An estate of a deceased person is a taxable entity separate from the decedent. It generally continues to exist until the final distribution of the assets of the estate is made to the heirs and other beneficiaries. The income earned from the property of the estate during the period of administration or settlement must be accounted for and reported by the estate.

A trust may qualify as a simple trust if:

A complex trust is any trust that does not qualify as a simple trust as explained above.

A qualified disability trust is any nongrantor trust:

A trust will not fail to meet item 2 above just because the trust's corpus may revert to a person who is not disabled after the trust ceases to have any disabled beneficiaries.

The S portion of an ESBT is the portion of the trust that consists of S corporation stock and that is not treated as owned by the grantor or another person. See page 12 of the instructions for more information about an ESBT.

A grantor type trust is a legal trust under applicable state law that is not recognized as a separate taxable entity for income tax purposes because the grantor or other substantial owners have not relinquished complete dominion and control over the trust.

Generally, for transfers made in trust after March 1, 1986, the grantor is treated as the owner of any portion of a trust in which he or she has a reversionary interest in either the income or corpus therefrom, if, as of the inception of that portion of the trust, the value of the reversionary interest is more than 5% of the value of that portion. Also, the grantor is treated as holding any power or interest that was held by either the grantor's spouse at the time that the power or interest was created or who became the grantor's spouse after the creation of that power or interest. See Grantor Type Trusts on page 11 for more information.

A chapter 7 or 11 bankruptcy estate is a separate and distinct taxable entity from the individual debtor for federal income tax purposes. See Bankruptcy Estates on page 13.

For more information, see section 1398 and Pub. 908, Bankruptcy Tax Guide.

A pooled income fund is a split-interest trust with a remainder interest for a public charity and a life income interest retained by the donor or for another person. The property is held in a pool with other pooled income fund property and does not include any tax-exempt securities. The income for a retained life interest is figured using the yearly rate of return earned by the trust. See section 642(c) and the related regulations for more information.

Check this box if the trust is a nonexempt charitable trust within the meaning of section 4947(a)(1).

A nonexempt charitable trust is a trust:

Check this box if the nonexempt charitable trust (section 4947(a)(1)) is not treated as a private foundation under section 509. For more information, see Regulations section 53.4947-1.

Check this box if the trust is a split-interest trust described in section 4947(a)(2).

A split-interest trust is a trust that:

If you are filing an amended Form 1041:

If the total tax on line 23 is larger on the amended return than on the original return, you generally should pay the difference with the amended return. However, you should adjust this amount if there is any increase or decrease in the total payments shown on line 25.

Attach a sheet that explains the reason for the amendments and identifies the lines and amounts being changed on the amended return.

Check this box if this is a final return because the estate or trust has terminated. Also, check the “Final K-1” box at the top of Schedule K-1.

If, on the final return, there are excess deductions, an unused capital loss carryover, or an NOL carryover, see the instructions for Schedule K-1, box 11, on page 34.

If the name of the trust has changed from the name shown on the prior year's return (or Form SS-4 if this is the first return being filed), be sure to check this box.

If a different fiduciary enters his or her name on the line for Name and title of fiduciary than was shown on the prior year's return (or Form SS-4 if this is the first return being filed) and you did not file a Form 8822, be sure to check this box. If there is a change in the fiduciary whose address is used as the mailing address for the estate or trust after the return is filed, use Form 8822 to notify the IRS.

If the fiduciary changed his or her name from the name that he or she entered on the prior year's return (or Form SS-4 if this is the first return being filed), be sure to check this box.

If the same fiduciary who filed the prior year's return (or Form SS-4 if this is the first return being filed) files the current year's return and changed the address on the return (including a change to an "in care of" name and address), and did not report the change on Form 8822, check this box.

If the address shown on Form 1041 changes after you file the form (including a change to an "in care of" name and address), file Form 8822 to notify the IRS of the change.

If you are reporting income from a qualified blind trust (under the Ethics in Government Act of 1978), do not identify the payer of any income to the trust but complete the rest of the return as provided in the instructions. Also write “Blind Trust” at the top of page 1.

The extraterritorial income exclusion is not allowed for transactions after 2006. However, income from certain long-term sales and leases may still qualify for the exclusion. For details and to figure the amount of the exclusion, see Form 8873, Extraterritorial Income Exclusion, and its separate instructions. The estate or trust must report the extraterritorial income exclusion on line 15a of Form 1041, page 1.

Although the extraterritorial income exclusion is entered on line 15a, it is an exclusion from income and should be treated as tax-exempt income when completing other parts of the return.

Report the estate's or trust's share of all taxable interest income that was received during the tax year. Examples of taxable interest include interest from:

For taxable bonds acquired after 1987, amortizable bond premium is treated as an offset to the interest income instead of as a separate interest deduction. See Pub. 550.

For the year of the decedent's death, Forms 1099-INT issued in the decedent's name may include interest income earned after the date of death that should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report on line 1 of Schedule B (Form 1040) or Schedule 1 (Form 1040A) the total interest shown on Form 1099-INT. Under the last entry on line 1, subtotal all the interest reported on line 1. Below the subtotal, write “Form 1041” and the name and address shown on Form 1041 for the decedent's estate. Also, show the part of the interest reported on Form 1041 and subtract it from the subtotal.

Report the estate's or trust's share of all ordinary dividends received during the tax year.

For the year of the decedent's death, Forms 1099-DIV issued in the decedent's name may include dividends earned after the date of death that should be reported on the income tax return of the decedent's estate. When preparing the decedent's final income tax return, report on line 5 of Schedule B (Form 1040) or Schedule 1 (Form 1040A) the ordinary dividends shown on Form 1099-DIV. Under the last entry on line 5, subtotal all the dividends reported on line 5. Below the subtotal, write “Form 1041” and the name and address shown on Form 1041 for the decedent's estate. Also, show the part of the ordinary dividends reported on Form 1041 and subtract it from the subtotal.

Report capital gain distributions on Schedule D (Form 1041), line 9.

Enter the beneficiary's allocable share of qualified dividends on line 2b(1) and enter the estate's or trust's allocable share on line 2b(2).

If the estate or trust received qualified dividends that were derived from IRD, you must reduce the amount on line 2b(2) by the portion of the estate tax deduction claimed on Form 1041, page 1, line 19, that is attributable to those qualified dividends. Do not reduce the amounts on line 2b by any other allocable expenses.

If the estate operated a business, report the income and expenses on Schedule C (Form 1040), Profit or Loss From Business (or Schedule C-EZ (Form 1040), Net Profit From Business). Enter the net profit or (loss) from Schedule C (or Schedule C-EZ) on line 3.

Enter the gain from Schedule D (Form 1041), Part III, line 15, column (3) or the loss from Part IV, line 16.

Do not substitute Schedule D (Form 1040) for Schedule D (Form 1041).

Use Schedule E (Form 1040), Supplemental Income and Loss, to report the estate's or trust's share of income or (losses) from rents, royalties, partnerships, S corporations, other estates and trusts, and REMICs. Also use Schedule E (Form 1040) to report farm rental income and expenses based on crops or livestock produced by a tenant. Enter the net profit or (loss) from Schedule E on line 5. See the instructions for Schedule E (Form 1040) for reporting requirements.

If the estate or trust received a Schedule K-1 from a partnership, S corporation, or other flow-through entity, use the corresponding lines on Form 1041 to report the interest, dividends, capital gains, etc., from the flow-through entity.

If the estate or trust operated a farm, use Schedule F (Form 1040), Profit or Loss From Farming, to report farm income and expenses. Enter the net profit or (loss) from Schedule F on line 6.

If an estate or trust has farm rental income and expenses based on crops or livestock produced by a tenant, report the income and expenses on Schedule E (Form 1040). Do not use Form 4835 or Schedule F (Form 1040) to report such income and expenses and do not include the net profit or (loss) from such income and expenses on line 6.

Enter from line 17, Form 4797, Sales of Business Property, the ordinary gain or loss from the sale or exchange of property other than capital assets and also from involuntary conversions (other than casualty or theft).

Enter other items of income not included on lines 1, 2a, and 3 through 7. List the type and amount on an attached schedule if the estate or trust has more than one item.

Items to be reported on line 8 include:

A trust or decedent's estate is allowed a deduction for depreciation, depletion, and amortization only to the extent the deductions are not apportioned to the beneficiaries. An estate or trust is not allowed to make an election under section 179 to expense certain tangible property.

The estate's or trust's share of depreciation, depletion, and amortization should be reported on the appropriate lines of Schedule C (or C-EZ), E, or F (Form 1040), the net income or loss from which is shown on line 3, 5, or 6 of Form 1041. If the deduction is not related to a specific business or activity, then report it on line 15a.

Generally, no deduction that would otherwise be allowable is allowed for any expense (whether for business or for the production of income) that is allocable to tax-exempt income. Examples of tax-exempt income include:

Administration expenses and casualty and theft losses deductible on Form 706 may be deducted, to the extent otherwise deductible for income tax purposes, on Form 1041 if the fiduciary files a statement waiving the right to deduct the expenses and losses on Form 706. The statement must be filed before the expiration of the statutory period of limitations for the tax year the deduction is claimed. See Pub. 559 for more information.

Generally, an accrual basis taxpayer can deduct accrued expenses in the tax year that: (a) all events have occurred that determine the liability; and (b) the amount of the liability can be figured with reasonable accuracy. However, all the events that establish liability are treated as occurring only when economic performance takes place. There are exceptions for recurring items. See section 461(h).

Generally, the amount the estate or trust has “at-risk” limits the loss it can deduct for any tax year. Use Form 6198, At-Risk Limitations, to figure the deductible loss for the year and file it with Form 1041. For more information, see Pub. 925, Passive Activity and At-Risk Rules.

Under section 267, a trust that uses the accrual method of accounting may only deduct business expenses and interest owed to a related party in the year the payment is included in the income of the related party. For this purpose, a related party includes:

Enter the amount of interest (subject to limitations) paid or incurred by the estate or trust on amounts borrowed by the estate or trust, or on debt acquired by the estate or trust (for example, outstanding obligations from the decedent) that is not claimed elsewhere on the return.

If the proceeds of a loan were used for more than one purpose (for example, to purchase a portfolio investment and to acquire an interest in a passive activity), the fiduciary must make an interest allocation according to the rules in Temporary Regulations section 1.163-8T.

Do not include interest paid on indebtedness incurred or continued to purchase or carry obligations on which the interest is wholly exempt from income tax.

Personal interest is not deductible. Examples of personal interest include interest paid on:

Interest that is paid or incurred on indebtedness allocable to a trade or business (including a rental activity) should be deducted on the appropriate line of Schedule C (or C-EZ), E, or F (Form 1040), the net income or loss from which is shown on line 3, 5, or 6 of Form 1041.

Types of interest to include on line 10 are:

Qualified Mortgage Insurance Premiums Deduction Worksheet

1.		Enter the total premiums the estate or trust paid in 2008 for qualified mortgage insurance for a contract issued after December 31, 2006						1.
2.		Enter the estate's or trust's AGI				2.
3.		Enter $100,000				3.
4.		Is the amount on line 2 more than the amount on line 3?
		No.	The deduction is not limited. Include the amount from line 1 above on Form 1041, line 10. Do not complete the rest of this worksheet.
		Yes.	Subtract line 3 from line 2. If the result is not a multiple of $1,000, increase it to the next multiple of $1,000. For example, increase $425 to $1,000, increase $2,025 to $3,000, etc.			4.
5.		Divide line 4 by $10,000. Enter the result as a decimal. If the result is 1.0 or more, enter 1.0						5.	.
6.		Multiply line 1 by line 5						6.
7.		Qualified mortgage insurance premiums deduction. Subtract line 6 from line 1. Enter the result here and include the amount on Form 1041, line 10						7.

Enter any deductible taxes paid or incurred during the tax year that are not deductible elsewhere on Form 1041. Deductible taxes include the following.

Do not deduct:

Enter the deductible fees paid or incurred to the fiduciary for administering the estate or trust during the tax year.

Fiduciary fees deducted on Form 706 cannot be deducted on Form 1041.

Attach your own schedule, listing by type and amount all allowable deductions that are not deductible elsewhere on Form 1041.

Do not include any losses on worthless bonds and similar obligations and nonbusiness bad debts. Report these losses on Schedule D (Form 1041).

Do not deduct medical or funeral expenses on Form 1041. Medical expenses of the decedent paid by the estate may be deductible on the decedent's income tax return for the year incurred. See section 213(c). Funeral expenses are deductible only on Form 706.

The following are examples of deductions that are reported on line 15a.

Miscellaneous itemized deductions are deductible only to the extent that the aggregate amount of such deductions exceeds 2% of AGI.

Among the miscellaneous itemized deductions that must be included on line 15b are expenses for the production or collection of income under section 212, such as investment advisory fees, subscriptions to investment advisory publications, and the cost of safe deposit boxes.

Miscellaneous itemized deductions do not include deductions for:

For other exceptions, see section 67(b).

If the estate or trust was required to distribute income currently or if it paid, credited, or was required to distribute any other amounts to beneficiaries during the tax year, complete Schedule B to determine the estate's or trust's income distribution deduction. However, if you are filing for a pooled income fund, do not complete Schedule B. Instead, attach a statement to support the computation of the income distribution deduction.

If the estate or trust claims an income distribution deduction, complete and attach:

If the estate or trust includes IRD in its gross income, and such amount was included in the decedent's gross estate for estate tax purposes, the estate or trust is allowed to deduct in the same tax year that the income is included that portion of the estate tax imposed on the decedent's estate that is attributable to the inclusion of the IRD in the decedent's estate. For an example of the computation, see Regulations section 1.691(c)-1 and Pub. 559.

If any amount properly paid, credited, or required to be distributed by an estate or trust to a beneficiary consists of IRD received by the estate or trust, do not include such amounts in determining the estate tax deduction for the estate or trust. Figure the deduction on a separate sheet. Attach the sheet to your return.

If you claim a deduction for estate tax attributable to qualified dividends or capital gains, you may have to adjust the amount on Form 1041, page 1, line 2b(2), or Schedule D (Form 1041), line 18.

Also, a deduction is allowed for the GST tax imposed as a result of a taxable termination or a direct skip occurring as a result of the death of the transferor. See section 691(c)(3). Enter the estate's or trust's share of these deductions on line 19.

Enter the amount of any estimated tax payment you made with Form 1041-ES for 2008 plus the amount of any overpayment from the 2007 return that was applied to the 2008 estimated tax.

If the estate or trust is the beneficiary of another trust and received a payment of estimated tax that was credited to the trust (as reflected on the Schedule K-1 issued to the trust), then report this amount separately with the notation “section 643(g)” in the space next to line 24a and include this amount in the amount entered on line 24a.

Do not include on Form 1041 estimated tax paid by an individual before death. Instead, include those payments on the decedent's final income tax return.

The trustee (or executor, for the final year of the estate) may elect under section 643(g) to have any portion of its estimated tax treated as a payment of estimated tax made by a beneficiary or beneficiaries. The election is made on Form 1041-T, Allocation of Estimated Tax Payments to Beneficiaries, which must be filed by the 65th day after the close of the trust's tax year. Form 1041-T shows the amounts to be allocated to each beneficiary. This amount is reported on the beneficiary's Schedule K-1, box 13, using code A.

Attach Form 1041-T to your return only if you have not yet filed it; however, attaching Form 1041-T to Form 1041 does not extend the due date for filing Form 1041-T. If you have already filed Form 1041-T, do not attach a copy to your return.

Failure to file Form 1041-T by the due date (March 6, 2009, for calendar year estates and trusts) will result in an invalid election. An invalid election will require the filing of amended Schedules K-1 for each beneficiary who was allocated a payment of estimated tax.

If you filed Form 7004 to request an extension of time to file Form 1041, enter the amount that you paid with the extension request.

Use line 24e to claim a credit for any federal income tax withheld (and not repaid) by: (a) an employer on wages and salaries of a decedent received by the decedent's estate; (b) a payer of certain gambling winnings (for example, state lottery winnings); or (c) a payer of distributions from pensions, annuities, retirement or profit-sharing plans, IRAs, insurance contracts, etc., received by a decedent's estate or trust. Attach a copy of Form W-2, Form W-2G, or Form 1099-R to the front of the return.

Except for backup withholding (as explained below), withheld income tax may not be passed through to beneficiaries on either Schedule K-1 or Form 1041-T.

Attach Copy B of Form 2439, Notice to Shareholder of Undistributed Long-Term Capital Gains.

Enter any credit for federal excise taxes paid on fuels that are ultimately used for nontaxable purposes (for example, an off-highway business use). Attach Form 4136, Credit for Federal Tax Paid on Fuels. See Pub. 510, Excise Taxes, for more information.

If line 27 is at least $1,000 and more than 10% of the tax shown on Form 1041, or the estate or trust underpaid its 2008 estimated tax liability for any payment period, it may owe a penalty. See Form 2210 to determine whether the estate or trust owes a penalty and to figure the amount of the penalty.

You must pay the tax in full when the return is filed. Make the check or money order payable to the “United States Treasury.” Write the EIN and “2008 Form 1041” on the payment. Enclose, but do not attach, the payment with Form 1041.

You may use EFTPS to pay the tax due for a trust. See Electronic Deposits on page 8.

Enter the amount from line 28 that you want applied to the estate's or trust's 2009 estimated tax.

Generally, any part of the gross income of an estate or trust (other than a simple trust) that, under the terms of the will or governing instrument, is paid (or treated as paid) during the tax year for a charitable purpose specified in section 170(c) is allowed as a deduction to the estate or trust. It is not necessary that the charitable organization be created or organized in the United States.

A pooled income fund or a section 4947(a)(1) nonexempt charitable trust treated as a private foundation must attach a separate sheet to Form 1041 instead of using Schedule A of Form 1041 to figure the charitable deduction.

If the estate or trust was required to distribute income currently or if it paid, credited, or was required to distribute any other amounts to beneficiaries during the tax year, complete Schedule B to determine the estate's or trust's income distribution deduction.

Attach Form 1116, Foreign Tax Credit (Individual, Estate, or Trust), if you elect to claim credit for income or profits taxes paid or accrued to a foreign country or a U.S. possession. The estate or trust may claim credit for that part of the foreign taxes not allocable to the beneficiaries (including charitable beneficiaries). Enter the estate's or trust's share of the credit on line 2a. See Pub. 514, Foreign Tax Credit for Individuals, for details.

Do not include any amounts that are allocated to a beneficiary. Credits that are allocated between the estate or trust and the beneficiaries are listed in the instructions for Schedule K-1, box 13, on page 35. Generally, these credits are apportioned on the basis of the income allocable to the estate or trust and the beneficiaries.

Enter on line 2c the estate's or trust's total general business credit allowed for the current year from line 32 of Form 3800. The estate or trust must file Form 3800 to claim any of the general business credits. If the estate's or trust's only source of credits listed on Part I for Form 3800 is from passthrough entities, you may not be required to complete the source credit form. See the Instructions for Form 3800 for more information.

The following general business credits appear on Part I of Form 3800.

The following general business credits have special tax liability limits. These limits are now figured in Part II of Form 3800. See the Instructions for Form 3800 for more information.

An estate or trust that paid AMT in a previous year may be eligible for a minimum tax credit in 2008. See Form 8801, Credit for Prior Year Minimum Tax—Individuals, Estates, and Trusts.

If any of the following apply, get Schedule H (Form 1040), Household Employment Taxes, and its instructions, to see if the estate or trust owes these taxes.

If the estate or trust received tax-exempt income, figure the allocation of expenses between tax-exempt and taxable income on a separate sheet and attach it to the return. Enter only the deductible amounts on the return. Do not figure the allocation on the return itself. For more information, see the instructions for Allocation of Deductions for Tax-Exempt Income on page 19.

Report the amount of tax-exempt interest income received or accrued in the space provided below Question 1.

Also, include any exempt-interest dividends the estate or trust received as a shareholder in a mutual fund or other regulated investment company.

All salaries, wages, and other compensation for personal services must be included on the return of the person who earned the income, even if the income was irrevocably assigned to a trust by a contract assignment or similar arrangement.

The grantor or person creating the trust is considered the owner if he or she keeps “beneficial enjoyment” of or substantial control over the trust property. The trust's income, deductions, and credits are allocable to the owner.

If you checked “Yes” for Question 2, see Special Reporting Instructions on page 11.

Check the “Yes” box and enter the name of the foreign country if either 1 or 2 below applies.

The estate or trust may be required to file Form 3520, Annual Return To Report Transactions With Foreign Trusts and Receipt of Certain Foreign Gifts, if:

An estate or trust claiming an interest deduction for qualified residence interest (as defined in section 163(h)(3)) on seller-provided financing must include on an attachment to the 2008 Form 1041 the name, address, and TIN of the person to whom the interest was paid or accrued (that is, the seller).

If the estate or trust received or accrued such interest, it must provide identical information on the person liable for such interest (that is, the buyer). This information does not need to be reported if it duplicates information already reported on Form 1098.

To make the section 663(b) election to treat any amount paid or credited to a beneficiary within 65 days following the close of the tax year as being paid or credited on the last day of that tax year, check the box. This election can be made by the fiduciary of a complex trust or the executor of a decedent's estate. For the election to be valid, you must file Form 1041 by the due date (including extensions). Once made, the election is irrevocable.

To make the section 643(e)(3) election to recognize gain on property distributed in kind, check the box and see the Instructions for Schedule D (Form 1041).

Generally, a beneficiary is a skip person if the beneficiary is in a generation that is two or more generations below the generation of the transferor to the trust.

To determine if a beneficiary that is a trust is a skip person, and for exceptions to the general rules, see the definition of a skip person in the instructions for Schedule R of Form 706.

Use Schedule J (Form 1041) to report an accumulation distribution for a domestic complex trust that was:

An accumulation distribution is the excess of amounts properly paid, credited, or required to be distributed (other than income required to be distributed currently) over the DNI of the trust reduced by income required to be distributed currently. To have an accumulation distribution, the distribution must exceed the accounting income of the trust.

Enter the applicable year at the top of each column for each throwback year.

For the regular tax computation, if there is a capital gain, complete lines 18 through 25 for each throwback year. If the trustee elected the alternative tax on capital gains, complete lines 26 through 31 instead of lines 18 through 25 for each applicable year. If there is no capital gain for any year, or there is a capital loss for every year, enter on line 9 the amount of the tax for each year identified in the instruction for line 18 and do not complete Part III. If the trust received an accumulation distribution from another trust, see Regulations section 1.665(b)-1A.

Complete Part IV for each beneficiary. If the accumulation distribution is allocated to more than one beneficiary, attach an additional copy of Schedule J with Part IV completed for each additional beneficiary. Give each beneficiary a copy of his or her respective Part IV information. If more than 5 throwback years are involved, use another Schedule J, completing Parts II and III for each additional throwback year.

If the beneficiary is a nonresident alien individual or a foreign corporation, see section 667(e) about retaining the character of the amounts distributed to determine the amount of the U.S. withholding tax.

The beneficiary uses Form 4970 to figure the tax on the distribution. The beneficiary also uses Form 4970 for the section 667(b)(6) tax adjustment if an accumulation distribution is subject to estate or generation-skipping transfer tax. This is because the trustee may not be the estate or generation-skipping transfer tax return filer.

On page 2 of Schedule K-1 (Form 1041), we added two new credits that may be passed through, the agricultural chemicals security credit (code R) and the credit for employer differential wage payments (code T). Also, we removed the expired Hurricane Katrina housing credit (formerly code R).

Use Schedule K-1 (Form 1041) to report the beneficiary's share of income, deductions, and credits from a trust or a decedent's estate.

Grantor type trusts do not use Schedule K-1 (Form 1041) to report the income, deductions, or credits of the grantor (or other person treated as owner). See on page 11.

If the return is for a fiscal year or a short tax year, fill in the tax year space at the top of each Schedule K-1. On each Schedule K-1, enter the information about the estate or trust and the beneficiary in Parts I and II (items A through I). In Part III, enter the beneficiary's share of each item of income, deduction, credit, and any other information the beneficiary needs to file his or her income tax return.

On each Schedule K-1, enter the name, address, and identifying number of the estate or trust. Also, enter the name and address of the fiduciary.

Complete a Schedule K-1 for each beneficiary. On each Schedule K-1, enter the beneficiary's name, address, and identifying number.