficiaries in the taxyear, then do not complete Schedule B.

Cemetery perpetual care fund.Online 18, deduct the amount, not morethan $5 per gravesite, paid formaintenance of cemetery property. Tothe right of the entry space for line 18,enter the number of gravesites. Alsowrite Section 642(i) trust inparentheses after the trusts name at thetop of Form 1041. You do not have tocomplete Schedules B of Form 1041

and K-1 (Form 1041).Line 19Estate Tax Deduction(Including Certain Generation-Skipping Transfer Taxes)

If the estate or trust includes income inrespect of a decedent (IRD) in its grossincome, and such amount was includedin the decedents gross estate for estatetax purposes, the estate or trust isallowed to deduct in the same tax yearthat portion of the estate tax imposedon the decedents estate that isattributable to the inclusion of the IRD inthe decedents estate. For an exampleof the computation, see Regulationssection 1.691(c)-1 and Publication 559.

If any amount properly paid, credited,or required to be distributed by anestate or trust to a beneficiary consistsof IRD received by the estate or trust,do not include such amounts indetermining the estate tax deduction forthe estate or trust. Figure the deductionon a separate sheet. Attach the sheet toyour return. Also, a deduction is allowedfor the GST tax imposed as a result of ataxable termination, or a direct skipoccurring as a result of the death of thetransferor. See section 691(c)(3). Enterthe fiduciarys share of these deductions

on line 19.

Line 20Exemption

The exemption amount is determined bywhether the fiduciary is filing for adecedents estate or a trust; andwhether this is the final year of theestate or trust.

If you are filing for a decedentsestate, you are entitled to a $600exemption; unless you are filing for thefinal year, in which case no exemption isallowed.

If you are filing for a trust, and thegoverning instrument requires that all

income be distributed currently, then youare entitled to a $300 exemption, eventhough you may have distributedamounts other than income during thetax year. No exemption is allowed for thefinal year. See Regulations section1.642(b)-1.

All other trusts (i.e., complex trusts)are allowed a $100 exemption, unlessyou are filing for the final year, in whichcase no exemption is allowed.

Tax and Payments

Line 22Taxable Income ofFiduciary

If line 22 is less than zero, you may havea net operating loss (NOL) that you cancarry to another tax year. If you carry theloss back to earlier tax years, use Form1045 (or file an amended return) to applyfor a refund of taxes. See the line 15ainstructions for a discussion ofcomputation of an NOL for an estate or

trust.

Line 24a1993 Estimated TaxPayments and 1992 OverpaymentCredited to 1993

Enter the amount of any estimated taxpayment you made on Form 1041-ESfor 1993 plus the amount of anyoverpayment from the 1992 return thatwas applied to the 1993 estimated tax.

If the trust is the beneficiary ofanother trust, and received a payment ofestimated tax that was credited to thetrust (as reflected on the Schedule K-1issued to the trust), then report this

amount separately with the notationsection 643(g) in the space next to line24a.

Note: Do not include on Form 1041estimated tax paid by an individualbefore death. Instead, include thepayments on the decedents final Form1040.

Line 24bEstimated TaxPayments Allocated toBeneficiaries

The trustee (or executor, under certaincircumstances) may elect under section643(g) to have any portion of its

estimated tax treated as a payment ofestimated tax made by a beneficiary orbeneficiaries. The election is made onForm 1041-T, which must be filed on orbefore the 65th day after the close ofthe trusts tax year. Form 1041-T showsthe amounts to be allocated to eachbeneficiary. This amount is reported onthe beneficiarys Schedule K-1, line 13a.See Section 643(g) Election on page 4.

Failure to file Form 1041-T on orbefore March 7, 1994, will result in aninvalid election. An invalid election willrequire the filing of amended SchedulesK-1 for each beneficiary who wasallocated a payment of estimated tax.Be sure to attach Form 1041-T to yourreturn ONLY if you have not yet filed it. Ifyou have already filed Form 1041-T, donot attach a copy to your return.

Line 24dTax Paid With Extensionof Time To File

If you filed either Form 2758 (for estatesonly), Form 8736, or Form 8800 torequest an extension of time to file,enter the amount that you paid andcheck the appropriate box(es).

Line 24eFederal Income TaxWithheld

Use line 24e to claim a credit for anyFederal income tax withheld (and notrepaid) by: (1) an employer on wagesand salaries of a decedent received bythe decedents estate; (2) a payer ofcertain gambling winnings (e.g., statelottery winnings); or (3) a payer ofdistributions from pensions, annuities,retirement or profit-sharing plans, IRAs,insurance contracts, etc., received by a

decedents estate or trust. Attach a copyof Form W-2, Form W-2G, or Form1099-R.

Line 24fCredit From RegulatedInvestment Companies

Attach copy B of Form 2439, Notice toShareholder of Undistributed Long-TermCapital Gains.

Line 24gCredit for Federal Taxon Fuels

Include any credit for Federal excisetaxes paid on fuels that are ultimatelyused for nontaxable purposes (e.g., an

off-highway business use) and any creditfor the purchase of a diesel-poweredcar, van, or light truck. Attach Form4136, Credit for Federal Tax Paid onFuels. See Publication 378, Fuel TaxCredits and Refunds, for moreinformation.

Line 24hOther

Include any credit for backupwithholding (under section 3406) forincome retained by the estate or trust.Report on Schedule K-1 (Form 1041),line 13, any credit for backupwithholding for income distributed to thebeneficiary.

Line 26Underpayment ofEstimated Tax

If line 27 is at least $500 and more than10% of the tax shown on your return, oryou underpaid your 1993 estimated taxliability for any payment period, you mayowe a penalty. See Form 2210, todetermine whether the estate or trustowes a penalty, and to figure theamount of the penalty.

Note: The penalty may be waived undercertain conditions. SeePublication 505,Tax Withholding and Estimated Tax, andChanges To Noteon page 1 for details.

Line 27Tax Due

The tax of both an estate and a trustmust be paid in full when the return isfiled.

Make your check or money orderpayable to Internal Revenue Service.Write the EIN and 1993 Form 1041 onthe payment.


14/28

Page 14

Line 29aCredit to 1994Estimated Tax

Enter the amount from line 28 that youwant applied to your 1994 estimatedtax.

Schedule ACharitableDeduction

General InstructionsGenerally, any part of the current yearsgross income of an estate or trust (otherthan a simple trust) that, pursuant to theterms of the will or governinginstrument, is paid (or treated as paid)during the tax year for a charitablepurpose specified in section 170(c) isallowed as a deduction to the estate ortrust. It is not necessary that thecharitable organization be created ororganized in the United States.

Trusts that claim a charitablededuction must also file Form 1041-A.See Form 1041-A for exceptions.

A pooled income fund, nonexemptprivate foundation, or trust withunrelated business income should attacha separate sheet to Form 1041 insteadof using Schedule A of Form 1041 tocompute the charitable deduction.

Election to treat contribution as paidin preceding tax year.The fiduciary ofan estate or trust may elect to treat aspaid during the previous tax year anyamount of gross income received duringthe next tax year that was paid for acharitable purpose.

To make the election, the fiduciarymust file a statement with Form 1041 forthe tax year in which the contribution istreated as paid. This statement mustinclude:

1. The name and address of thefiduciary;

2. The name of the estate or trust;

3. An indication that the fiduciary ismaking an election under section642(c)(1) in respect of contributionstreated as paid during such tax year;

4. The name and address of eachorganization to which any suchcontribution is paid; and

5. The amount of each contributionand date of actual payment of, if

applicable, the total amount ofcontributions paid to each organizationduring the succeeding tax year, to betreated as paid in the preceding taxyear.

The election must be filed by the duedate (including ext