TT Business 1041 distribution tier 1 vs tier 2

IRS Instructions for Form 1041 

Line 9 is to be completed by all simple trusts as well as complex trusts and decedents’ estates that are required to distribute income currently, whether it is distributed or not. The determination of whether trust income is required to be distributed currently depends on the terms of the governing instrument and the applicable local law.

The line 9 distributions are referred to as “first-tier distributions” and are deductible by the estate or trust to the extent of the DNI. The beneficiary includes such amounts in their income to the extent of their proportionate share of the DNI.

Line 10 is to be completed only by a decedent's estate or complex trust. These distributions consist of any other amounts paid, credited, or required to be distributed and are referred to as “second-tier distributions.” Such amounts include annuities to the extent not paid out of income, mandatory and discretionary distributions of corpus, and distributions of property in kind.