Tax Reporting for Grantor Trusts: Utilizing Optional Methods in Treas Regs 1.671-4(b); SLATs, GRATs, QPRTs, and IDGTs

Trusts typically file a Form 1041, U.S. Income Tax Return for Estates and Trusts. Grantor trusts, however, are not considered separate entities for federal income tax purposes and do not in all situations require separate reporting. Treasury Regulation 1.671-4(b) provides three optional reporting methods for grantor trusts that the trustee can utilize for income tax reporting. A one-owner trust can choose between two optional methods. A trust with multiple grantors cannot avail itself under either of the first two options, including option 1, which "is the easiest and least burdensome way to meet your obligations," as described by the IRS.

Adding to the reporting complexity is the nature of the trust itself. Spousal lifetime access trusts (SLATs), grantor retained annuity trusts (GRATs), qualified personal residence trusts (QPRTs), and other grantor trusts each have particular reporting nuances. For example, transferring a residence to a Qualified Personal Residence Trust (QPRT) requires filing a federal gift tax return. Similarly, transferring assets to a GRAT requires filing Form 709. Both QPRTs and GRATs facilitate the removal of assets expected to appreciate significantly from an estate. Any income earned by the GRAT is reported on the donor's individual income tax return, while a QPRT likely has no income to report. However, the real estate tax deduction would flow through to the grantor. Trust and estate advisers working with grantor trusts need to understand how to properly report income, expenses, and transfers of assets for these trusts.

Listen as our panel of trust and estate experts explains how to best comply with the numerous grantor trust reporting responsibilities.

1. Grantor trusts: introduction
2. Types of grantor trusts, including SLATs, GRATs, QPRTs, and IDGTs, and use of grantor trusts in advanced estate planning
3. Income tax reporting issues, including optional reporting methods, changing reporting methods, death of the grantor, S Corp eligibility, and trust decanting
4. Gift and GST tax reporting issues
5. Examples
6. Best practices

The panel will review these and other critical issues:

• Income and transfer tax issues applicable to grantor trusts
• Properly reporting grantor trust income and expenses under Optional Method 1 of Treasury Regulation 1.671-4(b)
• When an EIN is and is not required for a grantor trust
• Satisfying income tax reporting obligations for grantor trusts without filing Form 1041
• Examples of reporting income and expenses from specific grantor trusts to grantors

Learning Objectives

After completing this course, you will be able to:

• Identify types of grantor trusts
• Determine when a grantor trust should obtain an EIN
• Decide what additional reporting responsibilities exist for GRATs
• Ascertain why Option 1 under Treasury Regulation 1.671-4(b) is more often used than Option 2

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of estate, gift and trust taxation including various trusts types, the unified credit, and portability.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).