Trust & Tax-Exempt Experts: Use Form 990-PF or 1041?

[gfizer]

I have been asked to prepare a return for a trust. This is a trust established pursuant to a will. The decedent directed that all of her residuary estate be placed in trust and that the income from the trust be used to provide college scholarships for local high school seniors. The trust receives no funding from any other source.

I believe that this trust is a Section 4947(a)(1) non-exempt charitable trust and should be treated as a private foundation and file a Form 990-PF. My problem is this: The trust has been in existence for three years now and the two previous years’ returns were filed on Form 1041 for a complex trust (which has cost the trust thousands of dollars in taxes that could have gone toward its charitable purpose). If I don’t file a 1041 this year and instead file on Form 990-PF is this going to cause a problem and is there anything I can or should do to prevent problems. Or does anyone know of some reason why I can’t file 990-PF?

I know it’s late in the season and you guys are all covered over right now so I apologize in advance for adding an extra burden but I respect and trust your advice and opinions. Thanks!

[gfizer]

BUMP. I really need your guys input. Thanks!

[Catherine]

I have been asked to prepare a return for a trust. This is a trust established pursuant to a will. The decedent directed that all of her residuary estate be placed in trust and that the income from the trust be used to provide college scholarships for local high school seniors. The trust receives no funding from any other source.

I believe that this trust is a Section 4947(a)(1) non-exempt charitable trust and should be treated as a private foundation and file a Form 990-PF. My problem is this: The trust has been in existence for three years now and the two previous years’ returns were filed on Form 1041 for a complex trust (which has cost the trust thousands of dollars in taxes that could have gone toward its charitable purpose). If I don’t file a 1041 this year and instead file on Form 990-PF is this going to cause a problem and is there anything I can or should do to prevent problems. Or does anyone know of some reason why I can’t file 990-PF?

I know it’s late in the season and you guys are all covered over right now so I apologize in advance for adding an extra burden but I respect and trust your advice and opinions. Thanks!

I don't know the answer to your question. However, I think it's going to depend on how the trust was written, and that in turn will depend on the will it was set up under and the attention paid to the set-up by whoever wrote the trust doc's. The attorney who set up the documents may be able to help with this one; certainly -some- attorney will be able to read the documents and give an opinion. Was exempt status ever applied for? Do the trust documents support the establishment of a private foundation? "Intended to do" and "actually did" can be quite different, after all.

Extend, talk to the attorney, go from there. If it does qualify as a private foundation, perhaps you can amend any/all open years, too, as the filings would have been incorrect.

Catherine

[Lion EA]

Does a Form 1034 or something like that need to be filed? Was it? Have you read the trust document? Does it qualify to be a not-for-profit?

[Accountant]

@gfizer Did you ever get an answer to this?  I am having the exact same issue right now and researching how to switch from filing 1041 to 990-PF

[Terry D EA]

I think the two recommendations regarding speaking to the attorney who created the trust, and obtaining the trust instrument before you do anything are the best two answers in this case. Personally, I don't see how you can proceed until you do.

[gfizer]

On 5/26/2021 at 2:20 PM, Accountant said:

@gfizer Did you ever get an answer to this?  I am having the exact same issue right now and researching how to switch from filing 1041 to 990-PF

After speaking with the attorney and reviewing the trust documents with the trustee, we determined that the trust did qualify to be taxed as a 4947(a)(1) non-exempt charitable trust.  I looked through my file and it looks as though I simply filed the 990-PF for 2008 marked as an "initial return."  I can't find that I did anything else to make the switch.  The trustee never received any correspondence from the the IRS and we've been filing the 990-PF ever since.

That being said, I'm not sure if or how that would work today.  When my situation occurred we were still filing the 990 series on paper.  Now that those forms are required to be filed electronically you might (and I expect you would) get a reject code showing that the entity type doesn't match the entity type listed on the EIN application when you try to electronically file the return.

I wish I could be of more help.  Good luck.