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Member
 
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Last Login: 3/9/2006 9:13:21 AM
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| Our client set up a CRT with their investment advisor. Although I am familiar with the mechanics of the trust, I have not filed income tax returns for a CRT and am not sure of the forms required. This is a NIMCRUT, so will distribute very little income initially. I believe we need to file Form 5227 and Form 1041-A, but how to report the unitrust distributions, and character of the distributions, made to the grantors during the year for reporting on their personal returns? Appreciate any help you can provide.
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| 1. you have the correct forms for fed- you might have to file state forms too (541-a and 541-b in calif) 2. distributions carry out dni on a "worst" taxable income first- so that ordinary interest income from the trust is generally the first income that is carried out (since it is taxed at the highest rate)... and tax-free income from the trust is carried out last. 3. which tax prep software do you use? most will handle the distribution ordering for you
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Last Login: 3/9/2006 9:13:21 AM
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| One wrinkle with CRTs, which also applies in your case, is that the calculation of the 5% unitrust amount has to be made after subtracting distributions payable; e.g. for the unitrust amount for 2006, I have to take the values as of 1/1/2006 but subtract any unpaid 2005 unitrust distributions being paid in 2006 before calculating the % for 2006.
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Member
Group: Forum Members
Last Login: 3/9/2006 9:13:21 AM
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| The above information is correct, you file Form 5227, 1041A, 541A and 541B. The software leads you through the filing. I use Lacerte and it has difficulty calculating the percentage if there are additional gifts made to the CRT so I wind up making manual corrections. I always make sure that someone reviews my CRT returns because they're so unusual. The first time around, see if you can get a colleague or an experienced person at your firm to see if you crossed your t's and dotted your i's.
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