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Form 1041 (Schedule I) online Naperville Illinois: What You Should Know

How does a trust qualify for the special distribution deduction? In order for the trust to receive the special distribution deduction, certain conditions must be met: (1) The taxpayer must own 50% or more of the assets of the trust at the time the trust files the return. (2) The trust does not qualify as a qualified endowment and the assets are at least 250,000. (3) The trust must be a qualified plan or arrangement described in section 457(b) of the Internal Revenue Code. In addition, the trust must meet the following requirements: (A) The trust has qualified assets worth more than 250,000 based on the fair market value of the trust assets at the time of tax-filing. (B) The trust is not a qualified endowment and the assets are at least 250,000. The trust meets one of the following tests in its Form 1023: (i) It is a charitable remainder unit rust (CRUTCH). As used in this test, charitable remainder unit rust means a trust that provides income or qualified assets to qualified beneficiaries or a trust that disposes of taxable income or qualified assets to pay qualified beneficiaries' trust expenses. For a general description of CRUTCH programs, refer to the Guidance Note for the General Guidelines for Trusts and Restricted Entities in the General Instructions for Certain Information Returns. (ii) It is the qualified property of a qualified entity (e.g., an educational trust or the U.S. military). (iii) It is a defined contribution plan under § 403(b) of the Internal Revenue Code. If any of the conditions mentioned in (B-A) of this subparagraph (c)(2)(ii) are met, the trust will be entitled to a special allocation of the special distribution deduction. If these four conditions are not met, the trust will not receive a special allocation of the special distribution deduction. (D) The trust is not terminated or discontinued. The trust will be treated as continuing in existence if: (1) There is a qualified trust in the same decedent's estate; or (2) There was a distribution from the trust in the same decedent's estate within one year (or 10 years, if more than one year) immediately preceding the date of death or within the period of 5 years thereafter beginning on the taxable date. (E) The trust is not an income maintenance trust.

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