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I've been to a couple of CPE courses where the instructor asked for a show of hands of preparers who had a 1041 audited. Usually no hands go up.
Our firm has had one audit in the past, but it was due to a disgruntled beneficiary claiming the trustee was cheating in her reporting. The audit ended up with no changes.
We just got a letter from Franchise Tax Board for a client where they are auditing fiduciary fees taken on the return and professional fees. This is for a 2005 return, and it is our understanding that around 25,000 letters went out for the 2005 year.
In the letter they are asking for the name, address, social security number, and amount paid to each individual for which the trust took a deduction.
If it was a non-individual then they want the name, address, and federal EIN paid for each deduction taken.
They also want copies of cancelled checks (both front and back) and/or receipts substantiating the amounts paid.
My question of the board is if the fiduciary isn't a professional, is there any requirement to file a 1090-MISC for trustee or executor fees?
It is my belief that there isn't any requirement unless there are fees involved with a Schedule C entity.
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Power Member
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| You are correct that no Form 1099 is required unless the trustee is a professional or is operating a business for the estate or trust. One of my clients is co-trustee of a trust established by his mother for his benefit. The bank who handles all of the tax filings received the same FTB notice that you mention. They questioned payments made to the bank for trustee fees, my client as a co-trustee and the amounts paid for tax preparation. Total deductions were less than $5,000 so I can't see why FTB is wasting their time. The letter gave an explanation of the 2% limitation applying to investment fees. No investment fees were deducted on the return and the Supreme Court decision did not require that trustee fees be "unbundled" and subjected to the 2% limitation.
Mary Kay Foss
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in addition, my recollection is that fiduciary fees of a non-professional fiduciary are not subject to social security taxes...
they are not rendered in a "business"- and agree that 1099s are not required (for non-professional fiduciaries)
IRS Circular 230 Disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any matters addressed herein. |
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