us internal revenue service: i1041--1994

8/14/2019 US Internal Revenue Service: i1041--1994

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Cat. No. 11372D

ContentsChanges To Note 1

General Instructions 2

Purpose of Form 2

Income Taxation of Trusts andDecedents Estates 2

Definitions 2

Who Must File 2

Electronic Filing 3

When To File 3

Period Covered 3

Where To File 3

Who Must Sign 3

Accounting Methods 4Accounting Periods 4

Rounding Off to Whole Dollars 4

Estimated Tax 4

Interest and Penalties 4

Other Forms That May Be Required 4

Attachments 5

Additional Information 5

Unresolved Tax Problems 5

Of Special Interest to BankruptcyTrustees and Debtors-in-Possession 5

Specific Instructions 7

Name of Estate or Trust 7

Address 7

Type of Entity 7

Number of Schedules K-1 Attached 8

Employer Identification Number 8

Date Entity Created 8

Nonexempt Charitable and Split-InterestTrusts 8

Initial Return, Amended Return, FinalReturn; or Change in Fiduciarys

Name or Address 9Pooled Mortgage Account 9

Income 9

Deductions 10

Tax and Payments 13

Schedule ACharitable Deduction 14

Schedule BIncome DistributionDeduction 14

Schedule GTax Computation 16

Other Information 17

Schedule HAlternative MinimumTax 18

Schedule D (Form 1041)Capital Gainsand Losses 22

Schedule J (Form 1041)AccumulationDistribution for a Complex Trust 24

Schedule K-1 (Form 1041)BeneficiarysShare of Income, Deductions,Credits, etc. 26

Changes To Note If an estate or trust makes a qualifiedcash contribution to a communitydevelopment corporation selected by theSecretary of Housing and UrbanDevelopment, 5% of the contributionmay be claimed as a credit for each taxyear during the 10-year period beginningwith the year the contribution was made.Get Form 8847, Credit for Contributionsto Selected Community DevelopmentCorporations, for more details.

Employers may be able to claim acredit of 20% of a limited amount of thewages and health insurance costs paid

or incurred for services performed on anIndian reservation by certain enrolledmembers of an Indian tribe (or theirspouses). Services performed in certaingaming activities or buildings housingthose activities do not qualify for thecredit. Get Form 8845, IndianEmployment Credit, for details.

Food and beverage establishmentsmay claim a credit equal to theemployers social security and Medicaretax obligation attributable to tips inexcess of those treated as wages forpurposes of Federal minimum wagelaws. Get Form 8846, Credit forEmployer Social Security and Medicare

Taxes Paid on Certain Employee Tips,for more details.

Estates and trusts that haveemployees who lived and worked in anarea designated by the Federalgovernment as an empowerment zonemay be able to claim the credit figuredon Form 8844, Empowerment ZoneEmployment Credit.

For tax years beginning in 1994, thefiling requirement for bankruptcy estatesis increased to $5,625.

Instructions for Form 1041and Schedules A, B, D, G,

H, J, and K-1U.S. Income Tax Return for Estates and TrustsSection references are to the Internal Revenue Code unless otherwise noted.

Paperwork Reduction Act Notice

The time needed to complete and file this form and related schedules will varydepending on individual circumstances. The estimated average times are:

Schedule K-1Schedule JSchedule DForm 1041

8 hr., 22 min.39 hr., 28 min.16 hr., 1 min.40 hr., 53 min.Recordkeeping

Learning about the

law or the form 1 hr., 12 min.1 hr., 5 min.1 hr., 41 min.18 hr., 8 min.Preparing the form 1 hr., 23 min.1 hr., 47 min.2 hr., 2 min.33 hr., 34 min.

Copying,assembling, andsending the formto the IRS 4 hr., 1 min.

If you have comments concerning the accuracy of these time estimates orsuggestions for making these forms simpler, we would be happy to hear from you.You can write to both the Internal Revenue Service, Attention: Tax FormsCommittee, PC:FP, Washington, DC 20224; and the Office of Management andBudget, Paperwork Reduction Project (1545-0092), Washington, DC 20503. DONOT send the tax form to either of these offices. Instead, see Where To File onpage 3.

Department of the TreasuryInternal Revenue Service

We ask for the information on this form to carry out the Internal Revenue laws of theUnited States. You are required to give us the information. We need it to ensure thatyou are complying with these laws and to allow us to figure and collect the rightamount of tax.


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General Instructions

Purpose of FormThe fiduciary of a domestic decedentsestate, trust, or bankruptcy estate usesForm 1041 to report: (a) the income,deductions, gains, losses, etc. of theestate or trust; (b) the income that iseither accumulated or held for futuredistribution or distributed currently to thebeneficiaries; and (c) any income taxliability of the estate or trust.

Income Taxation of Trustsand Decedents EstatesA trust (except a grantor type trust) or adecedents estate is a separate legalentity for Federal tax purposes. Adecedents estate comes into existenceat the time of death of an individual. Atrust may be created during anindividuals life (inter vivos) or at the timeof his or her death under a will(testamentary). If the trust instrumentcontains certain provisions, then theperson creating the trust (the grantor) is

treated as the owner of the trustsassets. Such a trust is a grantor typetrust.

A trust or decedents estate figures itsgross income in much the same manneras an individual. Most deductions andcredits allowed to individuals are alsoallowed to estates and trusts. However,there is one major distinction. A trust ordecedents estate is allowed an incomedistribution deduction for distributions tobeneficiaries. To figure this deduction,the fiduciary must complete Schedule B.The income distribution deductiondetermines the amount of thedistribution that is taxed to the

beneficiaries.For this reason, a trust or decedents

estate sometimes is referred to as apass-through entity. The beneficiary,and not the trust or decedents estate,pays income tax on his or herdistributive share of income. ScheduleK-1 (Form 1041) is used to notify thebeneficiaries of the amounts to beincluded on their income tax returns.

Before preparing Form 1041, thefiduciary must figure the accountingincome of the estate or trust under thewill or trust instrument to determine theamount, if any, of income that is

required to be distributed because theincome distribution deduction is based,in part, on that amount.

Definitions

Beneficiary

A beneficiary is an heir, a legatee, or adevisee.

Distributable Net Income (DNI)

The income distribution deductionallowable to estates and trusts for

amounts paid, credited, or required tobe distributed to beneficiaries is limitedto distributable net income (DNI). Thisamount, which is figured on Schedule B,line 9, is also used to determine howmuch of an amount paid, credited, orrequired to be distributed to abeneficiary will be includible in his or hergross income.

Income and Deductions inRespect of a Decedent

When completing Form 1041, you musttake into account any items that areincome in respect of a decedent (IRD).

In general, income in respect of adecedent is income that a decedent wasentitled to receive but that was notproperly includible in the decedents finalForm 1040 under the decedentsmethod of accounting.

IRD includes: (a) all accrued income ofa decedent who reported his or herincome on a cash method ofaccounting; (b) income accrued solelybecause of the decedents death in thecase of a decedent who reported his orher income on the accrual method ofaccounting; and (c) income to which thedecedent had a contingent claim at thetime of his or her death.

Some examples of IRD of a decedentwho kept his or her books on a cashmethod are:

Deferred salary payments that arepayable to the decedents estate.

Uncollected interest on U.S. savingsbonds.

Proceeds from the completed sale offarm produce.

The portion of a lump sum distributionto the beneficiary of a decedents IRA

that equals the balance in the IRA at thetime of the owners death. This includesunrealized appreciation and incomeaccrued to that date, less the aggregateamount of the owners nondeductiblecontributions to the IRA. Such amountsare included in the beneficiarys grossincome in the tax year that thedistribution is received.

The IRD has the same character itwould have had if the decedent livedand received such amount.

The following deductions and credits,when paid by the decedents estate, areallowed on Form 1041 even though they

were not allowable on the decedentsfinal Form 1040:

Business expenses deductible undersection 162.

Interest deductible under section 163.

Taxes deductible under section 164.

Investment expenses described insection 212 (in excess of 2% of AGI).

Percentage depletion allowed undersection 611.

Foreign tax credit.

For more information, see section 691.

Income Required To BeDistributed Currently

Income required to be distributedcurrently is income that is required to bedistributed in the year it is received. Thefiduciary must be under a duty todistribute the income currently, even ifthe actual distribution is not made untilafter the close of the trusts tax year.See Regulations section 1.651(a)-2.

Fiduciary

A fiduciary is a trustee of a trust; or anexecutor, executrix, administrator,administratrix, personal representative,or person in possession of property of adecedents estate.

Note: Any reference in these instructionsto you means the fiduciary of theestate or trust.

Trust

A trust is an arrangement created eitherby a will or by an inter vivos declarationby which trustees take title to propertyfor the purpose of protecting orconserving it for the beneficiaries under

the ordinary rules applied in chancery orprobate courts.

Who Must File

Decedents Estate

The fiduciary (or one of the jointfiduciaries) must file Form 1041 for theestate of a domestic decedent that has:

1. Gross income for the tax year of$600 or more, or

2. A beneficiary who is a nonresidentalien.

Trust

The fiduciary (or one of the jointfiduciaries) must file Form 1041 for adomestic trust taxable under section 641that has:

1. Any taxable income for the tax year,or

2. Gross income of $600 or more(regardless of taxable income), or

3. A beneficiary who is a nonresidentalien.

Two or more trusts are treated as onetrust if such trusts have substantially thesame grantor(s) and substantially thesame primary beneficiary(ies), and aprincipal purpose of such trusts isavoidance of tax. This provision appliesonly to that portion of the trust that isattributable to contributions to corpusmade after March 1, 1984.

If you are a fiduciary of a nonresidentalien estate or foreign trust with U.S.source income, file Form 1040NR, U.S.Nonresident Alien Income Tax Return.

Bankruptcy Estate

The bankruptcy trustee ordebtor-in-possession must file Form


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1041 for the estate of an individualinvolved in bankruptcy proceedingsunder chapter 7 or 11 of title 11 of theUnited States Code if the estate hasgross income for the tax year of $5,625or more. See Of Special Interest ToBankruptcy Trustees andDebtors-in-Possession on page 5 forother details.

Qualified Settlement Funds

The trustee of a designated or qualified

settlement fund should file Form1120-SF, U.S. Income Tax Return forSettlement Funds. See Regulationssection 1.468B-5.

Electronic FilingQualified tax return filers can file Form1041 and related schedules via magneticmedia (magnetic tapes, floppy diskettes)or electronically. If you file the estates ortrusts return electronically or onmagnetic tape, you must also file Form8453-F, U.S. Estate or Trust Income TaxDeclaration and Signature for Electronicand Magnetic Media Filing. See Pub.

1437, Procedures for Electronic andMagnetic Media Filing of U.S. IncomeTax Return for Estates and Trusts, Form1041, for more information.

You may order Pub. 1437 and anapplication form to participate in theelectronic filing program by calling theMagnetic Media Unit at the PhiladelphiaService Center at (215) 516-7533 (not atoll-free number) or by writing to:

Internal Revenue ServicePhiladelphia Service CenterATTN: Magnetic Media UnitDP 11511601 Roosevelt Blvd.Philadelphia, PA 19154

When To FileFor calendar year estates and trusts, fileForm 1041 and Schedules K-1 on orbefore April 17, 1995. For fiscal yearestates and trusts, file Form 1041 by the15th day of the 4th month following theclose of the tax year. If the due date fallson a Saturday, Sunday, or legal holiday,file on the next business day. Forexample, an estate that has a tax yearthat ends on June 30, 1995, must fileForm 1041 by October 16, 1995.

Extension of Time To File

Estates.Use Form 2758, Application

for Extension of Time To File CertainExcise, Income, Information, and OtherReturns, to apply for an extension oftime to file.

Trusts.Use Form 8736, Application forAutomatic Extension of Time To File U.S.Return for a Partnership, REMIC, or forCertain Trusts, to request an automatic3-month extension of time to file.

If more time is needed, file Form8800, Application for AdditionalExtension of Time To File U.S. Return fora Partnership, REMIC, or for Certain

Trusts, for an additional extension of upto 3 months. To obtain this additionalextension of time to file, you must showreasonable cause for the additional timeyou are requesting. Form 8800 must befiled by the extended due date for Form1041.

Period CoveredFile the 1994 return for calendar year1994 and fiscal years beginning in 1994and ending in 1995. If the return is for a

fiscal year or a short tax year, fill in thetax year space at the top of the form.

The 1994 Form 1041 may also beused for a tax year beginning in 1995 if:

1. The estate or trust has a tax year ofless than 12 months that begins andends in 1995; and

2. The 1995 Form 1041 is notavailable by the time the estate or trustis required to file its tax return. However,the estate or trust must show its 1995tax year on the 1994 Form 1041 andincorporate any tax law changes that areeffective for tax years beginning afterDecember 31, 1994.

Where To FileFor all estates and trusts, exceptcharitable and split-interest trusts andpooled income funds:

If you are located in

Please mail to thefollowing InternalRevenue Service

Center

New Jersey, New York (NewYork City and counties ofNassau, Rockland, Suffolk,and Westchester)

Holtsville, NY 00501

New York (all other

counties), Connecticut,Maine, Massachusetts, NewHampshire, Rhode Island,Vermont

Andover, MA 05501

Florida, Georgia,South Carolina

Atlanta, GA 39901

Indiana, Kentucky, Michigan,Ohio, West Virginia

Cincinnati, OH 45999

Kansas, New Mexico,Oklahoma, Texas

Austin, TX 73301

Alaska, Arizona, California(counties of Alpine, Amador,Butte, Calaveras, Colusa,Contra Costa, Del Norte, ElDorado, Glenn, Humboldt,Lake, Lassen, Marin,

Mendocino, Modoc, Napa,Nevada, Placer, Plumas,Sacramento, San Joaquin,Shasta, Sierra, Siskiyou,Solano, Sonoma, Sutter,Tehama, Trinity, Yolo, andYuba), Colorado, Idaho,Montana, Nebraska, Nevada,North Dakota, Oregon, SouthDakota, Utah, Washington,Wyoming

Ogden, UT 84201

California (all other counties),Hawaii

Fresno, CA 93888

Illinois, Iowa, Minnesota,Missouri, Wisconsin

Kansas City, MO 64999

Alabama, Arkansas,Louisiana, Mississippi,North Carolina, Tennessee

Memphis, TN 37501

Delaware, District ofColumbia, Maryland,Pennsylvania, Virginia, anyU.S. possession, or foreigncountry

Philadelphia, PA 19255

For a charitable or split-interest trust

described in section 4947(a) and apooled income fund defined in section642(c)(5):

If you are located in

Please mail to thefollowing InternalRevenue Service

Center

Alabama, Arkansas, Florida,Georgia, Louisiana,Mississippi, North Carolina,South Carolina, Tennessee

Atlanta, GA 39901

Arizona, Colorado, Kansas,New Mexico, Oklahoma,Texas, Utah, Wyoming

Austin, TX 73301

Indiana, Kentucky, Michigan,

Ohio, West VirginiaCincinnati, OH 45999

Alaska, California, Hawaii,Idaho, Nevada, Oregon,Washington

Fresno, CA 93888

Connecticut, Maine,Massachusetts, NewHampshire, New York,Rhode Island, Vermont

Holtsville, NY 00501

Illinois, Iowa, Minnesota,Missouri, Montana,Nebraska, North Dakota,South Dakota, Wisconsin

Kansas City, MO 64999

Delaware, District ofColumbia, Maryland,New Jersey, Pennsylvania,Virginia, any U.S. possession,

or foreign country

Philadelphia, PA 19255

Who Must SignThe fiduciary, or an authorizedrepresentative, must sign Form 1041.

A financial institution that submittedestimated tax payments for trusts forwhich it is the trustee must enter its EINin the space provided for the EIN of thefiduciary. Do not enter the EIN of thetrust. For this purpose, a financialinstitution is one that maintains aTreasury Tax and Loan account. If youare an attorney or other individualfunctioning in a fiduciary capacity, leavethis space blank. DO NOT enter yourindividual social security number (SSN).

If you, as fiduciary, fill in Form 1041,leave the Paid Preparers space blank. Ifsomeone prepares this return and doesnot charge you, that person should notsign the return.

Generally, anyone who is paid toprepare a tax return must sign the returnand fill in the other blanks in the PaidPreparers Use Only area of the return.


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The person required to sign the returnmust complete the required preparerinformation and:

Sign it in the space provided for thepreparers signature. A facsimilesignature is acceptable if certainconditions are met. See Regulationssection 1.6695-1(b)(4)(iv) for details.

Give you a copy of the return inaddition to the copy to be filed with theIRS.

Accounting MethodsFigure taxable income using the methodof accounting regularly used in keepingthe estates or trusts books and records.Generally, permissible methods includethe cash method, the accrual method, orany other method authorized by theInternal Revenue Code. In all cases, themethod used must clearly reflectincome.

Generally, the estate or trust maychange its accounting method (forincome as a whole or for any materialitem) only by getting consent on Form3115, Application for Change in

Accounting Method. For moreinformation, get Pub. 538, AccountingPeriods and Methods.

Accounting PeriodsFor a decedents estate, the moment ofdeath determines the end of thedecedents tax year and the beginning ofthe estates tax year. As executor oradministrator, you choose the estatestax period when you file its first incometax return. The estates first tax yearmay be any period of 12 months or lessthat ends on the last day of a month. Ifyou select the last day of any month

other than December, you are adoptinga fiscal tax year.

Generally, a trust must adopt acalendar year. The following trusts areexempt from this requirement:

A trust that is exempt from tax undersection 501(a);

A charitable trust described in section4947(a)(1); and

A trust that is treated as wholly ownedby a grantor under the rules of sections671 through 679.

To change the accounting period of anestate, get Form 1128, Application ToAdopt, Change, or Retain a Tax Year.

Rounding Off to WholeDollarsYou may show the money items on thereturn and accompanying schedules aswhole-dollar amounts. To do so, dropamounts less than 50 cents andincrease any amounts from 50 to 99cents to the next dollar.

Estimated TaxGenerally, an estate or trust must payestimated income tax for 1995 if itexpects to owe, after subtracting anywithholding and credits, at least $500 intax, and it expects the withholding andcredits to be less than the smaller of:

1. 90% of the tax shown on the 1995tax return, or

2. 100% of the tax shown on the 1994tax return (110% of that amount if the

estates or trusts adjusted gross incomeon that return is more than $150,000,and less than 23 of gross income for1994 or 1995 is from farming or fishing).

However, if a return was not filed for1994 or that return did not cover a full12 months, item 2 does not apply.

Exceptions

Estimated tax payments are not requiredfrom:

1. An estate of a domestic decedentor a domestic trust that had no taxliability for the full 12-month 1994 taxyear;

2. A decedents estate for any taxyear ending before the date that is 2years after the decedents death; or

3. A trust that was treated as ownedby the decedent if the trust will receivethe residue of the decedents estateunder the will (or if no will is admitted toprobate, the trust primarily responsiblefor paying debts, taxes, and expenses ofadministration) for any tax year endingbefore the date that is 2 years after thedecedents death.

For more information, get Form1041-ES, Estimated Income Tax forEstates and Trusts.

Section 643(g) ElectionFiduciaries of trusts that pay estimatedtax may elect under section 643(g) tohave any portion of their estimated taxpayments allocated to any of thebeneficiaries.

The fiduciary of a decedents estatemay make a section 643(g) election onlyfor the final year of the estate.

See the instructions for line 24b formore details.

Interest and Penalties

Interest

Interest is charged on taxes not paid bythe due date, even if an extension oftime to file is granted.

Interest is also charged on thefailure-to-file penalty, theaccuracy-related penalty, and the fraudpenalty. The interest charge is figured ata rate determined under section 6621.

Late Filing of Return

The law provides a penalty of 5% amonth, or part of a month, up to a

maximum of 25%, for each month thereturn is not filed. The penalty isimposed on the net amount due. If thereturn is more than 60 days late, theminimum penalty is the smaller of $100or the tax due. The penalty will not beimposed if you can show that the failureto file on time was due to reasonablecause. If the failure is due to reasonablecause, attach an explanation to thereturn.

Late Payment of Tax

Generally, the penalty for not paying taxwhen due is 12 of 1% of the unpaidamount for each month or part of amonth it remains unpaid. The maximumpenalty is 25% of the unpaid amount.The penalty is imposed on the netamount due. Any penalty is in additionto interest charges on late payments.

Note: If you include interest or either ofthese penalties with your payment,identify and enter these amounts in thebottom margin of Form 1041, page 1.Do not include the interest or penaltyamount in the balance of tax due online 27.

Failure To Supply Schedule K-1

The fiduciary must provide Schedule K-1(Form 1041) to each beneficiary whoreceives a distribution of property or anallocation of an item of the estate. Apenalty of $50 (not to exceed $100,000for any calendar year) will be imposedon the fiduciary for each failure tofurnish Schedule K-1 to each beneficiaryunless reasonable cause for each failureis established.

Underpaid Estimated Tax

If the fiduciary underpaid estimated tax,

get Form 2210, Underpayment ofEstimated Tax by Individuals, Estates,and Trusts, to figure any penalty. Enterthe amount of any penalty on line 26,Form 1041.

Other Penalties

Other penalties can be imposed fornegligence, substantial underpayment oftax, and fraud. Get Pub. 17, YourFederal Income Tax, for details on thesepenalties.

Other Forms That May BeRequired

Forms W-2 and W-3, Wage and TaxStatement; and Transmittal of Incomeand Tax Statements.

Form 56, Notice Concerning FiduciaryRelationship.

Form 706, United States Estate (andGeneration-Skipping Transfer) TaxReturn; or Form 706-NA, United StatesEstate (and Generation-SkippingTransfer) Tax Return, Estate ofnonresident not a citizen of the UnitedStates.


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Form 706GS(D), Generation-SkippingTransfer Tax Return For Distributions.

Form 706GS(D-1), Notification ofDistribution From a Generation-SkippingTrust.

Form 706GS(T), Generation-SkippingTransfer Tax Return for Terminations.

Form 940 or Form 940-EZ, EmployersAnnual Federal Unemployment (FUTA)Tax Return. The estate or trust may beliable for FUTA tax and may have to fileForm 940 or 940-EZ if it paid wages of

$1,500 or more in any calendar quarterduring the calendar year (or thepreceding calendar year) or one or moreemployees worked for the estate or trustfor some part of a day in any 20different weeks during the calendar year.

Form 941, Employers Quarterly FederalTax Return. Employers must file thisform quarterly to report income taxwithheld on wages and employer andemployee social security and Medicaretaxes. Agricultural employers must fileForm 943, Employers Annual TaxReturn for Agricultural Employees,instead of Form 941, to report income

tax withheld and employer andemployee social security and Medicaretaxes on farmworkers.

Caution: A trust fund recovery penaltymay apply where income, social security,and Medicare taxes that should bewithheld are not withheld or are not paidto the IRS. Under this penalty, certainemployees of the estate or trust becomepersonally liable for payment of the taxesand may be penalized in an amountequal to the unpaid taxes. GetCircularE, Employers Tax Guide (orCircular A,Agricultural Employers Tax Guide), formore details.

Form 945, Annual Return of WithheldFederal Income Tax. Use this form toreport income tax withheld fromnonpayroll payments, includingpensions, annuities, IRAs, gamblingwinnings, and backup withholding.

Form 1040, U.S. Individual Income TaxReturn.

Form 1040NR, U.S. Nonresident AlienIncome Tax Return.

Form 1041-A, U.S. Information ReturnTrust Accumulation of CharitableAmounts.

Forms 1042 and 1042-S, AnnualWithholding Tax Return for U.S. Source

Income of Foreign Persons; and ForeignPersons U.S. Source Income Subject toWithholding. Use these forms to reportand transmit withheld tax on paymentsor distributions made to nonresidentalien individuals, foreign partnerships, orforeign corporations to the extent suchpayments or distributions constitutegross income from sources within theUnited States that is not effectivelyconnected with a U.S. trade or business.For more information, see sections 1441and 1442, and Pub. 515, Withholding of

Tax on Nonresident Aliens and ForeignCorporations.

Forms 1099-A, B, INT, MISC, OID, R,and S.You may have to file theseinformation returns to reportabandonments, acquisitions throughforeclosure, proceeds from broker andbarter exchange transactions, interestpayments, medical and dental healthcare payments, miscellaneous income,original issue discount, distributions frompensions, annuities, retirement or

profit-sharing plans, individual retirementarrangements, insurance contracts, andproceeds from real estate transactions.

Also, use these returns to reportamounts received as a nominee onbehalf of another person, exceptamounts reported to beneficiaries onSchedule K-1 (Form 1041).

Form 8275, Disclosure Statement, isused by taxpayers and income taxreturn preparers to disclose items orpositions, except those contrary to aregulation, that are not otherwiseadequately disclosed on a tax return.The disclosure is made to avoid parts ofthe accuracy-related penalty imposed fordisregard of rules or substantialunderstatement of tax. Form 8275 isalso used for disclosures relating topreparer penalties for understatementsdue to unrealistic positions or for willfulor reckless conduct.

Form 8275-R, Regulation DisclosureStatement, is used to disclose any itemon a tax return for which a position hasbeen taken that is contrary to Treasuryregulations.

Forms 8288 and 8288-A, U.S.Withholding Tax Return for Dispositionsby Foreign Persons of U.S. RealProperty Interests; and Statement of

Withholding on Dispositions by ForeignPersons of U.S. Real Property Interests.Use these forms to report and transmitwithheld tax on the sale of U.S. realproperty by a foreign person. Also, usethese forms to report and transmit taxwithheld from amounts distributed to aforeign beneficiary from a U.S. realproperty interest account that adomestic estate or trust is required toestablish under Regulations section1.1445-5(c)(1)(iii).

Form 8300, Report of Cash PaymentsOver $10,000 Received in a Trade orBusiness. Generally, this form is used to

report the receipt of more than $10,000in cash or foreign currency in onetransaction (or a series of relatedtransactions).

AttachmentsIf you need more space on the forms orschedules, attach separate sheets. Usethe same size and format as on theprinted forms. But show the totals onthe printed forms.

Attach these separate sheets after allthe schedules and forms. Enter the

estates or trusts employer identificationnumber on each sheet.

Do not file a copy of the decedentswill or the trust instrument unless theIRS requests it.

Additional InformationThe following publications may assistyou in preparing Form 1041.

Pub. 448, Federal Estate and Gift Taxes;

Pub. 550, Investment Income and

Expenses; andPub. 559, Survivors, Executors, andAdministrators.

These and other publications may beobtained at most IRS offices. To orderpublications and forms, call our toll-freenumber 1-800-TAX-FORM(1-800-829-3676).

Unresolved Tax ProblemsThe IRS has a Problem ResolutionProgram for taxpayers who have beenunable to resolve their problems with theIRS. If you have a tax problem you havebeen unable to resolve through normal

channels, write to your local IRS DistrictDirector, or call your local IRS office andask for Problem Resolution assistance.Hearing-impaired persons who haveaccess to TDD equipment may call1-800-829-4059 to ask for help.

The Problem Resolution Office willensure that your problem receivesproper attention. Although the officecannot change the tax law or maketechnical decisions, it can help you clearup problems that resulted from previouscontacts.

Of Special Interest toBankruptcy Trustees andDebtors-in-Possession

Taxation of Bankruptcy Estates ofan Individual

A bankruptcy estate is a separatetaxable entity created when an individualdebtor files a petition under eitherchapter 7 or 11 of title 11 of the U.S.Code. The estate is administered by atrustee, or a debtor-in-possession. If thecase is later dismissed by thebankruptcy court, the debtor is treated

as if the bankruptcy petition had neverbeen filed. This provision does NOTapply to partnerships or corporations.

Who Must File

Every trustee (or debtor-in-possession)for an individuals bankruptcy estateunder chapter 7 or 11 of title 11 of theU.S. Code must file a return if thebankruptcy estate has gross income forthe tax year beginning in 1994 of $5,625or more.


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Failure to do so may result in anestimated Request for AdministrativeExpenses being filed by the IRS in thebankruptcy proceeding or a motion tocompel filing of the return.

Note: The filing of a tax return for thebankruptcy estate does not relieve theindividual debtor of his or her (or their)individual tax obligations.

Employer Identification Number(EIN)

Every bankruptcy estate of an individualrequired to file a return must have itsown employer identification number. Youmay apply for one on Form SS-4,Application for Employer IdentificationNumber. The social security number(SSN) of the individual debtor cannot beused as the EIN for the bankruptcyestate.

Accounting Period

A bankruptcy estate is allowed to have afiscal year. The period can be no longerthan 12 months.

When To File

File Form 1041 on or before the 15thday of the 4th month following the closeof the tax year. Use Form 2758 to applyfor an extension of time to file.

Disclosure of Return Information

Under section 6103(e)(5), tax returns ofindividual debtors who have filed forbankruptcy under chapters 7 or 11 oftitle 11 are, upon written request, opento inspection by or disclosure to thetrustee.

The returns subject to disclosure tothe trustee are those for the year thebankruptcy begins and prior years. UseForm 4506, Request for Copy orTranscript of Tax Form, to requestcopies of the individual debtors taxreturns.

If the bankruptcy case was notvoluntary, disclosure cannot be madebefore the bankruptcy court has enteredan order for relief, unless the court rulesthat the disclosure is needed fordetermining whether relief should beordered.

Transfer of Tax Attributes Fromthe Individual Debtor to theBankruptcy Estate

The bankruptcy estate succeeds to thefollowing tax attributes of the individualdebtor:

1. Net operating loss (NOL)carryovers;

2. Charitable contributions carryovers;

3. Recovery of tax benefit items;

4. Credit carryovers;

5. Capital loss carryovers;

6. Basis, holding period, and characterof assets;

7. Method of accounting; and

8. Other tax attributes to the extentprovided by regulations.

For bankruptcy cases beginning afterNovember 8, 1992, the bankruptcyestate succeeds to the individualdebtors unused passive activity losses,unused passive activity credits, andunused section 465 losses. For casesbeginning before November 9, 1992, theindividual debtor and bankruptcy estatemay jointly elect to have the estate

succeed to these attributes. SeeRegulations sections 1.1398-1 and1.1398-2 for more details.

Income, Deductions, and Credits

Under section 1398(c), the taxableincome of the bankruptcy estategenerally is computed in the samemanner as an individual. The grossincome of the bankruptcy estateincludes any income included inproperty of the estate as defined inBankruptcy Code section 541. Alsoincluded is gain from the sale ofproperty. To compute gain, the trustee ordebtor-in-possession must determinethe correct basis of the property.

To determine whether any amountpaid or incurred by the bankruptcyestate is allowable as a deduction orcredit, or is treated as wages foremployment tax purposes, treat theamount as if it were paid or incurred bythe individual debtor in the same tradeor business or other activity the debtorengaged in before the bankruptcyproceedings began.

Administrative expenses.Thebankruptcy estate is allowed adeduction for any administrativeexpense allowed under section 503 of

title 11 of the U.S. Code, and any fee orcharge assessed under chapter 123 oftitle 28 of the U.S. Code, to the extentnot disallowed under an InternalRevenue Code provision (e.g., section263, 265, or 275).

Administrative expense loss.Whenfiguring a net operating loss,nonbusiness deductions (includingadministrative expenses) are limitedunder section 172(d)(4) to thebankruptcy estates nonbusinessincome. The excess nonbusinessdeductions are an administrativeexpense loss that may be carried back

to each of the 3 preceding tax years andforward to each of the 7 succeeding taxyears of the bankruptcy estate. Theamount of an administrative expenseloss that may be carried to any tax yearis determined after the net operatingloss deductions allowed for that year. Anadministrative expense loss is allowedonly to the bankruptcy estate andcannot be carried to any tax year of theindividual debtor.

Carryback of net operating losses andcredits.If the bankruptcy estate itselfincurs a net operating loss (apart from

losses carried forward to the estate fromthe individual debtor), it can carry backits net operating losses not only toprevious tax years of the bankruptcyestate, but also to tax years of theindividual debtor prior to the year inwhich the bankruptcy proceedingsbegan. Excess credits, such as theforeign tax credit, also may be carriedback to pre-bankruptcy years of theindividual debtor.

Exemption.For tax years beginning in

1994, a bankruptcy estate is allowed apersonal exemption of $2,450.

Standard deduction.For tax yearsbeginning in 1994, a bankruptcy estatethat does not itemize deductions isallowed a standard deduction of $3,175.

Discharge of indebtedness.In a title11 case, gross income does not includeamounts that normally would beincluded in gross income resulting fromthe discharge of indebtedness. However,any amounts excluded from grossincome must be applied to reducecertain tax attributes in a certain order.Attach Form 982, Reduction of TaxAttributes Due to Discharge ofIndebtedness, to show the reduction oftax attributes.

Tax Rate Schedule

Figure the tax for the bankruptcy estateusing the tax rate schedule shownbelow. Enter the tax on Form 1040,line 38.

If taxable income is:Of the

But not The tax amount Over over is: over

$0 $19,000 15% $019,000 45,925 $2,850.00 + 28% 19,00045,925 70,000 10,389.00 + 31% 45,92570,000 125,000 17,852.25 + 36% 70,000

125,000 - - - - - 37,652.25 + 39.6% 125,000

Prompt Determination of TaxLiability

To request a prompt determination ofthe tax liability of the bankruptcy estate,the trustee or debtor-in-possession mustfile a written application for thedetermination with the IRS DistrictDirector for the district in which thebankruptcy case is pending. Theapplication must be submitted induplicate and executed under thepenalties of perjury. The trustee ordebtor-in-possession must submit with

the application an exact copy of thereturn (or returns) filed by the trusteewith the IRS for a completed tax period,and a statement of the name andlocation of the office where the returnwas filed. The envelope should bemarked, Personal Attention of theSpecial Procedures Function(Bankruptcy Section). DO NOT OPEN INMAILROOM.

The IRS will notify the trustee ordebtor-in-possession within 60 daysfrom receipt of the application whether


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the return filed by the trustee ordebtor-in-possession has been selectedfor examination or has been accepted asfiled. If the return is selected forexamination, it will be examined as soonas possible. The IRS will notify thetrustee or debtor-in-possession of anytax due within 180 days from receipt ofthe application or within any additionaltime permitted by the bankruptcy court.

See Rev. Proc. 81-17, 1981-1 C.B.688.

Special Filing Instructions forBankruptcy Estates

Use Form 1041 only as a transmittal forForm 1040. In the top margin of Form1040 write Attachment to Form 1041.DO NOT DETACH. Attach Form 1040 toForm 1041. Complete only theidentification area at the top of Form1041. Enter the name of the individualdebtor in the following format: John Q.Public Bankruptcy Estate. Beneath,enter the name of the trustee in thefollowing format: Avery Snow, Trustee.In item D, enter the date the petitionwas filed or the date of conversion to a

chapter 7 or 11 case. Enter on Form1041, line 23, any tax due from line 53of Form 1040. Sign and date Form1041.

Specific Instructions

Name of Estate or TrustCopy the exact name of the estate ortrust from the Form SS-4, Applicationfor Employer Identification Number, thatyou used to apply for the employeridentification number.

If a grantor type trust (discussedbelow), write the name, identificationnumber, and address of the grantor(s) orother person(s) in parentheses after thename of the trust.

AddressInclude the suite, room, or other unitnumber after the street address.

If the Post Office does not deliver mailto the street address and the fiduciaryhas a P.O. box, show the box numberinstead of the street address.

If you change your address after filing

Form 1041, use Form 8822, Change ofAddress, to notify the IRS.

A. Type of EntityCheck the appropriate box thatdescribes the entity for which you arefiling the return.

Note: There are special filingrequirements for grantor type trusts andbankruptcy estates (discussed below).

Decedents Estate

An estate of a deceased person is ataxable entity separate from thedecedent. It generally continues to existuntil the final distribution of the assets ofthe estate is made to the heirs and otherbeneficiaries. The income earned fromthe property of the estate during theperiod of administration or settlementmust be accounted for and reported bythe estate.

Simple TrustA trust may qualify as a simple trust if:

1. The trust instrument requires that allincome must be distributed currently;

2. The trust instrument does notprovide that any amounts are to be paid,permanently set aside, or used forcharitable purposes; and

3. The trust does not distributeamounts allocated to the corpus of thetrust.

Complex Trust

A complex trust is any trust that doesnot qualify as a simple trust as explained

above.

Grantor Type Trust

A grantor type trust is a legal trust underapplicable state law that is notrecognized as a separate taxable entityfor income tax purposes because thegrantor or other substantial owners havenot relinquished complete dominion andcontrol over the trust.

Generally, for transfers made in trustafter March 1, 1986, the grantor istreated as the owner of any portion of atrust in which he or she has areversionary interest in either the income

or corpus therefrom, if, as of theinception of that portion of the trust, thevalue of that interest is more than 5% ofthe value of that portion. Further, thegrantor is treated as holding any poweror interest that was held by either thegrantors spouse at the time that thepower or interest was created or whobecame the grantors spouse after thecreation of that power or interest.

Report on Form 1041 the part of theincome that is taxable to the trust. Donot report on Form 1041 the income thatis taxable to the grantor or anotherperson. Instead, attach a separate sheetto report the following:

The income of the trust that is taxableto the grantor or another person undersections 671 through 678;

The name, identifying number, andaddress of the person(s) to whom theincome is taxable; and

Any deductions or credits applied tothis income.

The income taxable to the grantor oranother person under sections 671through 678 and the deductions andcredits applied to the income must be

reported on the income tax return thatperson files.

Family estate trust.A family estatetrust is also known as a family, familyestate, pure, equity, equity pure, prime,or constitutional trust.

In most cases, the grantor transfersproperty to the trust or assigns to thetrust the income for services the grantorperforms. The trust instrument usuallyprovides:

Evidence of ownership, such as

certificates of beneficial interest in thetrust.

That the grantor is a trustee andexecutive officer.

That the trust pays the living expensesfor the grantor and the grantors family.

That the corpus and undistributedincome are distributed to the ownersafter the trust is terminated.

Generally, a family estate trust istreated as a grantor type trust. For moreinformation, see Rev. Rul. 75-257,1975-2 C.B. 251.

Mortgage pools.The trustee of a

mortgage pool, such as the FederalNational Mortgage Association, collectsprincipal and interest payments on eachmortgage and makes distributions to thecertificate holders. Each pool isconsidered a grantor type trust, andeach certificate holder is treated as theowner of an undivided interest in theentire trust under the grantor trust rules.Certificate holders must report theirproportionate share of the mortgageinterest and other items of income ontheir individual tax returns.

Pre-need funeral trusts.Thepurchasers of pre-need funeral servicesare the grantors and the owners of

pre-need funeral trusts establishedunder state laws. See Rev. Rul. 87-127,1987-2 C.B. 156.

Nonqualified deferred compensationplans.Taxpayers may adopt andmaintain grantor trusts in connectionwith nonqualified deferred compensationplans (sometimes referred to as rabbitrusts). Rev. Proc. 92-64, 1992-2 C.B.422, provides a model grantor trust foruse in rabbi trust arrangements. Theprocedure also provides guidance forrequesting rulings on the plans that usethese trusts.

Simplified filing requirement for

certain grantor type trusts.Thegrantor/trustee for a trust describedbelow that was created in a tax yearbeginning on or after January 1, 1981,should not file Form 1041 and thereforewill not need an EIN for the trust. Thegrantor/trustee must furnish his or hersocial security number (SSN) to payersof income and report all items ofincome, deduction, and credit from thetrust on his or her Form 1040.

This special rule applies to certainrevocable trusts that are located in the


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United States and have all assetslocated in the United States if:

The same individual is both grantorand trustee (or co-trustee) of the trust;and

The individual is treated as owner ofall trust assets under section 676 (powerto revoke) for the tax year.

These rules also apply to certain otherrevocable trusts in which:

A husband and wife are the solegrantors;

One spouse is trustee or co-trusteewith a third party or both spouses aretrustees or co-trustees with a third party;

One or both spouses are treated asowners of all trust assets under section676 (power to revoke) for the tax year;and

The husband and wife file a jointincome tax return for the tax year.

Grantor trusts created in tax yearsbeginning before 1981.Thegrantor/trustee for a trust describedabove who has previously filed Form1041 can take advantage of the

simplified reporting requirements in thefuture by filing a Form 1041 for thecurrent year, writing on it Pursuant tosection 1.671-4(b), this is the final returnfor this grantor trust, and checking theFinal return box.

A grantor/trustee who chooses thisoption must furnish his or her SSN topayers of income for the next year andreport the trust income on his or herForm 1040 for the next tax year and forfuture years. The grantor/trustee mustnot file Form 1041 for future years.

Backup withholding.Generally, agrantor trust is considered a payor ofreportable payments received by the

trust for purposes of backupwithholding. If the trust has 10 or fewergrantors, a reportable payment made tothe trust is treated as a reportablepayment of the same kind made to thegrantors on the date the trust receivedthe payment. If the trust has more than10 grantors, a reportable payment madeto the trust is treated as a payment ofthe same kind made by the trust to eachgrantor in an amount equal to thedistribution made to each grantor on thedate the grantor is paid or credited. Thetrustee is required to withhold 31% ofreportable payments made to any

grantor who is subject to backupwithholding. For more information, seesection 3406 and Temporary Regulationssection 35a.9999-2, Q&A 20.

Bankruptcy Estate

A chapter 7 or 11 bankruptcy estate is aseparate and distinct taxable entity fromthe individual debtor for Federal incometax purposes. See Of Special Interestto Bankruptcy Trustees andDebtors-in-Possession on page 5.

For more information, see section1398 and Pub. 908, Tax Information onBankruptcy.

Pooled Income Fund

A pooled income fund is a split-interesttrust with a remainder interest for apublic charity and a life income interestretained by the donor or for anotherperson. The property is held in a poolwith other pooled income fund propertyand does not include any tax-exempt

securities. The income for a retained lifeinterest is figured using the yearly rate ofreturn earned by the trust. See section642(c) and the related regulations formore information.

If you are filing for a pooled incomefund, attach a statement to support thefollowing:

The calculation of the yearly rate ofreturn.

The computation of the deduction fordistributions to the beneficiaries.

The computation of any charitablededuction.

You do not have to complete

Schedules A or B of Form 1041.If the fund has accumulations of

income, file Form 1041-A unless thefund is required to distribute all of its netincome to beneficiaries currently.

You must also file Form 5227,Split-Interest Trust Information Return,for the pooled income fund.

B. Number of Schedules K-1AttachedEvery trust or decedents estate claimingan income distribution deduction onpage 1, line 18, must enter the number

of Schedules K-1 (Form 1041) that areattached to Form 1041.

C. Employer IdentificationNumber (EIN)Every estate or trust must have anemployer identification number (EIN). Toapply for one, use Form SS-4. You mayget this form from the IRS or the SocialSecurity Administration. See Pub. 583,Taxpayers Starting a Business, for moreinformation.

If you are filing a return for a mortgagepool, such as one created under themortgage-backed security programsadministered by the Federal NationalMortgage Association (Fannie Mae) orthe Government National MortgageAssociation (Ginnie Mae), the EINstays with the pool if that pool is tradedfrom one financial institution to another.

D. Date Entity CreatedEnter the date the trust was created, or,if a decedents estate, the date of thedecedents death.

E. Nonexempt Charitableand Split-Interest Trusts

Section 4947(a)(1) Trust

Check this box if the trust is anonexempt charitable trust within themeaning of section 4947(a)(1). Anonexempt charitable trust is a trust thatis not exempt from tax under section501(a); all of the unexpired interests aredevoted to one or more charitablepurposes described in section

170(c)(2)(B); and for which a deductionwas allowed under section 170 (forindividual taxpayers) or similar Codesection for personal holding companies,foreign personal holding companies, orestates or trusts (including a deductionfor estate or gift tax purposes).

Not a Private Foundation

Check this box if the charitable trust isnot treated as a private foundation undersection 509. For more information, seeRegulations section 53.4947-1.

If a nonexempt charitable trust is nottreated as though it were a private

foundation, the fiduciary must file Form990 (or Form 990-EZ), Return ofOrganization Exempt From Income Tax,and Schedule A (Form 990),Organization Exempt Under Section501(c)(3), in addition to Form 1041 if thetrusts gross receipts are normally morethan $25,000.

If a nonexempt charitable trust is nottreated as though it were a privatefoundation, and it has no taxable incomeunder Subtitle A, it can file either Form990 or Form 990-EZ instead of Form1041 to meet its section 6012 filingrequirement.

Section 4947(a)(2) TrustCheck this box if the trust is asplit-interest trust described in section4947(a)(2). A split-interest trust is a trustthat is not exempt from tax undersection 501(a); has some unexpiredinterests that are devoted to purposesother than religious, charitable, or similarpurposes described in section170(c)(2)(B); and has amountstransferred in trust after May 26, 1969,for which a deduction was allowedunder section 170 (for individualtaxpayers) or similar Code section forpersonal holding companies, foreign

personal holding companies, or estatesor trusts (including a deduction forestate or gift tax purposes).

The fiduciary of a split-interest trustmust also file Form 5227 (for amountstransferred in trust after May 26, 1969);and Form 1041-A if the trusts governinginstrument does not require that all ofthe trusts income be distributedcurrently.

If a split-interest trust has anyunrelated business taxable income,


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however, it must file Form 1041 to reportall of its income and to pay any tax due.

Nonexempt Charitable TrustTreated as a Private Foundation

If a nonexempt charitable trust is treatedas though it were a private foundationunder section 509, then the fiduciarymust file Form 990-PF, Return of PrivateFoundation, in addition to Form 1041.

If a nonexempt charitable trust issubject to any of the private foundation

excise taxes, then it must also file Form4720, Return of Certain Excise Taxes onCharities and Other Persons UnderChapters 41 and 42 of the InternalRevenue Code. Any private foundationtaxes paid by the trust cannot be takenas a deduction on Form 1041.

If a nonexempt charitable trust istreated as though it were a privatefoundation, and it has no taxable incomeunder Subtitle A, it may file Form990-PF instead of Form 1041 to meet itssection 6012 filing requirement.

F. Initial Return, Amended

Return, Final Return; orChange in Fiduciarys Nameor Address

Amended Return

If you are filing an amended Form 1041,check the Amended return box.Complete the entire return, correct theappropriate line(s) with the newinformation, and refigure the estates ortrusts tax liability. On an attached sheetexplain the reason for the amendment(s)and identify the line(s) and amount(s)being changed on the amended return.

If the amended return results in achange to income, or a change indistribution of any income or otherinformation provided to a beneficiary, anamended Schedule K-1 (Form 1041)must also be filed with the amendedForm 1041 and given to eachbeneficiary. Check the Amended K-1box at the top of the amended ScheduleK-1.

Final Return

Check this box if this is a final returnbecause the estate or trust hasterminated. Also, check the Final K-1box at the top of Schedule K-1.

If there is an unused capital losscarryover, net operating loss carryover,or excess deductions on the final return,see the discussion in the Schedule K-1instructions on page 28. Figure thedeductions on an attached sheet.

G. Pooled Mortgage AccountIf you bought a pooled mortgageaccount during the year, and still havethat pool at the end of the tax year,check the Bought box and enter thedate of purchase.

If you sold a pooled mortgage accountthat was purchased during this, or aprevious, tax year, check the Sold boxand enter the date of sale.

If you neither bought nor sold apooled mortgage account, skip this item.

Income

Special Rule for Blind Trust

If you are reporting income from aqualified blind trust (under the Ethics in

Government Act of 1978), do not identifythe payer of any income to the trust butcomplete the rest of the return asprovided in the instructions. Also writeBlind Trust at the top of page 1.

Line 1Interest Income

Report the estates or trusts share of alltaxable interest income that wasreceived during the tax year. Examplesof taxable interest include interest from:

Accounts (including certificates ofdeposit and money market accounts)with banks, credit unions, and thrifts.

Notes, loans, and mortgages.

U.S. Treasury bills, notes, and bonds. U.S. savings bonds.

Original issue discount.

Income received as a regular interestholder of a real estate mortgageinvestment conduit (REMIC).

For taxable bonds acquired after1987, amortizable bond premium istreated as an offset to the interestincome instead of as a separate interestdeduction. See Pub. 550.

For the year of the decedents death,Forms 1099-INT issued in thedecedents name may include interest

income earned after the date of deaththat should be reported on the incometax return of the decedents estate.When preparing the decedents finalincome tax return, report on line 1 ofSchedule B (Form 1040) or Schedule 1(Form 1040A) the total interest shown onForm 1099-INT. Under the last entry online 1, subtotal all the interest reportedon line 1. Below the subtotal, writeForm 1041 and the name and addressshown on Form 1041 for the decedentsestate. Also, show the part of theinterest reported on Form 1041 andsubtract it from the subtotal.

Line 2DividendsReport the estates or trusts share of allordinary dividends received during thetax year.

For the year of the decedents death,Forms 1099-DIV issued in thedecedents name may include dividendsearned after the date of death thatshould be reported on the income taxreturn of the decedents estate. Whenpreparing the decedents final incometax return, report on line 5 of ScheduleB (Form 1040) or Schedule 1 (Form

1040A) the total dividends shown onForm 1099-DIV. Under the last entry online 5, subtotal all the dividends reportedon line 5. Below the subtotal, writeForm 1041 and the name and addressshown on Form 1041 for the decedentsestate. Also, show the part of thedividends reported on Form 1041 andsubtract it from the subtotal.

Note: Report capital gain distributionson Schedule D (Form 1041), line 10.

Line 3Business Income or (Loss)

If the estate or trust operated abusiness, report the income andexpenses on Schedule C (Form 1040),Profit or Loss From Business (orSchedule C-EZ (Form 1040), Net ProfitFrom Business). Enter the net profit or(loss) from Schedule C (or ScheduleC-EZ) on line 3.

Line 4Capital Gain or (Loss)

Enter the gain from Schedule D (Form1041), Part III, line 17, column (c); or theloss from Part IV, line 18.

Note: Do not substitute Schedule D

(Form 1040) for Schedule D (Form1041).

Line 5Rents, Royalties,Partnerships, Other Estates andTrusts, etc.

Use Schedule E (Form 1040),Supplemental Income and Loss, toreport the estates or trusts share ofincome or (losses) from rents, royalties,partnerships, S corporations, otherestates and trusts, and REMICs. Enterthe net profit or (loss) from Schedule Eon line 5. See the instructions forSchedule E (Form 1040) for reportingrequirements.

If the estate or trust received aSchedule K-1 from a partnership, Scorporation, or other flow-through entity,use the corresponding lines on Form1041 to report the interest, dividends,capital gains, etc., from the flow-throughentity.

Line 6Farm Income or (Loss)

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

Line 7Ordinary Gain or (Loss)Enter from line 20, Form 4797, Sales ofBusiness Property, the ordinary gain orloss from the sale or exchange ofproperty other than capital assets andalso from involuntary conversions (otherthan casualty or theft).

Line 8Other Income

Enter other items of income not includedon lines 1 through 7. List the type andamount on an attached schedule if theestate or trust has more than one item.


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Items to be reported on line 8 include:

Unpaid compensation received by thedecedents estate that is income inrespect of a decedent.

Any part of a total distribution shownon Form 1099-R, Distributions FromPensions, Annuities, Retirement orProfit-Sharing Plans, IRAs, InsuranceContracts, etc., that is treated asordinary income. For more information,see the separate instructions for Form4972, Tax on Lump-Sum Distributions.

Deductions

Amortization, Depletion, andDepreciation

A trust or decedents estate is allowed adeduction for amortization, depletion,and depreciation only to the extent thedeductions are not apportioned to thebeneficiaries.

For a decedents estate, thedepreciation deduction is apportionedbetween the estate and the heirs,legatees, and devisees on the basis ofthe estates income allocable to each.

For a trust, the depreciation deductionis apportioned between the incomebeneficiaries and the trust on the basisof the trust income allocable to each,unless the governing instrument (or locallaw) requires or permits the trustee tomaintain a depreciation reserve. If thetrustee is required to maintain a reserve,the deduction is first allocated to thetrust, up to the amount of the reserve.Any excess is allocated among thebeneficiaries in the same manner as thetrusts accounting income. SeeRegulations section 1.167(h)-1(b).

For mineral or timber property held by

a decedents estate, the depletiondeduction is apportioned between theestate and the heirs, legatees, anddevisees on the basis of the estatesincome from such property allocable toeach.

For mineral or timber property held intrust, the depletion deduction isapportioned between the incomebeneficiaries and the trust based on thetrust income from such propertyallocable to each, unless the governinginstrument (or local law) requires orpermits the trustee to maintain a reservefor depletion. If the trustee is required tomaintain a reserve, the deduction is first

allocated to the trust, up to the amountof the reserve. Any excess is allocatedamong the beneficiaries in the samemanner as the trusts accountingincome. See Regulations section1.611-1(c)(4).

The deduction for amortization isapportioned between an estate or trustand its beneficiaries under the sameprinciples for apportioning thedeductions for depreciation anddepletion.

An estate or trust is not allowed tomake an election under section 179 toexpense certain tangible property.

The deduction for the amortization ofreforestation expenditures under section194 is allowed only to an estate.

The estates or trusts share ofamortization, depletion, and depreciationshould be reported on the appropriatelines of Schedule C (or C-EZ), E, or F(Form 1040), the net income or loss fromwhich is shown on line 3, 5, or 6 of

Form 1041. If the deduction is notrelated to a specific business or activity,then report it on line 15a.

Allocation of Deductions forTax-Exempt Income

Generally, no deduction that wouldotherwise be allowable is allowed forany expense (whether for business or forthe production of income) that isallocable to tax-exempt income.Examples of tax-exempt income include:

Certain death benefits (section 101);

Interest on state or local bonds(section 103);

Compensation for injuries or sickness(section 104); and

Income from discharge ofindebtedness in a title 11 case (section108).

Exception. State income taxes andbusiness expenses that are allocable totax-exempt interest are deductible.

Expenses that are directly allocable totax-exempt income are allocated only totax-exempt income. A reasonableproportion of expenses indirectlyallocable to both tax-exempt incomeand other income must be allocated toeach class of income.

Deductions That May BeAllowable for Estate Tax Purposes

Administration expenses and casualtyand theft losses deductible on Form 706may be deducted, to the extentotherwise deductible for income taxpurposes, on Form 1041 if the fiduciaryfiles a statement waiving the right todeduct the expenses and losses onForm 706. The statement must be filedbefore the expiration of the statutoryperiod of limitations for the tax year thededuction is claimed. See Pub. 559 formore information.

Accrued Expenses

Generally, an accrual basis taxpayer candeduct accrued expenses in the tax yearthat: (a) all events have occurred thatdetermine the liability; and (b) theamount of the liability can be figuredwith reasonable accuracy. However, allthe events that establish liability aretreated as occurring only wheneconomic performance takes place.There are exceptions for recurring items.See section 461(h).

Limitations on Deductions

At-Risk Loss Limitations

Generally, the amount the estate or trusthas at risk limits the loss it can deductfor any tax year. Use Form 6198,At-Risk Limitations, to figure thedeductible loss for the year and file itwith Form 1041. For more information,get Pub. 925, Passive Activity andAt-Risk Rules.

Passive Activity Loss and CreditLimitations

Section 469 and the regulationsthereunder generally limit losses frompassive activities to the amount ofincome derived from all passiveactivities. Similarly, credits from passiveactivities are generally limited to the taxattributable to such activities. Theselimitations are first applied at the estateor trust level.

Generally, an activity is a passiveactivity if it involves the conduct of anytrade or business, and the taxpayerdoes not materially participate in the

activity. Passive activities do not includeworking interests in oil and gasproperties. See section 469(c)(3).

For a grantor trust, materialparticipation is determined at the grantorlevel.

Generally, rental activities are passiveactivities, whether or not the taxpayermaterially participates. However, certaintaxpayers who materially participate inreal property trades or businesses arenot subject to the passive activitylimitations on losses from rental realestate activities in which they materiallyparticipate. For more details, see section469(c)(7).

Note: Material participation standards forestates and trusts had not beenestablished by regulations at the timethese instructions went to print.

For tax years of an estate ending lessthan 2 years after the decedents date ofdeath, up to $25,000 of deductions anddeduction equivalents of credits fromrental real estate activities in which thedecedent actively participated isallowed. Any excess losses and/orcredits are suspended for the year andcarried forward.

If the estate or trust distributes aninterest in a passive activity, the basis ofthe property immediately before thedistribution is increased by the passiveactivity losses allocable to the interest;and such losses cannot be deducted.See section 469(j)(12).

Note: Losses from passive activities arefirst subject to the at-risk rules. Whenthe losses are deductible under theat-risk rules, the passive activity rulesthen apply.

Portfolio income is not treated asincome from a passive activity, andpassive losses and credits generally may


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not be applied to offset it. Portfolioincome generally includes interest,dividends, royalties, and income fromannuities. Portfolio income of an estateor trust must be accounted forseparately. See Form 8582, PassiveActivity Loss Limitations, to figure theamount of losses allowed from passiveactivities. See Form 8582-CR, PassiveActivity Credit Limitations, to computethe amount of credit allowed for thecurrent year.

Transactions Between RelatedTaxpayers

Under section 267, a trust that uses theaccrual method of accounting may onlydeduct business expenses and interestowed to a related party in the year thepayment is included in the income of therelated party. For this purpose, a relatedparty includes:

1. A grantor and a fiduciary of anytrust;

2. A fiduciary of a trust and a fiduciaryof another trust, if the same person is agrantor of both trusts;

3. A fiduciary of a trust and abeneficiary of such trust;

4. A fiduciary of a trust and abeneficiary of another trust, if the sameperson is a grantor of both trusts; and

5. A fiduciary of a trust and acorporation more than 50% in value ofthe outstanding stock of which isowned, directly or indirectly, by or for thetrust or by or for a person who is agrantor of the trust.

Line 10Interest

Enter the amount of interest (subject tolimitations) paid or incurred by the estate

or trust on amounts borrowed by theestate or trust, or on debt acquired bythe estate or trust (e.g., outstandingobligations from the decedent) that isnot claimed elsewhere on the return.

If the proceeds of a loan were usedfor more than one purpose (e.g., topurchase a portfolio investment and toacquire an interest in a passive activity),the fiduciary must make an interestallocation according to the rules inTemporary Regulations section 1.163-8T.

Do not include interest paid onindebtedness incurred or continued topurchase or carry obligations on whichthe interest is wholly exempt fromincome tax.

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

Revolving charge accounts.

Personal notes for money borrowedfrom a bank, credit union, or otherperson.

Installment loans on personal useproperty.

Underpayments of Federal, state, orlocal income taxes.

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

Types of interest to include on line 10are:

1. Any investment interest (subject tolimitations);

2. Any qualified residence interest;and

3. Any interest payable under section6601 on any unpaid portion of the estatetax attributable to the value of areversionary or remainder interest inproperty, or an interest in a closely heldbusiness for the period during which anextension of time for payment of suchtax is in effect.

Investment interest.Generally,investment interest is interest (includingamortizable bond premium on taxablebonds acquired after October 22, 1986,but before January 1, 1988) that is paid

or incurred on indebtedness that isproperly allocable to property held forinvestment. Investment interest does notinclude any qualified residence interest,or interest that is taken into accountunder section 469 in computing incomeor loss from a passive activity.

Generally, net investment income isthe excess of investment income overinvestment expenses. Investmentexpenses are those expenses (otherthan interest) allowable after applicationof the 2% floor on miscellaneousitemized deductions.

The amount of the investment interest

deduction may be limited. Use Form4952, Investment Interest ExpenseDeduction, to figure the allowableinvestment interest deduction.

If Form 4952 is required to becompleted, check the box on line 10and attach Form 4952. Then add thedeductible investment interest to theother types of deductible interest andenter the total on line 10.

Qualified residence interest.Interestpaid or incurred by an estate or trust onindebtedness secured by a qualifiedresidence of a beneficiary of an estate ortrust is treated as qualified residenceinterest if the residence would be aqualified residence (i.e., the principalresidence or the second residenceselected by the beneficiary) if owned bythe beneficiary. The beneficiary musthave a present interest in the estate ortrust or an interest in the residuary ofthe estate or trust. See Pub. 936, HomeMortgage Interest Deduction, for anexplanation of the general rules fordeducting home mortgage interest.

See section 163(h)(3) for a definition ofqualified residence interest and forlimitations on indebtedness.

Line 11Taxes

Enter any deductible taxes paid orincurred during the tax year that are notdeductible elsewhere on Form 1041.

Deductible taxes include:

State and local income or realproperty taxes.

The generation-skipping transfer (GST)tax imposed on income distributions.

Do not deduct:

Federal income taxes.

Estate, inheritance, legacy,succession, and gift taxes.

Federal duties and excise taxes.

State and local sales taxes. Instead,treat these taxes as part of the cost ofthe property.

Line 12Fiduciary Fees

Enter the deductible fees paid orincurred to the fiduciary foradministering the estate or trust duringthe tax year.

Note: Fiduciary fees deducted on Form706 cannot be deducted on Form 1041.

Line 15aOther Deductions NOTSubject to the 2% Floor

Attach your own schedule, listing bytype and amount, all allowabledeductions that are not deductibleelsewhere on Form 1041.

Do not include any losses onworthless bonds and similar obligationsand nonbusiness bad debts. Reportthese losses on Schedule D (Form1041).

Do not deduct medical or funeralexpenses on Form 1041. Medicalexpenses of the decedent paid by theestate may be deductible on thedecedents income tax return for theyear incurred. See section 213(c).Funeral expenses are deductible ONLYon Form 706.

The following are examples ofdeductions that are reported on line 15a.

Bond premium(s).For taxable bondsacquired before October 23, 1986, if thefiduciary elected to amortize thepremium, report the amortization on thisline. For tax-exempt bonds, theamortization cannot be deducted. In allcases where the fiduciary has made anelection to amortize the premium, thebasis must be reduced by the amount of

amortization.For more information, see section 171

and Pub. 550.

If you claim a bond premiumdeduction for the estate or trust, figurethe deduction on a separate sheet andattach it to Form 1041.

Casualty and theft losses.Use Form4684, Casualties and Thefts, to figureany deductible casualty and theft losses.

Deduction for clean-fuel vehicles.Section 179A allows a deduction for part


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of the cost of qualified clean-fuel vehicleproperty. Get Pub. 535, BusinessExpenses, for more details.

Net operating loss deduction(NOLD).An estate or trust is allowedthe net operating loss deduction (NOLD)under section 172.

If you claim an NOLD for the estate ortrust, figure the deduction on a separatesheet and attach it to this return.

Estates or trusts share ofamortization, depreciation, and

depletion not claimed elsewhere.Ifyou cannot deduct the amortization,depreciation, and depletion as rent orroyalty expenses on Schedule E (Form1040), or as business or farm expenseson Schedule C, C-EZ, or F (Form 1040),itemize the fiduciarys share of thedeductions on an attached sheet. Theninclude them on line 15a. Itemize eachbeneficiarys share of the deductionsand report them on the appropriate lineof Schedule K-1 (Form 1041).

Line 15bAllowableMiscellaneous ItemizedDeductions Subject to the 2%Floor

Miscellaneous itemized deductions aredeductible only to the extent that theaggregate amount of such deductionsexceeds 2% of adjusted gross income(AGI).

Miscellaneous itemized deductions donot include deductions for:

Interest under section 163.

Taxes under section 164.

The amortization of bond premiumunder section 171.

Estate taxes attributable to income inrespect of a decedent under section691(c).

For other exceptions, see section67(b).

For estates and trusts, the AGI iscomputed by subtracting the followingfrom total income on line 9 of page 1:

1. The administration costs of theestate or trust (the total of lines 12, 14,and 15a to the extent they are costsincurred in the administration of theestate or trust) that would not have beenincurred if the property were NOT heldby the estate or trust;

2. The income distribution deduction

(line 18);3. The amount of the exemption (line20);

4. The deduction for clean-fuelvehicles claimed on line 15a; and

5. The net operating loss deductionclaimed on line 15a.

For those estates and trusts whoseincome distribution deduction is limitedto the actual distribution, and NOT theDNI (i.e., the income distribution is lessthan the DNI), when computing the AGI,

use the amount of the actualdistribution.

For those estates and trusts whoseincome distribution deduction is limitedto the DNI (i.e., the actual distributionexceeds the DNI), the DNI must befigured taking into account the allowablemiscellaneous itemized deductions(AMID) after application of the 2% floor.In this situation there are two unknownamounts: (a) the AMID; and (b) the DNI.

The following example illustrates how

an algebraic equation can be used tosolve for these unknown amounts:

The Malcolm Smith Trust, a complextrust, earned $20,000 of dividendincome, $20,000 of capital gains, and afully deductible $5,000 loss from XYZpartnership (chargeable to corpus) in1994. The trust instrument provides thatcapital gains are added to corpus. 50%of the fiduciary fees are allocated toincome and 50% to corpus. The trustclaimed a $2,000 deduction on line 12 ofForm 1041. The trust incurred $1,500 ofmiscellaneous itemized deductions(chargeable to income), which aresubject to the 2% floor. There are noother deductions. The trustee made adiscretionary distribution of theaccounting income of $17,500 to thetrusts sole beneficiary.

Because the actual distribution canreasonably be expected to exceed theDNI, the trust must compute the DNI,taking into account the allowablemiscellaneous itemized deductions, todetermine the amount to enter on line15b.

The trust also claims an exemption of$100 on line 20.

To compute line 15b, use the equationbelow:

AMID = total miscellaneous itemizeddeductions (.02(AGI))

In the above example:

AMID = 1,500 (.02(AGI))

In all situations, use the followingequation to compute the AGI:

AGI = (line 9) (the total of lines 12,14, and 15a to the extent they are costsincurred in the administration of theestate or trust that would not have beenincurred if the property were NOT heldby the estate or trust) (line 18) (line20) Note: There are no other deductionsclaimed by the trust on line 15a that are

deductible in arriving at AGI.In the above example:

AGI = 35,000 2,000 DNI 100

Since the value of line 18 is notknown because it is limited to the DNI,you are left with the following:

AGI = 32,900 DNI

Substitute the value of AGI in theequation:

AMID = 1,500 (.02(32,900 DNI))

The equation cannot be solved untilthe value of DNI is known. The DNI can

be expressed in terms of the AMID. Todo this, compute the DNI using theknown values. In this example, the DNIis equal to the total income of the trust(less any capital gains allocated tocorpus; or plus any capital loss from line4); less total deductions from line 16(excluding any miscellaneous itemizeddeductions); less the AMID.

Thus, DNI = (line 9) (line 17, column(b) of Schedule D (Form 1041)) (line 16)

(AMID)

Substitute the known values:DNI = 35,000 20,000 2,000 AMID

DNI = 13,000 AMID

Substitute the value of DNI in theequation to solve for AMID:

AMID = 1,500 (.02(32,900 (13,000 AMID)))

AMID = 1,500 (.02(32,900 13,000 +AMID))

AMID = 1,500 (658 260 + .02AMID)

AMID = 1,102 .02AMID

1.02AMID = 1,102

AMID = 1,080

DNI = 11,920 (i.e., 13,000 1,080)

AGI = 20,980 (i.e., 32,900 11,920)

Note: The income distr ibution deductionis equal to the smaller of the distribution($17,500) or the DNI ($11,920).

Enter the value of AMID on line 15b(the DNI should equal line 9 of ScheduleB) and complete the rest of Form 1041according to the instructions.

If the 2% floor is more than thedeductions subject to the 2% floor, nodeductions are allowed.

Line 18Income Distribution

DeductionIf the estate or trust was required todistribute income currently or if it paid,credited, or was required to distributeany other amounts to beneficiariesduring the tax year, complete ScheduleB to determine the estates or trustsincome distribution deduction. However,if you are filing for a pooled incomefund, do not complete Schedule B.Instead, attach a statement to supportthe computation of the incomedistribution deduction. If the estate ortrust claims an income distrubutiondeduction, complete and attach:

Parts I and II of Schedule H to refigurethe deduction on a minimum tax basis;AND

Schedule K-1 (Form 1041) for eachbeneficiary to which a distribution wasmade or required to be made.

Cemetery perpetual care fund.Online 18, deduct the amount, not morethan $5 per gravesite, paid formaintenance of cemetery property. Tothe right of the entry space for line 18,enter the number of gravesites. Alsowrite Section 642(i) trust in


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parentheses after the trusts name at thetop of Form 1041. You do not have tocomplete Schedules B of Form 1041and K-1 (Form 1041).

Line 19Estate Tax Deduction(Including Certain Generation-Skipping Transfer Taxes)

If the estate or trust includes income inrespect of a decedent (IRD) in its grossincome, and such amount was includedin the decedents gross estate for estate

tax purposes, the estate or trust isallowed to deduct in the same tax yearthat portion of the estate tax imposedon the decedents estate that isattributable to the inclusion of the IRD inthe decedents estate. For an exampleof the computation, see Regulationssection 1.691(c)-1 and Pub. 559.

If any amount properly paid, credited,or required to be distributed by anestate or trust to a beneficiary consistsof IRD received by the estate or trust,do not include such amounts indetermining the estate tax deduction forthe estate or trust. Figure the deductionon a separate sheet. Attach the sheet toyour return. Also, a deduction is allowedfor the GST tax imposed as a result of ataxable termination, or a direct skipoccurring as a result of the death of thetransferor. See section 691(c)(3). Enterthe estates or trusts share of thesedeductions on line 19.

Line 20Exemption

Decedents estates.A decedentsestate is allowed a $600 exemption.

Trusts.A trust whose governinginstrument requires that all income bedistributed currently is allowed a $300exemption, even if it distributed amounts

other than income during the tax year.All other trusts are allowed a $100exemption. See Regulations section1.642(b)-1.

Tax and Payments

Line 22Taxable Income

Net operating loss.If line 22 is a loss,the estate or trust may have a netoperating loss (NOL). Do not include thedeductions claimed on lines 13, 18, and20 when figuring the amount of theNOL. An NOL generally may be carriedback to the 3 prior tax years and

forward to the following 15 tax years.Complete Schedule A of Form 1045,Application for Tentative Refund, tofigure the amount of the NOL that isavailable for carryback or carryover. UseForm 1045 or file an amended return toapply for a refund based on an NOLcarryback. For more information, getPub. 536, Net Operating Losses. On thetermination of the estate or trust, anyunused NOL carryover that would beallowable to the estate or trust in a latertax year, but for the termination, isallowed to the beneficiaries succeeding

to the property of the estate or trust.See the instructions for Schedule K-1,lines 12d and 12e.

Excess deductions on termination.Ifthe estate or trust has for its final yeardeductions (excluding the charitablededuction and exemption) in excess ofits gross income, the excess is allowedas an itemized deduction to thebeneficiaries succeeding to the propertyof the estate or trust. However, anunused NOL carryover that is allowed to

beneficiaries (as explained in the aboveparagraph) cannot also be treated as anexcess deduction. If the final year of theestate or trust is also the last year of theNOL carryover period, the NOLcarryover not absorbed in that tax yearby the estate or trust is included as anexcess deduction. See the instructionsfor Schedule K-1, line 12a.

Line 24a1994 Estimated TaxPayments and Amount AppliedFrom 1993 Return

Enter the amount of any estimated taxpayment you made with Form 1041-ESfor 1994 plus the amount of anyoverpayment from the 1993 return thatwas applied to the 1994 estimated tax.

If the estate or trust is the beneficiaryof another trust, and received a paymentof estimated tax that was credited to thetrust (as reflected on the Schedule K-1issued to the trust), then report thisamount separately with the notationsection 643(g) in the space next to line24a.

Note: Do not include on Form 1041estimated tax paid by an individualbefore death. Instead, include thepayments on the decedents final Form1040.

Line 24bEstimated TaxPayments Allocated toBeneficiaries

The trustee (or executor, for the finalyear of the estate) may elect undersection 643(g) to have any portion of itsestimated tax treated as a payment ofestimated tax made by a beneficiary orbeneficiaries. The election is made onForm 1041-T, Allocation of EstimatedTax Payments to Beneficiaries, whichmust be filed by the 65th day after theclose of the trusts tax year. Form1041-T shows the amounts to be

allocated to each beneficiary. Thisamount is reported on the beneficiarysSchedule K-1, line 13a.

Failure to file Form 1041-T by the duedate (March 6, 1995, for calendar yearestates and trusts) will result in aninvalid election. An invalid election willrequire the filing of amended SchedulesK-1 for each beneficiary who wasallocated a payment of estimated tax.Be sure to attach Form 1041-T to yourreturn ONLY if you have not yet filed it. If

you have already filed Form 1041-T, donot attach a copy to your return.

Line 24dTax Paid With Extensionof Time To File

If you filed either Form 2758 (for estatesonly), Form 8736, or Form 8800 torequest an extension of time to file Form1041, enter the amount that you paidwith the extension request and checkthe appropriate box(es).

Line 24eFederal Income TaxWithheld

Use line 24e to claim a credit for anyFederal income tax withheld (and notrepaid) by: (a) an employer on wagesand salaries of a decedent received bythe decedents estate; (b) a payer ofcertain gambling winnings (e.g., statelottery winnings); or (c) a payer ofdistributions from pensions, annuities,retirement or profit-sharing plans, IRAs,insurance contracts, etc., received by adecedents estate or trust. Attach a copyof Form W-2, Form W-2G, or Form1099-R.

Backup withholding.If the estate ortrust received a 1994 Form 1099showing Federal income tax withheld(i.e., backup withholding) on interestincome, dividends, or other income,check the box and include the amountwithheld on income retained by theestate or trust in the total for line 24e.

Report on Schedule K-1 (Form 1041),line 13, any credit for backupwithholding on income distributed to thebeneficiary.

Line 24fCredit From RegulatedInvestment Companies

Attach copy B of Form 2439, Notice toShareholder of Undistributed Long-TermCapital Gains.

Line 24gCredit for Federal Taxon Fuels

Include any credit for Federal excisetaxes paid on fuels that are ultimatelyused for nontaxable purposes (e.g., anoff-highway business use) and any creditfor the purchase of a diesel-poweredcar, van, or light truck. Attach Form4136, Credit for Federal Tax Paid onFuels. Get Pub. 378, Fuel Tax Creditsand Refunds, for more information.

Line 26Underpayment ofEstimated Tax

If line 27 is at least $500 and more than10% of the tax shown on Form 1041, orthe estate or trust underpaid its 1994estimated tax liability for any paymentperiod, it may owe a penalty. See Form2210 to determine whether the estate ortrust owes a penalty, and to figure theamount of the penalty.

Note: The penalty may be waived undercertain conditions. GetPub. 505, Tax


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Withholding and Estimated Tax, fordetails.

Line 27Tax Due

You must pay the tax in full when thereturn is filed. Make the check or moneyorder payable to Internal RevenueService. Write the EIN and 1994 Form1041 on the payment. Enclose, but donot attach, the payment with Form 1041.

Line 29aCredit to 1995Estimated Tax

Enter the amount from line 28 that youwant applied to the estates or trusts1995 estimated tax.

Schedule ACharitableDeduction

General InstructionsGenerally, any part of the gross incomeof an estate or trust (other than a simpletrust) that, under the terms of the will orgoverning instrument, is paid (or treated

as paid) during the tax year for acharitable purpose specified in section170(c) is allowed as a deduction to theestate or trust. It is not necessary thatthe charitable organization be created ororganized in the United States.

Trusts that claim a charitablededuction must also file Form 1041-A.See Form 1041-A for exceptions.

A pooled income fund, nonexemptprivate foundation, or trust withunrelated business income should attacha

us internal revenue service: i1041--1994

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