A domestic decedent’s estate is a taxable entity separate from the decedent and comes into being with the death of the individual. It exists until the final distribution of its assets to the heirs and other beneficiaries. The income earned by the assets during this period must be reported by the estate under the conditions described in Publication 559, Survivors, Executors, and Administrators. The personal representative of a domestic decedent’s estate which meets either of the criteria below, must file Form 1041:

A bankruptcy estate is a separate and distinct taxable entity from the debtor, if the debtor is an individual in a Chapter 7 or Chapter 11. For more information, refer to Publication 908, Bankruptcy Tax Guide. If the bankruptcy estate is a separate taxable entity, the bankruptcy trustee or debtor-in-possession must file Form 1041 if the estate has:

Effective 6/24/2011 under REG-115457-08, TD 9581, the automatic filing extension period for bankruptcy estates of individuals filing bankruptcy petitions under Chapter 7 or Chapter 11 of the Bankruptcy Code will be 6 months.

A trust is an arrangement in which one party (the trustee) takes title to property for the benefit of another party or parties (beneficiaries). Trustees manage and control the property, but are under a duty to administer the trust according to the trust agreement or local law for the benefit of the beneficiaries.

A trust may be created during an individual's life ( inter vivos ), or at the time of their death, under a will (testamentary).

Domestic trusts which meet any of the criteria below must file Form 1041:

A simple trust is created by a written document. This type of trust is one which requires all income to be distributed currently, has no authority to make charitable contributions and (during the taxable year in question) does not distribute any amount allocated to the corpus of the trust.

A complex trust is created by a written document. It is one which, for the taxable year, does not qualify as a simple trust. It may or may not distribute current income, principal, or make charitable contributions depending upon its terms.

A grantor trust can be set up by a person, an organization, or, in certain cases, created by a will. The grantor retains sufficient control over the assets of the trust. The income from the trust is taxable to the grantor or other person treated as the owner of the trust. The income, deductions, and credits are not reported on the Form 1041. They are shown on a separate statement which is attached to the 1041. Grantor trusts have many unique characteristics. Among them:

A pooled income fund is a split interest trust that is established by a public charity. The donor or other beneficiary retains a life income interest and the charity receives the remaining interest. It is not exempt from tax under IRC section 501(a). A Form 5227, Split Interest Trust Information Return, must also be filed by the fiduciary in addition to Form 1041.

A Qualified Revocable Trust is any trust (or part of a trust) that, on the day the decedent died, was treated as owned by the decedent under IRC section 676. The grantor of the trust pays taxes on the trust on their Form 1040 return. The trustee files Form 1041 for "informational purposes" only. The trustees of each qualified revocable trust and the executor of the related estate (if one exists), use Form 8855, Election to Treat a Qualified Revocable Trust as Part of an Estate, to make a IRC section 645 election. This election allows a qualified revocable trust to be treated and taxed (for income tax purposes) as part of its related estate (Form 706) during the election period and cannot be revoked once the election is made. See the General Instructions for Form 8855 for more information.

Qualified Funeral Trust - See IRM 21.7.4.4.1.1.4.

Alaskan Settlement Trust - See IRM 21.7.4.4.1.1.5.

Electing Small Business Trusts (ESBTs) are treated as two separate trusts for purposes of determining income tax. The portion of an ESBT that consists of stock in one or more S corporations (the S portion) is treated as one trust. The portion that consists of all other assets in the trust is treated as a separate trust. The grantor or another person may be treated as the owner of all, or a portion of either or both trusts, in which case the grantor portion would be subject under subpart E (grantor portion).

Qualified Disability Trust - See IRM 21.7.4.4.1.1.6.

See IRM 3.11.14.1.3, Definitions, for more general definitions relating to trusts and estates.

The Taxpayer Relief Act of 1997 (TRRA) resulted in the establishment of Form 1041-QFT. These trusts are created by a contract with a trade or business providing funeral or burial services.

The sole purpose of the trust is to hold, invest, and reinvest funds in the trust and to use those funds to make payments for funeral or burial services for the beneficiaries of the trust. No exemptions are allowed.

Prior to August 28, 2008, a threshold for aggregate contributions was adjusted each year based on cost of living adjustments. Section 9 of the Hubbard Act of 2008 repealed the dollar limitation contribution amount allowed for qualified funeral trusts for tax years beginning after August 29, 2008. Use the table below to determine the contribution limitations:

Domestic Forms 1041-QFT are processed at the Cincinnati Submission Processing Campus and all International Forms 1041-QFT are processed at the Ogden Submission Processing Campus. The MFT is 05, Document Code 39, and the Filing Requirement Code (FRC) is 9.

Form 1041-QFT estimated tax (ES) payments are determined individually for each trust reported on a composite (more than one trust involved) Form 1041-QFT. The ES payments are not based on the total taxable income for all trusts reported on the form. Therefore, some taxpayers may be assessed incorrect ES penalties since the computer bases the computation on the total taxable income. If a phone call or correspondence is received from a taxpayer stating an incorrect ES penalty was assessed:

Section 671 of the Economic Growth and Tax Relief Reconciliation Act of 2001, P.L. 107-16, resulted in the creation of Form 1041-N and IRC section 646. The provision is effective for tax years ending after June 7, 2001 and tax years beginning on or before December 31, 2010. Section 101(a)(1) of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010, P.L. 111-312, extended the provision for two additional years, and is effective for tax years beginning on or before December 31, 2012.

The provision allows Alaska Native Settlement Trusts (currently numbering approximately 20) to elect special tax treatment for the trust and its beneficiaries. That is, the trust pays the tax on all income and, therefore distributions of income are generally tax-exempt for the beneficiaries. In certain cases, trust distributions are treated as taxable dividends for the sponsoring Native Corporation. See the table below for the tax rates on ordinary income and capital gains. These trusts are not subject to alternative minimum tax. It is believed all these trusts are calendar year filers.

All Forms 1041-N are processed at the Ogden Submission Processing Campus. The volume is minimal. Forms 1041-N are processed as a Form 1041-QFT (Document Code "39," MFT "05," Tax Class "2" ). The only unique identifying field that differentiates the two returns is audit code "8" on the 1041-N account.

A Qualified Disability Trust is any trust:

The Victims of Terrorism Tax Relief Act of 2001, provides that certain disability trusts may claim a personal exemption in an amount that is based upon the personal exemption provided for individuals under IRC section 151(d), rather than the $100 or $300 personal exemption provided under current law.

21.7.4.4.1.7.3, Form 1041 Exemptions, for the exemption amount and phaseout thresholds for Qualified Disability Trusts.

Trusts and estates are required to file a short period return under any of the conditions below:

To annualize tax and exemptions on short period returns, use the instructions in Publication 538, Accounting Periods and Methods.

Do not annualize tax on short period initial or final returns.

See the second chart in Exhibit 20.1.3-1, Installment Due Dates for Individuals, Estates and Trusts Subject to IRC section 6654, for the due date of estimated tax payments on short period returns.

Allowable exemptions are:

Exemptions are allowed on final returns.

Certain non-refundable and refundable credits are allowed on Form 1041.

The following subsections address the processing of these credits

For a short taxable year in which a trust or estate subject to IRC section 6654 terminates, installments of estimated tax must be paid for any installment due before the last day of the short taxable year. A final installment must be paid by the 15th day of the first month following the month in which the short taxable year ends.

Per Notice 87-32, when a trust or estate makes payments with respect to a short taxable year, the percent of the required annual payment which must be paid at each installment varies depending on the number of required installments. See IRM Exhibit 20.1.3-1, Installment Due Dates for Individuals, Estates and Trusts Subject to IRC section 6654, to determine the payment dates and the applicable percentage for short period returns.

Schedule H, Household Employment Taxes, is subject to estimated tax payments beginning in 1998.

Beginning January 1, 2010, Form 1041 and Form 1065 filers may pay their taxes via electronic funds withdrawal (Direct Debit), or by phone or internet using a credit or debit card. Payments can be made using an American Express Card, Discover Card, MasterCard or VISA Card. The IRS does not determine which credit cards the service providers accept.

Taxpayers have the option to either use an IRS e-pay service provider or an integrated IRS e-file and e-pay service provider. The service providers offer these options to taxpayers who file on paper or electronically. The payment options are available 24 hours a day, 7 days a week. The service providers charge convenience fees for the services. See IRM 21.2.1.48, Electronic Payment Options for Individuals and e-file Users, for specific information on the Electronic Funds Withdrawal option, and for Credit or Debit Card Payments (Pay by Phone or Internet), for more specific information.

Beginning with TY 2010, Form 1041 filers have Form 1041-V, Payment Voucher, to remit payment. Form 1041-V allows the IRS to process payments more accurately and efficiently. Taxpayers are strongly encouraged to use Form 1041-V, however, there is no penalty if it is not used. See Line 27 of the estate's or trust's 2012, Form 1041.

SSDERA mandates the collection of domestic service employment taxes, for services performed after December 31, 1994, to be coordinated with the collection of income taxes. However, they are still considered employment taxes.

Domestic employees under the age of 18 are excluded from coverage beginning in 1995 if domestic service is not the principal occupation of the employee, see IRC section 3121(b)(21).

Wages less than the applicable dollar threshold are not subject to social security or Medicare taxes. This threshold may be updated yearly. See the chart below for the applicable thresholds.

In TY 2011, taxpayers are subject to FUTA tax if they paid total cash wages of $1,000 or more to household employees in any calendar quarter in the preceding year (2010) or current year (2011).

The law contains no provision for employees in (2) or (3) above to opt to make payments in order to obtain social security or medicare coverage.

Trusts must make estimated tax payments if either of the situations below apply:

Beginning January 1998, all BMF Schedules H are processed through pipeline on MFT 05. All transactions codes (TCs) and reference codes applicable to Form 940 (MFT 10) are valid on MFT 05, except for TC 186. In addition, IRNs 003, 004, 005, 007, and O73 (which are valid on Forms 94X) can be used on Schedule H adjustments. However, see paragraph (2) below. Use these TCs) and reference codes when adjusting Schedules H on MFT 05.

Do Not use TC 766 when adjusting Advanced Earned Income Tax Credit (AEITC) on Schedule H. This would cause confusion with the 766 applicable to substantiated payment credits on Forms 1041. When adjusting AEITC, simply include the increase/decrease as part of the TC 29X. No reference code is needed.

On August 10, 2010, Public Law 111-226, Education Jobs and Medicaid Assistance Act of 2010, was enacted. Section 219 of the Act repealed the AEITC for tax years beginning after 12/31/2010. Therefore, AEITC is not valid for tax periods ending after 201111.

When inputting an adjustment, the reference codes used do not have to equal the amount of the TC 29X. This check was not put in place because regular Form 1041 tax may also need to be adjusted. In this instance, it is not possible to match the reference code amounts to the TC 29X.