What IRS Form 1041-A (2018) Is For

Form 1041-A (2018) is an information return that the Internal Revenue Service requires from charitable trusts to report charitable information, total income, and allowable deductions. The trustee must file this form when the trust claims a charitable deduction under section 642(c) of the Internal Revenue Code. Such a trust must also report gross income, all the taxable income, and any retained taxable income for the taxable year, including ordinary income or unrelated business taxable income if applicable under current tax law.

The purpose of this filing is to ensure income taxation transparency and compliance for charitable trusts, qualified subchapter S trusts, and electing small business trusts. The return helps the IRS verify charitable donations, allowable deductions, and any items that affect estate tax or income tax liability.

When You’d Use Form 1041-A for 2018 (Late or Amended Filing)

You may need to file IRS Form 1041-A (2018) late or amend it if you received IRS notices about unfiled trust returns. The trustee must file a report of all the ordinary income, charitable information, or taxable income allocable to charitable purposes. Late filings may also be necessary if a prior income tax return omitted the required charitable schedules or if related regulations changed due to the Tax Cuts and Jobs Act (TCJA) or other updates in the tax code.

If amending, you should file to correct reported income items, gross income totals, or details about trust property or beneficiaries. This may apply when such a trust has multiple beneficiaries, a Qualified Subchapter S Trust (QSST) beneficiary, or when the QSST beneficiary’s former spouse or the beneficiary’s children are affected by distributions. Always refer to the IRS Form 1041-A instructions, available on the IRS website, for the current rules.

Key Rules Specific to the 2018 Tax Year

The 2018 tax year marked a significant change. The Tax Cuts and Jobs Act and related regulations modified the treatment of electing small business trusts (ESBTs). Starting with tax years beginning in 2018, ESBTs were no longer required to file Form 1041-A, simplifying compliance. However, separate trusts, charitable trusts, and domestic decedent’s estate filers still needed to report their taxable income and charitable distributions.

This provision applies mainly to small business trusts with S corporation income, corporation portion items, or S corporation stock allocations. The IRS confirmed that only the ordinary income from the S corporation portion should be included for income taxation purposes. Trusts must continue to calculate taxable income using income tax rates and report any business property, real property, or working capital holdings.

Step-by-Step (High Level)

• Gather Records: Collect all charitable information, income items, allowable deductions, and trust corpus details for the fiscal year.
  
  
• Use the Correct Form: File the September 2018 revision of IRS Form 1041-A, ensuring all taxable income and gross income are listed correctly.
  
  
• Include Required Details: Report S corporation income, any net operating loss carried forward, or items related to the S portion of the trust.
  
  
• Mail or File Timely: Send the completed paper form to the Internal Revenue Service Center, Ogden, UT 84201-0027. E-filing is not available for this tax return.
  
  
• Retain Copies: Keep copies for your records, as they may be required for future distribution or verification by your personal representative.

Common Mistakes and How to Avoid Them

• Incomplete Charitable Purpose Descriptions: Provide full details of each charitable distribution, such as the dollar amount, charitable organization name, and purpose.
  
  
• Omitting Tax Items: Include all the taxable income and related information, including S corporation income, gross income, or income generated by trust property.
  
  
• Incorrect Form Revision: Use only the 2018 version. Using an older form under the previous law may result in rejection by the IRS.
  
  
• Failing to Note Amended Return: If filing an amended return, write “Amended Return” clearly at the top.
  
  
• Filing When Not Required: Remember, electing small business trusts are exempt starting with the 2018 taxable year.

What Happens After You File

Once the IRS receives your form, it reviews and processes it to ensure compliance with current tax law and related regulations. The IRS may send a letter or contact the trustee for clarification. You can expect the paper return to take several months to be processed. If penalties apply for late filing or incorrect tax items, both the trust and trustee may face income tax liability under section 6652(c)(2).

Trustees may request penalty relief if there is reasonable cause, such as illness, reliance on incorrect advice, or an unavoidable delay. Personal representatives or trustees should check the IRS website for guidance on abatement requests and income tax credit claims.

FAQs

How long can I wait to file a 2018 Form 1041-A?

There is no statute of limitations on unfiled information returns, but income tax penalties accrue until the return is filed. File as soon as possible to limit penalties and ensure compliance with the Internal Revenue Service requirements for the taxable year.

Do I need to file if the trust has no taxable income?

Yes, even if a charitable trust has no taxable income or retained taxable income, it must still file IRS Form 1041-A (2018) if it reported charitable deductions, gross income, or any allowable deductions under the Internal Revenue Code for that tax year.

Are Electing Small Business Trusts (ESBTs) required to file?

No, Electing Small Business Trusts (ESBTs) are generally exempt beginning with tax years starting in 2018. However, such a trust must still report unrelated business taxable income, S corporation income, or other taxable income allocable to charitable purposes when applicable.

What if the trust owns S corporation stock or real property?

If the trust holds S corporation stock, business property, or real property, it must report all S corporation income, corporation portion amounts, and income generated from trust property. This includes both domestic estate and any holdings in a foreign country, as required by tax law.

Can a trust have multiple beneficiaries?

Yes, multiple beneficiaries are allowed, but only one lifetime beneficiary may qualify for treatment as a qualified subchapter S trust (QSST). Special rules apply when there is a special needs QSST beneficiary, a QSST beneficiary’s former spouse, or the beneficiary’s children involved in future distribution decisions.