Instructions For Form 5227 (Page 4 of 8) in pdf

ordinary income. However, a loss in any

Substitute Forms

carrybacks and carryovers. See the

one category may be used to reduce

Additional Netting Rules, Ordering

You do not need prior IRS approval for

undistributed gain for earlier years within

Rules, and Carryover Rules for capital

substitute Schedules K-1 that follow the

that same category, and any excess may

gains below.

specifications in Pub. 1167, General Rule

•

be carried forward to reduce gain in future

Third, as nontaxable income to the

and Specifications for Substitute Tax

years within that same category.

extent of the trust’s nontaxable income for

Forms and Schedules, or that are an

the current year and undistributed

For information on reporting and

exact copy of an IRS Schedule K-1. Other

nontaxable income for prior years.

substitute Schedules K-1 require

recordkeeping for long-term capital gains,

•

see the worksheet below.

approval. You may apply for approval of a

Fourth, as a distribution of trust corpus.

substitute form by writing to:

For this purpose, “trust corpus” means the

Part III—Current

net fair market value of the trust assets

Internal Revenue Service

less the total undistributed income (but

Attention: Substitute Forms

Distributions Schedule

not loss) in each of the above categories.

Program Coordinator

You must give each recipient listed in Part

The accumulation distribution rules do

W:CAR:MP:FP:S:CS

III a Schedule K-1 (Form 1041) that

not apply to charitable remainder trusts.

1111 Constitution Avenue, NW

reflects that recipient’s current

distribution. Also, attach a copy of each

Washington, DC 20224

See Regulations section 1.664-1(d).

Schedule K-1 to Form 5227. See the

Inclusion of Amounts in

Specific Instructions for Schedule K-1

Additional Rules for Capital

(Form 1041) for more information.

Recipients’ Income

Gains and (Losses)

If there are two or more recipients, each

Beneficiary’s Identifying

Netting Rules

will be treated as receiving his or her pro

Number

rata share of the various classes of

Within each group, gains and losses are

As a payer of income, the trust is required

income or corpus.

netted to arrive at a net gain or loss. The

under section 6109 to request and

following additional netting rules apply:

provide a proper identifying number for

Amounts distributed by a charitable

1. A net long-term capital loss from

each recipient of income. Enter the

remainder annuity trust or a charitable

the 28% group first reduces net gain from

recipient’s number on the respective

remainder unitrust have the following

the 25% group, then reduces net gain

Schedule K-1. Individuals and business

characteristics in the hands of the

recipients are responsible for giving you

recipients:

from the Other 20% gain in the 20%

•

group and then any qualified 5-year gain

their taxpayer identification numbers upon

First, as ordinary income to the extent

in 20% group. A net loss from the 20%

request. You may use Form W-9,

of ordinary income for the current year

Request for Taxpayer Identification

group first reduces net gain from the 28%

and undistributed ordinary income for

Number and Certification, to request the

group, then reduces net gain from the

prior years of the trust. Ordinary income is

beneficiary’s identifying number.

25% group.

computed without regard to any net

operating loss deductions under section

2. A net short-term capital loss is first

Penalty. Under section 6723, the payer

172.

applied to reduce any net long-term

is charged a $50 penalty for each failure

•

capital gain from the 28% group, then to

to provide a required taxpayer

Second, as capital gains to the extent

reduce net gain from the 25% group, and

identification number, unless reasonable

of the trust’s undistributed capital gains.

finally to reduce net gain from any Other

cause is established for not providing it.

Undistributed capital gains of the trust are

20% gain in the 20% group and then any

Explain any reasonable cause in a signed

determined on a cumulative net basis

qualified 5-year gain in the 20% group.

affidavit and attach it to this return.

without regard to any capital loss

Capital Gains Distribution Worksheet

(keep for your records)

Use this worksheet to determine the ordering of any capital gains distributions

See the netting rules above.

Long-term

20% group

Short-term

28% group

25% group

Other 20%

Qualified 5-year

1. Prior years undistributed

gain or (loss) . . . . . . . .

2. Current year net gain or

(loss) . . . . . . . . . . . . .

3. Total combined gain or

(loss) by group . . . . . . .

4. Adjustments for netting

any long-term capital

(losses) on line 3 . . . . . .

5. Total . . . . . . . . . . . . . .

6. Adjustments for netting

any short-term capital

gain or (loss) on line 3

(see netting rules above)

7. Total undistributed gains

8. 2002 distributions . . . . .

9. Carryforward to 2003 (line

7 less line 8) . . . . . . . .

-4-

Instructions For Form 5227 Page 4

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