Buggy Trust 1041 Tax Software when generating a K-1 for an Inherited IRA

Forum|Forum|1 year ago
January 26, 2025
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I am using H and R Block tax software to generate a 1041 K-1 for an Inherited IRA Distribution. When I fill out Line 5 - Other Portfolio and Nonbusiness Income ($40,000) for the Inherited IRA distribution then the software is automatically filling in Line 14 Other Information with Code E - Net Investment Income ($40,000) and Code H - Adjustment for Section 1411 Net Investment Income or Deductions (-$40,000). This doesn’t make sense to me and I think it’s a bug in the software! When I use the K-1 including Line 5 and Line 14 codes E and H in the 1040 Tax software there is a warning message that Codes E and H are unsupported. The Box 5 $40,000 gets transferred to Schedule E as I expected. I really think it’s a bug with the 1041 K-1 software and codes E and H should not have been used for an IRA distribution. What do you think? Maybe my biggest mistake is using H&R Block software instead of TurboTax!

M-MTax

Should be standard behavior. Line 14E is net investment income for the purposes of, among other things, whether you qualify to deduct investment interest while Line 14H appears on Form 8960 but only if that form is needed for your return.

trust812Author

But my understanding is that a traditional IRA Distribution is not Net Investment Income. A 8960 form was also generated and everything on it is 0 except Line 19a - Adjusted Gross Income which is -$100 and Line 19b - Highest Tax Bracket for Estates and Trusts which is $15,200. This Trust 1041 should be very simple because the only activity this year was the distribution from Inherited Traditional IRA which is passed through to the 3 Beneficiaries via K-1’s. The total amount distributed was $105,000, $35,000 to each of the 3 Beneficiaries but I made my example here simple in my initial post and rounded the $35,000 to $40,000. If you think both the E and H codes on line 14 is not a bug in the 1041 tax software than maybe it is a bug in the 1040 tax software because a warning message that they aren’t supported was displayed. Is form 8960 even needed and if I don’t include it and leave line 14 blank will it raise any flags to the IRS? Thanks!