Final regulations on new grantor trust reporting requirements.On Dec. 20, 1995, the IRS An abbreviation for the Internal Revenue Service, a federal agency charged with the responsibility of administering and enforcing internal revenue laws. released the final amendments to Regs. Sec. 1.6714 (addressing the grantor trust Grantor trust A mechanism of issuing MBS wherein the mortgages' collateral is deposited with a trustee under a custodial or trust agreement. reporting requirements). Like the proposed amendments, the final amendments implement two alternative reporting methods--eligibility for which depends on whether the trust is treated as owned by one grantor An individual who conveys or transfers ownership of property. In real property law, an individual who sells land is known as the grantor. grantor n. (or other person) or more than one grantor (or other person). Trust Owned by One Person If a trust is treated as owned by one grantor or other person, the trustee may choose between two alternative methods of reporting. [] Alternative 1: The trustee must furnish fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. to all payors of income and proceeds during the tax year (1) the name and taxpayer identification number (TIN) of the grantor or other person, and (2) the address of the trust. If the trustee furnishes this information to all payors, the trustee is not required to file any type of return with the Service. [] Alternative 2: The trustee must (1) furnish to all payors of income and proceeds during the tax year the trust's name, TIN and address, and (2) file with the IRS appropriate Forms 1099 reporting each type of income and each item of gross proceeds paid to the trust, showing the trust as the payor, and showing each grantor or other person treated as an owner of the trust as the payee The person who is to receive the stated amount of money on a check, bill, or note. payee n. the one named on a check or promissory note to receive payment. PAYEE. The person in whose favor a bill of exchange is made payable. . Trust Owned by More Than One Person If the trust is treated as owned by more than one grantor or other person, the trustee may use only the: alternative method of reporting described under Alternative 2 or continue to use the "old" reporting method set forth under Regs. Sec. 1.671-4(a) (i.e., file a "skeleton" Form 1041 with an information statement attached). Under both alternative methods of reporting, unless the trustee or cotrustee is also the only grantor or other person treated as an owner of the trust, the final regulations require the trustee to furnish each grantor or other person with a statement that: [] Shows all items of income, deduction and credit of the trust for the tax year. [] Identifies the payor of each item of income (necessary only if the Alternative 1 reporting method is used). [] Provides the grantor or other person with the information necessary to take the items into account in computing taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. . [] Informs the grantor or other person that the items of income, deduction, credit and other information shown on the statement must be included in computing the grantor's (or other person's) taxable income. The final amendments, effective Jan. 1, 1996, also contain the following changes/additions to the proposed amendments issued on July 22, 1994: [] Regs. Sec. 1.671-4(b) clarifies that the trustee of a trust all of which is treated as owned by one or more grantors or other persons may (but is not required to) report using one of the two alternative reporting methods discussed. [] Regs. Sec. 1.671-4(b)(4) defines the term "payor" as including any person required by any provision of the Code and regulations to make any type of information return for the trust for the tax year. [] Regs. Sec. 1.671-4(b) (5) clarifies that the amounts that must be included on any Forms 1099 required to be filed by the trustee do not include any amounts reportable by the payor on an information return other than Form 1099 (e.g., partnership items reported on a Form 1065 Schedule K-1). However, the statement furnished fur·nish tr.v. fur·nished, fur·nish·ing, fur·nish·es 1. To equip with what is needed, especially to provide furniture for. 2. to the grantor or other person treated as the trust's owner by the trustee must show all items of income, deduction and credit reported on such other information return. [] Regs. Sec. 1.671-4(c) provides that the due date for any Forms 1099 required to be filed with the Service by a trustee is the due date otherwise in effect for filing Forms 1099 (i.e., February 28). Regs. Sec. 1.671-4(d) provides that the due date for furnishing the grantor or other person treated as a trust owner with the required information statement is the date specified in Sec. 6034A(a) (i.e., April 15). [] Pursuant to Regs. Sec. 1.6714(e) (1), a trustee may not use the first alternative reporting method unless (1) the grantor or other person treated as the owner of the trust provides the trustee with a complete Form W-9 (or other acceptable substitute form); (2) the trustee gives the name and TIN shown on that Form W-9 (but does not give the actual Form W-9) to all payors; and (3) if the Form W-9 indicates that the grantor (or other person) is subject to backup withholding backup withholding Compulsory withholding from payments to an investor in order to take care of a potential tax liability. Payments of interest, dividends, and proceeds from a sale of securities are subject to backup withholding when certain requirements are , the trustee notifies all payors of reportable interest and dividend payments of the requirement to backup withhold with·hold v. with·held , with·hold·ing, with·holds v.tr. 1. To keep in check; restrain. 2. To refrain from giving, granting, or permitting. See Synonyms at keep. 3. . [] Regs. Sec. 1.6714(g) allows a trustee who has used one of the alternative reporting methods to switch between alternative reporting methods (unless otherwise prohibited) and to switch back to the "old" reporting method (i.e., file a "skeleton" Form 1041 with an information statement attached). [] Regs. Sec. 1.6714(b) (6) prohibits the following trusts from using the alternative reporting methods: 1. Common trust funds. 2. A trust that has its situs [Latin, Situation; location.] The place where a particular event occurs. For example, the situs of a crime is the place where it was committed; the situs of a trust is the location where the trustee performs his or her duties of managing the trust. or any of its assets outside the U.S. 3. A qualified subchapter S Subchapter S IRS regulation that gives a corporation with 35 or fewer shareholders the option of being taxed as a partnership to escape corporate income taxes. trust. 4. A trust all of which is treated as owned by one grantor or other person whose tax year is a fiscal year. 5. A trust all of which is treated as owned by one grantor or other person who is not a U.S. person. 6. A trust all of which is treated as owned by two or more grantors or other persons one of whom is not a U.S. person. The preamble A clause at the beginning of a constitution or statute explaining the reasons for its enactment and the objectives it seeks to attain. Generally a preamble is a declaration by the legislature of the reasons for the passage of the statute, and it aids in the interpretation of to the final regulations states, in part, that the regulations are "intended to reduce the current filing burden on trustees, to provide necessary information to grantors or other persons treated as the owners of trusts, to reduce any cases of duplicate filing, and to provide more meaningful information to the IRS." Unfortunately, the situations in which the new reporting methods will "reduce the current filing burden on trustees" and "reduce any cases of duplicate filing" appear to be limited. Consequently, many trustees may continue to use the "old" grantor trust reporting method (i.e., file a "skeleton" Form 1041 with an information statement attached) and thereby impair im·pair tr.v. im·paired, im·pair·ing, im·pairs To cause to diminish, as in strength, value, or quality: an injury that impaired my hearing; a severe storm impairing communications. the intended purposes of the Regs. Sec. 1.671-4 amendments. FROM MARK T. WATSON Wat·son , James Dewey Born 1928. American biologist who with Francis Crick proposed a spiral model, the double helix, for the molecular structure of DNA. He shared a 1962 Nobel Prize for advances in the study of genetics. , CPA (Computer Press Association, Landing, NJ) An earlier membership organization founded in 1983 that promoted excellence in computer journalism. Its annual awards honored outstanding examples in print, broadcast and electronic media. The CPA disbanded in 2000. , MS, WASHINGTON, D.C. |
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