Margaret CRUT Again

[Terry D EA]

Hi Margaret,

I am going out on a limb here and assuming you are still preparing CRUT returns. After some research this year, and knowing full well the penalties the IRS will be happy to assess for filing this return on the wrong form, I have found the 5227 form replaces the 1041-A and that the 5227 is to be filed with a K-1 and other assocaited schedules as needed. Are you in agreement with this? Also, in the past, I used to pick up the K-1 form by connecting a 1041 to the 1041-A and 5227. Now that the 1041-A is no longer needed, how are you creating the K-1? If any one else is preparing any split interest type trusts or annuities that uses these forms, please feel free to chime in.

[Margaret CPA in OH]

Yes, I filed 2 CRUTS already this year. Yes, 5227 now incorporates info that was on 1041-A but ATX still requires it to be present to prepare the 5227 and K-1. You just don't file it. The letter also doesn't work as it doesn't have the Ogden address. 1041 isn't needed at all. Maybe someday it will all be worked out but that day isn't yet here. Oh, the 5227 cannot be efiled, either.

[Terry D EA]

Thanks Margaret, jsut as I thought. The only difference is I am not using ATX this year. The software that I am using doesn't support the 5227 so I have downloaded another software to handle this which is OLTPro or OneDesk. I thought I would give it a try. Not a great way to test a software on a return like this but at least I didn't have to cough up alot of money. Out side of that it would have been manual entry on all forms.

[Margaret CPA in OH]

When you figure out what that software requires to file, let us know. Does it expect a 1041-A just to provide the K-1? I don't understand why the 5227 doesn't just have it but I use what works and follows the instructions. It could be crazy if efiling was allowed or required. Programmers would have even more problems.

[Terry D EA]

The software does require form 1041 to complete the 5227 and the K-1 just like ATX currently does and has done in the past. Agree on the efiling issue. What bothers me is the complete non use of the 1041-A. Not using this form in the past with the 5227 generated a 5k penalty. That is why I am really being careful.

[Margaret CPA in OH]

I think you will feel better if you reread the instructions for 5227. It's been a couple of years already since this sensible change. Between us and the two or three folks here that will read this, I am not entirely convinced that the folks that process these things are completely solid on the requirements themselves. It seems to me the important things are to characterize the bene distributions as to type and that the benes include in their income. That and that the calculations match the original forms sent stating percentage and that any charitable distributions go where and when they are intended.

One of mine had 50% distributed 2 years ago when one of the benes passed away. The terms of that one were 50% distributed at each death. The second one was distributions to be made at the second death which happened in late December. When the survivor of the first one passes (she will be 100 this year), I likely will never do another one. It's been a great learning experience though!

[Terry D EA]

I agree and I have been reading alot on this including the instructions for the 5227. Now that you have jogged my memory a bit, I believe you are correct with the changes a couple of years ago. Also, these are very sensitive returns. The one that I do, I make sure to follow the order of distributing the income. Interest first, dividends, second; etc. Everything is supported by notes and statements with the tax returns.