Instructions For Form 5227 (Page 5 of 12) in pdf

Amounts distributed by a charitable remainder annuity

Part II—Accumulation Schedule

trust or a charitable remainder unitrust have the following

Report the income (both current and cumulative

characteristics in the hands of the recipients:

•

undistributed income) of the trust for purposes of

First, as ordinary income to the extent of ordinary

determining the character of distributions in three

income for the current year and undistributed ordinary

categories:

income for prior years of the trust. Ordinary income is

computed without regard to any net operating loss

1. Ordinary income,

deductions under section 172. See the Ordering Rules on

2. Capital gains and losses, and

page 6.

3. Nontaxable income.

•

Second, as capital gains to the extent of the trust’s

undistributed capital gains. Undistributed capital gains of

A loss in any one of the three categories may not be

the trust are determined on a cumulative net basis

used to reduce a gain in any other category. For

without regard to any capital loss carrybacks and

example, a capital loss may not be used to reduce

carryovers. See the Netting Rules, Ordering Rules, and

ordinary income. However, a loss in any one category

Carryover Rules for capital gains below.

may be used to reduce undistributed gain for earlier

•

Third, as nontaxable income to the extent of the trust’s

years within that same category, and any excess may be

nontaxable income for the current year and undistributed

carried forward to reduce gain in future years within that

nontaxable income for prior years.

same category.

•

Fourth, as a distribution of trust corpus. For this

For information on recordkeeping for long-term capital

purpose, “trust corpus” means the net fair market value of

gains or ordinary income, see the worksheets on pages

the trust assets less the total undistributed income (but

11 and 12.

not loss) in each of the above categories.

The accumulation distribution rules do not apply to

Part III—Current Distributions

charitable remainder trusts.

Schedule

Additional Rules for Capital Gains and

You must give each recipient listed in Part III a Schedule

Losses

K-1 (Form 1041) that reflects that recipient’s current

distribution. Also, attach a copy of each Schedule K-1 to

Netting Rules

Form 5227. See the Specific Instructions for Schedule

Gains and losses are netted within each class to arrive at

K-1 (Form 1041) for more information.

a net gain or loss for that class. After you net within a

class, the following additional netting rules apply to the

Beneficiary’s Identifying Number

capital gains category.

As a payer of income, the trust is required under section

1. Among the long-term capital gain and loss classes:

6109 to request and provide a proper identifying number

a. A net loss from the 28% long-term capital gain

for each recipient of income. Enter the recipient’s number

class reduces net gains in the following order:

on the respective Schedule K-1. Individuals and business

•

First, gain from the section 1250 long-term capital

recipients are responsible for giving you their taxpayer

gain class, then

identification numbers upon request. You may use Form

•

Net gain from the all other long-term capital gain

W-9, Request for Taxpayer Identification Number and

class, and finally

Certification, to request the beneficiary’s identifying

•

Gain from the qualified 5-year long-term capital gain

number.

class.

Penalty. Under section 6723, the payer is charged a $50

b. A net loss from the all other long-term capital gain

penalty for each failure to provide a required taxpayer

class reduces net gains in the following order:

•

identification number, unless reasonable cause is

First, net gain from the 28% long-term capital gain

established for not providing it. Explain any reasonable

class, then

•

cause in a signed affidavit and attach it to this return.

Gain from the section 1250 long-term capital gain

class, and finally

Substitute Forms

•

Gain from the qualified 5-year long-term capital gain

You do not need prior IRS approval for substitute

class.

Schedules K-1 that follow the specifications in Pub. 1167,

2. A net short-term capital loss is applied to reduce

General Rules and Specifications for Substitute Forms

the net long-term capital gain classes as follows:

•

and Schedules, or that are an exact copy of an IRS

First, net gain from the 28% long-term capital gain

Schedule K-1. Other substitute Schedules K-1 require

class, then

•

approval. You may apply for approval of a substitute form

Gain from the section 1250 long-term capital gain

by writing to:

class, then

•

Internal Revenue Service

Net gain from the all other long-term capital gain

Attention: Substitute Forms

class, and finally

•

Program Coordinator

Gain from the qualified 5-year long-term capital gain

Room 6406

class.

SE:W:CAR:MP:T:T:SP

3. An overall net long-term capital loss reduces any

1111 Constitution Avenue, NW

net short-term capital gain.

Washington, DC 20224

Though the qualified 5-year gain provision has

Inclusion of Amounts in Recipients’ Income

been repealed for sales and other dispositions

If there are two or more recipients, each will be treated as

after May 5, 2003, these gains remain in a

CAUTION

receiving his or her pro rata share of the various classes

separate class because the 5-year gain provision is

of income or corpus.

scheduled to come back into existence in 2009.

-5-

Instructions For Form 5227 Page 5

Related Articles

Related forms

Related Categories