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1041 Income Distribution Deduction

Forum|Forum|7 years ago
June 5, 2019
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I am a first-time filer of a 1041 for a relative's estate and am confused about the Income Distribution Deduction. My relative died in 2016 and I, as fiduciary, I have not yet distributed any funds to the beneficiaries.

According to IRS Publication 559 (page 19), the income distribution "deduction is allowed to the estate even if the personal representative does not make the distribution until a later year." This sounds exactly like my situation because I will be making the distributions to the beneficiaries in 2017 as soon as I settle any taxes owed for 2016.

On the 1041 form, I see line 18 (where the income distribution deduction is entered) also mentions attaching K-1 Schedules. Do I attach 2016 K-1s even though I will be making the distributions in 2017? Or do I submit the K-1s next year when I file the 2017 1041 (if necessary)?

From what I've learned, it seems the purpose of the Income Distribution Deduction is to pass the tax liability onto the individual beneficiaries which would likely reduce the amount of tax owed than if it were paid by the estate. Do I understand this correctly?

Any other relevant information or suggestions will be greatly appreciated.

Best answer by Anonymous_

No text available

A

Anonymous_

Employee

In which month did your relative pass away? You have the option to file a fiscal year return for an estate.

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mikebarnes-cobraAuthor

Relative passed in January 2016.

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Anonymous_

Employee

Unfortunate in more than one sense because adopting a fiscal year doesn't work (it would end on 12/31/16 anyway) and you are past the 65-day (Section 663(b)) period for making distributions after the close of the tax year.

However, keep in mind that if the will (or trust instrument) requires that income be distributed currently, then the income that accrued in 2016 is treated as having been distributed to the beneficiaries even if it was not actually distributed.

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mikebarnes-cobraAuthor

What exactly does "distributed currently" mean? I've seen that phrase before and have been uanble to figure out the exact meaning. Is that specified in some wills and not others?

Thanks for all your replies.

A

Anonymous_

Employee

No text available

A

Anonymous_Answer

Employee

No text available

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mikebarnes-cobraAuthor

But would I send 2016 or 2017 K-1s? I believe I read somewhere that distributions must be done in the first 65 days of the following year (although I did not see this mentioned in the 1041 instructions).